SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended December 31,
2010
Commission
File Number 0-16211
DENTSPLY International
Inc.
(Exact
name of registrant as specified in its charter)
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Delaware
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39-1434669
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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221 West Philadelphia Street, York,
PA
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17405-0872
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's
telephone number, including area code: (717) 845-7511
Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which
registered
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None
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Not
applicable
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Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, par value $.01 per share (Title of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes x No ¨
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes ¨ No x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No ¨
Indicate
by check mark whether the Registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
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):
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Large
accelerated filer x
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Accelerated
filer ¨
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Non-accelerated
filer ¨
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Smaller
reporting company ¨
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes ¨ No x
The
aggregate market value of the voting common stock held by non-affiliates of the
registrant computed by reference to the closing price as of the last business
day of the registrants most recently completed second quarter June 30, 2010, was
$4,482,457,185.
The
number of shares of the registrant's Common Stock outstanding as of the close of
business on February 14, 2011 was 142,145,313.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain
portions of the definitive Proxy Statement of DENTSPLY International Inc. (the
“Proxy Statement”) to be used in connection with the 2011 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K to
the extent provided herein. Except as specifically incorporated by
reference herein the Proxy Statement is not deemed to be filed as part of this
Form 10-K.
PART
I
Item
1. Business
Forward-Looking
Statements
The
nature and geographic scope of DENTSPLY International Inc.’s (“DENTSPLY” or the
“Company”) business subjects it to changing economic, competitive, regulatory
and technological risks and uncertainties. In accordance with the
“Safe Harbor” provisions of the Private Securities Litigation Reform Act of
1995, the Company provides the following cautionary remarks regarding important
factors, which, among others, could cause future results to differ materially
from the forward-looking statements, expectations and assumptions expressed or
implied herein. All forward-looking statements made by the Company are subject
to risks and uncertainties and are not guarantees of future performance. These
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the Company’s actual results, performance and
achievements, or industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. These statements are identified by the use of such
terms as “may,” “could,” “expect,” “intend,” “believe,” “plan,” “estimate,”
“forecast,” “project,” “anticipate” or words of similar expression.
Investors
are cautioned that forward-looking statements involve risks and uncertainties
which may materially affect the Company's business and prospects, and should be
read in conjunction with the risk factors and uncertainties discussed within
Item 1A, Part I of this Form 10-K. Investors are further cautioned that the risk
factors in Item 1A, Part I of this Form 10-K may not be exhaustive and that many
of these factors are beyond the Company’s ability to control or predict.
Accordingly, forward-looking statements should not be relied upon as a
prediction of actual results. The Company undertakes no duty and has no
obligation to update forward-looking statements.
History
and Overview
DENTSPLY,
a Delaware corporation which dates its history to 1899, believes it is the
world's largest designer, developer, manufacturer and marketer of a broad range
of professional dental products, with a primary focus on dental consumable
products, dental laboratory products and dental specialty
products. The Company's worldwide headquarters and executive
offices are located in York, Pennsylvania.
Consolidated
net sales, excluding precious metal content, of the Company's dental products
accounted for approximately 97% of DENTSPLY's consolidated net sales, excluding
precious metal content, for the year ended December 31, 2010. The remaining 3%
of consolidated net sales, excluding precious metal content, are related to
materials sold to the investment casting industry and various medical products.
The presentation of net sales, excluding precious metal content, is considered a
measure not calculated in accordance with generally accepted accounting
principles in the United States of America (“US GAAP”), and is therefore
considered a non-US GAAP measure. This non-US GAAP measure is discussed further
in “Management's Discussion and Analysis of Financial Condition and Results of
Operations” and a reconciliation of net sales to net sales, excluding precious
metal content, is provided.
Through
the year ended December 31, 2010, the Company conducted its business through
four operating segments, all of which were primarily engaged in the design,
manufacture and distribution of dental products in three principal categories:
1) dental consumable products, 2) dental laboratory products and 3) dental
specialty products.
In
addition to the United States (“U.S.”), the Company conducts its business in
over 120 foreign countries, principally through its foreign subsidiaries.
DENTSPLY has a long-established presence in Canada and in the European market,
particularly in Germany, Switzerland, France, Italy and the United Kingdom. The
Company also has a significant market presence in Central and South America,
South Africa and the Pacific Rim. DENTSPLY has also established marketing
activities in Moscow, Russia to serve the countries of the Commonwealth of
Independent States (“CIS”).
For 2010,
2009 and 2008, the Company's net sales, excluding precious metal content, to
customers outside the U.S., including export sales, accounted for approximately
63%, 62% and 62%, respectively, of consolidated net sales, excluding precious
metal content. Reference is made to the information about the Company's U.S. and
foreign sales by shipment origin set forth in Note 4, Segment and Geographic
Information, to the consolidated financial statements in this Form
10-K.
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Principal
Products
The
worldwide professional dental industry encompasses the diagnosis, treatment and
prevention of disease and ailments of the teeth, gums and supporting bone.
DENTSPLY's principal dental product categories are dental consumable products,
dental laboratory products and dental specialty products. These products are
produced by the Company in the U.S. and internationally and are distributed
throughout the world under some of the most well-established brand names and
trademarks in the industry, including ANKYLOS, AQUASIL, AQUASIL
ULTRA, CALIBRA, CAULK, CAVITRON, CERAMCO, CERCON, CITANEST, DELTON,
DENTSPLY, DETREY, DYRACT, ECLIPSE, ELEPHANT, ESTHET.X, FRIADENT, FRIALIT, GENIE,
GOLDEN GATE, IN-OVATION, INTERACTIVE MYSTIQUE, MAILLEFER, MIDWEST, NUPRO,
ORAQIX, PEPGEN P-15, POLOCAINE, PORTRAIT, PRIME & BOND, PROFILE,
PROTAPER, RINN, SANI-TIP, SHADEPILOT, STYLUS, SULTAN, SUREFIL, THERMAFIL,
TRUBYTE, XENO, XIVE, XYLOCAINE and ZHERMACK .
Dental Consumable
Products
Dental
consumable products consist of dental sundries and small equipment used in
dental offices for the treatment of patients. Net sales of dental consumable
products, excluding precious metal content, accounted for approximately 35%, 35%
and 34% of the Company’s consolidated net sales, excluding precious metal
content, for the years ended December 31, 2010, 2009 and 2008,
respectively.
DENTSPLY’s
dental sundry products in the dental consumable products category include dental
anesthetics, prophylaxis paste, dental sealants, impression materials,
restorative materials, tooth whiteners and topical fluoride. The Company
manufactures thousands of different dental sundry consumable products marketed
under more than one hundred brand names.
Small
equipment products in the dental consumable products category consist of various
durable goods used in dental offices for the treatment of patients. DENTSPLY’s
small equipment products include high and low speed handpieces, intraoral curing
light systems, dental diagnostic systems and ultrasonic scalers and
polishers.
Dental Laboratory
Products
Dental
laboratory products are used in the preparation of dental appliances by dental
laboratories. Net sales of dental laboratory products, excluding precious metal
content, accounted for approximately 16%, 17% and 18% of the Company’s
consolidated net sales, excluding precious metal content, for the years ended
December 31, 2010, 2009 and 2008, respectively.
DENTSPLY’s
products in the dental laboratory products category include dental prosthetics,
including artificial teeth, precious metal dental alloys, dental ceramics and
crown and bridge materials. Equipment in this category includes computer aided
machining (CAM) ceramic systems and porcelain furnaces.
Dental Specialty
Products
Dental
specialty products are specialized treatment products used within the dental
office and laboratory settings. Net sales of dental specialty products,
excluding precious metal content, accounted for approximately 46%, 45% and 45%
of the Company’s consolidated net sales, excluding precious metal content, for
the years ended December 31, 2010, 2009 and 2008, respectively. DENTSPLY’s
products in this category include endodontic (root canal) instruments and
materials, implants and related products, bone grafting materials, 3D digital
implantology and orthodontic appliances and accessories.
Markets,
Sales and Distribution
DENTSPLY
distributes approximately 55% of its dental products through domestic and
foreign distributors, dealers and importers. However, certain highly
technical products such as precious metal dental alloys, dental ceramics, crown
and bridge porcelain products, endodontic instruments and materials, orthodontic
appliances, implants, and bone substitute and grafting materials are sold
directly to the dental laboratory or dental professionals in some
markets. During 2010, 2009 and 2008, one customer, Henry Schein
Incorporated, a dental distributor, accounted for 11% of DENTSPLY’s consolidated
net sales. No other single customer represented ten percent or more
of DENTSPLY’s consolidated net sales during 2010, 2009 or 2008.
Reference
is made to the information about the Company's foreign and domestic operations
and export sales set forth in Note 4, Segment and Geographic Information, to the
consolidated financial statements in this Form 10-K.
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Although
many of its sales are made to distributors, dealers and importers, DENTSPLY
focuses its marketing efforts on the dentists, dental hygienists, dental
assistants, dental laboratories and dental schools who are the end-users of its
products. As part of this end-user “pull through” marketing approach,
DENTSPLY employs approximately 2,800 highly trained, product-specific sales and
technical staff to provide comprehensive marketing and service tailored to the
particular sales and technical support requirements of the distributors, dealers
and the end-users. The Company conducts extensive distributor, dealer
and end-user marketing programs. Additionally, the Company trains
laboratory technicians, dental hygienists, dental assistants and dentists in the
proper use of its products and introduces them to the latest technological
developments at its educational courses located throughout the
world. The Company also maintains ongoing relationships with various
dental associations and recognized worldwide opinion leaders in the dental
field, although there is no assurance that these influential dental
professionals will continue to support the Company’s products.
DENTSPLY
believes that demand in a given geographic market for dental procedures and
products vary according to the stage of social, economic and technical
development of the particular market. Geographic markets for
DENTSPLY's dental products can be categorized into the following two stages of
development:
The U.S.,
Canada, Western Europe, Japan, Australia and certain other countries are highly
developed markets that demand the most advanced dental procedures and products
and have the highest level of expenditures for dental care. In these
markets, dental care is increasingly focused upon preventive care and
specialized dentistry. In addition to basic procedures, such as
excavation of teeth and filling of cavities, tooth extraction and denture
replacement, dental professionals perform an increasing volume of preventive and
cosmetic procedures. These markets require varied and complex dental
products, utilize sophisticated diagnostic and imaging equipment and demand high
levels of attention to protect against infection and patient
cross-contamination.
In
certain countries in Central America, South America, Eastern Europe, Pacific
Rim, Middle East and Africa, most dental care is often limited to excavation of
teeth and filling of cavities and other restorative techniques, reflecting more
modest per capita expenditures for dental care. These markets demand
diverse products, such as high and low speed handpieces, restorative compounds,
finishing devices, custom restorative devices, basic surgical instruments,
bridgework and artificial teeth for dentures. However, there is also a portion
of the population in these markets that receive excellent dental care similar to
that received in developed countries and expect to receive the best dental care
available.
The
Company offers products and equipment for use in markets at both of these stages
of development. The Company believes that demand for more technically
advanced products will increase as each of these markets develop. The
Company also believes that its recognized brand names, high quality and
innovative products, technical support services and strong international
distribution capabilities position it well to take advantage of any
opportunities for growth in all of the markets that it serves.
The
Company believes that the market for its products will grow over the long-term
based on the following factors:
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Increasing worldwide
population.
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Growth of the population 65 or
older – The percentage of the U.S., European, Japanese and other regions
population over age 65 is expected to nearly double by the year
2030. In addition to having significant needs for dental care,
the elderly are well positioned to pay for the required procedures since
they control sizable amounts of discretionary
income.
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Natural teeth are being retained
longer – Individuals with natural teeth are much more likely to visit a
dentist in a given year than those without any natural teeth
remaining.
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The changing dental practice in
North America and Western Europe – Dentistry in North America and Western
Europe has been transformed from a profession primarily dealing with pain,
infections and tooth decay to one with increased emphasis on preventive
care and cosmetic dentistry.
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Per capita and discretionary
incomes are increasing in emerging nations – As personal incomes continue
to rise in the emerging nations of the Pacific Rim, CIS and Latin America,
healthcare, including dental services, are a growing
priority.
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The Company’s business is less
susceptible than other industries to general downturns in the economies in
which it operates. Many of the products the Company offers
relate to dental procedures that are considered necessary by patients
regardless of the economic environment. Dental specialty
products and products that support discretionary dental procedures are the
most susceptible to recessionary
conditions.
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Product
Development
Technological
innovation and successful product development are critical to strengthening the
Company’s prominent position in worldwide dental markets, maintaining its
leadership positions in product categories where it has a high market share and
increasing market share in product categories where gains are
possible. While many of DENTSPLY’s existing products undergo
evolutionary improvements, the Company also continues to focus efforts on
successfully launching innovative products that represent fundamental
change.
New
advances in technology are also anticipated to have a significant influence on
future products in dentistry. As a result, the Company pursues research
and development initiatives to support this technological development, including
collaborations with external research institutions and dental schools.
Through its own internal research centers as well as through its collaborations
with external research institutions and dental schools, the Company directly
invested $49.4 million, $50.3 million and $48.5 million for 2010, 2009 and 2008,
respectively, in connection with the development of new products, improvement of
existing products and advances in technology. The continued development of
these areas is a critical step in meeting the Company's strategic goal as a
leader in defining the future of dentistry. The year-over-year comparisons
for 2010 versus 2009 and 2009 versus 2008 were both impacted by foreign currency
translation which decreased the reported expense variations.
In
addition to the direct investment in product development and improvement, the
Company also invests in these activities through acquisitions, by entering into
licensing agreements and by purchasing technologies developed by third
parties.
Acquisition
Activities
DENTSPLY
believes that the dental products industry continues to experience consolidation
with respect to both product manufacturing and distribution, although it
continues to be fragmented creating a number of acquisition
opportunities. In 2010, the Company purchased an initial ownership
interest of 16% of the outstanding shares in DIO Corporation (“DIO”), a Korean
manufacturer of dental implants and various other dental devices and
materials. Additionally, in 2010, the Company purchased several small
distributors of dental specialty products and a small dental equipment
manufacturer. These businesses are located in Europe and in
Asia.
The
Company continues to view acquisitions as a key part of its growth
strategy. These acquisition activities are intended to supplement the
Company's core growth and assure ongoing expansion of its business, including
new technologies, additional products, and geographic breadth.
Operating
and Technical Expertise
DENTSPLY
believes that its manufacturing capabilities are important to its
success. The manufacturing process of the Company's products requires
substantial and varied technical expertise. Complex materials
technology and processes are necessary to manufacture the Company's
products. The Company continues to automate its global manufacturing
operations in order to lower costs.
Financing
DENTSPLY’s
cash, cash equivalents and short-term investments increased by $89.7 million
during the year ended December 31, 2010 to $540.1 million. DENTSPLY's
total long-term debt, including the current portion, at December 31, 2010 and
2009 was $606.5 million and $453.7 million, respectively, and the ratios of
long-term debt, including the current portion, to total capitalization were
24.1% and 16.9%. DENTSPLY defines total capitalization as the sum of
total long-term debt, including the current portion, plus total equity. The
Company’s long-term debt, including the current portion, increased by a net of
$152.8 million during the year ended December 31, 2010. This net change included
a net increase in borrowings of $126.5 million during the year ended 2010, plus
an increase of $26.3 million due to exchange rate fluctuations on debt
denominated in foreign currencies. The Company may incur additional
debt in the future, including, but not limited to, the funding of additional
acquisitions and capital expenditures.
Additional
information about DENTSPLY's working capital, liquidity and capital resources is
provided in “Management's Discussion and Analysis of Financial Condition and
Results of Operations” in this Form 10-K.
Competition
The
Company conducts its operations, both domestic and foreign, under highly
competitive market conditions. Competition in the dental products
industry is based primarily upon product performance, quality, safety and ease
of use, as well as price, customer service, innovation and acceptance by
professionals and technicians. DENTSPLY believes that its principal
strengths include its well-established brand names, its reputation for high
quality and innovative products, its leadership in product development and
manufacturing, its commitment to customer satisfaction and support of the
Company’s products by dental professionals.
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The size
and number of the Company's competitors vary by product line and from region to
region. There are many companies that produce some, but not all, of
the same types of products as those produced by the Company.
Regulation
The
Company's products are subject to regulation by, among other governmental
entities, the U.S. Food and Drug Administration (the “FDA”). In
general, if a dental “device” is subject to FDA regulation, compliance with the
FDA's requirements constitutes compliance with corresponding state
regulations. In order to ensure that dental products distributed for
human use in the U.S. are safe and effective, the FDA regulates the
introduction, manufacture, advertising, labeling, packaging, marketing and
distribution of, and record-keeping for, such products. The
introduction and sale of dental products of the types produced by the Company
are also subject to government regulation in the various foreign countries in
which they are produced or sold. DENTSPLY believes that it is in
substantial compliance with the FDA and foreign regulatory requirements that are
applicable to its products and manufacturing operations.
Dental
devices of the types sold by DENTSPLY are generally classified by the FDA into a
category that renders them subject only to general controls that apply to all
medical devices, including regulations regarding alteration, misbranding,
notification, record-keeping and good manufacturing practices. In the
European Union, DENTSPLY's products are subject to the medical devices laws of
the various member states, which are based on a Directive of the European
Commission. Such laws generally regulate the safety of the products
in a similar way to the FDA regulations. DENTSPLY products in Europe
bear the CE mark showing that such products adhere to the European
regulations.
All
dental amalgam filling materials, including those manufactured and sold by
DENTSPLY, contain mercury. Various groups have alleged that dental
amalgam containing mercury is harmful to human health and have actively lobbied
state and federal lawmakers and regulators to pass laws or adopt regulatory
changes restricting the use, or requiring a warning against alleged potential
risks, of dental amalgams. The FDA's Dental Devices Classification
Panel, the National Institutes of Health and the U.S. Public Health Service have
each indicated that no direct hazard to humans from exposure to dental amalgams
has been demonstrated. In response to concerns raised by certain
consumer groups regarding dental amalgam, the FDA formed an advisory committee
in 2006 to review peer-reviewed scientific literature on the safety of dental
amalgam. In July 2009, the FDA concluded its review of dental
amalgam, confirming its use as a safe and effective restorative
material. Also, as a result of this review, the FDA classified
amalgam and its component parts, elemental mercury and powder alloy, as a Class
II medical device. Previously there was no classification for
encapsulated amalgam and dental mercury (Class I) and alloy (Class II) were
classified separately. This new regulation places encapsulated
amalgam in the same class of devices as most other restorative materials,
including composite and gold fillings. After the FDA issued this
regulation, several petitions were filed asking the FDA to reconsider its
position. Another advisory panel was established by the FDA to
consider these petitions. Hearings of the advisory panel were held in
December 2010. The FDA has taken no action, as of the filing date of
this Form 10-K, from this latest advisory panel meeting.
In
Europe, particularly in Scandinavia and Germany, the contents of mercury in
amalgam filling materials have been the subject of public
discussion. As a consequence, in 1994 the German health authorities
required suppliers of dental amalgam to amend the instructions for use for
amalgam filling materials to include a precaution against the use of amalgam for
children less than eighteen years of age and to women of childbearing
age. Additionally, some groups have asserted that the use of dental
amalgam should be prohibited because of concerns about environmental impact from
the disposition of mercury within dental amalgam, which has resulted in the sale
of mercury containing products being banned in Sweden and severely curtailed in
Norway. DENTSPLY also manufactures and sells non-amalgam dental
filling materials that do not contain mercury.
Sources
and Supply of Raw Materials and Finished Goods
The
Company manufactures the majority of the products sold by the
Company. All of the raw materials used by the Company in the
manufacture of its products are purchased from various suppliers and are
typically available from numerous sources. No single supplier
accounts for a significant percentage of DENTSPLY's raw material
requirements. In addition to those products both manufactured and
sold by the Company, some finished goods products sold by the Company are
purchased from third party suppliers. Of these finished goods
products purchased from third party suppliers, a significant portion of the
Company’s injectable anesthetic products, orthodontic products and dental
cutting instruments are purchased from a limited number of
suppliers.
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Intellectual
Property
Products
manufactured by DENTSPLY are sold primarily under its own trademarks and trade
names. DENTSPLY also owns and maintains more than 2,000 patents
throughout the world and is licensed under a small number of patents owned by
others.
DENTSPLY's
policy is to protect its products and technology through patents and trademark
registrations in the U.S. and in significant international markets for its
products. The Company carefully monitors trademark use worldwide and
promotes enforcement of its patents and trademarks in a manner that is designed
to balance the cost of such protection against obtaining the greatest value for
the Company. DENTSPLY believes its patents and trademark properties
are important and contribute to the Company's marketing position but it does not
consider its overall business to be materially dependent upon any individual
patent or trademark.
Employees
As of
December 31, 2010, the Company and its subsidiaries employed approximately 9,700
employees. A small percentage of the Company's U. S. employees are
represented by labor unions. A facility in Des Plaines, Illinois is
represented by the International Association of Machinists and Aerospace Workers
AFL-CIO, under a collective bargaining agreement that expires on May 31,
2012. Additionally, the Company’s Ransom & Randolph facility in
Maumee, Ohio is represented by Local No. 12 of the International Union, United
Automobile, Aerospace and Agriculture Implement Workers of America under a
collective bargaining agreement that expires on January 31, 2012. In
Germany, approximately 45% of DeguDent employees, approximately 30% of Friadent
employees, approximately 23% of VDW employees and approximately 30% of DeTrey
employees are represented by labor unions. The Company provides
pension and postretirement benefits to many of its employees (see Note 13,
Benefits Plans, to the consolidated financial statements). The
Company believes that its relationship with its employees is good.
Environmental
Matters
DENTSPLY
believes that its operations comply in all material respects with applicable
environmental laws and regulations. Maintaining this level of
compliance has not had, and is not expected to have, a material effect on the
Company's capital expenditures or on its business.
Other
Factors Affecting the Business
The
Company’s business is subject to quarterly fluctuations of consolidated net
sales and net income. The Company typically implements most of its
price changes early in the fourth quarter or beginning of the
year. Price changes, other marketing and promotional programs as well
as the management of inventory levels by distributors and the implementation of
strategic initiatives, may impact sales levels in a given
period. Sales for the industry and the Company are generally
strongest in the second and fourth calendar quarters and weaker in the first and
third calendar quarters, due to the effects of the items noted above and due to
the impact of summer holidays and vacations, particularly throughout
Europe.
Securities
and Exchange Act Reports
DENTSPLY
makes available free of charge through its website at www.DENTSPLY.com its
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to these reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably
practicable after such materials are filed with or furnished to the
SEC.
The
public may read and copy any materials the Company files with the U. S.
Securities and Exchange Commission (“ SEC”) at its Public Reference Room at the
following address:
The
Securities and Exchange Commission
100 F
Street, NE
Washington,
D.C. 20549
The
public may obtain information on the operation of this Public Reference Room by
calling the SEC at 1-800-SEC-0330. In addition, since the Company is
an electronic filer, the public may access reports, the proxy and information
statements and other information filed or furnished by the Company at the
Internet site maintained by the SEC (http://www.sec.gov).
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Item
1A. Risk Factors
The
following are the significant risk factors that could materially impact
DENTSPLY’s business, financial condition or future results. The order
in which these factors appear should not be construed to indicate its relative
importance or priority.
Negative
changes could occur in the dental markets, the general economic environments, or
government reimbursement or regulatory programs of the regions in which the
Company operates.
The
success of the Company is largely dependent upon the continued strength of
dental markets and is also somewhat dependent upon the general economic
environments of the regions in which DENTSPLY operates. Negative
changes to these markets and economies could materially impact the Company's
results of operations and financial condition. In addition, many of
the Company's markets are affected by government reimbursement and regulatory
programs. In certain markets, particularly in the European Union,
government and regulatory programs have a more significant impact than other
markets. Changes to these programs could have a positive or negative
impact on the Company's results.
Prolonged
negative economic conditions in domestic and global markets may adversely affect
the Company’s suppliers, customers and consumers, which could harm the Company’s
financial position.
Prolonged
negative changes in domestic and global economic conditions or disruptions of
either or both of the financial and credit markets may affect the Company’s
supply chain and the customers and consumers of the Company’s products and may
have a material adverse effect on the Company’s results of operations, financial
condition and liquidity.
Due
to the Company’s international operations, the Company is exposed to the risk of
changes in interest and foreign exchange rates.
DENTSPLY,
with its significant international operations, is subject to fluctuations in
exchange rates of various foreign currencies and other risks associated with
foreign trade. The impact of currency fluctuations in any given
period can be favorable or unfavorable. The Company’s balance sheet
includes debt and net investment hedges that are sensitive to movements in
interest and foreign exchange rates. Changes in interest rates and
foreign exchange rates may have an adverse effect on the Company’s results of
operations, financial condition and liquidity.
Volatility
in the capital markets or investment vehicles could limit the Company’s ability
to access capital or could raise the cost of capital.
Although
the Company has had continued positive operating cash flow, a disruption in the
credit markets may reduce sources of liquidity available to the
Company. The Company relies on multiple financial institutions to
provide funding pursuant to existing and/or future credit agreements, and those
institutions may not be able to provide funding in a timely manner, or at all,
when required by the Company. The cost of or lack of available credit
could impact the Company’s ability to develop sufficient liquidity to maintain
or grow the Company, which in turn may adversely affect the Company’s
businesses and results of operations, financial condition and
liquidity.
The
Company also manages cash and cash equivalents and short-term investments
through various institutions. There may be a risk of loss on
investments based on the volatility of the underlying instruments that will not
allow the Company to recover the full principal of its investments.
The
Company may not be able to access or renew its precious metal consignment
facilities resulting in a liquidity constraint equal to the fair market value of
the precious metal value of inventory and would subject the Company to inventory
valuation risk as the value of the precious metal inventory fluctuates resulting
in greater volatility to reported earnings.
- 8
-
The
Company’s quarterly operating results and market price for the Company’s common
stock may be volatile.
DENTSPLY
experiences fluctuations in quarterly sales and earnings due to a number of
factors, many of which are substantially outside of the Company’s control,
including:
|
|
·
|
The
timing of new product introductions by DENTSPLY and its
competitors;
|
|
|
·
|
Timing
of industry tradeshows;
|
|
|
·
|
Developments
in government reimbursement
policies;
|
|
|
·
|
Changes
in product mix;
|
|
|
·
|
The
Company’s ability to supply products to meet customer
demand;
|
|
|
·
|
Fluctuations
in manufacturing costs;
|
|
|
·
|
Income
tax incentives and adverse tax
consequences;
|
|
|
·
|
Fluctuations
in currency exchange rates; and
|
|
|
·
|
General
economic conditions, as well as those specific to the healthcare and
related industries.
|
As a
result, the Company may fail to meet the expectations of securities analysts and
investors, which could cause its stock price to decline. The
quarterly fluctuations generally result in net sales and operating profits
historically being higher in the second and fourth quarters. The
Company typically implements most of its price changes early in the fourth
quarter or beginning of the year. These price changes, other
marketing and promotional programs, which are offered to customers from time to
time in the ordinary course of business, the management of inventory levels by
distributors and the implementation of strategic initiatives, may impact sales
levels in a given period. Net sales and operating profits generally
have been lower in the first and third quarters, primarily due not only to
increased sales in the quarters preceding these quarters, but also due to the
impact of summer holidays and vacations, particularly throughout
Europe.
In
addition to fluctuations in quarterly earnings, a variety of other factors may
have a significant impact on the market price of DENTSPLY’s common stock causing
volatility. These factors include, but are not necessarily limited
to, the publication of earnings estimates or other research reports and
speculation in the press or investment community; changes in the Company’s
industry and competitors; the Company’s financial condition and cash flows; any
future issuances of DENTSPLY’s common stock, which may include primary offerings
for cash, stock splits, issuances in connection with business acquisitions,
restricted stock and the grant or exercise of stock options from time to time;
general market and economic conditions; and any outbreak or escalation of
hostilities in geographical areas the Company does business.
Also, the
NASDAQ National Market (“NASDAQ”) can experience extreme price and volume
fluctuations that can be unrelated or disproportionate to the operating
performance of the companies listed on the NASDAQ. Broad market and
industry factors may negatively affect the market price of the Company’s common
stock, regardless of actual operating performance. In the past,
following periods of volatility in the market price of a company’s securities,
securities class action litigation has often been instituted against
companies. This type of litigation, if instituted, could result in
substantial costs and a diversion of management’s attention and resources, which
could harm the Company’s business.
The
dental supplies market is highly competitive, and there is no guarantee that the
Company can compete successfully.
The
worldwide market for dental supplies is highly competitive. There can
be no assurance that the Company will successfully identify new product
opportunities and develop and market new products successfully, or that new
products and technologies introduced by competitors will not render the
Company's products obsolete or noncompetitive. Additionally, the size
and number of the Company's competitors vary by product line and from region to
region. There are many companies that produce some, but not all, of
the same types of products as those produced by the Company. Certain
of DENTSPLY's competitors may have greater resources than does the
Company.
The
Company may be unable to develop innovative products or obtain regulatory
approval for new products.
The
market for DENTSPLY’s products is characterized by rapid and significant
technological change, evolving industry standards and new product
introductions. There can be no assurance that DENTSPLY’s products
will not become noncompetitive or obsolete as a result of such factors or that
we will be able to generate any economic return on the Company’s investment in
product development. If the Company’s products or technologies become
noncompetitive or obsolete, DENTSPLY’s business could be negatively
affected.
- 9
-
DENTSPLY
has identified new products as an important part of its growth
opportunities. There can be no assurance that DENTSPLY will be able
to continue to develop innovative products and that regulatory approval of any
new products will be obtained from applicable U.S. or international government
or regulatory authorities, or that if such approvals are obtained, such products
will be favorably accepted in the marketplace. Additionally, there is
no assurance that entirely new technology or approaches to dental treatment or
competitors’ new products will not be introduced that could render the Company's
products obsolete.
The
Company may fail to comply with applicable government regulations.
The
Company must obtain certain approvals by, and marketing clearances from,
governmental authorities, including the FDA and similar health authorities in
foreign countries to market and sell its products. These regulatory
agencies regulate the marketing, manufacturing, labeling, packaging,
advertising, sale and distribution of medical devices.
The
regulatory review process which must be completed prior to marketing a new
medical device, may delay or hinder a product’s timely entry into the
marketplace. Moreover, there can be no assurance that the review or
approval process for these products by the FDA or any other applicable
governmental authority will occur in a timely fashion, if at all, or that
additional regulations will not be adopted or current regulations amended in
such a manner as will adversely affect the Company. The FDA also
oversees the content of advertising and marketing materials relating to medical
devices which have received FDA clearance. Failure to comply with the
FDA’s advertising guidelines may result in the withdrawal of products or
imposition of penalties.
DENTSPLY's
business operations are also subject to periodic review and inspection by the
FDA and other domestic government authorities and similar foreign authorities to
monitor DENTSPLY's compliance with the regulations administered by such
authorities. There can be no assurance that these authorities will
not raise compliance concerns. Failure to satisfy any such
requirements can result in governmental enforcement actions, including possible
product seizure, injunction and/or criminal or civil proceedings.
Challenges
may be asserted against the Company’s dental amalgam product.
All
dental amalgam filling materials, including those manufactured and sold by
DENTSPLY, contain mercury. Some groups have
asserted that amalgam should be discontinued because of its mercury content
and/or that disposal of mercury containing products may be harmful to the
environment. If governmental authorities elect to place restrictions
or significant regulations on the sale and/or disposal of dental amalgam, that
could have an adverse impact on the Company’s sales of dental amalgam. DENTSPLY
also manufactures and sells non-amalgam dental filling materials that do not
contain mercury.
The
Company may be unable to obtain a supply for certain finished goods purchased
from third parties.
A
significant portion of the Company’s injectable anesthetic products, orthodontic
products, dental cutting instruments and certain other products and raw
materials are purchased from a limited number of suppliers, some of which also
compete with the Company. As there are a limited number of suppliers
for these products, there can be no assurance that the Company will be able to
obtain an adequate supply of these products and raw materials in the
future. Any delays in delivery of or shortages in these products
could interrupt and delay manufacturing of the Company’s products and result in
the cancellation of orders for these products. In addition, these
suppliers could discontinue the manufacture or supply of these products at any
time. DENTSPLY may not be able to identify and integrate alternative
sources of supply in a timely fashion or at all. Any transition to
alternate suppliers may result in delays in shipment and increased expenses and
may limit the Company’s ability to deliver products to customers. If
the Company is unable to develop reasonably priced alternative sources in a
timely manner, or if the Company encounters delays or other difficulties in the
supply of such products and other materials from third parties, the Company’s
business and results of operation may be harmed.
The
Company’s expansion through acquisition involves risks and may not result in the
expected benefits.
The
Company continues to view acquisitions as a key part of its growth
strategy. The Company continues to be active in evaluating potential
acquisitions although there is no assurance that these efforts will result in
completed transactions as there are many factors that affect the success of such
activities. If the Company does succeed in acquiring a business or
product, there can be no assurance that the Company will achieve any of the
benefits that it might anticipate from such an acquisition and the attention and
effort devoted to the integration of an acquired business could divert
management’s attention from normal business operations. If the
Company makes acquisitions, it may incur debt, assume contingent liabilities or
create additional expenses, any of which might adversely affect its financial
results. Any financing that the Company might need for acquisitions
may only be available to it on terms that restrict its business or that impose
additional costs that reduce its operating results.
- 10
-
Changes
in, or interpretations of, accounting principles could result in unfavorable
accounting charges.
The
Company prepares its consolidated financial statements in accordance with US
GAAP. These principles are subject to interpretation by the SEC and
various bodies formed to interpret and create appropriate accounting
principles. Market conditions have prompted accounting standard
setters to issue new guidance which further interprets or seeks to revise
accounting pronouncements related to financial instruments, structures or
transactions as well as to issue new standards expanding
disclosures. It is possible that future accounting standards the
Company is required to adopt could change the current accounting treatment
applied to the consolidated financial statements and that such changes could
have a material adverse effect on the Company’s business, results of operations,
financial condition and liquidity.
If
the Company’s goodwill or amortizable intangible assets become impaired, the
Company may be required to record a significant charge to earnings.
Under US
GAAP, the Company reviews its goodwill and amortizable intangible assets for
impairment when events or changes in circumstances indicate the carrying value
may not be recoverable. Additionally, goodwill is required to be
tested for impairment at least annually. The valuations used to determine the
fair values used to test goodwill or amortizable intangible assets are dependent
upon various assumptions and reflect management’s best estimates. Net
sales growth, discount rates, earnings multiples and future cash flows are
critical assumptions used to determine these fair values. Slower net
sales growth rates in the dental industry, an increase in discount
rates, unfavorable changes in earnings multiples or a decline in
future cash flows, among other factors, may cause a change in circumstances
indicating that the carrying value of the Company’s goodwill or amortizable
intangible assets may not be recoverable. The Company may be required to record
a significant charge to earnings in the financial statements during the period
in which any impairment of the Company’s goodwill or amortizable intangible
assets is determined.
Changes
in, or interpretations of, tax rules, structures, country profitability mix and
regulations may adversely affect the Company’s effective tax rates.
The
Company is a U.S. based multinational company subject to tax in multiple U.S.
and foreign tax jurisdictions. Unanticipated changes in the Company’s
tax rates could affect its future results of operations. The
Company’s future effective tax rates could be unfavorably affected by changes
in, or interpretation of, tax rules and regulations in the jurisdictions in
which the Company does business, by structural changes in the Company’s
businesses, by unanticipated decreases in the amount of revenue or earnings in
countries with low statutory tax rates, by lapses of the availability of the
U.S. research and development tax credit, or by changes in the valuation of the
Company’s deferred tax assets and liabilities.
The
Company faces the inherent risk of litigation and claims.
The
Company’s business involves a risk of product liability and other types of legal
actions or claims, including possible recall actions affecting the Company’s
products. The primary risks to which the Company is exposed are
related to those products manufactured by the Company. The Company
has insurance policies, including product liability insurance, covering these
risks in amounts that are considered adequate; however, the Company cannot
provide assurance that the maintained coverage is sufficient to cover future
claims or that the coverage will be available in adequate amounts or at a
reasonable cost. Also, other types of claims asserted against the
Company may not be covered by insurance. A successful claim brought
against the Company in excess of available insurance, or another type of claim
which is uninsured or that results in significant adverse publicity against the
Company, could harm its business and overall cash flows of the
Company.
Various
parties, including the Company, own and maintain patents and other intellectual
property rights applicable to the dental field. Although the Company
believes it operates in a manner that does not infringe upon any third party
intellectual property rights, it is possible that a party could assert that one
or more of the Company’s products infringe upon such party’s intellectual
property and force the Company to pay damages and/or discontinue the sale of
certain products.
Increasing
exposure to markets outside of the U.S. and Europe.
We
anticipate that sales outside of the U.S. and Europe will continue to account
for a significant portion of DENTSPLY’s revenue. Operating in such
locations is subject to a number of uncertainties, including, but not limited
to, the following:
|
|
·
|
Economic
and political instability;
|
|
|
·
|
Import
or export licensing requirements;
|
|
|
·
|
Trade
restrictions;
|
|
|
·
|
Product
registration requirements;
|
|
|
·
|
Longer
payment cycles;
|
|
|
·
|
Changes
in regulatory requirements and
tariffs;
|
|
|
·
|
Fluctuations
in currency exchange rates;
|
|
|
·
|
Potentially
adverse tax consequences; and
|
|
|
·
|
Potentially
weak protection of intellectual property
rights.
|
- 11
-
The Company's success is dependent
upon its management and employees.
The
Company's success is dependent upon its management and employees. The
loss of senior management employees or any failure to recruit and train needed
managerial, sales and technical personnel, could have a material adverse effect
on the Company.
The
Company may be unable to sustain the operational and technical expertise that is
key to its success.
DENTSPLY
believes that its manufacturing capabilities are important to its
success. The manufacture of the Company's products requires
substantial and varied technical expertise. Complex materials
technology and processes are necessary to manufacture the Company's
products. There can be no assurance that the Company will be able to
maintain the necessary operational and technical expertise that is key to its
success.
The
Company may not generate sufficient cash flow to service its debt, pay its
contractual obligations and operate the business.
DENTSPLY's
ability to make payments on its indebtedness and contractual obligations, and to
fund its operations depends on its future performance and financial results,
which, to a certain extent, are subject to general economic, financial,
competitive, regulatory and other factors and the interest rate environment that
are beyond its control. Although senior management believes that the
Company has and will continue to have sufficient liquidity, there can be no
assurance that DENTSPLY's business will generate sufficient cash flow from
operations in the future to service its debt, pay its contractual obligations
and operate its business.
The
Company may not be able to repay its outstanding debt in the event that cross
default provisions are triggered due to a breach of loan covenants.
DENTSPLY's
existing borrowing documentation contains a number of covenants and financial
ratios, which it is required to satisfy. The most restrictive of
these covenants pertain to asset dispositions, maintenance of certain levels of
net worth, and prescribed ratios of indebtedness to total capital and operating
income excluding depreciation and amortization of interest
expense. Any breach of any such covenants or restrictions would
result in a default under the existing borrowing documentation that would permit
the lenders to declare all borrowings under such documentation to be immediately
due and payable and, through cross default provisions, would entitle DENTSPLY's
other lenders to accelerate their loans. DENTSPLY may not be able to
meet its obligations under its outstanding indebtedness in the event that any
cross default provision is triggered.
Certain
provisions in the Company’s governing documents may discourage third party
offers to acquire DENTSPLY that might otherwise result in the Company’s
stockholders receiving a premium over the market price of their
shares.
Certain
provisions of DENTSPLY's Certificate of Incorporation and By-laws and of
Delaware law could have the effect of making it difficult for a third party to
acquire control of DENTSPLY. Such provisions include, among others,
the division of the Board of Directors of DENTSPLY into three classes, with the
three-year term of a class expiring each year, a provision allowing the Board of
Directors to issue preferred stock having rights senior to those of the common
stock and certain procedural requirements which make it difficult for
stockholders to amend DENTSPLY's By-laws and call special meetings of
stockholders. In addition, members of DENTSPLY's management and
participants in its Employee Stock Ownership Plan (“ESOP”) collectively own
approximately 4% of the outstanding common stock of DENTSPLY.
Issues
related to the quality and safety of the Company’s products, ingredients or
packaging could cause a product recall resulting in harm to the Company’s
reputation and negatively impacting the Company’s operating
results.
The
Company’s products generally maintain a good reputation with customers and
end-users. Issues related to quality and safety of products,
ingredients or packaging, could jeopardize the Company’s image and
reputation. Negative publicity related to these types of concerns,
whether valid or not, might negatively impact demand for the Company’s products,
or cause production and delivery disruptions. The Company may need to
recall products if they become unfit for use. In addition, the
Company could potentially be subject to litigation or government action, which
could result in payment of fines or damages. Cost associated with
these potential actions could negatively affect the Company’s operating results,
financial condition and liquidity.
|
Item 1B.
|
Unresolved Staff
Comments
|
None
- 12
-
Item
2. Properties
The
following is a listing of DENTSPLY's principal manufacturing and distribution
locations as of December 31, 2010:
|
Location
|
Function
|
Leased
or Owned
|
||
|
United
States:
|
||||
|
Milford,
Delaware (1)
|
Manufacture
of dental consumable products
|
Owned
|
||
|
Bradenton,
Florida (3)
|
Manufacture
of orthodontic accessory products
|
Leased
|
||
|
Baldwin,
Georgia (3)
|
Manufacture
of orthodontic accessory products
|
Leased
|
||
|
Des
Plaines, Illinois (1)
|
Manufacture
and assembly of dental handpieces
|
Leased
|
||
|
Elgin,
Illinois (1)
|
Manufacture
of dental x-ray film holders, film
|
Owned/Leased
|
||
|
mounts
and accessories
|
||||
|
Bohemia,
New York (3)
|
Manufacture
and distribution of orthodontic
|
Leased
|
||
|
products
and materials
|
||||
|
Maumee,
Ohio (4)
|
Manufacture
and distribution of investment
|
Owned
|
||
|
casting
products
|
||||
|
Lancaster,
Pennsylvania (5)
|
Distribution
of dental products
|
Leased
|
||
|
York,
Pennsylvania (4)
|
Manufacture
and distribution of artificial teeth
|
Owned
|
||
|
and
other dental laboratory products
|
||||
|
York,
Pennsylvania (1)
|
Manufacture
of small dental equipment, bone grafting
|
Owned
|
||
|
products,
and preventive dental products
|
||||
|
Johnson
City, Tennessee (3)
|
Manufacture
and distribution of endodontic
|
Leased
|
||
|
instruments
and materials
|
||||
|
Foreign:
|
||||
|
Beringen,
Belgium (4)
|
Manufacture
and distribution of dental products
|
Owned/Leased
|
||
|
Leuven,
Belgium (4)
|
Manufacture
and distribution of 3D digital implantology
|
Leased
|
||
|
Catanduva,
Brazil (3)
|
Manufacture
and distribution of dental
|
Owned
|
||
|
anesthetic
products
|
||||
|
Petropolis,
Brazil (3)
|
Manufacture
and distribution of artificial teeth,
|
Owned
|
||
|
dental
consumable products and endodontic material
|
||||
|
Shanghai,
China (4)
|
Manufacture
and distribution of dental products
|
Leased
|
||
|
Tianjin,
China (2)
|
Manufacture
and distribution of dental products
|
Leased
|
||
|
Ivry
Sur-Seine, France (4)
|
Manufacture
and distribution of investment casting products
|
Leased
|
- 13
-
|
Bohmte,
Germany (4)
|
Manufacture
and distribution of dental
|
Owned
|
||
|
laboratory
products
|
||||
|
Hanau,
Germany (4)
|
Manufacture
and distribution of precious metal dental
|
Owned
|
||
|
alloys,
dental ceramics and dental implant products
|
||||
|
Konstanz,
Germany (1)
|
Manufacture
and distribution of dental consumable
|
Owned
|
||
|
products
|
||||
|
Mannheim,
Germany (4)
|
Manufacture
and distribution of dental
|
Owned/Leased
|
||
|
implant
products
|
||||
|
Munich,
Germany (3)
|
Manufacture
and distribution of endodontic
|
Owned
|
||
|
instruments
and materials
|
||||
|
Radolfzell,
Germany (5)
|
Distribution
of dental products
|
Leased
|
||
|
Rosbach,
Germany (4)
|
Manufacture
and distribution of dental ceramics
|
Owned
|
||
|
Badia
Polesine, Italy (1)
|
Manufacture
and distribution of dental consumable
|
Owned/Leased
|
||
|
products
|
||||
|
Nasu,
Japan (2)
|
Manufacture
and distribution of precious metal dental
|
Owned
|
||
|
alloys,
dental consumable products and orthodontic
|
||||
|
products
|
||||
|
Mexicali,
Mexico (3)
|
Manufacture
and distribution of orthodontic
|
Leased
|
||
|
products
and materials
|
||||
|
Hoorn,
Netherlands (4)
|
Manufacture
and distribution of precious metal
|
Owned
|
||
|
dental
alloys and dental ceramics
|
||||
|
HA
Soest, Netherlands (3)
|
Distribution
of orthodontic products
|
Leased
|
||
|
Warsaw,
Poland (1)
|
Manufacture
and distribution of dental consumable
|
Owned
|
||
|
products
|
||||
|
Las
Piedras, Puerto Rico (4)
|
Manufacture
of crown and bridge materials
|
Owned
|
||
|
Ballaigues,
Switzerland (3)
|
Manufacture
and distribution of endodontic
|
Owned
|
||
|
instruments,
plastic components and packaging material
|
||||
|
Le
Creux, Switzerland (3)
|
Manufacture and distribution of
endodontic instruments
|
Owned
|
|
(1)
|
These
properties are included in the U. S., Germany, and Certain Other European
Regions Consumable Businesses
segment.
|
|
(2)
|
These
properties are included in the France, U.K., Italy and Certain Other
European Countries, CIS, Middle East, Africa, Pacific Rim Businesses
segment.
|
|
(3)
|
These
properties are included in the Canada/Latin
America/Endodontics/Orthodontics
segment.
|
|
(4)
|
These
properties are included in the Dental Laboratory
Business/Implants/Non-Dental
segment.
|
|
(5)
|
This
property is a distribution warehouse not managed by named
segments.
|
- 14
-
In
addition, the Company maintains sales and distribution offices at certain of its
foreign and domestic manufacturing facilities, as well as at various other U.S.
and international locations. The Company maintains offices in
Toronto, Mexico City, Paris, Rome, Weybridge, Hong Kong and Melbourne and other
international locations. Most of these sites around the world that
are used exclusively for sales and distribution are leased.
The
Company also owns its corporate headquarters located in York,
Pennsylvania.
DENTSPLY
believes that its properties and facilities are well maintained and are
generally suitable and adequate for the purposes for which they are
used.
Item
3. Legal Proceedings
Incorporated
by reference to Part II, Item 8, Note 17, Commitments and Contingencies, to the
Consolidated Financial Statements.
Item
4. Removed and Reserved
Executive
Officers of the Registrant
The
following table sets forth certain information regarding the executive officers
of the Company as of February 18, 2011.
|
Name
|
Age
|
Position
|
||
|
Bret
W. Wise
|
50
|
Chairman
of the Board and Chief Executive Officer
|
||
|
Christopher
T. Clark
|
49
|
President and Chief Operating
Officer
|
||
|
William
R. Jellison
|
53
|
Senior Vice President and Chief
Financial Officer
|
||
|
James
G. Mosch
|
53
|
Executive Vice President
|
||
|
Robert
J. Size
|
52
|
Senior Vice President
|
||
|
Albert
J. Sterkenburg
|
47
|
Senior
Vice President
|
||
|
Brian
M. Addison
|
|
56
|
|
Vice
President, Secretary and General
Counsel
|
Bret W.
Wise has served as Chairman of the Board and Chief Executive Officer of the
Company since January 1, 2007 and also served as President in 2007 and
2008. Prior to that time, Mr. Wise served as President and Chief
Operating Officer in 2006, as Executive Vice President in 2005 and Senior Vice
President and Chief Financial Officer from December 2002 through December
2004. Prior to that time, Mr. Wise was Senior Vice President and
Chief Financial Officer with Ferro Corporation of Cleveland, OH (1999 -
2002), Vice President and Chief Financial Officer at WCI Steel, Inc.,
of Warren, OH, (1994 - 1999) and prior to that he was a partner with
KPMG LLP. Mr. Wise is a Certified Public Accountant.
Christopher
T. Clark has served as Chief Operating Officer of the Company since January 1,
2007, also serving as President since January 1, 2009 and as Executive Vice
President in 2007 and 2008. Prior to that time, Mr. Clark served as
Senior Vice President (2003 - 2005), as Vice President and General Manager of
DENTSPLY’s global imaging business (1999 - 2002), as Vice President and General
Manager of the Prosthetics Division (1996 - 1999), and as Director of Marketing
of DENTSPLY’S Prosthetics Division (1992 - 1996). Prior to
September 1992, Mr. Clark held various brand management positions with Proctor
& Gamble.
William
R. Jellison has served as Senior Vice President and Chief Financial Officer of
the Company since January 2005, a position he also held from April 1998 until
November 2002. From November 2002 until January 2005, Mr. Jellison
served as a Senior Vice President with operating
responsibilities. Prior to April 1998, Mr. Jellison held various
financial management positions including Vice President of Finance, Treasurer
and Corporate Controller for Donnelly Corporation of Holland, Michigan since
1980. Mr. Jellison is a Certified Management Accountant.
James G.
Mosch has served as Executive Vice President since January 1, 2009, and prior to
that as Senior Vice President since 2003. Prior to that, Mr. Mosch
served as Vice President and General Manager of DENTSPLY’s Professional
division, beginning in July 1994 when, he started with the
Company. Prior to 1994, Mr. Mosch served in general management and
marketing positions with Baxter International and American Hospital Supply
Corporation.
Robert J.
Size has served as Senior Vice President since January 1, 2007. Prior
to that, Mr. Size served as a Vice President (2006) and as Vice President and
General Manager of DENTSPLY’s Caulk division beginning June 2003 through
December 31, 2005. Prior to that time, he was the Chief Executive
Officer and President of Superior MicroPowders and held various cross-functional
and international leadership positions with The Cookson Group.
- 15
-
Albert J.
Sterkenburg, D.D.S. has served as Senior Vice President since January 1,
2009. Prior to that, Dr. Sterkenburg served as Vice President (2006 -
2009), Vice President and General Manager of the DeguDent division (2003 - 2006)
and Vice President and General Manager of the VDW division beginning in
2000. Prior to that time, he served in marketing and general
management roles at Johnson & Johnson.
Brian M.
Addison has served as Vice President, Secretary and General Counsel of the
Company since January 1, 1998. Prior to that, he was Assistant
Secretary and Corporate Counsel beginning in December 1994. Prior to
that he was a Partner at the Harrisburg, Pennsylvania law firm of McNees,
Wallace & Nurick, and prior to that he was Senior Counsel at Hershey Foods
Corporation.
- 16
-
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
The
information set forth under the caption “Supplemental Stock Information” is
filed as part of this Form 10-K.
The Board
of Directors has authorized the Company to repurchase shares under its stock
repurchase program in an amount up to 22,000,000 shares of treasury
stock. The table below contains certain information with respect to
the repurchase of shares of the Company's common stock during the quarter ended
December 31, 2010.
|
Number
of
|
||||||||||||||||
|
(in
thousands, except per share amounts)
|
Shares
that
|
|||||||||||||||
|
May
be Purchased
|
||||||||||||||||
|
Total
Number
|
Average
Price
|
Total
Cost
|
Under
the Share
|
|||||||||||||
|
of
Shares
|
Paid
Per
|
of
Shares
|
Repurchase
|
|||||||||||||
|
Period
|
Purchased
|
Share
|
Purchased
|
Program
|
||||||||||||
|
October
1-31, 2010
|
- | $ | - | $ | - | 1,328.0 | ||||||||||
|
November
1-30, 2010
|
500.0 | 30.91 | 15,457.0 | 904.1 | ||||||||||||
|
December
1-31, 2010
|
- | - | - | 959.9 | ||||||||||||
| 500.0 | $ | 30.91 | $ | 15,457.0 | ||||||||||||
- 17
-
Performance
Graph
The
following graph compares the Company’s cumulative total stockholder return
(Common Stock price appreciation plus dividends, on a reinvested basis) over the
last five fiscal years with the NASDAQ Composite Index, the Standard &
Poor’s S&P 500 Index and the Standard & Poor’s S&P Health Care
Index.
| 12/05 | 12/06 | 12/07 | 12/08 | 12/09 | 12/10 | |||||||||||||||||||
|
DENTSPLY
International Inc.
|
100.00 | 111.73 | 169.23 | 106.73 | 133.79 | 130.78 | ||||||||||||||||||
|
NASDAQ
Composite
|
100.00 | 111.74 | 124.67 | 73.77 | 107.12 | 125.93 | ||||||||||||||||||
|
S&P
500
|
100.00 | 115.80 | 122.16 | 76.96 | 97.33 | 111.99 | ||||||||||||||||||
|
S&P
Health Care
|
100.00 | 107.53 | 115.22 | 88.94 | 106.46 | 109.55 |
- 18
-
Item
6. Selected Financial Data
The
information set forth under the caption “Selected Financial Data” is filed as
part of this Form 10-K.
Item
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
The
information set forth under the caption “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” is filed as part of this Form
10-K.
Item
7A. Quantitative and Qualitative Disclosure about Market
Risk
The
information set forth under the caption “Quantitative and Qualitative Disclosure
about Market Risk” is filed as part of this Form 10-K.
Item
8. Financial Statements and Supplementary Data
The
information set forth under the captions “Management’s Report on Internal
Control Over Financial Reporting,” “Report of Independent Registered Public
Accounting Firm,” “Consolidated Statements of Operations,” “Consolidated Balance
Sheets,” “Consolidated Statements of Equity and Comprehensive Income,”
“Consolidated Statements of Cash Flows,” and “Notes to Consolidated Financial
Statements” is filed as part of this Form 10-K.
Item
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not
applicable.
Item
9A. Controls and Procedures
(a) Conclusion Regarding the Effectiveness
of Disclosure Controls and Procedures
The
Company’s management, with the participation of the Company’s Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of the
Company’s disclosure controls and procedures as of the end of the period covered
by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company’s disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended) as of the end of the period covered by this
report were effective to provide reasonable assurance that the information
required to be disclosed by the Company in reports filed under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the SEC’s rules and forms and that it is accumulated
and communicated to management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
(b)
Management’s Report on Internal Control Over Financial Reporting
Management’s
report on the Company’s internal control over financial reporting is included
under Item 15(a)(1) of this Form 10-K.
(c)
Changes in Internal Control Over Financial Reporting
There
have been no changes in the Company’s internal control over financial reporting
that occurred during the quarter ended December 31, 2010 that have materially
affected, or are likely to materially affect, its internal control over
financial reporting.
Item
9B. Other Information
Not
applicable.
- 19
-
PART
III
Item
10. Directors, Executive Officers and Corporate
Governance
The
information (i) set forth under the caption “Executive Officers of the
Registrant” in Part I of this Form 10-K and (ii) set forth under the captions
“Election of Directors” and “Section 16(a) Beneficial Ownership Reporting
Compliance” in the 2011 Proxy Statement is incorporated herein by
reference.
Code
of Ethics
The
Company has adopted a Code of Business Conduct and Ethics that applies to the
Chief Executive Officer and the Chief Financial Officer and substantially all of
the Company's management level employees. A copy of the Code of
Business Conduct and Ethics is available upon request without charge by writing
to DENTSPLY International Inc., Attention: Investor Relations Suite 60, 221 West
Philadelphia Street, York, PA 17405.
Item
11. Executive Compensation
The
information set forth under the caption “Report on Executive Compensation” in
the 2011 Proxy Statement is incorporated herein by reference.
Item
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
The
information set forth under the caption “Security Ownership of Certain
Beneficial Owners and Management” and “Securities Authorized for Issuance Under
Equity Compensation Plans” in the 2011 Proxy Statement is incorporated herein by
reference.
Item
13. Certain Relationships and Related Transactions and Director
Independence
The
information required under this item number is presented in the 2011 Proxy
Statement, which is incorporated herein by reference.
Item
14. Principal Accounting Fees and Services
The
information set forth under the caption “Relationship with Independent
Registered Public Accounting Firm” in the 2011 Proxy Statement is incorporated
herein by reference.
- 20
-
PART
IV
Item
15. Exhibits and Financial Statement Schedule
|
(a)
|
Documents
filed as part of this Report
|
|
1.
|
Financial
Statements
|
The
following consolidated financial statements of the Company are filed as part of
this Form 10-K:
Management’s
Report on Internal Control Over Financial Reporting
Report of
Independent Registered Public Accounting Firm
Consolidated
Statements of Operations - Years ended December 31, 2010, 2009 and
2008
Consolidated
Balance Sheets - December 31, 2010 and 2009
Consolidated
Statements of Equity and Comprehensive Income - Years ended December 31, 2010,
2009 and 2008
Consolidated
Statements of Cash Flows - Years ended December 31, 2010, 2009 and
2008
Notes to
Consolidated Financial Statements
|
2.
|
Financial
Statement Schedule
|
The
following financial statement schedule is filed as part of this Form 10-K and is
covered by the Report of Independent Registered Public Accounting
Firm:
Schedule
II — Valuation and Qualifying Accounts.
All other
schedules for which provision is made in the applicable accounting regulations
of the Securities and Exchange Commission are not required to be included herein
under the related instructions or are inapplicable and, therefore, have been
omitted.
|
3.
|
Exhibits
|
The
Exhibits listed below are filed or incorporated by reference as part of the
Company’s Form 10-K.
|
Exhibit
|
||
|
Number
|
Description
|
|
|
3.1
|
Restated
Certificate of Incorporation (5)
|
|
|
3.2
|
By-Laws,
as amended (Filed herewith)
|
|
|
4.1
|
(a)
|
United
States Commercial Paper Issuing and paying Agency Agreement dated as of
August 12, 1999 between the Company and the Chase Manhattan Bank
(2)
|
|
(b)
|
United
States Commercial Paper Dealer Agreement dated as of March 28, 2002
between the Company and Salomon Smith Barney Inc. (6)
|
|
|
(c)
|
Japanese
Yen Term Loan Agreement, due March 28, 2012 dated as of July 31, 2008
(9)
|
|
|
4.3
|
Revolving
Credit Agreement dated as of May 7, 2010 final maturity in May
2013, among the Company, the Initial Lenders named therein, the banks
named therein, J.P. Morgan Chase Bank, N.A. as Administrative Agent, Wells
Fargo Bank, N. A. as Syndication Agent, Citibank, N.A., The Bank of
Tokyo-Mitsubishi UFJ, Ltd. And Commerzbank AG, New York and Grand Cayman
branches as Co-Documentation Agents, and J.P. Morgan Securities Inc. and
Wells Fargo Securities, LLC as Joint Bookrunners and Joint Lead Arrangers.
(Filed herewith)
|
|
|
4.4
|
Private
Placement Note Purchase Agreement, due February 19, 2016 dated
as of October 16, 2009 (10)
|
|
|
4.5
|
Swiss
Franc Term Loan Agreement, due March 1, 2012 dated as of February 24, 2010
(Filed herewith)
|
|
|
10.1
|
1998
Stock Option Plan (1)
|
|
|
10.2
|
2002
Amended and Restated Equity Incentive Plan (8)
|
|
|
10.3
|
Restricted
Stock Unit Deferral Plan (7)
|
|
|
10.4
|
(a)
|
Trust
Agreement for the Company's Employee Stock Ownership Plan between the
Company and T. Rowe Price Trust Company dated as of November 1, 2000
(3)
|
|
(b)
|
Plan
Recordkeeping Agreement for the Company's Employee Stock Ownership Plan
between the Company and T. Rowe Price Trust Company dated as of November
1, 2000 (3)
|
|
|
10.5
|
DENTSPLY
Supplemental Saving Plan Agreement dated as of December 10, 2007
(8)
|
- 21
-
|
10.6
|
Amended
and Restated Employment Agreement entered February 19, 2008 between the
Company and Bret W. Wise* (8)
|
|
|
10.7
|
Amended
and Restated Employment Agreement entered February 19, 2008 between the
Company and Christopher T. Clark* (8)
|
|
|
10.8
|
Amended
and Restated Employment Agreement entered February 19, 2008 between the
Company and William R. Jellison* (8)
|
|
|
10.9
|
Amended
and Restated Employment Agreement entered February 19, 2008 between the
Company and Brian M. Addison* (8)
|
|
|
10.10
|
Amended
and Restated Employment Agreement entered February 19, 2008 between the
Company and James G. Mosch* (8)
|
|
|
10.11
|
Amended
and Restated Employment Agreement entered February 19, 2008 between the
Company and Robert J. Size* (8)
|
|
|
10.12
|
Amended
and Restated Employment Agreement entered January 1, 2009 between the
Company’s subsidiary, DeguDent GMBH and Albert Sterkenburg*
(9)
|
|
|
10.13
|
DENTSPLY
International Inc. Directors' Deferred Compensation Plan effective January
1, 2007, as amended* (9)
|
|
|
10.14
|
Board
Compensation Arrangement*(10)
|
|
|
10.15
|
Supplemental
Executive Retirement Plan effective January 1, 1999, as amended January 1,
2008* (9)
|
|
|
10.16
|
Written
Description of the Amended and Restated Incentive Compensation Plan*
(9)
|
|
|
10.17
|
AZ
Trade Marks License Agreement, dated January 18, 2001 between AstraZeneca
AB and Maillefer Instruments Holdings, S.A. (3)
|
|
|
10.18
|
(a)
|
Precious
metal inventory Purchase and Sale Agreement dated November 30, 2001, as
amended October 10, 2006 between Bank of Nova Scotia and the Company
(7)
|
|
(b)
|
Precious
metal inventory Purchase and Sale Agreement dated December 20, 2001
between JPMorgan Chase Bank and the Company (4)
|
|
|
(c)
|
Precious
metal inventory Purchase and Sale Agreement dated December 20, 2001
between Mitsui & Co., Precious Metals Inc. and the Company
(4)
|
|
|
(d)
|
Precious
metal inventory Purchase and Sale Agreement dated December 15, 2005
between ABN AMRO NV, Australian Branch and the Company
(7)
|
|
|
(e)
|
Precious
metal inventory Purchase and Sale Agreement dated January 30, 2002 between
Dresdner Bank AG, Frankfurt, and the Company (8)
|
|
|
10.19
|
Executive
Change in Control Plan for foreign executives, as amended December 31,
2008* (10)
|
|
|
10.20
|
2010
Equity Incentive Plan (Filed herewith)
|
|
|
21.1
|
Subsidiaries
of the Company (Filed herewith)
|
|
|
23.1
|
Consent
of Independent Registered Public Accounting Firm - PricewaterhouseCoopers
LLP
|
|
|
31
|
Section
302 Certification Statements
|
|
|
32
|
Section
906 Certification Statement
|
|
|
101.INS
|
XBRL
Instance Document
|
|
|
101.SCH
|
XBRL
Taxonomy Extension Schema Document
|
|
|
101.CAL
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
|
|
101.DEF
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
|
|
101.LAB
|
XBRL
Extension Labels Linkbase Document
|
|
|
101.PRE
|
XBRL
Taxonomy Extension Presentation Linkbase
Document
|
|
|
*
|
Management
contract or compensatory plan.
|
|
(1)
|
Incorporated
by reference to exhibit included in the Company's Registration Statement
on Form S-8 dated June 4, 1998 (No.
333-56093).
|
|
(2)
|
Incorporated
by reference to exhibit included in the Company's Form 10-K for the fiscal
year ended December 31, 1999, File No.
0-16211.
|
|
(3)
|
Incorporated
by reference to exhibit included in the Company's Form 10-K for the fiscal
year ended December 31, 2000, File No.
0-16211.
|
|
(4)
|
Incorporated
by reference to exhibit included in the Company's Form 10-K for the fiscal
year ended December 31, 2001, File No.
0-16211.
|
|
(5)
|
Incorporated
by reference to exhibit included in the Company's Registration Statement
on Form S-8 dated November 27, 2002 (No.
333-101548).
|
|
(6)
|
Incorporated
by reference to exhibit included in the Company's Form 10-K for the fiscal
year ended December 31, 2002, File No.
0-16211.
|
|
(7)
|
Incorporated
by reference to exhibit included in the Company’s Form 10-K for the fiscal
year ended December 31, 2006, File no.
0-16211.
|
|
(8)
|
Incorporated
by reference to exhibit included in the Company's Form 10-K for the fiscal
year ended December 31, 2007, File No.
0-16211.
|
|
(9)
|
Incorporated
by reference to exhibit included in the Company's Form 10-K for the fiscal
year ended December 31, 2008, File No.
0-16211
|
|
(10)
|
Incorporated
by reference to exhibit included in the Company’s Form 10-K for the fiscal
year ended December 31, 2009, File no.
0-16211.
|
- 22
-
SCHEDULE
II
VALUATION
AND QUALIFYING ACCOUNTS
FOR THE
YEARS ENDED DECEMBER 31, 2010, 2009 and 2008
|
Additions
|
||||||||||||||||||||||||
|
(in
thousands)
|
Charged
|
|||||||||||||||||||||||
|
Balance
at
|
(Credited)
|
Charged
to
|
Write-offs
|
Balance
|
||||||||||||||||||||
|
Beginning
|
To
Costs
|
Other
|
Net
of
|
Translation
|
at
End
|
|||||||||||||||||||
|
Description
|
of Period
|
And Expenses
|
Accounts
|
Recoveries
|
Adjustment
|
of Period
|
||||||||||||||||||
|
Allowance
for doubtful accounts:
|
||||||||||||||||||||||||
|
For
Year Ended December 31,
|
||||||||||||||||||||||||
|
2008
|
$ | 18,578 | $ | 3,674 | $ | (348 | ) | $ | (1,705 | ) | $ | (1,350 | ) | $ | 18,849 | |||||||||
|
2009
|
18,849 | (3,124 | ) (a) | 17 | (4,253 | ) | 746 | 12,235 | ||||||||||||||||
|
2010
|
12,235 | (233 | ) | 111 | (2,611 | ) | (682 | ) | 8,820 | |||||||||||||||
|
Allowance
for trade discounts:
|
||||||||||||||||||||||||
|
For
Year Ended December 31,
|
||||||||||||||||||||||||
|
2008
|
$ | 307 | $ | 267 | $ | 4 | $ | - | $ | (59 | ) | $ | 519 | |||||||||||
|
2009
|
519 | 505 | - | - | 79 | 1,103 | ||||||||||||||||||
|
2010
|
1,103 | 655 | - | (970 | ) | 21 | 809 | |||||||||||||||||
|
Inventory
valuation reserves:
|
||||||||||||||||||||||||
|
For
Year Ended December 31,
|
||||||||||||||||||||||||
|
2008
|
$ | 26,190 | $ | 3,261 | $ | 1,938 | $ | (1,981 | ) | $ | (1,019 | ) | $ | 28,389 | ||||||||||
|
2009
|
28,389 | 5,883 | 80 | (3,610 | ) | 1,190 | 31,932 | |||||||||||||||||
|
2010
|
31,932 | 6,590 | 760 | (3,652 | ) | (161 | ) | 35,469 | ||||||||||||||||
|
Deferred
tax asset valuation allowance:
|
||||||||||||||||||||||||
|
For
Year Ended December 31,
|
||||||||||||||||||||||||
|
2008
|
$ | 50,250 | $ | 603 | $ | - | $ | (13,203 | ) (b) | $ | (909 | ) | $ | 36,741 | ||||||||||
|
2009
|
36,741 | 13,419 | - | - | 1,649 | 51,809 | ||||||||||||||||||
|
2010
|
51,809 | 29,642 | - | - | (6,059 | ) | 75,392 | |||||||||||||||||
|
(a)
|
See
Note 1, Significant Accounting Policies, to the consolidated financial
statements, for further discussion.
|
|
(b)
|
The
write-offs during 2008 are the result of a global tax restructuring
project, tax audit closures, and expired tax
losses.
|
- 23
-
DENTSPLY
INTERNATIONAL INC. AND SUBSIDIARIES
SELECTED
FINANCIAL DATA
(in
thousands, except per share amounts)
|
Year
ended December 31,
|
||||||||||||||||||||
|
2010
|
2009
|
2008
|
2007
|
2006
|
||||||||||||||||
|
Statement
of Operations Data:
|
||||||||||||||||||||
|
Net
sales
|
$ | 2,221,014 | $ | 2,159,378 | $ | 2,191,465 | $ | 2,009,833 | $ | 1,810,496 | ||||||||||
|
Net
sales, excluding precious metal content
|
2,031,757 | 1,990,666 | 1,991,542 | 1,819,899 | 1,623,074 | |||||||||||||||
|
Gross
profit
|
1,130,158 | 1,106,363 | 1,147,900 | 1,040,783 | 929,011 | |||||||||||||||
|
Restructuring
and other costs
|
10,984 | 6,890 | 32,355 | 10,527 | 7,807 | |||||||||||||||
|
Operating
income
|
380,273 | 381,243 | 380,461 | 354,891 | 314,794 | |||||||||||||||
|
Income
before income taxes
|
357,656 | 363,356 | 354,873 | 358,192 | 314,837 | |||||||||||||||
|
Net
Income
|
267,335 | 274,412 | 283,270 | 259,654 | 223,718 | |||||||||||||||
|
Net
income attributable to DENTSPLY International
|
$ | 265,708 | $ | 274,258 | $ | 283,869 | $ | 259,654 | $ | 223,718 | ||||||||||
|
Earnings
per common share:
|
||||||||||||||||||||
|
Basic
|
$ | 1.85 | $ | 1.85 | $ | 1.90 | $ | 1.71 | $ | 1.44 | ||||||||||
|
Diluted
|
$ | 1.82 | $ | 1.83 | $ | 1.87 | $ | 1.68 | $ | 1.41 | ||||||||||
|
Cash
dividends declared per common share
|
$ | 0.200 | $ | 0.200 | $ | 0.185 | $ | 0.165 | $ | 0.145 | ||||||||||
|
Weighted
Average Common Shares Outstanding:
|
||||||||||||||||||||
|
Basic
|
143,980 | 148,319 | 149,069 | 151,707 | 155,229 | |||||||||||||||
|
Diluted
|
145,985 | 150,102 | 151,679 | 154,721 | 158,271 | |||||||||||||||
|
Balance
Sheet Data:
|
||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 540,038 | $ | 450,348 | $ | 204,249 | $ | 316,323 | $ | 65,143 | ||||||||||
|
Property,
plant and equipment, net
|
423,105 | 439,619 | 432,276 | 371,409 | 329,616 | |||||||||||||||
|
Goodwill
and other intangibles, net
|
1,381,798 | 1,401,682 | 1,380,744 | 1,203,587 | 1,063,030 | |||||||||||||||
|
Total
assets
|
3,257,951 | 3,087,932 | 2,830,400 | 2,675,569 | 2,181,350 | |||||||||||||||
|
Total
debt and notes payable
|
611,769 | 469,325 | 449,474 | 483,307 | 370,156 | |||||||||||||||
|
Equity
|
1,909,912 | 1,906,958 | 1,659,413 | 1,516,106 | 1,273,835 | |||||||||||||||
|
Return
on average equity
|
13.9 | % | 15.4 | % | 17.9 | % | 18.6 | % | 17.8 | % | ||||||||||
|
Long-term
debt to total capitalization
|
24.1 | % | 16.9 | % | 20.3 | % | 24.1 | % | 22.4 | % | ||||||||||
|
Other
Data:
|
||||||||||||||||||||
|
Depreciation
and amortization
|
$ | 66,340 | $ | 65,175 | $ | 56,929 | $ | 50,289 | $ | 47,434 | ||||||||||
|
Cash
flows from operating activities
|
362,324 | 362,489 | 335,981 | 387,697 | 271,855 | |||||||||||||||
|
Capital
expenditures
|
44,236 | 56,481 | 76,440 | 64,163 | 50,616 | |||||||||||||||
|
Interest
expense (income), net
|
20,835 | 16,864 | 15,438 | (2,645 | ) | (1,683 | ) | |||||||||||||
|
Inventory
days
|
100 | 99 | 103 | 92 | 94 | |||||||||||||||
|
Receivable
days
|
54 | 55 | 54 | 51 | 57 | |||||||||||||||
|
Effective
tax rate
|
25.0 | % | 24.5 | % | 20.2 | % | 27.5 | % | 28.9 | % | ||||||||||
- 24
-
Item
7.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The
following Management’s Discussion and Analysis of Financial Conditions and
Results of Operations (“MD&A”) is intended to help the reader understand the
Company’s operations and present business environment. MD&A is
provided as a supplement to, and should be read in conjunction with, the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
contained in Item 8 of this Form 10-K. The following discussion
includes forward-looking statements that involve certain risks and
uncertainties. See “Forward-Looking Statements” in Item 1 of this
Form 10-K. This overview summarizes the MD&A, which includes the
following sections:
|
|
·
|
Business
– a general description of DENTSPLY’s business and how performance is
measured;
|
|
|
·
|
Results
of Operations – an analysis of the Company’s consolidated results of
operations for the three years presented in the consolidated financial
statements;
|
|
|
·
|
Critical
Accounting Estimates – a discussion of accounting policies that require
critical judgments and estimates;
and
|
|
|
·
|
Liquidity
and Capital Resources – an analysis of cash flows; debt and other
obligations; and aggregate contractual
obligations.
|
BUSINESS
DENTSPLY
International Inc. believes it is the world's largest designer, developer,
manufacturer and marketer of professional dental products. The
Company is headquartered in the United States and operates in more than 120
other countries, principally through its foreign subsidiaries. The
Company also has strategically located distribution centers to enable it to
better serve its customers and increase its operating
efficiency. While the United States and Europe are the Company's
largest markets, the Company serves all of the major professional dental markets
worldwide.
Principal
Measurements
The
principal measurements used by the Company in evaluating its business are: (1)
internal growth by geographic region; (2) constant currency growth by geographic
region; (3) operating margins of each reportable segment including product
pricing and cost controls; (4) the development, introduction and contribution of
innovative new products; and (5) growth through acquisition.
The
Company defines “internal growth” as the increase or decrease in net sales from
period to period, excluding (1) precious metal content; (2) the impact of
changes in currency exchange rates; and (3) net acquisition
growth. The Company defines “net acquisition growth” as the net
sales, excluding precious metal content, for a period of twelve months following
the transaction date of businesses that have been acquired, less the net sales,
excluding precious metal content, for a period of twelve months prior to the
transaction date of businesses that have been divested. The Company
defines “constant currency growth” as internal growth plus net acquisition
growth.
Management
believes that an average internal growth rate of 4% to 6% is a long-term
targeted rate for the Company. The internal growth rate may vary outside of this
range based on weaker or stronger economic conditions. Management expects
the Company to operate below this range in 2011 due to the current economic
conditions. Historical trends show that growth in the dental industry
generally performs better than the overall economy; however, it typically lags
the economic trend going into and coming out of slower growth or recessionary
periods. There can be no assurance that the Company’s assumptions
concerning the growth rates in its markets or the general dental market will
continue in the future. If such rates are less than expected, the
Company’s projected growth rates and results of operations may be adversely
affected.
Price
changes, other marketing and promotional programs offered to customers from time
to time, the management of inventory levels by distributors and the
implementation of strategic initiatives may impact sales and inventory levels in
a given period.
The
Company has always maintained a focus on minimizing costs and achieving
operational efficiencies. Management continues to evaluate the
consolidation of operations or functions to reduce the cost. In
addition, the Company remains focused on enhancing efficiency through expanded
use of technology and process improvement initiatives. The Company believes that
the benefits from these initiatives will improve the cost structure and help
offset areas of rising costs such as energy, employee benefits and regulatory
oversight and compliance.
- 25
-
Product
innovation is a key component of the Company's overall growth
strategy. New advances in technology are anticipated to have a
significant influence on future products in dentistry. As a result,
the Company continues to pursue research and development initiatives to support
technological development, including collaborations with various research
institutions and dental schools. In addition, the Company licenses
and purchases technologies developed by third parties. Although the
Company believes these activities will lead to new innovative dental products,
they involve new technologies and there can be no assurance that commercialized
products will be developed.
Although
the professional dental market in which the Company operates has experienced
consolidation, it is still a fragmented industry. The Company
continues to focus on opportunities to expand the Company’s product offerings
through acquisitions. Management believes that there will continue to
be adequate opportunities to participate as a consolidator in the industry for
the foreseeable future.
Impact
of Foreign Currencies
Due to
the international nature of DENTSPLY’s business, movements in foreign exchange
rates may impact the consolidated statements of operations. With over
60% of the Company’s sales located in regions outside the U.S., the Company’s
consolidated net sales are impacted negatively by the strengthening or
positively by the weakening of the U.S. dollar. Additionally,
movements in certain foreign exchange rates may unfavorably or favorably impact
the Company’s gross profit, certain operating expenses, interest expense,
interest income, other expense and other income, as well as the assets and
liabilities.
Reclassification
of Prior Year Amounts
Certain
reclassifications have been made to prior years' data in order to conform to
current year presentation.
RESULTS
OF OPERATIONS
2010
Compared to 2009
Net
Sales
The
discussion below summarizes the Company’s sales growth, excluding precious metal
content, into the following components: (1) constant currency, which includes
internal growth and acquisition growth, and (2) foreign currency
translation. These disclosures of net sales growth provide the reader
with sales results on a comparable basis between periods.
Management
believes that the presentation of net sales, excluding precious metal content,
provides useful information to investors because a significant portion of
DENTSPLY’s net sales is comprised of sales of precious metals generated through
sales of the Company’s precious metal dental alloy products, which are used by
third parties to construct crown and bridge materials. Due to the
fluctuations of precious metal prices and because the precious metal content of
the Company’s sales is largely a pass-through to customers and has minimal
effect on earnings, DENTSPLY reports net sales both with and without precious
metal content to show the Company’s performance independent of precious metal
price volatility and to enhance comparability of performance between
periods. The Company uses its cost of precious metal purchased as a
proxy for the precious metal content of sales, as the precious metal content of
sales is not separately tracked and invoiced to customers. The
Company believes that it is reasonable to use the cost of precious metal content
purchased in this manner since precious metal dental alloy sale prices are
typically adjusted when the prices of underlying precious metals
change.
The
presentation of net sales, excluding precious metal content, is considered a
measure not calculated in accordance with US GAAP, and is therefore considered a
non-US GAAP measure. The Company provides the following
reconciliation of net sales to net sales, excluding precious metal
content. The Company’s definitions and calculations of net sales,
excluding precious metal content, and other operating measures derived using net
sales, excluding precious metal content, may not necessarily be the same as
those used by other companies.
|
Year
Ended December 31,
|
||||||||||||||||
|
(in
millions)
|
2010
|
2009
|
$ Change
|
% Change
|
||||||||||||
|
Net
sales
|
$ | 2,221.0 | $ | 2,159.4 | $ | 61.6 | 2.9 | % | ||||||||
|
Less:
Precious metal content of sales
|
189.2 | 168.7 | 20.5 | 12.2 | % | |||||||||||
|
Net
sales, excluding precious metal content
|
$ | 2,031.8 | $ | 1,990.7 | $ | 41.1 | 2.1 | % | ||||||||
- 26
-
The 2.1%
increase in net sales, excluding precious metal content, included constant
currency growth of 2.6%, offset by currency translation, which reduced net
sales, excluding precious metal content, by 0.5%. The constant
currency sales growth was comprised of internal growth of 2.1% and acquisition
growth of 0.5%.
Constant
Currency Sales Growth
The
following table includes growth rates for net sales, excluding precious metal
content.
|
Year Ended December 31, 2010
|
||||||||||||||||
|
United
States
|
Europe
|
All Other
Regions
|
Worldwide
|
|||||||||||||
|
Internal
sales growth
|
0.1 | % | 2.9 | % | 4.1 | % | 2.1 | % | ||||||||
|
Acquisition
sales growth
|
- | 0.8 | % | 0.6 | % | 0.5 | % | |||||||||
|
Constant
currency sales growth
|
0.1 | % | 3.7 | % | 4.7 | % | 2.6 | % | ||||||||
|
Year Ended December 31, 2009
|
||||||||||||||||
|
United
States
|
Europe
|
All Other
Regions
|
Worldwide
|
|||||||||||||
|
Internal
sales growth
|
(1.7 | )% | (3.8 | )% | 0.3 | % | (2.1 | )% | ||||||||
|
Acquisition
sales growth
|
1.0 | % | 7.8 | % | 4.3 | % | 4.4 | % | ||||||||
|
Constant
currency sales growth
|
(0.7 | )% | 4.0 | % | 4.6 | % | 2.3 | % | ||||||||
United
States
During
2010, net sales, excluding precious metal content, were slightly positive, at
0.1% in the U. S. on a constant currency and internal growth
basis. Growth in dental specialty and dental consumable sundry
products, along with a strong recovery in non-dental sales were offset by lower
sales in dental laboratory and dental consumable small equipment
products.
Europe
During
2010, net sales, excluding precious metal content, increased 3.7% in Europe on a
constant currency basis, including 2.9% internal growth and acquisition growth
of 0.8%. Internal sales growth was primarily driven by growth in the
dental consumables, dental specialty and non-dental products and a business
recovery in the CIS markets, which experienced customer liquidity constraints
during 2009. These gains were partially offset by lower sales in the
dental laboratory products.
All Other
Regions
During
2010, net sales, excluding precious metal content, increased 4.7% across all
other regions on a constant currency basis, including 4.1% internal growth and
acquisition growth of 0.6%. Internal sales growth was driven
primarily by growth in dental specialty products, as well as increases for
dental consumable and non-dental products.
Gross
Profit
|
Year
Ended December 31,
|
||||||||||||||||
|
(in
millions)
|
2010
|
2009
|
$ Change
|
% Change
|
||||||||||||
|
Gross
profit
|
$ | 1,130.2 | $ | 1,106.4 | $ | 23.8 | 2.2 | % | ||||||||
|
Gross
profit as a percentage of net sales, including precious metal
content
|
50.9 | % | 51.2 | % | ||||||||||||
|
Gross
profit as a percentage of net sales, excluding precious metal
content
|
55.6 | % | 55.6 | % | ||||||||||||
- 27
-
Gross
profit as a percentage of net sales, excluding precious metal content, was flat
during 2010 compared to 2009. Product price increases and cost
containment across the Company’s product distribution function were offset by
unfavorable product mix and negative foreign currency movements.
Expenses
Selling, General and
Administrative (“SG&A”) Expenses
|
Year
Ended December 31,
|
||||||||||||||||
|
(in
millions)
|
2010
|
2009
|
$ Change
|
% Change
|
||||||||||||
|
SG&A
expenses
|
$ | 738.9 | $ | 718.2 | $ | 20.7 | 2.9 | % | ||||||||
|
SG&A
expenses as a percentage of net sales, including precious metal
content
|
33.3 | % | 33.3 | % | ||||||||||||
|
SG&A
expenses as a percentage of net sales, excluding precious metal
content
|
36.4 | % | 36.1 | % | ||||||||||||
The
increase in SG&A expenses as a percentage of net sales, excluding precious
metal content, from 2009 to 2010 was primarily due to new investments in certain
businesses, increased spending in support of new product introductions,
reinstatement of annual salary increases and increases in certain discretionary
spending categories, such as travel expenses, partially offset by benefits from
expense reductions in other areas of the business. The Company
continues to maintain its focus on reducing costs and achieving operational
efficiencies through the consolidation of operations or functions where
opportunities exist.
Restructuring and Other
Costs
|
Year
Ended December 31,
|
|||||||||||||
|
(in
millions)
|
2010
|
2009
|
$ Change
|
% Change
|
|||||||||
|
Restructuring
and other costs
|
$ | 11.0 | $ | 6.9 | $ | 4.1 |
NM
|
||||||
NM- not
meaningful
The
Company recorded net restructuring and other costs of $11.0 million in 2010
compared to $6.9 million in 2009. The Company incurred $5.8 million
of costs related to several restructuring plans. These costs consist
of employee severance benefits, payments due under operating contracts and other
restructuring costs. The restructuring plans related to the continued
effort to streamline the Company’s operations to better leverage the Company’s
resources by reducing costs and obtaining operational
efficiencies. Additionally the Company recorded certain other costs
of $5.2 million of which $3.7 million was related to legal matters.
In 2009,
the Company incurred $5.9 million of costs related to several restructuring
plans in response to the worldwide economic crisis that began in late
2008. The restructuring plans related to the closure and/or
consolidation of certain production and selling facilities in the United States,
Europe and South America to better leverage the Company’s resources by reducing
costs and obtaining operational efficiencies. Additionally, the
Company executed targeted reductions in workforce both in the manufacturing and
non-manufacturing business functions in certain locations. Also, the
Company recorded certain other costs related to legal matters and an impairment
of an intangible asset.
Other
Income and Expenses
|
|
Year
Ended December 31,
|
|||||||||||
|
(in
millions)
|
2010
|
2009
|
$ Change
|
|||||||||
|
|
||||||||||||
|
Net
interest expense
|
$ | 20.8 | $ | 16.9 | $ | 3.9 | ||||||
|
Other
expense, net
|
1.8 | 1.0 | 0.8 | |||||||||
|
Net
interest and other expense
|
$ | 22.6 | $ | 17.9 | $ | 4.7 | ||||||
- 28
-
Net Interest
Expense
The
change in net interest expense in 2010 compared to 2009, for the year ended
December 31, was mainly the result of higher average debt levels in the U.S.,
and lower cash levels due as a result of stock repurchases and investments in
acquisitions combined with weaker average euro exchange and lower average euro
interest rates on higher average euro cash balances. Interest income
decreased $0.7 million on lower average interest rates on euro investment
balances which were 50 basis points lower in the current year than the prior
year and the U.S. dollar was 7% stronger against the euro. Interest
expense increased $3.2 million on higher average debt partially offset by lower
interest rate difference on net investment hedges. The impact of the
Company’s net investment hedges typically move in the opposite direction of
currency movements, reducing some of the volatility caused by movement in
exchange rates on the Company’s income and equity.
Other Expense,
Net
Other
expense in the 2010 period included approximately $3.3 million of currency
transaction losses and $1.5 million of other non-operating income. The 2009
period included $0.3 million of currency transaction losses and $0.7 million of
other non-operating costs.
Income
Taxes and Net Income
|
Year
Ended December 31,
|
||||||||||||
|
(in
millions, except per share amounts)
|
2010
|
2009
|
$ Change
|
|||||||||
|
Effective
income tax rate
|
25.0 | % | 24.5 | % | ||||||||
|
Equity
in net loss of unconsolidated affilated company
|
$ | (1.1 | ) | $ | - | $ | (1.1 | ) | ||||
|
Net
income (loss) attributable to noncontrolling interests
|
$ | 1.6 | $ | 0.2 | $ | 1.4 | ||||||
|
Net
income attributable to DENTSPLY International
|
$ | 265.7 | $ | 274.3 | $ | (8.6 | ) | |||||
|
Diluted
earnings per common share
|
$ | 1.82 | $ | 1.83 | ||||||||
Income
Taxes
The
Company’s effective income tax rates for 2010 and 2009 were 25.0% and 24.5%,
respectively. In 2010, the Company’s effective income tax rate
included the impact of restructuring and other costs, acquisition related
activity, provisions for a credit risk adjustment to outstanding derivatives and
various income tax adjustments, which impacted income before income taxes and
the provision for income taxes by $14.9 million and $3.3 million,
respectively. In 2009, the Company’s effective income tax rate
included the impact of restructuring and other costs, acquisition related
activity and various income tax adjustments, which impacted income before income
taxes and the provision for income taxes by $11.0 million and $8.8 million,
respectively. In 2009, various income tax adjustments included the
impact of settlements with taxing authorities and statutes
closures.
Equity in net loss of
unconsolidated affiliated company
The
Company’s 16% ownership investment of DIO Corporation on December 9, 2010
resulted in a net loss of $1.1 million on an after-tax basis for
2010. The net loss of DIO was the result of mark-to-market charges
related to the derivative accounting for the convertible bonds issued by DIO to
DENTSPLY. The Company’s portion of the mark-to-market net loss
incurred by DIO was approximately $1.1 million.
Net income (loss)
attributable to noncontrolling interests
The
portion of consolidated net income attributable to noncontrolling interests
increased $1.4 million from 2009 to 2010. The increase is primarily
attributable to the strengthening performance of the Company’s Zhermack
division, where the Company has had a 60% ownership investment since December
2008.
- 29
-
Net income attributable to
DENTSPLY International
In
addition to the results reported in accordance with US GAAP, the Company
provides adjusted net income attributable to DENTSPLY International and adjusted
earnings per diluted common share. These adjusted amounts consist of US
GAAP amounts excluding (1) restructuring and other costs, (2) acquisition
related charges, (3) loss on a derivative at an unconsolidated affiliated
company, (4) income tax related adjustments, and (5) credit risk adjustment to
outstanding derivatives. Adjusted earnings per diluted common share is
calculated by dividing adjusted net income attributable to DENTSPLY
International by diluted weighted-average common shares
outstanding. Adjusted net income attributable to DENTSPLY
International and adjusted earnings per diluted common share are considered
measures not calculated in accordance with US GAAP, and therefore are non-US
GAAP measures. These non-US GAAP measures may differ from other
companies.
The
Company believes that the presentation of adjusted net income attributable to
DENTSPLY International and adjusted earnings per diluted common share provides
important supplemental information to management and investors seeking to
understand the Company’s financial condition and results of operations.
The non-US GAAP financial information should not be considered in isolation
from, or as a substitute for, measures of financial performance prepared in
accordance with US GAAP.
|
Year
Ended December 31, 2010
|
||||||||
|
Income
|
Per
Diluted
|
|||||||
|
(in
thousands, except per share amounts)
|
(Expense)
|
Common Share
|
||||||
|
Net
income attributable to DENTSPLY International
|
$ | 265,708 | $ | 1.82 | ||||
|
Restructuring
and other costs, net of tax and noncontrolling interests
|
7,139 | 0.05 | ||||||
|
Acquisition
related activities, net of tax and noncontrolling
interests
|
2,152 | 0.01 | ||||||
|
Loss
on derivative at an unconsolidated affiliated company
|
1,131 | 0.01 | ||||||
|
Income
tax related adjustments
|
1,073 | 0.01 | ||||||
|
Credit
risk adjustment to outstanding derivatives, net of tax
|
732 | 0.01 | ||||||
|
Rounding
|
- | (0.01 | ) | |||||
|
Adjusted
non-US GAAP earnings
|
$ | 277,935 | $ | 1.90 | ||||
|
Year
Ended December 31, 2009
|
||||||||
|
Income
|
Per
Diluted
|
|||||||
|
(in
thousands, except per share amounts)
|
(Expense)
|
Common Share
|
||||||
|
Net
income attributable to DENTSPLY International
|
$ | 274,258 | $ | 1.83 | ||||
|
Restructuring
and other costs, net of tax and noncontrolling interests
|
5,075 | 0.03 | ||||||
|
Acquisition
related activities, net of tax and noncontrolling
interests
|
1,830 | 0.01 | ||||||
|
Income
tax related adjustments
|
(5,423 | ) | (0.03 | ) | ||||
|
Adjusted
non-US GAAP earnings
|
$ | 275,740 | $ | 1.84 | ||||
Operating
Segment Results
The
Company’s operating businesses are combined into operating groups, which have
overlapping product offerings, geographic 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. Each of
these operating groups covers a wide range of product categories and geographic
regions. The product categories and geographic regions often overlap
across the groups. Further information regarding the details of each
group is presented in Note 4, Segment and Geographic Information, to the
consolidated financial statements. The management of each group is
evaluated for performance and incentive compensation purposes on net third party
sales, excluding precious metal content, and segment operating
income.
In
January 2010, the Company moved the reporting responsibility for several
locations between segments which resulted in a change to the management
structure and helped the Company gain operating efficiencies and
effectiveness. The segment information below reflects this revised
structure for all periods shown.
- 30
-
|
Net Sales, Excluding Precious Metal Content
|
||||||||||||||||
|
(in millions)
|
Year Ended December 31,
|
|||||||||||||||
|
2010
|
2009
|
$ Change
|
% Change
|
|||||||||||||
|
U.S., Germany
and Certain Other
|
||||||||||||||||
|
European
Regions Consumable Businesses
|
$ | 526.8 | $ | 526.7 | $ | 0.1 | - | |||||||||
|
France,
U.K., Italy and Certain Other
|
||||||||||||||||
|
European
Countries, CIS, Middle East,
|
||||||||||||||||
|
Africa,
Pacific Rim Businesses
|
$ | 445.6 | $ | 436.8 | $ | 8.8 | 2.0 | % | ||||||||
|
Canada/Latin
America/Endodontics/
|
||||||||||||||||
|
Orthodontics
|
$ | 662.6 | $ | 618.4 | $ | 44.2 | 7.1 | % | ||||||||
|
Dental
Laboratory Business/
|
||||||||||||||||
|
Implants/Non-Dental
|
$ | 400.1 | $ | 412.2 | $ | (12.1 | ) | (2.9 | )% | |||||||
|
Segment Operating Income
|
||||||||||||||||
|
(in millions)
|
Year Ended December 31,
|
|||||||||||||||
|
2010
|
2009
|
$ Change
|
% Change
|
|||||||||||||
|
U.S.,
Germany and Certain Other
|
||||||||||||||||
|
European
Regions Consumable Businesses
|
$ | 176.1 | $ | 158.4 | $ | 17.7 | 11.2 | % | ||||||||
|
France,
U.K., Italy and Certain Other
|
||||||||||||||||
|
European
Countries, CIS, Middle East,
|
||||||||||||||||
|
Africa,
Pacific Rim Businesses
|
$ | 17.2 | $ | 19.7 | $ | (2.5 | ) | (12.7 | )% | |||||||
|
Canada/Latin
America/Endodontics/
|
||||||||||||||||
|
Orthodontics
|
$ | 195.8 | $ | 185.8 | $ | 10.0 | 5.4 | % | ||||||||
|
Dental
Laboratory Business/
|
||||||||||||||||
|
Implants/Non-Dental
|
$ | 83.4 | $ | 92.6 | $ | (9.2 | ) | (9.9 | )% | |||||||
U.S.,
Germany and Certain Other European Regions Consumable Businesses
Net
sales, excluding precious metal content, were unchanged between the years ended
December 31, 2010 and 2009. On a constant currency basis, net sales,
excluding precious metals content, increased 1.6%, which included positive
endodontic sales and dental consumable product sales, excluding small equipment,
where 2009 was favorably impacted by increased net sales from promotional
activities.
Operating
income increased $17.7 million during the year ended December 31, 2010 compared
to 2009. Operating income was positively impacted by gross profit,
which was a result of higher net sales in European consumables markets, improved
manufacturing performance and an increase in sales price. Additionally, the 2009
results included a roll-off of inventory step-up related to acquisitions of $4
million. Operating income was further helped by a $6 million decrease
in selling, general and administrative expenses for 2010, of which half was due
to foreign currency translation.
France,
U.K., Italy and Certain Other European Countries, CIS, Middle East, Africa,
Pacific Rim Businesses
Net
sales, excluding precious metal content, increased $8.8 million, or 2.0%, during
the year ended December 31, 2010 compared to 2009. On a constant
currency basis, net sales, excluding precious metal content, increased $8.6
million, or 2.0%. This increase is primarily related to the
continuing business recovery in the CIS markets.
- 31
-
Operating
income decreased $2.5 million during the year ended December 31, 2010 compared
to 2009. The decrease was driven primarily attributable to $4 million
higher expenses for certain investments in emerging markets partially offset by
an increase of $1.5 million in gross profit, primarily due to foreign currency
translation.
Canada/Latin
America/Endodontics/Orthodontics
Net
sales, excluding precious metal content, increased $44.2 million, or 7.1%,
during the year ended December 31, 2010 compared to 2009. On a
constant currency basis, net sales, excluding precious metal content, increased
by 5.5% primarily driven by dental specialty and non-dental
products. In addition, the 5.5% of constant currency growth included
1.1% of acquisition growth.
Operating
income increased $10.0 million during the year ended December 31, 2010 compared
to 2009. The increase was driven by a $25 million increase in gross
profit which was primarily from the endodontics business, as well as favorable
impacts from foreign currency translation. Offsetting this increase
in gross profit was a $15 million increase in selling, general and
administrative costs, which included incremental investments to promote certain
dental specialty products, the negative impact of foreign currency translation
and increased expenses in the Latin America businesses.
Dental
Laboratory Business/Implants/Non-Dental
Net
sales, excluding precious metal content, decreased $12.1 million, or 2.9%,
during the year ended December 31, 2010 compared to 2009. On a
constant currency basis, net sales, excluding precious metal content were flat
as growth in the dental implant and non-dental businesses was offset by the
dental laboratory business.
Operating
income decreased $9.2 million during the year ended December 31, 2010 compared
to 2009, primarily due to lower operating income in the dental laboratory
business.
RESULTS
OF OPERATIONS
2009
Compared to 2008
Net
Sales
The
discussion below summarizes the Company’s sales growth, excluding precious metal
content, from internal growth and net acquisition growth and highlights the
impact of foreign currency translation. These disclosures of net
sales growth provide the reader with sales results on a comparable basis between
periods.
|
Year Ended December 31,
|
||||||||||||||||
|
(in millions)
|
2009
|
2008
|
$ Change
|
% Change
|
||||||||||||
|
Net
sales
|
$ | 2,159.4 | $ | 2,191.5 | $ | (32.1 | ) | (1.5 | )% | |||||||
|
Less:
Precious metal content of sales
|
168.7 | 200.0 | (31.3 | ) | (15.7 | )% | ||||||||||
|
Net
sales, excluding precious metal content
|
$ | 1,990.7 | $ | 1,991.5 | $ | (0.8 | ) | - | ||||||||
Net
sales, excluding precious metal content, for 2009 was $1,990.7 million, which
remained relatively unchanged when compared to 2008. Net sales,
excluding precious metal content, included constant currency growth of 2.3%,
offset by currency translation, which reduced sales by
2.4%. The constant currency sales growth was comprised of
acquisition growth of 4.4%, partially offset by internal growth of negative
2.1%. Sales for dental products grew on a constant currency basis by
3.0%, including internal growth of negative 1.3% and acquisition growth of
4.3%.
Internal
Sales Growth
United
States
In 2009,
net sales, excluding precious metal content, decreased 0.7% in the United States
on a constant currency basis, including 1.0% acquisition growth and internal
growth of negative 1.7%. The negative internal growth was primarily
driven by lower sales in dental laboratory and non-dental products, which was
partially offset by internal growth in dental consumables products.
- 32
-
Europe
In 2009,
net sales, excluding precious metal content, increased 4.0% in Europe on a
constant currency basis, including 7.8% acquisition growth and internal growth
of negative 3.8%. The negative internal growth was primarily driven
by lower sales in dental consumables, dental laboratory products and non-dental
products, which was partially offset by internal growth in dental specialty
products.
All Other
Regions
In 2009,
net sales, excluding precious metal content, increased 4.6% across all other
regions on a constant currency basis, including 4.3% acquisition growth and
internal growth of 0.3%. The dental consumables and dental specialty
products had positive internal growth, which was partially offset by negative
internal growth in dental laboratory and non-dental products.
Gross
Profit
|
Year Ended December 31,
|
||||||||||||||||
|
(in millions)
|
2009
|
2008
|
$ Change
|
% Change
|
||||||||||||
|
Gross
profit
|
$ | 1,106.4 | $ | 1,147.9 | $ | (41.5 | ) | (3.6 | )% | |||||||
|
Gross
profit as a percentage of net sales, including precious metal
content
|
51.2 | % | 52.4 | % | ||||||||||||
|
Gross
profit as a percentage of net sales, excluding precious metal
content
|
55.6 | % | 57.6 | % | ||||||||||||
Gross
profit as a percentage of net sales, excluding precious metal content, decreased
2.0 percentage points in 2009 compared to 2008. The decrease is the
result of unfavorable product and geographic sales mix, unfavorable
manufacturing overhead absorption and movements in foreign
currencies. Additionally, acquisitions completed in 2008 negatively
impacted gross profit as a percentage of net sales.
Expenses
Selling, General and
Administrative Expenses
|
Year Ended December 31,
|
||||||||||||||||
|
(in millions)
|
2009
|
2008
|
$ Change
|
% Change
|
||||||||||||
|
SG&A
expenses
|
$ | 718.2 | $ | 735.1 | $ | (16.9 | ) | (2.3 | )% | |||||||
|
SG&A
expenses as a percentage of net sales, including precious metal
content
|
33.3 | % | 33.5 | % | ||||||||||||
|
SG&A
expenses as a percentage of net sales, excluding precious metal
content
|
36.1 | % | 36.9 | % | ||||||||||||
The
reduction in SG&A expenses as a percentage of net sales, excluding precious
metal content, was largely the result of the Company’s focus on cost containment
in response to the recessionary economic conditions that occurred in late 2008
through 2009. In early 2009, the Company undertook action on
discretionary expense categories, such as travel, and addressed
non-discretionary expense categories where appropriate. Additionally,
the Company executed several restructuring plans that focused on reductions in
overhead spending. Although cost reductions were made across the
Company, management continues to focus on controlling costs while creating and
maintaining financial flexibility. These cost containment efforts
were partially offset by a higher percentage of SG&A expenses in businesses
acquired in 2008, costs related to the 2009 biennial International Dental Show
and cost increases and higher investments in sales and marketing to support
future growth in certain geographic areas.
- 33
-
Restructuring and Other
Costs
|
Year Ended December 31,
|
|||||||||||||
|
(in millions)
|
2009
|
2008
|
$ Change
|
% Change
|
|||||||||
|
Restructuring
and other costs
|
$ | 6.9 | $ | 32.4 | $ | (25.5 | ) |
NM
|
|||||
|
NM
- Not Meaningful
|
|||||||||||||
The
Company recorded net restructuring and other costs of $6.9 million in 2009
compared to $32.4 million in 2008. The Company incurred $5.9 million
of costs in 2009 related to several restructuring plans in response to the
worldwide economic crisis that began in late 2008. The restructuring
plans related to the closure and/or consolidation of certain production and
selling facilities in the United States, Europe and South America to better
leverage the Company’s resources by reducing costs and obtaining operational
efficiencies. Additionally, the Company executed targeted reductions
in workforce both in the manufacturing and non-manufacturing business functions
in certain locations. Also, the Company recorded certain other costs
related to legal matters and an impairment of an intangible
asset. The 2010 restructuring plans and ongoing benefits associated
with these plans were immaterial to the current period as well as future
periods. The majority of the benefits of the 2009 and 2008 and prior
period restructuring plans have been incorporated into the Company’s
results. While certain restructuring plans continue to be executed,
the future benefits of these on the Company’s results would be immaterial in the
period realized.
In 2008,
the Company recorded costs of $24.2 million related to legal settlements and
impairments of long-term assets. The legal settlements related to
several legal matters with multiple plaintiffs. These cases included
a patent dispute and cases relating to a prior distribution practice of the
Company in connection with the sale of artificial teeth. The
impairment charge was related to abandonment of patented technology purchased in
2005 and the impairment of a long-term note receivable recorded from a sale of a
business in 2006. The impairment of the long-term note receivable
occurred as the result of a change in payment terms on the non-interest bearing
note receivable. Additionally, the Company initiated several
restructuring plans primarily related to the closure and consolidation of
certain production and selling facilities in the United States, Europe and Asia
to better leverage the Company’s resources by reducing costs and obtaining
operational efficiencies. These restructuring plans included charges
of $5.9 million. The Company also expensed $2.3 million for the fair
value of in-process research and development associated with acquired businesses
(See Note 14, Restructuring and Other Costs, to the consolidated financial
statements).
Other
Income and Expenses
|
Year Ended December 31,
|
||||||||||||
|
(in millions)
|
2009
|
2008
|
$ Change
|
|||||||||
|
Net
interest expense (income)
|
$ | 16.9 | $ | 15.4 | $ | 1.5 | ||||||
|
Other
expense (income), net
|
1.0 | 10.2 | (9.2 | ) | ||||||||
|
Net
interest and other expense (income)
|
$ | 17.9 | $ | 25.6 | $ | (7.7 | ) | |||||
Net Interest Expense
(Income)
The
change in net interest expense in 2009 compared to 2008 was primarily due to
lower interest rates earned on invested cash balances offset by lower average
debt and interest rates on the Company’s Euro net investment
hedges. The impact of the Company’s net investment hedges typically
move in the opposite direction of currency movements, reducing some of the
volatility caused by movement in exchange rates on the Company’s income and
equity.
Other Expense (Income),
Net
Other
expense in the 2009 period included approximately $0.3 million of currency
transaction losses and $0.7 million of other non-operating costs. The 2008
period included $8.9 million of currency transaction losses and $1.3 million of
other non-operating costs. In the fourth quarter of 2008, currency exchange rate
volatility was extremely high and global currencies weakened versus the U.S.
Dollar. The Company incurred transaction losses, mostly in the fourth
quarter of 2008, on settlement of intercompany and third party
transactions.
- 34
-
Income
Taxes and Net Income
|
Year Ended December 31,
|
||||||||||||
|
(in millions, except per share amounts)
|
2009
|
2008
|
$ Change
|
|||||||||
|
Effective
income tax rate
|
24.5 | % | 20.2 | % | ||||||||
|
Net
income attributable to DENTSPLY International
|
$ | 274.3 | $ | 283.9 | $ | (9.6 | ) | |||||
|
Diluted
earnings per common share
|
$ | 1.83 | $ | 1.87 | ||||||||
Income
Taxes
The
Company’s effective income tax rates for 2009 and 2008 were 24.5% and 20.2%,
respectively. In 2009, the Company’s effective income tax rate
included the impact of restructuring, impairments and other costs, acquisition
related activity and various income tax adjustments, which impacted income
before income taxes and the provision for income taxes by $11.0 million and $8.8
million, respectively. In 2008, the Company’s effective income tax
rate included the impact of restructuring, impairments and other costs,
acquisition related activity, provisions for the fair value measurement
adjustment and various income tax adjustments, which impacted income before
income taxes and the provision for income taxes by $30.5 million and $28.3
million, respectively. The various income tax adjustments included
the impact of settlements with taxing authorities and statutes closures for both
periods.
Net Income attributable to
DENTSPLY International
In
addition to the results reported in accordance with US GAAP, the Company
provides adjusted net income attributable to DENTSPLY International and adjusted
earnings per diluted common share. These adjusted amounts consist of US
GAAP amounts excluding (1) restructuring and other costs, (2) acquisition
related charges, (3) income tax related adjustments, and (4) credit risk
adjustments. Adjusted earnings per diluted common share is calculated by
dividing adjusted net income attributable to DENTSPLY International by diluted
weighted-average common shares outstanding. Adjusted net income
attributable to DENTSPLY International and adjusted earnings per diluted common
share are considered measures not calculated in accordance with US GAAP, and
therefore are non-US GAAP measures. These non-US GAAP measures may differ
from other companies.
The
Company believes that the presentation of adjusted net income attributable to
DENTSPLY International and adjusted earnings per diluted common share provides
important supplemental information to management and investors seeking to
understand the Company’s financial condition and results of operations.
The non-US GAAP financial information should not be considered in isolation
from, or as a substitute for, measures of financial performance prepared in
accordance with US GAAP.
|
Year Ended December 31, 2009
|
||||||||
|
Income
|
Per Diluted
|
|||||||
|
(in thousands, except per share amounts)
|
(Expense)
|
Common Share
|
||||||
|
Net
income attributable to DENTSPLY International
|
$ | 274,258 | $ | 1.83 | ||||
|
Restructuring
and other costs, net of tax and
|
||||||||
|
noncontrolling
interests
|
5,075 | 0.03 | ||||||
|
Acquisition
related activities, net of tax and
|
||||||||
|
noncontrolling
interests
|
1,830 | 0.01 | ||||||
|
Income
tax related adjustments
|
(5,423 | ) | (0.03 | ) | ||||
|
Adjusted
non-US GAAP earnings
|
$ | 275,740 | $ | 1.84 | ||||
- 35
-
|
Year Ended December 31, 2008
|
||||||||
|
Income
|
Per Diluted
|
|||||||
|
(in thousands, except per share amounts)
|
(Expense)
|
Common Share
|
||||||
|
Net
income attributable to DENTSPLY International
|
$ | 283,869 | $ | 1.87 | ||||
|
Restructuring
and other costs, net of tax and noncontrolling interests
|
19,770 | 0.13 | ||||||
|
Credit
risk adjustment to outstanding derivatives, net of tax
|
(1,129 | ) | (0.01 | ) | ||||
|
Income
tax related adjustments
|
(17,055 | ) | (0.11 | ) | ||||
|
Adjusted
non-US GAAP earnings
|
$ | 285,455 | $ | 1.88 | ||||
Operating
Segment Results
The
Company’s operating businesses are combined into operating groups, which have
overlapping product offerings, geographic 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. Each of
these operating groups covers a wide range of product categories and geographic
regions. The product categories and geographic regions often overlap
across the groups. Further information regarding the details of each
group is presented in Note 4, Segment and Geographic Information, to the
consolidated financial statements. The management of each group is
evaluated for performance and incentive compensation purposes on net third party
sales, excluding precious metal content, and segment operating
income.
In
January 2009, the Company moved the reporting responsibility for several
locations between segments which resulted in a change to the management
structure and helped the Company gain operating efficiencies and
effectiveness. The segment information below reflects this revised
structure for all periods shown.
|
Net Sales, Excluding Precious Metal Content
|
||||||||||||||||
|
(in millions)
|
Year Ended December 31,
|
|||||||||||||||
|
2009
|
2008
|
$ Change
|
% Change
|
|||||||||||||
|
U.S.,
Germany and Certain Other
|
||||||||||||||||
|
European
Regions Consumable Businesses
|
$ | 526.7 | $ | 459.7 | $ | 67.0 | 14.6 | % | ||||||||
|
France,
U.K., Italy and Certain Other
|
||||||||||||||||
|
European
Countries, CIS, Middle East,
|
||||||||||||||||
|
Africa,
Pacific Rim Businesses
|
$ | 436.8 | $ | 456.2 | $ | (19.4 | ) | (4.3 | )% | |||||||
|
Canada/Latin
America/Endodontics/
|
||||||||||||||||
|
Orthodontics
|
$ | 618.4 | $ | 628.9 | $ | (10.5 | ) | (1.7 | )% | |||||||
|
Dental
Laboratory Business/
|
||||||||||||||||
|
Implants/Non-Dental
|
$ | 412.2 | $ | 452.4 | $ | (40.2 | ) | (8.9 | )% | |||||||
- 36
-
|
Segment Operating Income
|
||||||||||||||||
|
(in millions)
|
Year Ended December 31,
|
|||||||||||||||
|
2009
|
2008
|
$ Change
|
% Change
|
|||||||||||||
|
U.S.,
Germany and Certain Other
|
||||||||||||||||
|
European
Regions Consumable Businesses
|
$ | 158.4 | $ | 162.7 | $ | (4.3 | ) | (2.6 | )% | |||||||
|
France,
U.K., Italy and Certain Other
|
||||||||||||||||
|
European
Countries, CIS, Middle East,
|
||||||||||||||||
|
Africa,
Pacific Rim Businesses
|
$ | 19.7 | $ | 14.5 | $ | 5.2 | 35.9 | % | ||||||||
|
Canada/Latin
America/Endodontics/
|
||||||||||||||||
|
Orthodontics
|
$ | 185.8 | $ | 200.1 | $ | (14.3 | ) | (7.1 | )% | |||||||
|
Dental
Laboratory Business/
|
||||||||||||||||
|
Implants/Non-Dental
|
$ | 92.6 | $ | 123.4 | $ | (30.8 | ) | (25.0 | )% | |||||||
U.S.,
Germany and Certain Other European Regions Consumable Businesses
Net
sales, excluding precious metal content, increased $67.0 million, or 14.6%
during the year ended December 31, 2009 compared to 2008. On a
constant currency basis, sales increased 15.7%, which was driven primarily by
acquisition growth of 14.8%.
Operating
income decreased $4.3 million during the year ended December 31, 2009 compared
to 2008. Operating income was negatively affected by lower sales in
certain European markets, unfavorable product and geographic sales mix, and
currency translation. In addition, the decrease in operating income included the
roll-off of a $4 million inventory step-up related to an acquisition completed
in late 2008. The segment, excluding an acquisition completed in
2008, reduced operating expenses during 2009 when compared to the same period in
2008 by $5 million.
France,
U.K., Italy and Certain Other European Countries, CIS, Middle East, Africa,
Pacific Rim Businesses
Net
sales, excluding precious metal content, decreased $19.4 million, or 4.3% during
the year ended December 31, 2009 compared to 2008, of which negative 2.9% was
the result of currency translation. On a constant currency basis,
sales were negative 1.4% primarily due to lower sales in the CIS partially
offset by an acquisition growth of 1.5% and growth in the Pacific Rim businesses
of 1.1%.
Operating
income increased $5.2 million during the year ended December 31, 2009 compared
to 2008. Gross profit decreased $2 million primarily due to the
negative impact of foreign currency translation and lower sales in the CIS,
partially offset by higher sales and gross profit in the Pacific
Rim. More than offsetting this decrease in gross profit was a
reduction in selling, general and administrative cost of $7 million, of which,
approximately one half was due to foreign currency translation.
Canada/Latin
America/Endodontics/Orthodontics
Net
sales, excluding precious metal content, decreased $10.5 million, or 1.7% during
the year ended December 31, 2009 compared to 2008, of which negative 2.4% was
the result of currency translation. On a constant currency basis,
sales increased by 0.7% as a result of an acquisition completed in
2008.
Operating
income decreased $14.3 million during the year ended December 31, 2009 compared
to 2008. The decrease was the result of a $19 million decrease in
gross profit due to lower sales in non-dental products, unfavorable absorption
and a negative impact from foreign currency translations of $6
million. Partially offsetting this decrease in gross profit is a
reduction in selling, general and administrative of $5 million, primarily due to
the impact of foreign currency translation.
Dental
Laboratory Business/Implants/Non-Dental
Net
sales, excluding precious metal content, decreased $40.2 million, or 8.9% during
the year ended December 31, 2009 compared to 2008, of which negative 3.3% was
the result of currency translation. On a constant currency basis, sales
decreased 5.6%, primarily driven by the lower sales in dental laboratory
products, dental implant products and non-dental products partially offset by
acquisition growth of 2.2%.
- 37
-
Operating
income decreased $30.8 million during the year ended December 31, 2009 compared
to 2008 as a result of profitability being down across the segment primarily
related to lower sales in the dental laboratory businesses, unfavorable product
sales mix and foreign currency translation.
CRITICAL
ACCOUNTING JUDGMENTS AND POLICIES
The
preparation of the Company’s consolidated financial statements in conformity
with US GAAP requires the Company to make estimates and assumptions about future
events that affect the amounts reported in the consolidated financial statements
and accompanying notes. Future events and their effects cannot be
determined with absolute certainty. Therefore, the determination of
estimates requires the exercise of judgment. Actual results could
differ from those estimates, and such differences may be material to the
consolidated financial statements. The process of determining
significant estimates is fact specific and takes into account factors such as
historical experience, current and expected economic conditions, product mix and
in some cases, actuarial techniques. The Company evaluates these significant
factors as facts and circumstances dictate. Some events as described
below could cause results to differ significantly from those determined using
estimates. The Company has identified below the accounting estimates
believed to be critical to its business and results of operations.
Accounts
Receivable
The
Company sells dental products both through a worldwide network of distributors
and directly to end users. For customers on credit terms, the Company
performs an 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. If the
financial condition of the Company’s customers were to improve or deteriorate,
their ability to make required payments may become less or more impaired and
decreases or increases in these allowances may be required. In
addition, a negative impact on sales to those customers may occur.
Inventories
Inventories
are stated at the lower of cost or market. The cost of inventories is
determined primarily by the first-in, first-out (“FIFO”) or average cost
methods, with a small portion being determined by the last in, first-out
(“LIFO”) method. The Company establishes reserves for inventory
estimated to be obsolete or unmarketable equal to the difference between the
cost of inventory and estimated market value based upon assumptions about future
demand and market conditions. If actual market conditions are less
favorable than those anticipated, additional inventory reserves may be
required.
Goodwill
and Other Long-Lived Assets
Goodwill
The
Company follows the accounting standards for goodwill, which requires an annual
test for impairment to goodwill using a fair value approach. In
addition to minimum annual impairment tests, the Company also requires that
impairment assessments be made more frequently if events or changes in
circumstances indicate that the goodwill might be impaired. If
impairment related to goodwill is identified as a result of impairment tests,
the resulting charge is determined by recalculating goodwill through a
hypothetical purchase price allocation of the fair value and reducing the
current carrying value to the extent it exceeds the recalculated
goodwill.
Other Long-Lived
Assets
Other
long-lived assets, such as definite-lived intangible assets and fixed assets,
are amortized or depreciated over their estimated useful lives. In
accordance with US GAAP, these assets are reviewed for impairment whenever
events or circumstances provide evidence that suggest that the carrying amount
of the asset may not be recoverable based upon an evaluation of the identifiable
undiscounted cash flows. If impaired based on the identifiable
undiscounted cash flows, the asset’s fair value is determined using the
discounted cash flow and market participant assumptions. The
resulting charge reflects the excess of the asset’s carrying cost over its fair
value.
- 38
-
Impairment
Assessment
Assessment
of the potential impairment of goodwill and other long-lived assets is an
integral part of the Company’s normal ongoing review of
operations. Testing for potential impairment of these assets is
significantly dependent on numerous assumptions and reflects management’s best
estimates at a particular point in time. The dynamic economic
environments in which the Company’s businesses operate and key economic and
business assumptions with respect to projected selling prices, increased
competition and introductions of new technologies can significantly affect the
outcome of impairment tests. Estimates based on these assumptions may
differ significantly from actual results. Changes in factors and
assumptions used in assessing potential impairments can have a significant
impact on the existence and magnitude of impairments, as well as the time at
which such impairments are recognized. If there are unfavorable
changes in these assumptions, particularly changes in the Company’s discount
rates, earnings multiples and future cash flows, the Company may be required to
recognize impairment charges. Information with respect to the
Company’s significant accounting policies on goodwill and other long-lived
assets are included in Note 1, Significant Accounting Policies, to the
consolidated financial statements.
Pension
and Other Postretirement Benefits
Substantially
all of the employees of the Company and its subsidiaries are covered by
government or Company-sponsored defined benefit or defined contribution
plans. Additionally, certain union and salaried employee groups in
the U.S. are covered by postretirement healthcare plans. Costs
for Company-sponsored plans are based on expected return on plan assets,
discount rates, employee compensation increase rates and health care cost
trends. Expected return on plan assets, discount rates and health
care cost trend assumptions are particularly important when determining the
Company’s benefit obligations and net periodic benefit costs associated with
postretirement benefits. Changes in these assumptions can impact the
Company’s income before income taxes. In determining the cost of
postretirement benefits, certain assumptions are established annually to reflect
market conditions and plan experience to appropriately reflect the expected
costs as actuarially determined. These assumptions include medical
inflation trend rates, discount rates, employee turnover and mortality
rates. In establishing its discount rates, the Company predominantly
uses observed indices of high-grade corporate bond yields with durations that
are equivalent to the expected duration of the underlying
liability. The discount rate for each plan is based on observed
corporate bond yield indices in the respective economic region covered by the
plan. The expected return on plan assets is the weighted average
long-term expected return based upon asset allocations and historic average
returns for the markets where the assets are invested, principally in foreign
locations. Additional information related to the impact of changes in
these assumptions is provided in Note 13, Benefit Plans, to the consolidated
financial statements.
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. The ranges established by
management are based on an 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 disclose 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 well 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.
Accruals
for Product Returns, Customer Rebates and Product Warranties
The
Company makes provisions for customer returns, customer rebates and for product
warranties at the time of sale. These accruals are based on past
history, projections of customer purchases and sales and expected product
performance in the future. Because the actual results for product
returns, rebates and warranties are dependent in part on future events, these
matters require the use of estimates. The Company has a long history
of product performance in the dental industry and thus has an extensive
knowledge base from which to draw in measuring these estimates.
Income
Taxes
Income
taxes are determined using the liability method of accounting for income
taxes. The Company’s tax expense includes the U.S. and international
income taxes plus the provision for U.S. taxes on undistributed earnings of
international subsidiaries not deemed to be permanently invested.
- 39
-
The
Company applies a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The Company recognizes in the
financial statements, the impact of a tax position, if that position is more
likely than not of being sustained on audit, based on the technical merits of
the position.
Certain
items of income and expense are not reported in tax returns and financial
statements in the same year. The tax effect of such temporary
differences is reported as deferred income taxes. Deferred tax assets
are recognized if it is more likely than not that the assets will be realized in
future years. The Company establishes a valuation allowance for
deferred tax assets for which realization is not likely. As of
December 31, 2010, the Company recorded a valuation allowance of $75.4 million
against the benefit of certain deferred tax assets of foreign and domestic
subsidiaries.
The
Company operates within multiple taxing jurisdictions and in the normal course
of business is examined in various jurisdictions. The reversal of
accruals is recorded when examinations are completed, statutes of limitation are
closed or tax laws are changed.
LIQUIDITY
AND CAPITAL RESOURCES
Cash
flows from operating activities during the year ended December 31, 2010 were
$362.3 million compared to $362.5 million during the year ended December 31,
2009. The decrease of $0.2 million in the 2010 period compared to 2009 was
primarily the result of higher working capital changes of $19.6 million offset
by earnings adjusted for favorable non-cash charges of $23.2
million. Inventory levels increased by $37.0 million, which was
partially offset by a decrease in accounts receivable of $22.1 million, in 2010
when compared to 2009. The Company’s cash, cash equivalents and
short-term investments increased by $89.7 million during the year ended December
31, 2010 to $540.1 million.
For
the years ended December 31, 2010 and 2009, the number of days for sales
outstanding in accounts receivable was 54 days and 55 days,
respectively. On a constant currency basis, the number of days sales
in inventory was 100 days and 99 days for the years ended December 31, 2010 and
2009, respectively.
Investing
activities during 2010 include capital expenditures of $44.2
million. Activity related to the acquisition of businesses, for the
year ended December 31, 2010, totaled $85.2
million. Investments of $35.6 million related to the
acquisition of several orthodontic and implant distributors in Europe and Asia
plus certain final payment on an acquisition from previous years and $49.6
million to acquire a 56.6 billion South Korea won (“KRW”) Convertible Bond
related to a minority investment in DIO Corporation, a Korean implant
manufacturer. (See Note 3, Business Acquisitions, to the consolidated financial
statements).
At
December 31, 2010, the Company had authorization to maintain up to 22.0 million
shares of treasury stock under its stock repurchase program as approved by the
Board of Directors. Under this program, the Company purchased approximately 6.7
million shares, or approximately 4.6% of average diluted shares outstanding,
during 2010 at an average price of $33.36. As of December 31, 2010 and 2009, the
Company held 21.0 million and 15.8 million shares of treasury stock,
respectively. The Company also received proceeds of $30.2 million primarily as a
result of 1.5 million stock option exercises during the year ended December 31,
2010.
DENTSPLY's
total long-term debt, including the current portion, at December 31, 2010 and
2009 was $606.5 million and $453.7 million, respectively. The Company’s
long-term borrowings increased by a net of $152.8 million during the year ended
December 31, 2010. This net change included a net increase in borrowings of
$126.5 million during the year ended 2010, plus an increase of $26.3 million due
to exchange rate fluctuations on debt denominated in foreign
currencies. During the year ended December 31, 2010, the Company’s
ratio of long-term debt, including the current portion, to total capitalization
increased to 24.1% compared to 19.2% at December 31, 2009. DENTSPLY
defines total capitalization as the sum of total long-term debt, including the
current portion, plus total equity.
On
February 19, 2010, the Company received the proceeds of a $250.0 million Private
Placement Note (“PPN”) at a fixed rate of 4.1% for an average term of five years
and a final maturity of six years. The PPN is unsecured and contains
certain affirmative and negative covenants relating to its operations and
financial condition of the Company similar in substance to the $150.0 million
U.S. Private Placement Note that matured March 15, 2010.
On March
1, 2010, the Company entered into a Term Loan Agreement (“Term Loan”) with PNC
Bank providing for the issuance by the Company of Swiss francs 65.0 million
aggregate principal amount of floating rate Senior Term Loan with a final
maturity in March 2012. This Term Loan is unsecured and contains certain
affirmative and negative covenants relating to its operations and financial
condition of the Company similar in substance to the existing multi-currency
revolving credit agreement maturing May 7, 2013. The new Term Loan
was used to refinance a loan under the existing multi-currency revolving credit
agreement.
- 40
-
On May 7,
2010, the Company entered into a $200.0 million multi-currency revolving credit
agreement (“Revolver”) with a syndicate of eight lenders with a final maturity
in May 2013. The multi-currency revolving credit agreement replaced the $500.0
million multi-currency revolving credit agreement which matured May 9,
2010. This Revolver is unsecured and contains certain affirmative and
negative covenants relating to its operations and financial condition of the
Company similar in substance to the previous multi-currency revolving credit
agreement which matured May 9, 2010. As a consequence of the smaller
multi-currency revolving credit agreement, the Company also reduced its U.S.
dollar Commercial Paper facility to $200.0 million in May 2010.
Under its
multi-currency revolving credit agreement, the Company is able to borrow up to
$200.0 million through May 7, 2013. This facility is unsecured and contains
certain affirmative and negative covenants relating to its operations and
financial condition. The most restrictive of these covenants pertain to asset
dispositions and prescribed ratios of indebtedness to total capital and
operating income excluding depreciation and amortization to interest
expense. At December 31, 2010, the Company was in compliance with
these covenants. The Company also has available an aggregate $200.0 million
under its U.S. commercial paper facility. The multi-currency revolving credit
facility serves as a back-up to the commercial paper facility. The
total available credit under the commercial paper facility and the
multi-currency facility in the aggregate is $200.0 million with $2.1 million
outstanding under the multi-currency facility and $119.5 million outstanding
under the commercial paper facility at December 31, 2010. As of
December 31, 2010, the Company has classified $121.6 million as long-term
debt. The long-term debt classification is supported by the fact that
the Company has demonstrated its intent and ability to fund existing short-term
debt with the multicurrency revolver.
The
Company entered into new cross currency swaps of Swiss francs 100.0 million and
Swiss francs 55.5 million on February 18, 2010 and March 1, 2010 respectively to
replace maturing trades. The contracts are designated as net investment
hedges. The Company entered into new cross currency swaps of Euros
108.0 million on December 13, 2010 to replace maturing trades. The contracts are
designated as net investment hedges.
The
Company also has access to $77.3 million in uncommitted short-term financing
under lines of credit from various financial institutions. The lines of credit
have no major restrictions and are provided under demand notes between the
Company and the lending institutions. At December 31, 2010, $5.3 million was
outstanding under these short-term lines of credit. At December 31, 2010,
the Company had total unused lines of credit related to the revolving credit
agreement and the uncommitted short-term lines of credit of $150.5
million.
At
December 31, 2010, the Company held $122.6 million of precious metals on
consignment from several financial institutions. These consignment agreements
allow the Company to acquire the precious metal at market rates at a point in
time, which is approximately the same time, and for the same price as alloys are
sold to the Company’s customers. In the event that the financial institutions
would discontinue offering these consignment arrangements, and if the Company
could not obtain other comparable arrangements, the Company may be required to
obtain third party financing to fund an ownership position in the required
precious metal inventory levels.
The
following table presents the Company's scheduled contractual cash obligations at
December 31, 2010:
|
Contractual Obligations
|
Greater
|
|||||||||||||||||||
|
(in thousands)
|
Less Than
|
1-3
|
3-5
|
Than
|
||||||||||||||||
|
1 Year
|
Years
|
Years
|
5 Years
|
Total
|
||||||||||||||||
|
Long-term borrowings
|
$ | 2,478 | $ | 351,956 | $ | 176,048 | $ | 76,011 | $ | 606,493 | ||||||||||
|
Operating
leases
|
25,778 | 27,557 | 12,107 | 9,072 | 74,514 | |||||||||||||||
|
Interest
on long-term borrowings, net
|
||||||||||||||||||||
|
of
interest rate swap agreements
|
21,948 | 29,750 | 11,265 | 454 | 63,417 | |||||||||||||||
|
Postretirement
obligations
|
9,467 | 20,429 | 22,222 | 64,131 | 116,249 | |||||||||||||||
|
Cross
currency swaps
|
21,516 | 147,589 | - | - | 169,105 | |||||||||||||||
|
Precious
metal consignment agreements
|
122,554 | - | - | - | 122,554 | |||||||||||||||
| $ | 203,741 | $ | 577,281 | $ | 221,642 | $ | 149,668 | $ | 1,152,332 | |||||||||||
Due to
the uncertainty with respect to the timing of future cash flows associated with
the Company’s unrecognized tax benefits at December 31, 2010, the Company is
unable to make reasonably reliable estimates of the period of cash settlement
with the respective taxing authority. Therefore, $19.2 million of the
unrecognized tax benefit has been excluded from the contractual obligations
table above (See Note 12, Income Taxes, to the consolidated financial
statements).
The
Company expects on an ongoing basis to be able to finance cash requirements,
including capital expenditures, stock repurchases, debt service, operating
leases and potential future acquisitions, from the current cash, cash
equivalents and short-term investment balances, funds generated from operations
and amounts available under its existing credit facilities, which is further
discussed in Note 10, Financing Arrangements, to the consolidated financial
statements. As noted in the Company’s Consolidated Statements of Cash
Flows, the Company continues to generate strong cash flows from operations,
which is used to finance the Company’s activities.
- 41
-
NEW
ACCOUNTING PRONOUNCEMENTS
Refer to
Note 1, Significant Accounting Policies, to the Consolidated Financial
Statements for a discussion of recent accounting guidance and
pronouncements.
Item
7A.
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The
Company's major market risk exposures are changing interest rates, movements in
foreign currency exchange rates and potential price volatility of commodities
used by the Company in its manufacturing processes. The Company's policy is to
manage interest rates through the use of floating rate debt and interest rate
swaps to adjust interest rate exposures when appropriate, based upon market
conditions. The Company employs foreign currency denominated debt and currency
swaps which serve to partially offset the Company's exposure on its net
investments in subsidiaries denominated in foreign currencies. The Company's
policy generally is to hedge major foreign currency transaction exposures
through foreign exchange forward contracts. These contracts are entered into
with major financial institutions thereby minimizing the risk of credit loss. In
order to limit the unanticipated earnings fluctuations from volatility in
commodity prices, the Company selectively enters into commodity swaps to convert
variable raw material costs to fixed costs. The Company does not hold or issue
derivative financial instruments for speculative or trading purposes. The
Company is subject to other foreign exchange market risk exposure in addition to
the risks on its financial instruments, such as possible impacts on its pricing
and production costs, which are difficult to reasonably predict, and have
therefore not been included in the table below. All items described are
non-trading and are stated in U.S. dollars.
Financial
Instruments
The fair
value of financial instruments is determined by reference to various market data
and other valuation techniques as appropriate. The Company believes the carrying
amounts of cash and cash equivalents, short-term investments, accounts
receivable (net of allowance for doubtful accounts), prepaid expenses and other
current assets, accounts payable, accrued liabilities, income taxes payable and
notes payable approximate fair value due to the short-term nature of these
instruments. The Company estimates the fair value and carrying value of its
total long term debt, including current portion of long-term debt, was $611.2
million and $606.5 million, respectively, as of December 31,
2010. As of December 31, 2009, the fair value approximated the
carrying value, which was $453.7 million. The interest rate on the
$250.0 million Private Placement Note is a fixed rate of 4.1%, and the fair
value is based on the interest rates as of December 31, 2010. The
interest rates on term loan debt and commercial paper are variable, and
therefore the fair value of these instruments approximates their carrying
values. The following table shows the Company’s principal outstanding
debt amounts and the associated weighted average interest rates as of December
31, 2010.
- 42
-
|
Financial Instruments
|
||||||||||||||||||||||||||||||||
|
EXPECTED MATURITY DATES
|
||||||||||||||||||||||||||||||||
|
December
31, 2010
|
||||||||||||||||||||||||||||||||
|
(in
thousands)
|
2016
and
|
Carrying
|
Fair
|
|||||||||||||||||||||||||||||
|
2011
|
2012
|
2013
|
2014
|
2015
|
beyond
|
Value
|
Value
|
|||||||||||||||||||||||||
|
Notes
Payable:
|
||||||||||||||||||||||||||||||||
|
U.S.
dollar denominated
|
$ | 900 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 900 | $ | 900 | ||||||||||||||||
|
Average
interest rate
|
2.3 | % | 2.3 | % | ||||||||||||||||||||||||||||
|
Taiwan
dollar denominated
|
185 | - | - | - | - | - | 185 | 185 | ||||||||||||||||||||||||
|
Average
interest rate
|
0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||
|
Euro
denominated
|
4,191 | - | - | - | - | - | 4,191 | 4,191 | ||||||||||||||||||||||||
|
Average
interest rate
|
2.5 | % | 2.5 | % | ||||||||||||||||||||||||||||
|
Total
Notes Payable
|
$ | 5,276 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 5,276 | $ | 5,276 | ||||||||||||||||
| 2.4 | % | 2.4 | % | |||||||||||||||||||||||||||||
|
Current
Portion of
|
||||||||||||||||||||||||||||||||
|
Long-term
Debt:
|
||||||||||||||||||||||||||||||||
|
Euro
denominated
|
$ | 2,478 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 2,478 | $ | 2,478 | ||||||||||||||||
|
Average
interest rate
|
1.9 | % | 1.9 | % | ||||||||||||||||||||||||||||
|
Total
Current Portion of Long-Term Debt
|
$ | 2,478 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 2,478 | $ | 2,478 | ||||||||||||||||
| 1.9 | % | 1.9 | % | |||||||||||||||||||||||||||||
|
Long
Term Debt:
|
||||||||||||||||||||||||||||||||
|
U.S.
dollar denominated
|
$ | - | $ | - | $ | 121,623 | $ | 75,015 | $ | 100,000 | $ | 75,000 | $ | 371,638 | $ | 376,313 | ||||||||||||||||
|
Average
interest rate
|
0.4 | % | 4.1 | % | 4.1 | % | 4.1 | % | 2.9 | % | ||||||||||||||||||||||
|
Swiss
franc denominated
|
- | - | 69,560 | - | - | - | 69,560 | 69,560 | ||||||||||||||||||||||||
|
Average
interest rate
|
1.7 | % | 1.7 | % | ||||||||||||||||||||||||||||
|
Japanese
yen denominated
|
- | 154,626 | - | - | - | - | 154,626 | 154,626 | ||||||||||||||||||||||||
|
Average
interest rate
|
0.9 | % | 0.9 | % | ||||||||||||||||||||||||||||
|
Euro
denominated
|
- | 4,833 | 1,314 | 703 | 330 | 1,011 | 8,191 | 8,191 | ||||||||||||||||||||||||
|
Average
interest rate
|
3.6 | % | 2.5 | % | 3.0 | % | 2.9 | % | 2.9 | % | 3.3 | % | ||||||||||||||||||||
|
Total
Long Term Debt,net current portion
|
$ | - | $ | 159,459 | $ | 192,497 | $ | 75,718 | $ | 100,330 | $ | 76,011 | $ | 604,015 | $ | 608,690 | ||||||||||||||||
| 1.0 | % | 0.9 | % | 4.1 | % | 4.1 | % | 4.1 | % | 2.3 | % | |||||||||||||||||||||
Derivative
Financial Instruments
The
Company employs derivative financial instruments to hedge certain anticipated
transactions, firm commitments, or assets and liabilities denominated in foreign
currencies. Additionally, the Company utilizes interest rate swaps to convert
floating rate debt to fixed rate, cross currency basis swaps to convert debt
denominated in one currency to another currency and commodity swaps to fix its
variable raw materials.
Foreign Exchange Risk
Management
The
Company enters into forward foreign exchange contracts to selectively hedge
assets and liabilities denominated in foreign currencies. Market value gains and
losses are recognized in income currently and the resulting gains or losses
offset foreign exchange gains or losses recognized on the foreign currency
assets and liabilities hedged.
The
Company selectively enters into forward foreign exchange contracts to hedge
anticipated purchases of product to effectively fix certain variable costs. The
forward foreign exchange contracts are used to stabilize the cost of certain of
the Company's products. The Company generally accounts for the forward foreign
exchange contracts as cash flow hedges. As a result, the Company
records the fair value of the contract primarily through other comprehensive
income based on the tested effectiveness of the forward foreign exchange
contracts. Realized gains or losses in other comprehensive income are released
and recorded to costs of products sold as the products associated with the
forward foreign exchange contracts are sold. The Company measures the
effectiveness of cash flow hedges of anticipated transactions on a spot to spot
basis rather than on a forward to forward basis. Accordingly, any time value
component of the hedge fair value is deemed ineffective and will be reported
currently as interest expense in the period which it is applicable. The spot to
spot change in the derivative fair value will be deferred in other comprehensive
income and released and recorded to costs of products sold as the products
associated with the forward foreign exchange contracts are sold. Any cash flows
associated with these instruments are included in cash from operations in
accordance with the Company’s policy of classifying the cash flows from these
instruments in the same category as the cash flows from the items being
hedged.
Determination
of hedge activity is based upon market conditions, the magnitude of the foreign
currency assets and liabilities and perceived risks. These foreign
exchange contracts generally have maturities of less than twelve months and the
counterparties to the transactions are typically large international financial
institutions. The Company’s significant contracts outstanding as of
December 31, 2010 are summarized in the table that follows.
- 43
-
|
Foreign
Exchange Forward Contracts:
|
||||||||||||||||
|
EXPECTED
MATURITY DATES
|
||||||||||||||||
|
(represents
notional amounts for derivative financial instruments)
|
||||||||||||||||
|
(in
thousands)
|
December
31, 2010
|
|||||||||||||||
|
Carrying
|
Fair
|
|||||||||||||||
|
2011
|
2012
|
Value
|
Value
|
|||||||||||||
|
Forward
sale, 11.2 million
|
||||||||||||||||
|
Australian
dollars
|
$ | 10,460 | $ | 972 | $ | (784 | ) | $ | (784 | ) | ||||||
|
Forward
purchase, 8.4 million
|
||||||||||||||||
|
British
pounds
|
(12,286 | ) | (772 | ) | 250 | 250 | ||||||||||
|
Forward
sale, 34.3 million
|
||||||||||||||||
|
Canadian
dollars
|
31,114 | 3,428 | (664 | ) | (664 | ) | ||||||||||
|
Forward
sale, 5.2 million
|
||||||||||||||||
|
Danish
krone
|
925 | - | 10 | 10 | ||||||||||||
|
Forward
sale, 5.2 million
|
||||||||||||||||
|
Euros
|
6,923 | - | 1,916 | 1,916 | ||||||||||||
|
Forward
sale, 407.5 million
|
||||||||||||||||
|
Japanese
yen
|
5,019 | - | 268 | 268 | ||||||||||||
|
Forward
sale, 118.7 million
|
||||||||||||||||
|
Mexican
pesos
|
9,615 | - | 12 | 12 | ||||||||||||
|
Forward
purchase, 1.5 million
|
||||||||||||||||
|
Norwegian
krone
|
(262 | ) | - | 1 | 1 | |||||||||||
|
Forward
sale, 2.0 million
|
||||||||||||||||
|
Singapore
dollars
|
1,585 | - | (10 | ) | (10 | ) | ||||||||||
|
Forward
sale, 527.9 million
|
||||||||||||||||
|
South
Korean won
|
509 | - | (3 | ) | (3 | ) | ||||||||||
|
Forward
purchase, 11.5 million
|
||||||||||||||||
|
Swiss
francs
|
(12,324 | ) | - | 423 | 423 | |||||||||||
|
Forward
sale, 23.6 million
|
||||||||||||||||
|
Taiwanese
dollars
|
805 | - | 4 | 4 | ||||||||||||
|
Total
Foreign Exchange
|
||||||||||||||||
|
Forward
Contracts
|
$ | 42,083 | $ | 3,628 | $ | 1,423 | $ | 1,423 | ||||||||
The
Company has numerous investments in foreign subsidiaries. The net assets of
these subsidiaries are exposed to volatility in currency exchange rates.
Currently, the Company uses both non-derivative financial instruments, including
foreign currency denominated debt held at the parent company level and
derivative financial instruments to hedge some of this exposure. Translation
gains and losses related to the net assets of the foreign subsidiaries are
offset by gains and losses in the non-derivative and derivative financial
instruments designated as hedges of net investments, which are included in
accumulated other comprehensive income.
During
the first quarter of 2010, the Company entered into new cross currency basis
swaps of Swiss francs 100.0 million and Swiss francs 55.5 million (collectively
the “Swiss Swaps”). The Swiss Swaps mature in February 2013, and the Company
pays three month Swiss franc London Inter-Bank Offered Rate (“LIBOR”) and
receives three month U.S. dollar LIBOR on $93.0 million and $51.1 million,
respectively. The new contracts were entered into to replace maturing
contracts. During the fourth quarter of 2010, the Company entered
into new cross currency basis swaps of Euro 108.0 million (“Euro Swaps”). The
Euro Swaps mature in December 2013, and the Company pays three month Euro
Inter-Bank Offered Rate (“EURIBOR”) and receives three month U.S. dollar LIBOR
on $143.1 million. The new contracts were entered into to replace maturing
contracts. The Swiss franc and Euro cross currency interest rate
swaps are designated as net investment hedges of the Swiss and Euro denominated
net assets. The interest rate differential is recognized in the earnings as
interest income or interest expense as it is accrued. The foreign currency
revaluation is recorded in accumulated other comprehensive income, net of tax
effects.
At
December 31, 2010 and 2009, the Company had Swiss franc-denominated and Japanese
yen-denominated debt and cross currency basis swaps denominated in euro and
Swiss franc to hedge the currency exposure related to a designated portion of
the net assets of its European, Swiss and Japanese subsidiaries. The fair value
of the cross currency interest rate swap agreements is the estimated amount the
Company would (pay) receive at the reporting date, taking into account the
effective interest rates and foreign exchange rates. As of December 31, 2010 and
December 31, 2009, the estimated net fair values of the cross currency interest
rate swap agreements were negative $169.1 million and negative $176.6 million,
respectively, which are recorded in accumulated other comprehensive income, net
of tax effects. At December 31, 2010 and 2009, the accumulated translation gains
on investments in foreign subsidiaries, primarily denominated in Euros, Swiss
francs and Japanese yen, net of these net investment hedges, were $45.4 million
and $111.1 million,, respectively, which were included in accumulated other
comprehensive income, net of tax effects. The Company’s outstanding debt
denominated in foreign currencies and the outstanding cross currency interest
rate swaps as of December 31, 2010 are summarized in the table that
follows.
- 44
-
|
Cross Currency Basis Swaps
|
||||||||||||||||||||
|
EXPECTED MATURITY DATES
|
||||||||||||||||||||
|
(represents notional amounts for derivative
financial instruments)
|
||||||||||||||||||||
|
December 31, 2010
|
||||||||||||||||||||
|
Carrying
|
Fair
|
|||||||||||||||||||
|
(in
thousands)
|
2011
|
2012
|
2013
|
Value
|
Value
|
|||||||||||||||
|
Swiss
franc 592.5 million @ 1.17
|
$ | 86,040 | $ | 60,570 | $ | 487,455 | $ | (126,987 | ) | $ | (126,987 | ) | ||||||||
|
pay
CHF 3mo. LIBOR rec. USD 3mo. LIBOR
|
(0.1 | )% | (0.1 | )% | (0.2 | )% | ||||||||||||||
|
Euros
358.0 million @ $1.22
|
- | - | 478,360 | (42,118 | ) | (42,118 | ) | |||||||||||||
|
pay
EUR 3mo. EURIBOR rec. USD 3mo. LIBOR
|
0.7 | % | ||||||||||||||||||
|
Total
Cross Currency Basis Swaps
|
$ | 86,040 | $ | 60,570 | $ | 965,815 | $ | (169,105 | ) | $ | (169,105 | ) | ||||||||
Interest Rate Risk
Management
The
Company uses interest rate swaps to convert a portion of its variable interest
rate debt to fixed interest rate debt. As of December 31, 2010, the
Company has two groups of significant variable interest rate to fixed rate
interest rate swaps. One of the groups of swaps has notional amounts
totaling 12.6 billion Japanese yen, and effectively converts the underlying
variable interest rates to an average fixed interest rate of 1.6% for a term of
ten years, ending in September 2012. Another swap has a notional
amount of 65.0 million Swiss francs, and effectively converts the underlying
variable interest rates to a fixed interest rate of 4.2% for a term of seven
years, ending in September 2012. The Company enters into interest
rate swap contracts infrequently as they are only used to manage interest rate
risk on long-term debt instruments and not for speculative
purposes. The Company’s significant contracts outstanding as of
December 31, 2010 are summarized in the table that follows.
|
Interest Rate Swaps
|
||||||||||||||||||||||||||||||||
|
EXPECTED MATURITY DATES
|
||||||||||||||||||||||||||||||||
|
(represents notional amounts for derivative
financial instruments)
|
||||||||||||||||||||||||||||||||
|
December
31, 2010
|
||||||||||||||||||||||||||||||||
|
2016
and
|
Carrying
|
Fair
|
||||||||||||||||||||||||||||||
|
(in
thousands)
|
2011
|
2012
|
2013
|
2014
|
2015
|
beyond
|
Value
|
Value
|
||||||||||||||||||||||||
|
Interest
rate swaps - Euro
|
$ | 1,262 | $ | 1,262 | $ | 1,262 | $ | 965 | $ | 965 | $ | 2,171 | $ | (660 | ) | $ | (660 | ) | ||||||||||||||
|
Average
interest rate
|
3.6 | % | 3.6 | % | 3.6 | % | 3.7 | % | 3.7 | % | 3.7 | % | ||||||||||||||||||||
|
Interest
rate swaps - Japanese yen
|
- | 154,626 | - | - | - | - | (2,058 | ) | (2,058 | ) | ||||||||||||||||||||||
|
Average
interest rate
|
1.6 | % | ||||||||||||||||||||||||||||||
|
Interest
rate swaps - Swiss francs
|
- | 69,560 | - | - | - | - | (3,026 | ) | (3,026 | ) | ||||||||||||||||||||||
|
Average
interest rate
|
4.2 | % | ||||||||||||||||||||||||||||||
|
Total
Interest Rate Swaps
|
$ | 1,262 | $ | 225,448 | $ | 1,262 | $ | 965 | $ | 965 | $ | 2,171 | $ | (5,744 | ) | $ | (5,744 | ) | ||||||||||||||
Commodity Risk
Management
The
Company selectively enters into commodity swaps to effectively fix certain
variable raw material costs. These swaps are used purely to stabilize the cost
of components used in the production of certain of the Company's products. The
Company generally accounts for the commodity swaps as cash flow hedges. As a
result, the Company records the fair value of the swap primarily through other
comprehensive income based on the tested effectiveness of the commodity swap.
Realized gains or losses in other comprehensive income are released and recorded
to costs of products sold as the products associated with the commodity swaps
are sold. The Company measures the effectiveness of cash flow hedges of
anticipated transactions on a spot to spot basis rather than on a forward to
forward basis. Accordingly, any time value component of the hedge fair value is
deemed ineffective and will be reported currently as interest expense in the
period which it is applicable. The spot to spot change in the derivative fair
value will be deferred in other comprehensive income and released and recorded
to costs of products sold as the products associated with the forward foreign
exchange contracts are sold. Any cash flows associated with these instruments
are included in cash from operations in accordance with the Company’s policy of
classifying the cash flows from these instruments in the same category as the
cash flows from the items being hedged. The Company’s significant
contracts outstanding as of December 31, 2010 are summarized in the table that
follows.
|
Commodity
Contracts:
|
||||||||||||
|
EXPECTED MATURITY DATES
|
||||||||||||
|
December 31, 2010
|
||||||||||||
|
Carrying
|
Fair
|
|||||||||||
|
(in
thousands)
|
2011
|
Value
|
Value
|
|||||||||
|
Silver
Swap - U.S. dollar
|
$ | (93 | ) | $ | 82 | $ | 82 | |||||
|
Platinum
Swap - U.S. dollar
|
(470 | ) | 6 | 6 | ||||||||
|
Total
Commodity Contracts
|
$ | (563 | ) | $ | 88 | $ | 88 | |||||
- 45
-
Off
Balance Sheet Arrangements
Consignment
Arrangements
The
Company consigns the precious metals used in the production of precious metal
dental alloy products from various financial institutions. Under these
consignment arrangements, the banks own the precious metal, and, accordingly,
the Company does not report this consigned inventory as part of its inventory on
its consolidated balance sheet. These agreements are cancelable by either party
at the end of each consignment period, which typically run for a period of one
to nine months; however, because the Company typically has access to numerous
financial institutions with excess capacity, consignment needs created by
cancellations can be shifted among the other institutions. The consignment
agreements allow the Company to take ownership of the metal at approximately the
same time customer orders are received and to closely match the price of the
metal acquired to the price charged to the customer (i.e., the price charged to
the customer is largely a pass through).
As
precious metal prices fluctuate, the Company evaluates the impact of the
precious metal price fluctuation on its target gross margins for precious metal
dental alloy products and revises the prices customers are charged for precious
metal dental alloy products accordingly, depending upon the magnitude of the
fluctuation. While the Company does not separately invoice customers for the
precious metal content of precious metal dental alloy products, the underlying
precious metal content is the primary component of the cost and sales price of
the precious metal dental alloy products. For practical purposes, if the
precious metal prices go up or down by a small amount, the Company will not
immediately modify prices, as long as the cost of precious metals embedded in
the Company’s precious metal dental alloy price closely approximates the market
price of the precious metal. If there is a significant change in the price of
precious metals, the Company adjusts the price for the precious metal dental
alloys, maintaining its margin on the products.
At
December 31, 2010, the Company had 95,999 troy ounces of precious metal,
primarily gold, platinum and palladium, on consignment for periods of less than
one year with a market value of $122.6 million. Under the terms of the
consignment agreements, the Company also makes compensatory payments to the
consignor banks based on a percentage of the value of the consigned precious
metals inventory. At December 31, 2010, the average annual rate charged by the
consignor banks was 0.84%. These compensatory payments are considered
to be a cost of the metals purchased and are recorded as part of the cost of
products sold.
- 46
-
Management's
Report on Internal Control Over Financial Reporting
The
management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934, as
amended. The Company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America. A Company’s internal control over financial
reporting includes those policies and procedures that pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company; provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and directors of the
Company; and provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the Company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. In addition, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
Management of the Company has assessed
the effectiveness of the Company's internal control over financial reporting as
of December 31, 2010. In making its assessment, management used the
criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). Based on its
assessment management concluded that, as of December 31, 2010, the Company’s
internal control over financial reporting was effective based on the criteria
established in Internal Control –
Integrated Framework issued by the COSO.
The
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2010 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report, which appears
herein.
|
/s/
|
Bret W. Wise
|
/s/
|
William R. Jellison
|
|
|
Bret
W. Wise
|
William
R. Jellison
|
|||
|
Chairman
of the Board and
|
Senior
Vice President and
|
|||
|
Chief
Executive Officer
|
Chief
Financial Officer
|
|||
|
February
18, 2011
|
February
18, 2011
|
- 47
-
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders
of
DENTSPLY International Inc.
In our
opinion, the consolidated financial statements
listed in the index appearing under Item 15(a)(1) present fairly, in all
material respects, the financial position of DENTSPLY International Inc. and its
subsidiaries at December 31,
2010 and 2009, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2010 in conformity
with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the index appearing
under Item 15(a)(2) presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated financial
statements. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2010, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible
for these financial statements and the financial statement schedule, for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in “Management's Report on Internal Control over Financial Reporting”
appearing under Item 15(a)(1). Our responsibility is to express
opinions on these financial statements, on the financial statement schedule, and
on the Company's internal control over financial reporting based on our
integrated audits. We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the
financial statements included examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of
internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. In addition, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
|
/s/
|
PricewaterhouseCoopers LLP
|
|
|
PricewaterhouseCoopers
LLP
|
||
|
Philadelphia,
Pennsylvania
|
||
|
February
18, 2011
|
- 48
-
DENTSPLY
INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except per share amounts)
|
Year
Ended December 31,
|
||||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Net
sales
|
$ | 2,221,014 | $ | 2,159,378 | $ | 2,191,465 | ||||||
|
Cost
of products sold
|
1,090,856 | 1,053,015 | 1,043,565 | |||||||||
|
Gross
profit
|
1,130,158 | 1,106,363 | 1,147,900 | |||||||||
|
Selling,
general and administrative expenses
|
738,901 | 718,230 | 735,084 | |||||||||
|
Restructuring
and other costs
|
10,984 | 6,890 | 32,355 | |||||||||
|
Operating
income
|
380,273 | 381,243 | 380,461 | |||||||||
|
Other
income and expenses:
|
||||||||||||
|
Interest
expense
|
25,089 | 21,896 | 32,527 | |||||||||
|
Interest
income
|
(4,254 | ) | (5,032 | ) | (17,089 | ) | ||||||
|
Other
expense (income), net
|
1,782 | 1,023 | 10,150 | |||||||||
|
Income
before income taxes
|
357,656 | 363,356 | 354,873 | |||||||||
|
Provision
for income taxes
|
89,225 | 88,944 | 71,603 | |||||||||
|
Equity
in net loss of
|
||||||||||||
|
unconsolidated
affilated company
|
(1,096 | ) | - | - | ||||||||
|
Net
income
|
267,335 | 274,412 | 283,270 | |||||||||
|
Less:
Net income (loss) attributable
|
||||||||||||
|
to
noncontrolling interests
|
1,627 | 154 | (599 | ) | ||||||||
|
Net
income attributable to
|
||||||||||||
|
DENTSPLY
International
|
$ | 265,708 | $ | 274,258 | $ | 283,869 | ||||||
|
Earnings
per common share:
|
||||||||||||
|
Basic
|
$ | 1.85 | $ | 1.85 | $ | 1.90 | ||||||
|
Diluted
|
$ | 1.82 | $ | 1.83 | $ | 1.87 | ||||||
|
Weighted
average common shares outstanding:
|
||||||||||||
|
Basic
|
143,980 | 148,319 | 149,069 | |||||||||
|
Diluted
|
145,985 | 150,102 | 151,679 | |||||||||
The
accompanying notes are an integral part of these financial
statements.
- 49
-
DENTSPLY
INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(in
thousands)
|
December
31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Assets
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 540,038 | $ | 450,348 | ||||
|
Accounts
and notes receivable-trade, net
|
344,796 | 348,684 | ||||||
|
Inventories,
net
|
308,738 | 291,640 | ||||||
|
Prepaid
expenses and other current assets
|
121,473 | 127,124 | ||||||
|
Total
Current Assets
|
1,315,045 | 1,217,796 | ||||||
|
Property,
plant and equipment, net
|
423,105 | 439,619 | ||||||
|
Identifiable
intangible assets, net
|
78,743 | 89,086 | ||||||
|
Goodwill,
net
|
1,303,055 | 1,312,596 | ||||||
|
Other
noncurrent assets, net
|
138,003 | 28,835 | ||||||
|
Total
Assets
|
$ | 3,257,951 | $ | 3,087,932 | ||||
|
Liabilities
and Equity
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Accounts
payable
|
$ | 114,479 | $ | 100,847 | ||||
|
Accrued
liabilities
|
224,745 | 249,169 | ||||||
|
Income
taxes payable
|
13,113 | 12,366 | ||||||
|
Notes
payable and current portion of long-term debt
|
7,754 | 82,174 | ||||||
|
Total
Current Liabilities
|
360,091 | 444,556 | ||||||
|
Long-term
debt
|
604,015 | 387,151 | ||||||
|
Deferred
income taxes
|
72,489 | 72,524 | ||||||
|
Other
noncurrent liabilities
|
311,444 | 276,743 | ||||||
|
Total
Liabilities
|
1,348,039 | 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 December 31, 2010 and December 31, 2009
|
1,628 | 1,628 | ||||||
|
Capital
in excess of par value
|
204,902 | 195,495 | ||||||
|
Retained
earnings
|
2,320,350 | 2,083,459 | ||||||
|
Accumulated
other comprehensive income
|
24,156 | 83,542 | ||||||
|
Treasury
stock, at cost, 21.0 million shares at December 31, 2010 and 15.8 million
shares at December 31, 2009
|
(711,650 | ) | (532,019 | ) | ||||
|
Total
DENTSPLY International Equity
|
1,839,386 | 1,832,105 | ||||||
|
Noncontrolling
Interests
|
70,526 | 74,853 | ||||||
|
Total
Equity
|
1,909,912 | 1,906,958 | ||||||
|
Total
Liabilities and Equity
|
$ | 3,257,951 | $ | 3,087,932 | ||||
The
accompanying notes are an integral part of these financial
statements.
- 50
-
|
DENTSPLY
INTERNATIONAL INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||||||||||
|
CONSOLIDATED
STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
|
||||||||||||||||||||||||||||||||
|
(in
thousands)
|
||||||||||||||||||||||||||||||||
|
Accumulated
|
Total
|
|||||||||||||||||||||||||||||||
|
Capital
in
|
Other
|
DENTSPLY
|
||||||||||||||||||||||||||||||
|
Common
|
Excess
of
|
Retained
|
Comprehensive
|
Treasury
|
International
|
Noncontrolling
|
Total
|
|||||||||||||||||||||||||
|
Stock
|
Par
Value
|
Earnings
|
Income
(Loss)
|
Stock
|
Equity
|
Interests
|
Equity
|
|||||||||||||||||||||||||
|
Balance
at December 31, 2007
|
$ | 1,628 | $ | 173,084 | $ | 1,582,683 | $ | 145,819 | $ | (387,108 | ) | $ | 1,516,106 | $ | 296 | $ | 1,516,402 | |||||||||||||||
|
Purchase
of subsidiary shares from noncontrolling interest
|
- | - | - | - | - | - | 71,931 | 71,931 | ||||||||||||||||||||||||
|
Comprehensive
Income:
|
||||||||||||||||||||||||||||||||
|
Net
income
|
- | - | 283,869 | - | - | 283,869 | (599 | ) | 283,270 | |||||||||||||||||||||||
|
Other
comprehensive income (loss), net of tax:
|
||||||||||||||||||||||||||||||||
|
Foreign
currency translation adjustment
|
- | - | - | (71,521 | ) | - | (71,521 | ) | 63 | (71,458 | ) | |||||||||||||||||||||
|
Net
loss on derivative financial instruments
|
- | - | - | (13,986 | ) | - | (13,986 | ) | - | (13,986 | ) | |||||||||||||||||||||
|
Pension
liability adjustments
|
- | - | - | (20,700 | ) | - | (20,700 | ) | - | (20,700 | ) | |||||||||||||||||||||
|
Comprehensive
Income
|
177,662 | (536 | ) | 177,126 | ||||||||||||||||||||||||||||
|
Exercise
of stock options
|
- | (7,268 | ) | - | - | 19,994 | 12,726 | - | 12,726 | |||||||||||||||||||||||
|
Tax
benefit from stock options exercised
|
- | 3,910 | - | - | - | 3,910 | - | 3,910 | ||||||||||||||||||||||||
|
Share
based compensation expense
|
- | 17,290 | - | - | - | 17,290 | - | 17,290 | ||||||||||||||||||||||||
|
Funding
of Employee Stock Option Plan
|
- | 62 | - | - | 118 | 180 | - | 180 | ||||||||||||||||||||||||
|
Treasury
shares purchased
|
- | - | - | - | (112,634 | ) | (112,634 | ) | - | (112,634 | ) | |||||||||||||||||||||
|
RSU
dividends
|
- | 76 | (76 | ) | - | - | - | - | - | |||||||||||||||||||||||
|
Cash
dividends ($0.185 per share)
|
- | - | (27,518 | ) | - | - | (27,518 | ) | - | (27,518 | ) | |||||||||||||||||||||
|
Balance
at December 31, 2008
|
$ | 1,628 | $ | 187,154 | $ | 1,838,958 | $ | 39,612 | $ | (479,630 | ) | $ | 1,587,722 | $ | 71,691 | $ | 1,659,413 | |||||||||||||||
|
Comprehensive
Income:
|
||||||||||||||||||||||||||||||||
|
Net
income
|
- | - | 274,258 | - | - | 274,258 | 154 | 274,412 | ||||||||||||||||||||||||
|
Other
comprehensive income (loss), net of tax:
|
||||||||||||||||||||||||||||||||
|
Foreign
currency translation adjustment
|
- | - | - | 50,566 | - | 50,566 | 3,008 | 53,574 | ||||||||||||||||||||||||
|
Net
loss on derivative financial instruments
|
- | - | - | (13,960 | ) | - | (13,960 | ) | - | (13,960 | ) | |||||||||||||||||||||
|
Pension
liability adjustments
|
- | - | - | 7,324 | - | 7,324 | - | 7,324 | ||||||||||||||||||||||||
|
Comprehensive
Income
|
318,188 | 3,162 | 321,350 | |||||||||||||||||||||||||||||
|
Exercise
of stock options
|
- | (11,515 | ) | - | - | 24,921 | 13,406 | - | 13,406 | |||||||||||||||||||||||
|
Tax
benefit from stock options exercised
|
- | 3,505 | - | - | - | 3,505 | - | 3,505 | ||||||||||||||||||||||||
|
Share
based compensation expense
|
- | 16,276 | - | - | - | 16,276 | - | 16,276 | ||||||||||||||||||||||||
|
Funding
of Employee Stock Option Plan
|
- | (63 | ) | - | - | 1,408 | 1,345 | - | 1,345 | |||||||||||||||||||||||
|
Treasury
shares purchased
|
- | - | - | - | (78,718 | ) | (78,718 | ) | - | (78,718 | ) | |||||||||||||||||||||
|
RSU
dividends
|
- | 138 | (138 | ) | - | - | - | - | - | |||||||||||||||||||||||
|
Cash
dividends ($0.200 per share)
|
- | - | (29,619 | ) | - | - | (29,619 | ) | - | (29,619 | ) | |||||||||||||||||||||
|
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
|
- | - | 265,708 | - | - | 265,708 | 1,627 | 267,335 | ||||||||||||||||||||||||
|
Other
comprehensive income (loss), net of tax:
|
||||||||||||||||||||||||||||||||
|
Foreign
currency translation adjustment
|
- | - | - | (49,519 | ) | - | (49,519 | ) | (4,592 | ) | (54,111 | ) | ||||||||||||||||||||
|
Net
loss on derivative financial instruments
|
- | - | - | (12,848 | ) | - | (12,848 | ) | - | (12,848 | ) | |||||||||||||||||||||
|
Net
unrealized holding gains on available-for-sale investments
|
- | - | - | 11,029 | - | 11,029 | - | 11,029 | ||||||||||||||||||||||||
|
Pension
liability adjustments
|
- | - | - | (8,048 | ) | - | (8,048 | ) | - | (8,048 | ) | |||||||||||||||||||||
|
Comprehensive
Income
|
206,322 | (2,965 | ) | 203,357 | ||||||||||||||||||||||||||||
|
Exercise
of stock options
|
- | (10,107 | ) | - | - | 40,296 | 30,189 | - | 30,189 | |||||||||||||||||||||||
|
Tax
benefit from stock options exercised
|
- | 4,663 | - | - | - | 4,663 | - | 4,663 | ||||||||||||||||||||||||
|
Share
based compensation expense
|
- | 18,803 | - | - | - | 18,803 | - | 18,803 | ||||||||||||||||||||||||
|
Funding
of Employee Stock Option Plan
|
- | 208 | - | - | 1,132 | 1,340 | - | 1,340 | ||||||||||||||||||||||||
|
Treasury
shares purchased
|
- | - | - | - | (223,993 | ) | (223,993 | ) | - | (223,993 | ) | |||||||||||||||||||||
|
Dividends
from noncontrolling interest
|
- | - | - | - | - | - | (1,362 | ) | (1,362 | ) | ||||||||||||||||||||||
|
RSU
distributions
|
- | (4,313 | ) | - | - | - | (4,313 | ) | - | (4,313 | ) | |||||||||||||||||||||
|
RSU
dividends
|
- | 153 | (153 | ) | - | 2,934 | 2,934 | - | 2,934 | |||||||||||||||||||||||
|
Cash
dividends ($0.200 per share)
|
- | - | (28,664 | ) | - | - | (28,664 | ) | - | (28,664 | ) | |||||||||||||||||||||
|
Balance
at December 31, 2010
|
$ | 1,628 | $ | 204,902 | $ | 2,320,350 | $ | 24,156 | $ | (711,650 | ) | $ | 1,839,386 | $ | 70,526 | $ | 1,909,912 | |||||||||||||||
The
accompanying notes are an integral part of these financial
statements.
- 51
-
|
DENTSPLY
INTERNATIONAL INC. AND SUBSIDIARIES
|
||||||||||||
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||||||
|
(in
thousands)
|
Year
Ended December 31,
|
|||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
income
|
$ | 267,335 | $ | 274,412 | $ | 283,270 | ||||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
|
Depreciation
|
56,868 | 54,087 | 47,887 | |||||||||
|
Amortization
|
9,472 | 11,088 | 9,042 | |||||||||
|
Deferred
income taxes
|
1,386 | 195 | 13,371 | |||||||||
|
Share
based compensation expense
|
18,803 | 16,276 | 17,290 | |||||||||
|
Restructuring
and other costs - non-cash
|
379 | 369 | 8,303 | |||||||||
|
Stock
option income tax benefit
|
(4,663 | ) | (3,505 | ) | (3,910 | ) | ||||||
|
Other
non-cash expense (income)
|
7,249 | (8,650 | ) | (19,654 | ) | |||||||
|
Loss
(gain) on disposal of property, plant and equipment
|
113 | (1,997 | ) | 1,373 | ||||||||
|
Changes
in operating assets and liabilities, net of acquisitions:
|
||||||||||||
|
Accounts
and notes receivable-trade, net
|
5,115 | (16,942 | ) | (3,690 | ) | |||||||
|
Inventories,
net
|
(9,309 | ) | 27,710 | (32,824 | ) | |||||||
|
Prepaid
expenses and other current assets
|
(3,705 | ) | 6,996 | (1,220 | ) | |||||||
|
Other
non current assets
|
(1,154 | ) | (192 | ) | 390 | |||||||
|
Accounts
payable
|
2,165 | (4,947 | ) | 5,430 | ||||||||
|
Accrued
liabilities
|
9,004 | (1,708 | ) | 5,748 | ||||||||
|
Income
taxes
|
3,017 | 8,104 | 4,594 | |||||||||
|
Other
noncurrent liabilities
|
249 | 1,193 | 581 | |||||||||
|
Net
cash provided by operating activities
|
362,324 | 362,489 | 335,981 | |||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Cash
paid for acquisitions of businesses and equity investments
|
(35,556 | ) | (2,986 | ) | (117,300 | ) | ||||||
|
Capital
expenditures
|
(44,236 | ) | (56,481 | ) | (76,440 | ) | ||||||
|
Purchase
of convertible debt issued by affiliate
|
(49,654 | ) | - | - | ||||||||
|
Purchase
of company owned life insurance policies
|
(2,000 | ) | - | - | ||||||||
|
Expenditures
for identifiable intangible assets
|
(1,606 | ) | (14 | ) | (2,477 | ) | ||||||
|
Purchases
of short-term investments
|
- | - | (166,208 | ) | ||||||||
|
Liquidations
of short-term investments
|
- | 222 | 314,025 | |||||||||
|
Proceeds
from sale of property, plant and equipment
|
3,562 | 5,860 | 596 | |||||||||
|
Net
cash used in investing activities
|
(129,490 | ) | (53,399 | ) | (47,804 | ) | ||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from long-term borrowings, net of deferred financing costs
|
368,611 | 86,091 | 117,900 | |||||||||
|
Payments
on long-term borrowings
|
(242,137 | ) | (58,403 | ) | (226,147 | ) | ||||||
|
(Decrease)
increase in short-term borrowings
|
(9,657 | ) | (7,465 | ) | 2,111 | |||||||
|
Proceeds
from exercise of stock options
|
30,189 | 13,406 | 12,726 | |||||||||
|
Excess
tax benefits from share based compensation
|
4,663 | 3,505 | 3,910 | |||||||||
|
Cash
paid for treasury stock
|
(223,993 | ) | (78,718 | ) | (112,634 | ) | ||||||
|
Cash
dividends paid
|
(29,077 | ) | (29,836 | ) | (26,952 | ) | ||||||
|
Net
cash used in financing activities
|
(101,401 | ) | (71,420 | ) | (229,086 | ) | ||||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
(41,743 | ) | 8,687 | (24,484 | ) | |||||||
|
Net
increase in cash and cash equivalents
|
89,690 | 246,357 | 34,607 | |||||||||
|
Cash
and cash equivalents at beginning of period
|
450,348 | 203,991 | 169,384 | |||||||||
|
Cash
and cash equivalents at end of period
|
$ | 540,038 | $ | 450,348 | $ | 203,991 | ||||||
|
Supplemental
disclosures of cash flow information:
|
||||||||||||
|
Interest
paid, net of amounts capitalized
|
$ | 21,856 | $ | 23,231 | $ | 34,222 | ||||||
|
Income
taxes paid
|
$ | 64,787 | $ | 76,207 | $ | 66,696 | ||||||
The
accompanying notes are an integral part of these financial
statements.
- 52
-
DENTSPLY
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - SIGNIFICANT ACCOUNTING POLICIES
Description
of Business
DENTSPLY
International Inc. (“DENTSPLY” or the “Company”), designs, develops,
manufactures and markets a broad range of professional dental
products. The Company believes that it is the world's leading
manufacturer and distributor of dental prosthetics, endodontic
instruments and materials, and ultrasonic scalers; the leading United States
manufacturer and distributor of denture teeth, dental handpieces, dental x-ray
film holders, film mounts and prophylaxis paste; and a leading worldwide
manufacturer or distributor of dental injectable anesthetics, impression
materials, orthodontic appliances, dental cutting instruments, dental implants
and restorative dental materials, dental sealants, and crown and bridge
materials. The Company distributes its dental products in over 120 countries
under some of the most well established brand names in the
industry.
DENTSPLY
is committed to the development of innovative, high quality, cost effective
products for the dental market.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America (“US GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
as of the date of the financial statements and the reported amounts of revenue
and expense during the reporting period. Actual results could differ
from those estimates, and such differences may be material to the consolidated
financial statements.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company. The
Company also consolidates all variable interest entities (“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 its VIE to determine if consolidation is
appropriate. All significant intercompany accounts and transactions
are eliminated in consolidation.
Investments
in nonconsolidated affiliates (20-50 percent owned companies, joint ventures and
partnerships as well as less than 20 percent ownership positions where the
Company maintains significant influence over the subsidiary) are accounted for
using the equity method.
Cash and Cash
Equivalents
Cash and
cash equivalents include deposits with banks as well as highly liquid time
deposits with maturities at the date of purchase of ninety days or
less.
Short-term
Investments
Short-term
investments are highly liquid time deposits with original maturities at the date
of purchase greater than ninety days and with remaining maturities of one year
or less.
Accounts
and Notes Receivable-Trade
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. The Company
records a provision for doubtful accounts, which is included in “Selling,
general and administrative expenses.”
- 53
-
Accounts
receivable – trade is stated net of these allowances that were $8.8 million and
$12.2 million at December 31, 2010 and 2009, respectively. For the
years ended December 31, 2010 and 2009, the Company wrote-off $2.6 million and
$4.3 million, respectively, of accounts receivable that were previously
reserved. The tighter credit markets caused the Company to reassess
and tighten its controls over customer credit terms, increase collection efforts
and analyze accounts receivable activity. This, along with improved
customer liquidity, enabled the Company to reduce the provision for doubtful
accounts by $0.2 million and $3.1 million in 2010 and 2009,
respectively.
Additionally,
notes receivable – trade is stated net of these allowances that were $0.8
million and $1.1 million at December 31, 2010 and 2009,
respectively. The Company recorded provisions for doubtful accounts
on notes receivable – trade of $0.7 million for 2010 and $0.5 million for
2009. Additionally, the Company wrote-off $1.0 million in
2010.
Inventories
Inventories
are stated at the lower of cost or market. At December 31, 2010 and
2009, the cost of $6.9 million, or 2.2%, and $7.8 million, or 2.7%,
respectively, of inventories was determined by the last in, first-out (“LIFO”)
method. The cost of other inventories was determined by the first-in,
first-out (“FIFO”) or average cost methods. The Company establishes
reserves for inventory estimated to be obsolete or unmarketable equal to the
difference between the cost of inventory and estimated market value based upon
assumptions about future demand and market conditions.
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 December
31, 2010 and 2009 by $4.9 million and $4.0 million, respectively.
Valuation
of Goodwill and Other Long-Lived Assets
Assessment
of the potential impairment of goodwill and other long-lived assets is an
integral part of the Company’s normal ongoing review of
operations. Testing for potential impairment of these assets is
significantly dependent on assumptions and reflects management’s best estimates
at a particular point in time. The dynamic economic environments in
which the Company’s businesses operate and key economic and business assumptions
with respect to projected selling prices, increased competition and
introductions of new technologies can significantly affect the outcome of
impairment tests. Estimates based on these assumptions may differ
significantly from actual results. Changes in factors and assumptions
used in assessing potential impairments can have a significant impact on the
existence and magnitude of impairments, as well as the time at which such
impairments are recognized. If there are unfavorable changes in these
assumptions, the future cash flows, a key variable in assessing the impairment
of these assets, may decrease and as a result the Company may be required to
recognize impairment charges. Future changes in the environment and
the economic outlook for the assets being evaluated could also result in
additional impairment charges being recognized. The following
information outlines the Company’s significant accounting policies on long-lived
assets by type.
Goodwill
US GAAP
requires that at least an annual impairment test be applied to
goodwill. The Company performs impairment tests using a fair value
approach. If impairment is identified on goodwill, the resulting
charge is determined by recalculating goodwill through a hypothetical purchase
price allocation of the fair value and reducing the current carrying value to
the extent it exceeds the recalculated goodwill.
The
Company’s fair value approach involves using a discounted cash flow model with
market-based support as its valuation technique to measure the fair value for
its reporting units. The discounted cash flow model uses five year
forecasted cash flows plus a terminal value based on a multiple of
earnings. In addition, the Company applies gross profit and operating
expense assumptions consistent with its historical trends. The total
cash flows were discounted based on market participant data, which included the
Company’s weighted-average cost of capital. The Company considered
the current market conditions when determining its
assumptions. Lastly, the Company reconciled the aggregate fair values
of its reporting units to its market capitalization, which included a reasonable
control premium based on market conditions. Additional information
related to the testing for goodwill impairment is provided in Note 8, Goodwill
and Intangible Assets.
Identifiable Definite-Lived
Intangible Assets
Identifiable
definite-lived intangible assets, which primarily consist of patents,
trademarks, brand names, non-compete agreements and licensing agreements, are
amortized on a straight-line basis over their estimated useful
lives. These assets are reviewed for impairment whenever events or
circumstances suggest that the carrying amount of the asset may not be
recoverable. The Company closely monitors certain intangible assets
related to new and existing technologies for indicators of impairment as these
assets have more risk of becoming impaired. Impairment is based upon
an initial evaluation of the identifiable undiscounted cash flows. If
the initial evaluation identifies a potential impairment, a fair value is
determined by using a discounted cash flows valuation. If impaired,
the resulting charge reflects the excess of the asset’s carrying cost over its
fair value.
- 54
-
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 - 4 to 15 years. The cost of leasehold improvements is
amortized over the shorter of the estimated useful life or the term of the
lease. Maintenance and repairs are expensed as incurred to the
statement of operations; replacements and major improvements are
capitalized. These assets groups are reviewed for impairment whenever
events or circumstances suggest that the carrying amount of the asset group may
not be recoverable. Impairment is based upon an evaluation of the
identifiable undiscounted cash flows. If impaired, the resulting
charge reflects the excess of the asset group’s carrying cost over its fair
value.
Marketable
Security
The
Company’s marketable securities consist of debt instruments that are classified
as available-for-sale in “Other noncurrent assets” 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 impairment
is 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.
Derivative
Financial Instruments
The
Company requires that all derivative instruments be recorded on the balance
sheet at fair value and that changes in fair value be recorded each period in
current earnings or accumulated other comprehensive income
(“AOCI”).
The
Company employs derivative financial instruments to hedge certain anticipated
transactions, firm commitments, and assets and liabilities denominated in
foreign currencies. Additionally, the Company utilizes interest rate
swaps to convert floating rate debt to fixed rate, fixed rate debt to floating
rate, cross currency basis swaps to convert debt denominated in one currency to
another currency, and commodity swaps to fix its variable raw materials
costs.
Pension
and Other Postretirement Benefits
Substantially
all of the employees of the Company and its subsidiaries are covered by
government or Company-sponsored defined benefit or defined contribution
plans. Additionally, certain union and salaried employee groups in
the United States are covered by postretirement healthcare
plans. Costs for Company-sponsored plans are based on expected return
on plan assets, discount rates, employee compensation increase rates and health
care cost trends. Expected return on plan assets, discount rates and
health care cost trend assumptions are particularly important when determining
the Company’s benefit obligations and net periodic benefit costs associated with
postretirement benefits. Changes in these assumptions can impact the
Company’s earnings before income taxes. In determining the cost of
postretirement benefits, certain assumptions are established annually to reflect
market conditions and plan experience to appropriately reflect the expected
costs as actuarially determined. These assumptions include medical
inflation trend rates, discount rates, employee turnover and mortality
rates. The Company predominantly uses liability durations in
establishing its discount rates, which are observed from indices of high-grade
corporate bond yields in the respective economic regions of the
plans. The expected return on plan assets is the weighted average
long-term expected return based upon asset allocations and historic average
returns for the markets where the assets are invested, principally in foreign
locations. The Company reports the funded status of its defined
benefit pension and other postretirement benefit plans on its consolidated
balance sheets as a net liability or asset. Additional information
related to the impact of changes in these assumptions is provided in Note 13,
Benefit Plans.
Accruals
for Self-Insured Losses
The
Company maintains insurance for certain risks, including workers’ compensation,
general liability, product liability and vehicle liability, and is self-insured
for employee related health care benefits. The Company accrues for
the expected costs associated with these risks by considering historical claims
experience, demographic factors, severity factors and other relevant
information. Costs are recognized in the period the claim is
incurred, and the financial statement accruals include an estimate of claims
incurred but not yet reported. The Company has stop-loss coverage to
limit its exposure to any significant exposure on a per claim
basis.
- 55
-
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. The ranges established by management are based on an 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 disclose
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 well 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.
Accumulated
Other Comprehensive Income
AOCI
includes foreign currency translation adjustments related to the Company’s
foreign subsidiaries, net of the related changes in certain financial
instruments hedging these foreign currency investments. In addition, changes in
the Company’s fair value of certain derivative financial instruments, net
unrealized holding gain on available-for-sale securities and pension liability
adjustments and prior service costs, net are recorded in AOCI. These changes are
recorded in AOCI net of any related tax adjustments. For the years ended
December 31, 2010, 2009 and 2008, these tax adjustments were $158.7 million,
$143.0 million and $138.5 million, respectively, primarily related to foreign
currency translation adjustments.
The
balances included in AOCI in the consolidated balance sheets are as
follows:
|
December 31,
|
||||||||
|
(in thousands)
|
2010
|
2009
|
||||||
|
Foreign
currency translation adjustments
|
$ | 170,597 | $ | 220,116 | ||||
|
Net
loss on derivative financial instruments
|
(126,648 | ) | (113,800 | ) | ||||
|
Net
unrealized holding gain on available for-sale securities
|
11,029 | - | ||||||
|
Pension
liability adjustments
|
(30,822 | ) | (22,774 | ) | ||||
| $ | 24,156 | $ | 83,542 | |||||
The
cumulative foreign currency translation adjustments included translation gains
of $294.6 million and $327.8 million as of December 31, 2010 and 2009,
respectively, offset by losses of $124.0 million and $107.7 million,
respectively, on loans designated as hedges of net investments.
Foreign
Currency Translation
The
functional currency for foreign operations, except for those in highly
inflationary economies, has been determined to be the local
currency.
Assets
and liabilities of foreign subsidiaries are translated at foreign exchange rates
on the balance sheet date; revenue and expenses are translated at the average
year-to-date foreign exchange rates. The effects of these translation
adjustments are reported in Equity within AOCI of the consolidated balance
sheets. During the year ended December 31, 2010, the Company had losses of $16.3
million on its loans designated as hedges of net investments and translation
losses of $33.2 million. During the year ended December 31, 2009, the Company
had gains of $0.9 million on its loans designated as hedges of net investments
and translation gains of $49.7 million.
Foreign
exchange gains and losses arising from transactions denominated in a currency
other than the functional currency of the entity involved and remeasurement
adjustments in countries with highly inflationary economies are included in
income. Net foreign exchange losses of $3.3 million, net foreign exchange gains
of $0.3 million and net foreign exchange losses of $8.9 million in 2010, 2009,
and 2008, respectively, are included in “Other expense (income),
net.”
- 56
-
Revenue
Recognition
Revenue,
net of related discounts and allowances, is recognized when the earnings process
is complete. This occurs when products are shipped to or received by the
customer in accordance with the terms of the agreement, title and risk of loss
have been transferred, collectability is reasonably assured and pricing is fixed
or determinable. Net sales include shipping and handling costs collected from
customers in connection with the sale. Sales taxes, value added taxes and other
similar types of taxes collected from customers in connection with the sale are
recorded by the Company on a net basis and are not included in the statement of
operations.
Certain
of the Company’s customers are offered cash rebates based on targeted sales
increases. In accounting for these rebate programs, the Company records an
accrual as a reduction of net sales for the estimated rebate as sales take place
throughout the year.
A portion
of the Company’s net sales is comprised of sales of precious metals generated
through its precious metal dental alloy product offerings. As the precious metal
content of the Company’s sales is largely a pass-through to customers, the
Company uses its cost of precious metal purchased as a proxy for the precious
metal content of sales, as the precious metal content of sales is not separately
tracked and invoiced to customers. The Company believes that it is reasonable to
use the cost of precious metal content purchased in this manner since precious
metal alloy sale prices are typically adjusted when the prices of underlying
precious metals change. The precious metals content of sales was $189.2 million,
$168.7 million and $200.0 million for 2010, 2009 and 2008,
respectively.
Cost
of Products Sold
Cost of
products sold represents costs directly related to the manufacture and
distribution of the Company’s products. Primary costs include raw materials,
packaging, direct labor, overhead, shipping and handling, warehousing and the
depreciation of manufacturing, warehousing and distribution facilities. Overhead
and related expenses include salaries, wages, employee benefits, utilities,
lease costs, maintenance and property taxes.
Warranties
The
Company provides warranties on certain equipment products. Estimated warranty
costs are accrued when sales are made to customers. Estimates for warranty costs
are based primarily on historical warranty claim experience. Warranty costs are
included in “Cost of products sold.”
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses represent costs incurred in generating
revenues and in managing the business of the Company. Such costs include
advertising and other marketing expenses, salaries, employee benefits, incentive
compensation, research and development, travel, office expenses, lease costs,
amortization of capitalized software and depreciation of administrative
facilities.
Research
and Development Costs
Research and development (“R&D”)
costs relate primarily to internal costs for salaries and direct overhead
expenses. In addition, the Company contracts with outside vendors to conduct
R&D activities. All such R&D costs are charged to expense when incurred.
The Company capitalizes the costs of equipment that have general R&D uses
and expenses such equipment that is solely for specific R&D projects. The
depreciation expense related to this capitalized equipment is included in the
Company’s R&D costs. R&D costs are included in “Selling, general and
administrative expenses” and amounted to $49.4 million, $50.3 million and $48.5
million for 2010, 2009 and 2008, respectively. The year-over-year comparisons for 2010
versus 2009 and 2009 versus 2008 were both impacted by foreign currency
translation which decreased the reported expense variations.
Stock Compensation
The
Company recognizes the compensation cost relating to share-based payment
transactions in the financial statements. The cost of share-based payment
transactions is measured at the grant date, based on the calculated fair value
of the award, and is recognized as an expense over the employee’s requisite
service period (generally the vesting period of the equity awards). The
compensation cost is only recognized for the portion of the awards that are
expected to vest.
- 57
-
Income Taxes
The
Company’s tax expense includes U.S. and international income taxes plus the
provision for U.S. taxes on undistributed earnings of international subsidiaries
not deemed to be permanently invested. Tax credits and other incentives reduce
tax expense in the year the credits are claimed. Certain items of income and
expense are not reported in tax returns and financial statements in the same
year. The tax effect of such temporary differences is reported as deferred
income taxes. Deferred tax assets are recognized if it is more likely than not
that the assets will be realized in future years. The Company establishes a
valuation allowance for deferred tax assets for which realization is not
likely.
The
Company applies a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The Company recognizes in the financial
statements, the impact of a tax position, if that position is more likely than
not of being sustained on audit, based on the technical merits of the
position.
Earnings
Per Share
Basic
earnings per share are calculated by dividing net earnings by the weighted
average number of shares outstanding for the period. Diluted earnings per share
is calculated by dividing net earnings by the weighted average number of shares
outstanding for the period, adjusted for the effect of an assumed exercise of
all dilutive options outstanding at the end of the period.
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 that the purchase price be allocated to net assets at their respective
fair values. Any excess of the purchase price over estimated fair values of net
assets is recorded as goodwill. Under the acquisition method, amounts allocated
to acquired in-process research and development and contingent consideration are
recorded to the consolidated balance sheet at the date of acquisition at their
respective fair values. The assumptions made in determining fair value assigned
to acquired assets and 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
get 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; product line integration information; and information systems
compatibilities. If the initial accounting 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.
Equity
Method Investments
Investments
in partnerships, joint ventures and less-than-majority-owned subsidiaries in
which the Company has significant influence are accounted for under the equity
method.
Equity
investments are carried at original cost adjusted for the proportionate share of
the investees’ income, losses and distributions. The Company assesses the
carrying value of its equity investments when an indicator of a loss in value is
present and record a loss in value of the investment when the assessment
indicates that an other-than-temporary decline in the investment
exists.
The
Company classifies its equity in net earnings of unconsolidated affiliates in
the consolidated statements of operations under the title of “Equity in net loss
of unconsolidated affiliated company”.
Noncontrolling
Interests
The
Company reports noncontrolling interest (“NCI”) in a subsidiary as a separate
component of Equity in the consolidated balance sheets. Additionally, the
Company reports the portion of net income and comprehensive income (loss)
attributed to the Company and NCI separately in the consolidated statements of
operations. The Company also includes a separate column for NCI in the
consolidated statements of changes in equity and comprehensive
income.
- 58
-
Variable
Interest Entities
On
January 1, 2010, the Company adopted the new 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
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. The Company continues to believe that it is the primary beneficiary
of Materialise Dental N.V. (“Materialise”) and Zhermack S.p.A. (“Zhermack”)
under this new accounting guidance for VIE. The accounting for Materialise and
Zhermack are discussed further in Note 3, Business Acquisitions.
Segment
Reporting
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 in 2010,
2009 and 2008. The Company has four reportable segments and a description of the
activities of these segments is included in Note 4, Segment and Geographic
Information.
Fair
Value Measurement
Recurring
Basis
The
Company records certain financial assets and liabilities at fair value in
accordance with the accounting guidance, which defines fair value as the
exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date. The accounting guidance establishes a hierarchal disclosure
framework associated with the level of pricing observability utilized in
measuring financial instruments at fair value. The three broad levels defined by
the fair value hierarchy are as follows:
Level 1 –
Quoted prices are available in active markets for identical assets or
liabilities as of the reported date.
Level 2 –
Pricing inputs are other than quoted prices in active markets, which are either
directly or indirectly observable as of the reported date. The nature of these
financial instruments include, derivative instruments whose fair value have been
derived using a model where inputs to the model are directly observable in the
market, or can be derived principally from or corroborated by observable market
data.
Level 3 –
Instruments that have little to no pricing observability as of the reported
date. These financial instruments do not have two-way markets and are measured
using management’s best estimate of fair value, where the inputs into the
determination of fair value require significant management judgment or
estimation.
The
degree of judgment utilized in measuring the fair value of certain financial
assets and liabilities generally correlates to the level of pricing
observability. Pricing observability is impacted by a number of factors,
including the type of financial instrument. Financial assets and liabilities
with readily available active quoted prices or for which fair value can be
measured from actively quoted prices generally will have a higher degree of
pricing observability and a lesser degree of judgment utilized in measuring fair
value. Conversely, financial assets and liabilities rarely traded or not quoted
will generally have less, or no pricing observability and a higher degree of
judgment utilized in measuring fair value.
The
Company primarily applies the market approach for recurring fair value
measurements and endeavors to utilize the best available information.
Accordingly, the Company utilizes valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs. Additionally, the
Company considers its credit risks and its counterparties' credit risks when
determining the fair values of its financial assets and liabilities. The Company
has presented the required disclosures in Note 16, Fair Value
Measurement.
- 59
-
Non-Recurring
Basis
When
events or circumstances require an asset or liability to be fair valued that
otherwise is generally recorded based on another valuation method, such as, net
realizable value, the Company will utilize the valuation techniques described
above.
Reclassification
of Prior Year Amounts
Certain
reclassifications have been made to prior years' data in order to conform to
current year presentation.
NOTE
2 - EARNINGS PER COMMON SHARE
The
following table sets forth the computation of basic and diluted earnings per
common share:
|
Net income
|
||||||||||||
|
attributable to
|
||||||||||||
|
DENTSPLY
|
Earnings per
|
|||||||||||
|
(in thousands, except for share amounts)
|
International
|
Shares
|
common share
|
|||||||||
|
Year
Ended December 31, 2010
|
||||||||||||
|
Basic
|
$ | 265,708 | 143,980 | $ | 1.85 | |||||||
|
Incremental
shares from assumed exercise of dilutive options
|
- | 2,005 | ||||||||||
|
Diluted
|
$ | 265,708 | 145,985 | $ | 1.82 | |||||||
|
Year
Ended December 31, 2009
|
||||||||||||
|
Basic
|
$ | 274,258 | 148,319 | $ | 1.85 | |||||||
|
Incremental
shares from assumed exercise of dilutive options
|
- | 1,783 | ||||||||||
|
Diluted
|
$ | 274,258 | 150,102 | $ | 1.83 | |||||||
|
Year
Ended December 31, 2008
|
||||||||||||
|
Basic
|
$ | 283,869 | 149,069 | $ | 1.90 | |||||||
|
Incremental
shares from assumed exercise of dilutive options
|
- | 2,610 | ||||||||||
|
Diluted
|
$ | 283,869 | 151,679 | $ | 1.87 | |||||||
Options
to purchase 3.1 million, 2.9 million and 1.6 million shares of common stock that
were outstanding during the years ended 2010, 2009 and 2008, respectively, were
not included in the computation of diluted earnings per common share since the
options' exercise prices were greater than the average market price of the
common shares and, therefore, the effect would be antidilutive.
NOTE
3 - BUSINESS ACQUISITIONS AND INVESTMENTS IN AFFILIATES
During
2010, the acquisition related activity was $35.6 million, net of cash acquired,
which included a payment for a non-controlling interest investment in DIO
Corporation (“DIO”). In 2009, the acquisition related activity was $3.0 million,
net of cash. This activity was related to an additional earn-out payment on a
prior acquisition from 2007 and the acquisition of a small sales and marketing
organization of 3D digital implantology products.
- 60
-
Investment
in Affiliates
On
December 9, 2010, the Company purchased an initial ownership interest of 16% of
the outstanding shares of DIO. The Company accounts for the ownership in DIO
under the equity method of accounting as it has significant influence over DIO.
In addition, on December 9, 2010, the Company invested $49.7 million in the
corporate convertible bonds of DIO, which may be converted into commons 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 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. At December 31, 2010, the amortized cost and fair value of
the DIO bond was $49.7 million and $66.0 million, respectively, and $11.0
million of unrealized holding gains on available-for-sale securities, net of
tax, have been recorded in AOCI. The contractual maturity of the bond is in
December 2015.
DIO is
located in Busan, South Korea and manufactures a wide range of dental implants
including STEADY®, BioTite-H, SM implant, internal implant, external implant,
ProTem implant, and SM Extra Wide implant systems. In addition, DIO offers
various dental devices including implant surgical devices, handpieces, dental
materials, impression materials sterilizers, toothpaste that contains
dyrdoxyapatite, and the iTero® 3D intra-oral scanner (Cadent Inc.).
Business
Acquisitions
The
business acquisitions were related to the purchase of several small distributors
that sell dental specialty products. The purchase agreements for three of the
acquisitions provide for additional payments to be made based upon the
achievement of certain 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.
Variable
Interest Entities
The
Company adopted new accounting guidance for VIE on January 1, 2010, which is
discussed in Note 1, Significant Accounting Policies. The Company continues to
believe that it will be the primary beneficiary of Materialise and Zhermack
under this accounting guidance for VIE.
Additional Earn-out
Payments
Several
of the Company’s 2005, 2007 and 2008 acquisitions included provisions for
possible additional payments based on the future performance of the individual
businesses (generally for two to three years). During 2010, the Company paid
$5.1 million in additional purchase price under these agreements.
Fair Value Allocations for
the Business Acquisitions and Additional Earnout Payments
As
of December 31, 2010, the Company has recorded a total of $20.4 million in
goodwill related to four business combinations, one investment in an
unconsolidated affiliate, and additional earn-out payments on acquisitions from
prior years. None of this goodwill is expected to be deductible for tax
purposes.
- 61
-
The
following table summarizes the estimated fair values of the indentified assets
acquired and liabilities assumed (in thousands):
|
Current
assets
|
$ | 10,755 | ||
|
Property,
plant and equipment
|
1,255 | |||
|
Identifiable
intangible assets and goodwill
|
21,055 | |||
|
Other
long-term assets
|
28 | |||
|
Total
assets
|
$ | 33,093 | ||
|
Current
liabilities
|
(12,495 | ) | ||
|
Long-term
liabilities
|
(1,283 | ) | ||
|
Total
liabilities
|
$ | (13,778 | ) | |
|
Net
assets
|
$ | 19,315 |
Also, as a result of the finalization
of fair values assigned to assets acquired and liabilities assumed from 2010
acquisition related activity, the Company has recorded a total of $0.7 million
in intangible assets as non-compete agreements and customer lists with an
average weighted life of 5.0 years.
Goodwill
was assigned to the following four segments:
|
•
|
$1.5 million to U.S., Germany,
and Certain Other European Regions Consumable
Businesses;
|
|
•
|
$12.7
million Canada/Latin America/Endodontics/Orthodontics;
and,
|
|
•
|
$6.2 million to Dental Laboratory
Business/Implants/Non-Dental.
|
NOTE
4 – SEGMENT AND GEOGRAPHIC INFORMATION
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 segments are
consistent with those described for the consolidated financial statements in the
summary of significant accounting policies (see Note 1, Significant Accounting
Policies). The Company measures segment income for reporting purposes as net
operating income before restructuring, impairments, and other costs, interest
and taxes. Additionally, net operating income is derived from net third party
sales, excluding precious metal content. A description of the services provided
within each of the Company’s four reportable segments is provided below. The
disclosure below reflects the Company’s segment reporting
structure.
In
January 2010, the Company moved the reporting responsibility for several
locations between segments as a result of a change to the management structure.
This change also helped the Company gain operating efficiencies and
effectiveness. The segment information below reflects this revised structure for
all periods shown.
United
States, Germany and Certain Other European Regions Consumable
Businesses
This
business group includes responsibility for the design, manufacturing, sales and
distribution 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.
- 62
-
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, sales, distribution and general and administrative
costs.
Generally,
the Company evaluates performance of the operating groups based on the groups’
operating income, excluding restructuring, impairments and other costs, interest
and taxes, and net third party sales, excluding precious metal content. The
Company considers net third party sales, excluding precious metal content, as
the appropriate sales measurement due to the fluctuations of precious metal
prices and due to the fact that the precious metal content is largely a
pass-through to customers and has a minimal effect on earnings.
The
following table sets forth information about the Company’s operating groups for
the years ended December 31, 2010, 2009 and 2008.
Third Party Net
Sales
|
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
|
U.S.,
Germany and Certain Other
|
||||||||||||
|
European
Regions Consumable Businesses
|
$ | 526,781 | $ | 526,668 | $ | 459,678 | ||||||
|
France,
U.K., Italy and Certain Other
|
||||||||||||
|
European
Countries, CIS, Middle East,
|
||||||||||||
|
Africa,
Pacific Rim Businesses
|
482,146 | 471,232 | 487,126 | |||||||||
|
Canada/Latin
America/Endodontics/
|
||||||||||||
|
Orthodontics
|
665,032 | 621,256 | 632,151 | |||||||||
|
Dental
Laboratory Business/
|
||||||||||||
|
Implants/Non-Dental
|
550,359 | 543,637 | 618,077 | |||||||||
|
All
Other (a)
|
(3,304 | ) | (3,415 | ) | (5,567 | ) | ||||||
|
Total
net sales
|
$ | 2,221,014 | $ | 2,159,378 | $ | 2,191,465 | ||||||
|
|
(a)
|
Includes
amounts recorded at Corporate
headquarters.
|
- 63
-
Third Party Net Sales,
Excluding Precious Metal Content
|
(in
thousands)
|
2010
|
2009
|
2008
|
|||||||||
|
U.S.,
Germany and Certain Other
|
||||||||||||
|
European
Regions Consumable Businesses
|
$ | 526,781 | $ | 526,668 | $ | 459,678 | ||||||
|
France,
U.K., Italy and Certain Other
|
||||||||||||
|
European
Countries, CIS, Middle East,
|
||||||||||||
|
Africa,
Pacific Rim Businesses
|
445,627 | 436,790 | 456,192 | |||||||||
|
Canada/Latin
America/Endodontics/
|
||||||||||||
|
Orthodontics
|
662,556 | 618,414 | 628,887 | |||||||||
|
Dental
Laboratory Business/
|
||||||||||||
|
Implants/Non-Dental
|
400,097 | 412,209 | 452,352 | |||||||||
|
All
Other (b)
|
(3,304 | ) | (3,415 | ) | (5,567 | ) | ||||||
|
Total
net sales, excluding precious metal content
|
$ | 2,031,757 | $ | 1,990,666 | $ | 1,991,542 | ||||||
|
Precious
metal content of sales
|
189,257 | 168,712 | 199,923 | |||||||||
|
Total
net sales, including precious metal content
|
$ | 2,221,014 | $ | 2,159,378 | $ | 2,191,465 | ||||||
|
|
(b)
|
Includes
results of Corporate headquarters and one distribution warehouse not
managed by named segments.
|
Intersegment Net
Sales
|
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
|
U.S.,
Germany and Certain Other
|
||||||||||||
|
European
Regions Consumable Businesses
|
$ | 116,440 | $ | 104,328 | $ | 130,463 | ||||||
|
France,
U.K., Italy and Certain Other
|
||||||||||||
|
European
Countries, CIS, Middle East,
|
||||||||||||
|
Africa,
Pacific Rim Businesses
|
17,103 | 13,202 | 15,941 | |||||||||
|
Canada/Latin
America/Endodontics/
|
||||||||||||
|
Orthodontics
|
115,158 | 103,329 | 106,031 | |||||||||
|
Dental
Laboratory Business/
|
||||||||||||
|
Implants/Non-Dental
|
112,285 | 114,591 | 123,157 | |||||||||
|
All
Other (c)
|
179,780 | 176,539 | 177,251 | |||||||||
|
Eliminations
|
(540,766 | ) | (511,989 | ) | (552,843 | ) | ||||||
|
Total
|
$ | - | $ | - | $ | - | ||||||
|
|
(c)
|
Includes
amounts recorded at Corporate
headquarters.
|
- 64
-
Depreciation and
Amortization
|
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
|
U.S.,
Germany and Certain Other
|
||||||||||||
|
European
Regions Consumable Businesses
|
$ | 16,315 | $ | 14,945 | $ | 12,807 | ||||||
|
France,
U.K., Italy and Certain Other
|
||||||||||||
|
European
Countries, CIS, Middle East,
|
||||||||||||
|
Africa,
Pacific Rim Businesses
|
3,939 | 3,884 | 3,188 | |||||||||
|
Canada/Latin
America/Endodontics/
|
||||||||||||
|
Orthodontics
|
18,419 | 16,978 | 17,179 | |||||||||
|
Dental
Laboratory Business/
|
||||||||||||
|
Implants/Non-Dental
|
20,479 | 21,461 | 16,062 | |||||||||
|
All
Other (d)
|
7,188 | 7,907 | 7,693 | |||||||||
|
Total
|
$ | 66,340 | $ | 65,175 | $ | 56,929 | ||||||
|
|
(d)
|
Includes
amounts recorded at Corporate
headquarters.
|
Segment Operating
Income
|
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
|
U.S.,
Germany and Certain Other
|
||||||||||||
|
European
Regions Consumable Businesses
|
$ | 176,128 | $ | 158,389 | $ | 162,717 | ||||||
|
France,
U.K., Italy and Certain Other
|
||||||||||||
|
European
Countries, CIS, Middle East,
|
||||||||||||
|
Africa,
Pacific Rim Businesses
|
17,187 | 19,737 | 14,474 | |||||||||
|
Canada/Latin
America/Endodontics/
|
||||||||||||
|
Orthodontics
|
195,817 | 185,772 | 200,101 | |||||||||
|
Dental
Laboratory Business/
|
||||||||||||
|
Implants/Non-Dental
|
83,428 | 92,554 | 123,442 | |||||||||
|
All
Other (e)
|
(81,303 | ) | (68,319 | ) | (87,918 | ) | ||||||
|
Segment
Operating Income
|
$ | 391,257 | $ | 388,133 | $ | 412,816 | ||||||
|
Reconciling
Items:
|
||||||||||||
|
Restructuring
and other costs
|
10,984 | 6,890 | 32,355 | |||||||||
|
Interest
expense
|
25,089 | 21,896 | 32,527 | |||||||||
|
Interest
income
|
(4,254 | ) | (5,032 | ) | (17,089 | ) | ||||||
|
Other
expense (income), net
|
1,782 | 1,023 | 10,150 | |||||||||
|
Income
before income taxes
|
$ | 357,656 | $ | 363,356 | $ | 354,873 | ||||||
|
|
(e)
|
Includes
results of Corporate headquarters, inter-segment eliminations and one
distribution warehouse not managed by named
segments.
|
- 65
-
Capital
Expenditures
|
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
|
U.S.,
Germany and Certain Other
|
||||||||||||
|
European
Regions Consumable Businesses
|
$ | 9,267 | $ | 8,333 | $ | 19,836 | ||||||
|
France,
U.K., Italy and Certain Other
|
||||||||||||
|
European
Countries, CIS, Middle East,
|
||||||||||||
|
Africa,
Pacific Rim Businesses
|
2,978 | 2,506 | 3,839 | |||||||||
|
Canada/Latin
America/Endodontics/
|
||||||||||||
|
Orthodontics
|
17,078 | 14,434 | 19,593 | |||||||||
|
Dental
Laboratory Business/
|
||||||||||||
|
Implants/Non-Dental
|
11,397 | 25,546 | 24,510 | |||||||||
|
All
Other (f)
|
3,516 | 5,662 | 8,662 | |||||||||
|
Total
|
$ | 44,236 | $ | 56,481 | $ | 76,440 | ||||||
|
|
(f)
|
Includes
capital expenditures of Corporate
headquarters.
|
|
Assets
|
||||||||
|
(in
thousands)
|
2010
|
2009
|
||||||
|
U.S.,
Germany and Certain Other
|
||||||||
|
European
Regions Consumable Businesses
|
$ | 578,770 | $ | 602,272 | ||||
|
France,
U.K., Italy and Certain Other
|
||||||||
|
European
Countries, CIS, Middle East,
|
||||||||
|
Africa,
Pacific Rim Businesses
|
390,572 | 388,831 | ||||||
|
Canada/Latin
America/Endodontics/
|
||||||||
|
Orthodontics
|
932,126 | 809,924 | ||||||
|
Dental
Laboratory Business/
|
||||||||
|
Implants/Non-Dental
|
995,090 | 973,764 | ||||||
|
All
Other (g)
|
361,393 | 313,141 | ||||||
|
Total
|
$ | 3,257,951 | $ | 3,087,932 | ||||
|
|
(g)
|
Includes
assets of Corporate headquarters, inter-segment eliminations and one
distribution warehouse not managed by named
segments.
|
- 66
-
Geographic
Information
The
following table sets forth information about the Company's operations in
different geographic areas for the years ended December 31, 2010, 2009 and 2008.
Net sales reported below represent revenues for shipments made by operating
businesses located in the country or territory identified, including export
sales. Assets reported represent those held by the operating businesses located
in the respective geographic areas.
|
United
|
Other
|
|||||||||||||||
|
(in thousands)
|
States
|
Germany
|
Foreign
|
Consolidated
|
||||||||||||
|
2010
|
||||||||||||||||
|
Net
sales
|
$ | 841,232 | $ | 469,796 | $ | 909,986 | $ | 2,221,014 | ||||||||
|
Long-lived
assets
|
119,533 | 116,916 | 186,656 | 423,105 | ||||||||||||
|
2009
|
||||||||||||||||
|
Net
sales
|
$ | 843,349 | $ | 482,130 | $ | 833,899 | $ | 2,159,378 | ||||||||
|
Long-lived
assets
|
124,129 | 132,348 | 183,143 | 439,620 | ||||||||||||
|
2008
|
||||||||||||||||
|
Net
sales
|
$ | 865,743 | $ | 470,836 | $ | 854,886 | $ | 2,191,465 | ||||||||
|
Long-lived
assets
|
129,286 | 131,960 | 171,029 | 432,275 | ||||||||||||
Product
and Customer Information
The
following table presents net sales information by product category:
|
December 31,
|
||||||||||||
|
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
|
Dental
consumables products
|
$ | 717,718 | $ | 708,713 | $ | 677,758 | ||||||
|
Dental
laboratory products
|
511,061 | 504,526 | 558,291 | |||||||||
|
Dental
specialty products
|
925,317 | 892,421 | 888,484 | |||||||||
|
Non-dental
products
|
66,918 | 53,718 | 66,932 | |||||||||
|
Total
net sales
|
$ | 2,221,014 | $ | 2,159,378 | $ | 2,191,465 | ||||||
Dental
consumable products consist of dental sundries and small equipment products used
in dental offices for the treatment of patients. DENTSPLY’s products in this
category include dental anesthetics, infection control products, prophylaxis
paste, dental sealants, impression materials, restorative materials, bone
grafting materials, tooth whiteners and topical fluoride. The Company
manufactures thousands of different consumable products marketed under more than
a hundred brand names. Small equipment products consist of various durable goods
used in dental offices for treatment of patients. DENTSPLY’s small equipment
products include high and low speed handpieces, intraoral curing light systems
and ultrasonic scalers and polishers.
Dental
laboratory products are used in dental laboratories in the preparation of dental
appliances. DENTSPLY’s products in this category include dental prosthetics,
including artificial teeth, precious metal dental alloys, dental ceramics, crown
and bridge materials, and equipment products used in laboratories consisting of
computer aided machining (CAM) ceramic systems and porcelain
furnaces.
Dental
specialty products are specialized treatment products used within the dental
office and laboratory settings. DENTSPLY’s products in this category include
endodontic (root canal) instruments and materials, implants and related
products, bone grafting material, 3D digital implantology, and orthodontic
appliances and accessories.
Non-dental
products are comprised primarily of investment casting materials that are used
in the production of jewelry, golf club heads and other casting products, as
well as certain medical products.
One
customer, Henry Schein, Incorporated, a dental distributor, accounted for more
than ten percent of consolidated net sales in 2010, 2009 and 2008 accounting for
11% of all net sales. Third party export sales from the U.S. are less than ten
percent of consolidated net sales.
- 67
-
NOTE
5 – OTHER EXPENSE (INCOME), NET
Other
expense (income), net, consists of the following:
|
December 31,
|
||||||||||||
|
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
|
Foreign
exchange transaction losses (gains), net
|
$ | 3,331 | $ | 336 | $ | 8,881 | ||||||
|
Other
(income) expense, net
|
(1,549 | ) | 687 | 1,269 | ||||||||
| $ | 1,782 | $ | 1,023 | $ | 10,150 | |||||||
NOTE
6 – INVENTORIES, NET
Inventories,
net, consist of the following:
|
December 31,
|
||||||||
|
(in thousands)
|
2010
|
2009
|
||||||
|
Finished
goods
|
$ | 189,343 | $ | 178,721 | ||||
|
Work-in-process
|
57,272 | 53,056 | ||||||
|
Raw
materials and supplies
|
62,123 | 59,863 | ||||||
| $ | 308,738 | $ | 291,640 | |||||
The
Company’s inventory valuation reserve was $35.5 million for 2010 and $31.9
million for 2009.
NOTE
7- PROPERTY, PLANT AND EQUIPMENT, NET
Property,
plant and equipment, net, consist of the following:
|
December 31,
|
||||||||
|
(in thousands)
|
2010
|
2009
|
||||||
|
Assets,
at cost:
|
||||||||
|
Land
|
$ | 40,032 | $ | 43,207 | ||||
|
Buildings
and improvements
|
304,341 | 295,297 | ||||||
|
Machinery
and equipment
|
576,704 | 546,806 | ||||||
|
Construction
in progress
|
20,639 | 18,610 | ||||||
| 941,716 | 903,920 | |||||||
|
Less:
Accumulated depreciation
|
518,611 | 464,301 | ||||||
|
Property,
plant and equipment, net
|
$ | 423,105 | $ | 439,619 | ||||
NOTE
8 – GOODWILL AND INTANGIBLE ASSETS
The
Company requires that impairment tests on goodwill or other indefinite-lived
intangible assets be performed annually and are based upon a fair value
approach. If goodwill impairment is identified, the resulting charge is
calculating the implied goodwill through a hypothetical purchase price
allocation of the fair value and reducing the current carrying value to the
extent it exceeds the implied goodwill. If impairment is identified on
indefinite-lived intangibles, the resulting charge reflects the excess of the
asset’s carrying cost over its fair value. Other intangible assets with finite
lives are amortized over their useful lives and tested for impairment when
events or changes in circumstances indicate that the finite-lived intangible
assets may be impaired
In
addition to minimum annual impairment tests, the Company also requires that
impairment assessments be made more frequently if events or changes in
circumstances indicate that the goodwill or indefinite-lived intangible assets
might be impaired. As the Company learns of such changes in circumstances
through periodic analysis of actual results or through the annual development of
operating unit business plans in the fourth quarter of each year, for example,
impairment assessments will be performed as necessary.
- 68
-
The
Company performs its annual goodwill impairment test in the second quarter of
each year. This impairment assessment includes an evaluation of various
reporting units, which is an operating segment or one reporting level below the
operating segment. The Company compares the fair value of each reporting unit to
its carrying amount to determine if there is potential goodwill impairment. If
the fair value of a reporting unit is less than its carrying value, an
impairment loss is recorded to the extent that the fair value of the goodwill of
the reporting unit is less than the carrying value of its goodwill.
The
Company performed the required annual impairment tests of goodwill as of April
30, 2010 on seven reporting units. To determine the fair value of the Company’s
reporting units, the Company uses a discounted cash flow model with market-based
support as its valuation technique to measure the fair value for its reporting
units. The discounted cash flow model uses five year forecasted cash flows plus
a terminal value based on a multiple of earnings. In addition, the Company
applies gross margin and operating expense assumptions consistent with
historical trends. The total cash flows were discounted based on a range between
7% to 10%, which included assumptions regarding the Company’s weighted-average
cost of capital. The Company considered the current market conditions when
determining its assumptions as the global economy, and to a certain extent the
U.S. economy, began to stabilize from the recessionary conditions in 2009.
Lastly, the Company reconciled the aggregated fair values of its reporting units
to its market capitalization, which included a reasonable control premium based
on market conditions. As a result of the annual impairment tests of goodwill, no
impairment was identified.
As of
December 31, 2010, the Company has assigned no value to indefinite-lived
intangible assets. Impairments of identifiable definite-lived intangible assets
for the years ended December 31, 2010, 2009 and 2008 were $0.4 million, $0.3
million and $2.7 million, respectively.
The table
below presents the net carrying values of goodwill and identifiable
definite-lived intangible assets.
|
December 31,
|
||||||||
|
(in thousands)
|
2010
|
2009
|
||||||
|
Goodwill
|
$ | 1,303,055 | $ | 1,312,596 | ||||
|
Identifiable
definite-lived intangible assets, net
|
$ | 78,743 | $ | 89,086 | ||||
A
reconciliation of changes in the Company’s goodwill is as follows:
|
December 31,
|
||||||||
|
(in thousands)
|
2010
|
2009
|
||||||
|
Balance,
beginning of the year
|
$ | 1,312,596 | $ | 1,277,026 | ||||
|
Acquisition
activity
|
20,382 | 3,572 | ||||||
|
Changes
to purchase price allocations
|
- | 5,245 | ||||||
|
Effects
of exchange rate changes
|
(29,923 | ) | 26,753 | |||||
|
Balance,
end of the year
|
$ | 1,303,055 | $ | 1,312,596 | ||||
The
change in the net carrying value of goodwill from 2009 to 2010 was due to
foreign currency translation adjustments, additional payments based on the
performance of the previously acquired businesses and changes to purchase price
allocations. The purchase price allocation changes were primarily related to the
finalization of the purchase price allocation on 2009 acquisitions.
- 69
-
Goodwill
by reportable segment is as follows:
|
December 31,
|
||||||||
|
(in thousands)
|
2010
|
2009
|
||||||
|
U.S.,
Germany and Certain Other
|
||||||||
|
European
Regions Consumable Businesses
|
$ | 249,522 | $ | 252,538 | ||||
|
France,
U.K., Italy and Certain Other
|
||||||||
|
European
Countries, CIS, Middle East,
|
||||||||
|
Africa,
Pacific Rim Businesses
|
167,258 | 159,383 | ||||||
|
Canada/Latin
America/Endodontics/
|
||||||||
|
Orthodontics
|
282,321 | 267,427 | ||||||
|
Dental
Laboratory Business/
|
||||||||
|
Implants/Non-Dental
|
603,954 | 633,248 | ||||||
|
Total
|
$ | 1,303,055 | $ | 1,312,596 | ||||
Identifiable
definite-lived intangible assets consist of the following:
|
December 31, 2010
|
December 31, 2009
|
|||||||||||||||||||||||
|
Gross
|
Net
|
Gross
|
Net
|
|||||||||||||||||||||
|
Carrying
|
Accumulated
|
Carrying
|
Carrying
|
Accumulated
|
Carrying
|
|||||||||||||||||||
|
(in thousands)
|
Amount
|
Amortization
|
Amount
|
Amount
|
Amortization
|
Amount
|
||||||||||||||||||
|
Patents
|
$ | 21,956 | $ | (12,108 | ) | $ | 9,848 | $ | 38,840 | $ | (25,842 | ) | $ | 12,998 | ||||||||||
|
Trademarks
|
68,344 | (20,835 | ) | 47,509 | 70,353 | (17,939 | ) | 52,414 | ||||||||||||||||
|
Licensing
agreements
|
28,509 | (15,709 | ) | 12,800 | 28,880 | (14,138 | ) | 14,742 | ||||||||||||||||
|
Other
|
16,994 | (8,408 | ) | 8,586 | 15,364 | (6,432 | ) | 8,932 | ||||||||||||||||
| $ | 135,803 | $ | (57,060 | ) | $ | 78,743 | $ | 153,437 | $ | (64,351 | ) | $ | 89,086 | |||||||||||
Amortization
expense for identifiable definite-lived intangible assets for 2010, 2009 and
2008 was $9.0 million, $10.6 million and $8.7 million, respectively. The annual
estimated amortization expense related to these intangible assets for each of
the five succeeding fiscal years is $8.4 million, $7.7 million, $6.3 million,
$5.6 million and $5.5 million for 2011, 2012, 2013, 2014 and 2015,
respectively.
- 70
-
NOTE
9 - ACCRUED LIABILITIES
Accrued
liabilities consist of the following:
|
December 31,
|
||||||||
|
(in thousands)
|
2010
|
2009
|
||||||
|
Payroll,
commissions, bonuses, other cash compensation and employee
benefits
|
$ | 61,334 | $ | 60,083 | ||||
|
General
insurance
|
12,118 | 13,222 | ||||||
|
Sales
and marketing programs
|
31,070 | 28,468 | ||||||
|
Professional
and legal costs
|
10,844 | 10,248 | ||||||
|
Restructuring
costs
|
9,191 | 9,966 | ||||||
|
Warranty
liabilities
|
4,253 | 4,141 | ||||||
|
Deferred
income
|
5,656 | 3,385 | ||||||
|
Accrued
vacation and holidays
|
12,528 | 13,425 | ||||||
|
Third
party royalties
|
9,184 | 9,806 | ||||||
|
Current
portion of derivatives
|
27,668 | 59,250 | ||||||
|
Other
|
40,899 | 37,175 | ||||||
| $ | 224,745 | $ | 249,169 | |||||
A
reconciliation of changes in the Company's warranty liability for 2010 and 2009
is as follows:
|
December
31,
|
||||||||
|
(in
thousands)
|
2010
|
2009
|
||||||
|
Balance,
beginning of the year
|
$ | 4,141 | $ | 4,260 | ||||
|
Accruals
for warranties issued during the year
|
1,581 | 1,129 | ||||||
|
Accruals
related to pre-existing warranties
|
103 | - | ||||||
|
Warranty
settlements made during the year
|
(1,494 | ) | (1,295 | ) | ||||
|
Effects
of exchange rate changes
|
(78 | ) | 47 | |||||
|
Balance,
end of the year
|
$ | 4,253 | $ | 4,141 | ||||
NOTE 10 - FINANCING
ARRANGEMENTS
Financing
Activities
On
February 19, 2010, the Company received the proceeds of a $250.0 million Private
Placement Note (“PPN”) at a fixed rate of 4.1% for an average term of five years
and a final maturity of six years. The PPN is unsecured and contains certain
affirmative and negative covenants relating to its operations and financial
condition of the Company similar in substance to the $150.0 million U.S. Private
Placement Note that matured March 15, 2010.
On March
1, 2010, the Company entered into a Term Loan Agreement (“Term Loan”) with PNC
Bank providing for the issuance by the Company of 65.0 million Swiss francs
aggregate principal amount of floating rate Senior Term Loan with a final
maturity in March 2012. This Term Loan is unsecured and contains certain
affirmative and negative covenants relating to its operations and financial
condition of the Company similar in substance to the existing multi-currency
revolving credit agreement maturing May 7, 2013. The new Term Loan was used
to refinance a loan under the existing multi-currency revolving credit
agreement.
On May 7,
2010, the Company entered into a $200.0 million multi-currency revolving credit
agreement (“Revolver”) with a syndicate of eight lenders with a final maturity
in May 2013. The multi-currency revolving credit agreement replaced the $500.0
million multi-currency revolving credit agreement which matured May 9, 2010.
This Revolver is unsecured and contains certain affirmative and negative
covenants relating to its operations and financial condition of the Company
similar in substance to the previous multi-currency revolving credit agreement
which matured May 9, 2010.
- 71
-
Short-Term
Borrowings
Short-term bank borrowings
amounted to $5.3 million and $15.6 million at December 31, 2010 and 2009,
respectively. The weighted-average interest rates of these borrowings were 3.0%
at December 31, 2010 and 2009. Unused lines of credit for short-term financing
at December 31, 2010 and 2009 were $72.1 million and $56.9 million,
respectively. Substantially all other short-term borrowings were classified as
long-term as of December 31, 2010 and 2009, reflecting the Company's intent and
ability to refinance these obligations beyond one year and are included in the
following table. The unused lines of credit have no major restrictions and are
provided under demand notes between the Company and the lending institution.
Interest is charged on borrowings under these lines of credit at various rates,
generally below prime or equivalent money rates.
Long-Term
Borrowings
|
December 31,
|
||||||||
|
(in thousands)
|
2010
|
2009
|
||||||
|
Multi-currency
revolving credit agreement expiring May 2013:
|
||||||||
|
U.S.
dollar denominated
|
$ | 2,123 | $ | 3,967 | ||||
|
Swiss
francs 65 million
|
- | 62,844 | ||||||
|
Private
placement notes:
|
||||||||
|
U.S.
dollar denominated expiring March 2010 at 0.55%
|
- | 150,000 | ||||||
|
U.S.
dollar denominated expiring March 2016 at 4.11%
|
250,000 | - | ||||||
|
Term
Loan Agreement:
|
||||||||
|
Swiss
francs denominated expiring March 2012 at 1.67%
|
69,560 | - | ||||||
|
Term
Loan Agreement:
|
||||||||
|
Japanese
yen denominated expiring March 2012 at 0.91%
|
154,626 | 134,776 | ||||||
|
U.S.
dollar commercial paper:
|
||||||||
|
Facility
rated A/2-P/2 U.S. dollar borrowings at 0.40%
|
119,500 | 85,200 | ||||||
|
Other
borrowings, various currencies and rates
|
10,684 | 16,944 | ||||||
| $ | 606,493 | $ | 453,731 | |||||
|
Less:
Current portion
|
||||||||
|
(included
in notes payable and current portion of long-term debt)
|
2,478 | 66,580 | ||||||
|
Long-term
portion
|
$ | 604,015 | $ | 387,151 | ||||
The table
below reflects the contractual maturity dates of the various borrowings at
December 31, 2010. The borrowings under the commercial paper program are
considered contractually due in 2013.
|
(in
thousands)
|
||||
|
2011
|
$ | 2,478 | ||
|
2012
|
159,459 | |||
|
2013
|
192,497 | |||
|
2014
|
75,718 | |||
|
2015
|
100,330 | |||
|
2016
and beyond
|
76,011 | |||
| $ | 606,493 | |||
The
Company utilizes interest rate swaps to convert the Swiss franc denominated Term
Loan debt to fixed rate debt. The Company utilizes interest rate swaps to
convert the variable rate Japanese yen denominated notes to fixed rate debt. The
Company's use of interest rate swaps is further described in Note 15, Financial
Instruments and Derivatives.
The
Company has a $200.0 million revolving credit agreement with participation from
eight banks, which expires in May 2013. The revolving credit agreement contains
a number of covenants and two financial ratios, which the Company is required to
satisfy. The most restrictive of these covenants pertain to asset dispositions
and prescribed ratios of indebtedness to total capital and operating income
excluding depreciation and amortization to interest expense. Any breach of any
such covenants or restrictions would result in a default under the existing
borrowing documentation that would permit the lenders to declare all borrowings
under such documentation to be immediately due and payable and, through cross
default provisions, would entitle the Company's other lenders to accelerate
their loans. At December 31, 2010, the Company was in compliance with these
covenants. The Company pays a facility fee of 0.25% annually on the amount of
the commitment under the $200.0 million three-year facility. Interest rates on
amounts borrowed under the facility will depend on the maturity of the
borrowing, the currency borrowed, the interest rate option selected, and the
Company’s long-term credit rating from Standard and Poor’s and
Moody’s.
- 72
-
The
Company has a U.S. dollar commercial paper facility totaling $200.0 million,
which has utilization, dealer and annual appraisal fees which on average cost
0.16% annually. The $200.0 million revolving credit facility acts as back-up
credit to this commercial paper facility. The total available credit under the
commercial paper facility and the revolving credit facility is $200.0 million.
As of December 31, 2010, the Company had $119.5 million outstanding in
commercial paper and $2.1 million in revolving credit obligations.
At
December 31, 2010, the Company had total unused lines of credit, including lines
available under its short-term arrangements and revolving credit agreement, of
$150.5 million.
NOTE 11 - EQUITY
At
December 31, 2010, the Company had authorization to repurchase shares under its
stock repurchase program in an amount up to 22,000,000 shares of treasury stock.
Under its stock repurchase program, the Company purchased 6,714,508 shares and
2,452,903 shares during 2010 and 2009 at an average price of $33.36 and $32.09,
respectively. As of December 31, 2010 and 2009, the Company held 21.0 million
and 15.8 million shares of treasury stock, respectively. During 2010, the
Company repurchased $224.0 million in treasury stock. The Company also received
proceeds of $30.2 million primarily as a result of the exercise of 1.5 million
stock options during the year ended December 31, 2010. It is the Company’s
practice to issue shares from treasury stock when options are exercised. The tax
benefit realized for the options exercised during the year ended December 31,
2010 is $5.4 million.
The
following table represents total outstanding shares for the years ended December
31:
|
Common
|
Treasury
|
Outstanding
|
||||||||||
|
(in thousands)
|
Shares
|
Shares
|
Shares
|
|||||||||
|
Balance
at December 31, 2007
|
162,776 | (11,954 | ) | 150,822 | ||||||||
|
Shares
Issued
|
- | 677 | 677 | |||||||||
|
Repurchase
of common stock at cost
|
- | (2,971 | ) | (2,971 | ) | |||||||
|
Balance
at December 31, 2008
|
162,776 | (14,248 | ) | 148,528 | ||||||||
|
Shares
Issued
|
- | 886 | 886 | |||||||||
|
Repurchase
of common stock at cost
|
- | (2,453 | ) | (2,453 | ) | |||||||
|
Balance
at December 31, 2009
|
162,776 | (15,815 | ) | 146,961 | ||||||||
|
Shares
Issued
|
- | 1,489 | 1,489 | |||||||||
|
Repurchase
of common stock at cost
|
- | (6,715 | ) | (6,715 | ) | |||||||
|
Balance
at December 31, 2010
|
162,776 | (21,041 | ) | 141,735 | ||||||||
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. The
number of shares available for grant under the 2010 Plan as of December 31, 2010
is 13.8 million.
- 73
-
Stock
options generally expire ten years after the date of grant under these plans and
grants become exercisable over a period of three years after the date of grant
at the rate of one-third per year, except when they become immediately
exercisable upon death, disability or qualified retirement. 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. The fair value of each RSU assumes that performance goals will be
achieved. If such goals are not met, no compensation cost is recognized and any
recognized compensation costs is reversed. Under the terms of the RSU, the
three-year period is referred to as the restricted period. RSU and the rights
under the award may not be sold, assigned, transferred, donated, pledged or
otherwise disposed of during the three year restricted period prior to vesting.
Upon the expiration of the applicable restricted period and the satisfaction of
all conditions imposed, all restrictions imposed on RSU will lapse, and one
share of common stock will be issued as payment for each vested
RSU.
The following table represents total
stock based compensation expense and the tax related benefit for the years
ended:
|
December 31,
|
||||||||||||
|
(in millions)
|
2010
|
2009
|
2008
|
|||||||||
|
Stock
option expense
|
$ | 10.4 | $ | 8.7 | $ | 11.7 | ||||||
|
RSU
expense
|
7.2 | 6.4 | 4.4 | |||||||||
|
Total
stock based compensation expense
|
$ | 17.6 | $ | 15.1 | $ | 16.1 | ||||||
|
Related
deferred income tax benefit
|
$ | 4.9 | $ | 3.6 | $ | 3.9 | ||||||
The stock
option expense shown in the preceding table represents the aggregate fair value
of shares vested during the year ended December 31, 2010, 2009 and 2008. There
were 1.8 million non-qualified stock options unvested as of December 31, 2010.
The remaining unamortized compensation cost related to non-qualified stock
options is $8.9 million, which will be expensed over the weighted average
remaining vesting period of the options, or 1.4 years. The unamortized
compensation cost related to RSU is $6.9 million, which will be expensed over
the remaining weighted average restricted period of the RSU, or 1.2
years.
The
Company uses the Black-Scholes option-pricing model to estimate the fair value
of each option awarded. The following table sets forth the assumptions used to
determine compensation cost for the Company’s non-qualified stock options
(“NQSO”) issued during the years ended:
|
December 31,
|
||||||||||||
|
2010 (a)
|
2009
|
2008
|
||||||||||
|
Weighted
average fair value per share
|
$ | 9.06 | $ | 7.31 | $ | 5.23 | ||||||
|
Expected
dividend yield
|
0.58 | % | 0.60 | % | 0.69 | % | ||||||
|
Risk-free
interest rate
|
2.55 | % | 2.14 | % | 1.85 | % | ||||||
|
Expected
volatility
|
22 | % | 22 | % | 21 | % | ||||||
|
Expected
life (years)
|
6.42 | 4.84 | 4.66 | |||||||||
|
|
(a)
|
In
2010, the Human Resources Committee of the Company’s Board of Directors
reviewed the Company’s practices for NQSO grants and determined that it
would be more appropriate to make all regular equity grants in the
February time frame, after the Company’s financial results are known for
the prior year. Accordingly, there were no grants of NQSO in December
2010, which had been the historic
practice.
|
The total
intrinsic value of options exercised for the years ended December 31, 2010, 2009
and 2008 was $16.5 million, $12.3 million and $13.7 million,
respectively.
- 74
-
The
following table summarizes the non-qualified stock option transactions for the
year ended December 31, 2010:
|
Outstanding
|
Exercisable
|
|||||||||||||||||||||||
|
Weighted
|
Weighted
|
|||||||||||||||||||||||
|
Average
|
Aggregate
|
Average
|
Aggregate
|
|||||||||||||||||||||
|
Exercise
|
Intrinsic
|
Exercise
|
Intrinsic
|
|||||||||||||||||||||
|
(in thousands, except per share amounts)
|
Shares
|
Price
|
Value
|
Shares
|
Price
|
Value
|
||||||||||||||||||
|
December
31, 2009
|
12,038 | $ | 28.34 | $ | 94,148 | 8,682 | $ | 26.78 | $ | 80,839 | ||||||||||||||
|
Granted
|
150 | 34.56 | ||||||||||||||||||||||
|
Exercised
|
(1,344 | ) | 22.46 | |||||||||||||||||||||
|
Forfeited
|
(208 | ) | 33.15 | |||||||||||||||||||||
|
December
31, 2010
|
10,636 | $ | 29.07 | $ | 66,722 | 8,815 | $ | 28.58 | $ | 61,450 | ||||||||||||||
The
weighted average remaining contractual term of all outstanding options is 5.8
years and the weighted average remaining contractual term of exercisable options
is 5.1 years.
The
following table summarizes information about non-qualified stock options
outstanding for the year ended December 31, 2010:
|
Outstanding
|
Exercisable
|
|||||||||||||||||||
|
Weighted
|
||||||||||||||||||||
|
Number
|
Average
|
Number
|
||||||||||||||||||
|
Outstanding
|
Remaining
|
Weighted
|
Exercisable
|
Weighted
|
||||||||||||||||
|
at
|
Contractual
|
Average
|
at
|
Average
|
||||||||||||||||
|
Incremental Changes
|
December 31,
|
Life
|
Exercise
|
December 31,
|
Exercise
|
|||||||||||||||
|
in Stock Price
|
2010
|
(in years)
|
Price
|
2010
|
Price
|
|||||||||||||||
|
10.01
- 15.00
|
30,600 | 0.5 | $ | 13.61 | 30,600 | $ | 13.61 | |||||||||||||
|
15.01
- 20.00
|
1,165,283 | 1.6 | 17.64 | 1,165,283 | 17.64 | |||||||||||||||
|
20.01
- 25.00
|
1,037,798 | 3.1 | 22.17 | 1,019,398 | 22.17 | |||||||||||||||
|
25.01
- 30.00
|
4,270,074 | 6.1 | 27.07 | 3,681,669 | 27.18 | |||||||||||||||
|
30.01
- 35.00
|
2,844,220 | 7.6 | 32.81 | 1,749,067 | 32.19 | |||||||||||||||
|
35.01
- 40.00
|
203,315 | 7.8 | 36.77 | 93,764 | 37.29 | |||||||||||||||
|
40.01
- 45.00
|
37,774 | 7.2 | 41.16 | 28,587 | 41.19 | |||||||||||||||
|
45.01
- 50.00
|
1,046,867 | 6.8 | 45.15 | 1,046,867 | 45.15 | |||||||||||||||
| 10,635,931 | 5.8 | $ | 29.07 | 8,815,235 | $ | 28.58 | ||||||||||||||
The
following table summarizes the unvested RSU transactions for the year ended
December 31, 2010:
|
Unvested Restricted Stock Units
|
||||||||
|
Weighted Average
|
||||||||
|
(in thousands, except per share amounts)
|
Grant Date
|
|||||||
|
Shares
|
Fair Value
|
|||||||
|
Unvested
at December 31, 2009
|
668 | $ | 31.95 | |||||
|
Granted
|
250 | 32.92 | ||||||
|
Exercised
|
(144 | ) | 30.95 | |||||
|
Forfeited
|
(30 | ) | 32.86 | |||||
|
Unvested
at December 31, 2010
|
744 | $ | 32.43 | |||||
- 75
-
NOTE
12 - INCOME TAXES
The
components of income before income taxes from operations are as
follows:
|
December 31,
|
||||||||||||
|
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
|
United
States
|
$ | 104,424 | $ | 99,009 | $ | 45,171 | ||||||
|
Foreign
|
253,232 | 264,347 | 309,702 | |||||||||
| $ | 357,656 | $ | 363,356 | $ | 354,873 | |||||||
The
components of the provision for income taxes from operations are as
follows:
|
December 31,
|
||||||||||||
|
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
|
Current:
|
||||||||||||
|
U.S.
federal
|
$ | 21,848 | $ | 30,851 | $ | (9,913 | ) | |||||
|
U.S.
state
|
3,795 | 5,886 | 2,291 | |||||||||
|
Foreign
|
62,196 | 52,012 | 65,854 | |||||||||
|
Total
|
$ | 87,839 | $ | 88,749 | $ | 58,232 | ||||||
|
Deferred:
|
||||||||||||
|
U.S.
federal
|
$ | 3,067 | $ | (8,046 | ) | $ | 23,496 | |||||
|
U.S.
state
|
1,062 | (476 | ) | 3,283 | ||||||||
|
Foreign
|
(2,743 | ) | 8,717 | (13,408 | ) | |||||||
|
Total
|
$ | 1,386 | $ | 195 | $ | 13,371 | ||||||
| $ | 89,225 | $ | 88,944 | $ | 71,603 | |||||||
The
reconciliation of the U.S. federal statutory tax rate to the effective rate for
the years ended is as follows:
|
December 31,
|
||||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Statutory
federal income tax rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
Effect
of:
|
||||||||||||
|
State
income taxes, net of federal benefit
|
0.9 | 1.0 | 1.0 | |||||||||
|
Federal
benefit of R&D and foreign tax credits
|
(6.9 | ) | (11.3 | ) | (15.8 | ) | ||||||
|
Tax
effect of international operations
|
(4.7 | ) | 0.7 | 4.9 | ||||||||
|
Net
effect of tax audit activity
|
1.0 | (1.3 | ) | (4.4 | ) | |||||||
|
Tax
effect of enacted statutory rate changes
|
- | - | 0.1 | |||||||||
|
Federal
tax on unremitted earnings of certain
|
||||||||||||
|
foreign
subsidiaries
|
0.2 | 0.1 | (0.3 | ) | ||||||||
|
Other
|
(0.5 | ) | 0.3 | (0.3 | ) | |||||||
|
Effective
income tax rate on operations
|
25.0 | % | 24.5 | % | 20.2 | % | ||||||
- 76
-
The tax
effect of significant temporary differences giving rise to deferred tax assets
and liabilities are as follows:
|
December 31, 2010
|
December 31, 2009
|
|||||||||||||||
|
Deferred
|
Deferred
|
Deferred
|
Deferred
|
|||||||||||||
|
Tax
|
Tax
|
Tax
|
Tax
|
|||||||||||||
|
(in thousands)
|
Asset
|
Liability
|
Asset
|
Liability
|
||||||||||||
|
Commission
and bonus accrual
|
$ | 1,201 | $ | - | $ | 1,764 | $ | - | ||||||||
|
Employee
benefit accruals
|
33,139 | - | 27,876 | - | ||||||||||||
|
Inventory
|
17,497 | - | 15,554 | - | ||||||||||||
|
Identifiable
intangible assets
|
- | 138,621 | - | 130,419 | ||||||||||||
|
Insurance
premium accruals
|
4,610 | - | 5,068 | - | ||||||||||||
|
Miscellaneous
accruals
|
7,088 | - | 8,529 | - | ||||||||||||
|
Other
|
13,820 | - | 12,827 | - | ||||||||||||
|
Unrealized
losses included in other
|
||||||||||||||||
|
comprehensive
income
|
59,618 | - | 55,545 | - | ||||||||||||
|
Property,
plant and equipment
|
- | 36,881 | - | 38,663 | ||||||||||||
|
Product
warranty accruals
|
901 | - | 980 | - | ||||||||||||
|
R&D
and foreign tax credit carryforward
|
34,844 | - | 35,609 | - | ||||||||||||
|
Restructuring
and other cost accruals
|
1,011 | - | 777 | - | ||||||||||||
|
Sales
and marketing accrual
|
4,545 | - | 4,553 | - | ||||||||||||
|
Taxes
on unremitted earnings of foreign subsidiaries
|
- | 2,083 | - | 1,486 | ||||||||||||
|
Tax
loss carryforwards and other tax attributes
|
94,286 | - | 70,010 | - | ||||||||||||
|
Valuation
allowance
|
(75,392 | ) | - | (51,809 | ) | - | ||||||||||
| $ | 197,168 | $ | 177,585 | $ | 187,283 | $ | 170,568 | |||||||||
The
deferred tax assets and liabilities are included in the following consolidated
balance sheet line items:
|
December 31,
|
||||||||
|
(in thousands)
|
2010
|
2009
|
||||||
|
Prepaid
expenses and other current assets
|
$ | 55,747 | $ | 77,277 | ||||
|
Income
taxes payable
|
3,004 | 1,747 | ||||||
|
Other
noncurrent assets
|
39,329 | 13,709 | ||||||
|
Deferred
income taxes
|
72,489 | 72,524 | ||||||
The
Company has $34.8 million of foreign tax credit carryforwards, of which $7.8
million, $7.1 million, $9.9 million, $7.1 million, and $2.9 million will expire
in 2015, 2016, 2017, 2019, and 2020 respectively.
Certain
foreign and domestic subsidiaries of the Company have tax loss carryforwards of
$585.7 million at December 31, 2010, of which $443.1 million expire through 2030
and $142.6 million may be carried forward indefinitely. The tax benefit of
certain tax loss carryforwards and deferred tax assets has been offset by a
valuation allowance as of December 31, 2010, because it is uncertain whether the
benefits will be realized in the future. The valuation allowance at December 31,
2010 and 2009 was $75.4 million and $51.8 million, respectively.
The
Company has provided federal income taxes on certain undistributed earnings of
its foreign subsidiaries that the Company anticipates will be repatriated.
Deferred federal income taxes have not been provided on $800.1 million of
cumulative earnings of foreign subsidiaries that the Company has determined to
be permanently reinvested. It is not practicable to estimate the amount of tax
that might be payable on these permanently reinvested earnings.
Tax
Contingencies
The
Company applies a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The Company recognizes in the financial
statements, the impact of a tax position, if that position is more likely than
not of being sustained on audit, based on the technical merits of the
position.
- 77
-
The total
amount of gross unrecognized tax benefits at December 31, 2010, is approximately
$19.2 million, of this total, approximately $17.8 million represents the amount
of unrecognized tax benefits that, if recognized, would affect the effective
income tax rate. It is reasonably possible that certain amounts of
unrecognized tax benefits will significantly increase or decrease within twelve
months of the reporting date of the Company’s consolidated financial statements.
Final settlement and resolution of outstanding tax matters in various
jurisdictions during the next twelve months could include unrecognized tax
benefits of approximately $3.1 million. In addition, expiration of
statutes of limitation in various jurisdictions during the next twelve months
could include unrecognized tax benefits of approximately $0.3
million.
The total
amount of accrued interest and penalties were $6.0 million and $5.6 million as
of December 31, 2010 and 2009, respectively. The Company has
consistently classified interest and penalties recognized in its consolidated
financial statements as income taxes based on the accounting policy election of
the Company. During the year ended December 31, 2010 and December 31,
2009, the Company recognized income tax benefits in the amount of $0.6 million
and $1.7 million for interest and penalties. During the year ended
December 31, 2008, the company recognized income tax expense of $5.5 million in
interest and penalties.
The
Company is subject to U.S. federal income tax as well as income tax of multiple
state and foreign jurisdictions. The significant jurisdictions
include the U.S., Germany and Switzerland. The Company has
substantially concluded all U.S. federal income tax matters for years through
2005, resulting in the years 2006 through 2009 being subject to future potential
tax audit adjustments while years prior to 2006 are settled. The
Company has concluded audits in Germany through the tax year 2003 and is
currently under audit for the years 2004 through 2008. The taxable
years that remain open for Switzerland are 2000 through 2009.
The
Company had the following activity recorded for unrecognized tax
benefits:
|
December 31,
|
||||||||||||
|
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
|
Unrecognized
tax benefits at beginning of period
|
$ | 12,864 | $ | 17,285 | $ | 36,307 | ||||||
|
Gross
change for prior period positions
|
47 | (5,120 | ) | (10,154 | ) | |||||||
|
Gross
change for current year positions
|
1,036 | 1,630 | 785 | |||||||||
|
Decrease
due to settlements and payments
|
- | (255 | ) | (2,584 | ) | |||||||
|
Decrease
due to statute expirations
|
(424 | ) | (1,026 | ) | (5,752 | ) | ||||||
|
Increase
due to effect of foreign currency translation
|
- | 350 | - | |||||||||
|
Decrease
due to effect from foreign currency translation
|
(380 | ) | - | (1,317 | ) | |||||||
|
Unrecognized
tax benefits at end of period
|
$ | 13,143 | $ | 12,864 | $ | 17,285 | ||||||
NOTE
13 - BENEFIT PLANS
Substantially
all of the employees of the Company and its subsidiaries are covered by
government or Company-sponsored benefit plans. Total costs for Company-sponsored
defined benefit, defined contribution and employee stock ownership plans
amounted to $26.2 million, $24.6 million and $21.2 million in 2010, 2009 and
2008, respectively.
Defined
Contribution Plans
The
DENTSPLY Employee Stock Ownership Plan (“ESOP”) and 401(k) plans are designed to
have contribution allocations of “Covered Compensation,” with a targeted 3%
going into the ESOP in Company stock and a targeted 3% going into the 401(k) as
a Non-Elective Contribution (“NEC”) in cash. The Company sponsors an employee
401(k) savings plan for its U.S. workforce to which enrolled participants may
contribute up to Internal Revenue Service (“IRS”) defined limits. The annual
expense and cash contribution to the 401(k) is expected to be $4.7 million for
2010 (to be contributed in the first quarter of 2011), and was $5.3 million for
2009 (contributed in the first quarter of 2010), and $5.0 million for 2008
(contributed in the first quarter of 2009).
The ESOP
is a non-contributory defined contribution plan that covers substantially all of
the U.S. based non-union employees of the Company. Contributions to the ESOP,
net of forfeitures, are expected to be $3.0 million for 2010 (to be contributed
in the first quarter of 2011), and were $1.4 million for 2009 (contributed in
the first quarter of 2010), and were $1.3 million for 2008 (contributed in the
first quarter of 2009).
All
future ESOP allocations will come from a combination of forfeited shares and
shares acquired in the open market. The Company has targeted future ESOP
allocations at 3% of “Covered Compensation.” The share allocation will be
accounted at fair value at the point of allocation, which is normally
year-end.
- 78
-
Defined
Benefit Plans
The
Company maintains a number of separate contributory and non-contributory
qualified defined benefit pension plans and other postretirement medical plans
for certain union and salaried employee groups in the U.S. Pension benefits for
salaried plans are based on salary and years of service; hourly plans are based
on negotiated benefits and years of service. Annual contributions to the pension
plans are sufficient to satisfy minimum funding requirements. Pension plan
assets are held in trust and consist mainly of common stock and fixed income
investments. The U.S. plans are funded in excess of the funding required by the
U.S. Department of Labor.
In
addition to the U.S. plans, the Company maintains defined benefit pension plans
for its employees in Germany, Japan, the Netherlands, Switzerland and Taiwan.
These plans provide benefits based upon age, years of service and remuneration.
Substantially all of the German plans are unfunded book reserve plans. Other
foreign plans are not significant individually or in the aggregate. Most
employees and retirees outside the U.S. are covered by government health
plans.
Defined Benefit Pension Plan
Assets
The
primary investment strategy is to ensure that the assets of the plans, along
with anticipated future contributions, will be invested in order that the
benefit entitlements of employees, pensioners and beneficiaries covered under
the plan can be met when due with high probability. Pension plan
assets consist mainly of common stock and fixed income investments. The target
allocations for plan assets are 30% to 65% equity securities, 30% to 65% fixed
income securities, 0% to 15% real estate, and 0% to 25% in all other types of
investments. Equity securities include investments in companies
located both in and outside the U.S. Equity securities do not include
common stock of the Company. Fixed income securities include corporate bonds of
companies from diversified industries, government bonds, mortgage notes and
pledge letters. Other types of investments include investments in
mutual funds, common trusts, insurance contracts, hedge funds and real
estate. These plan assets are not recorded on the Company’s
consolidated balance sheet as they are held in trust or other off-balance sheet
investment vehicles.
The
defined benefit pension plan assets in the U.S. are held in trust and the
investment policies of the plans are generally to invest the plans assets in
equities and fixed income investments. The objective is to achieve a
long-term rate of return in excess of 5% while at the same time mitigating the
impact of investment risk associated with investment categories that are
expected to yield greater than average returns. In accordance with
the investment policies of the U.S. plans, the plans assets were invested in the
following investment categories: interest-bearing cash, registered investment
companies (e.g. mutual funds), common/collective trusts, master trust investment
accounts and insurance company general accounts. The investment
objective is for assets to be invested in a manner consistent with the fiduciary
standards of the Employee Retirement Income Security Act of 1974
(“ERISA”).
The
defined benefit pension plan assets maintained in Germany, Japan, the
Netherlands, Switzerland and Taiwan all have separate investment policies but
generally have an objective to achieve a long-term rate of return in excess 5%
while at the same time mitigating the impact of investment risk associated with
investment categories that are expected to yield greater than average
returns. In accordance with the investment policies for the plans
outside the U.S., the plans’ assets were invested in the following investment
categories: interest-bearing cash, U.S. and foreign equities, foreign fixed
income securities (primarily corporate and government bonds), insurance company
contracts, real estate and hedge funds.
Postretirement
Healthcare
The plans
for postretirement healthcare have no plan assets. The postretirement healthcare
plans cover certain union and salaried employee groups in the U.S. and is
contributory, with retiree contributions adjusted annually to limit the
Company’s contribution for participants who retired after June 1, 1985. The
Company also sponsors unfunded non-contributory postretirement medical plans for
a limited number of union employees and their spouses and retirees of a
discontinued operation.
- 79
-
Reconciliations
of changes in the defined benefit and postretirement healthcare plans’ benefit
obligations, fair value of assets and statement of funded status are as
follows:
|
Other Postretirement
|
||||||||||||||||
|
Pension Benefits
|
Benefits
|
|||||||||||||||
|
December 31,
|
December 31,
|
|||||||||||||||
|
(in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
|
Change
in Benefit Obligation
|
||||||||||||||||
|
Benefit
obligation at beginning of year
|
$ | 191,976 | $ | 183,785 | $ | 11,666 | $ | 10,501 | ||||||||
|
Service
cost
|
8,108 | 8,375 | 58 | 50 | ||||||||||||
|
Interest
cost
|
8,415 | 8,003 | 605 | 676 | ||||||||||||
|
Participant
contributions
|
2,886 | 2,774 | 616 | 689 | ||||||||||||
|
Actuarial
losses (gains)
|
7,976 | (7,202 | ) | (548 | ) | 1,018 | ||||||||||
|
Amendments
|
- | (29 | ) | - | - | |||||||||||
|
Divestitures
|
291 | 286 | - | - | ||||||||||||
|
Effects
of exchange rate changes
|
3,474 | 4,929 | - | - | ||||||||||||
|
Settlement
gains
|
- | (808 | ) | - | - | |||||||||||
|
Benefits
paid
|
(11,622 | ) | (8,137 | ) | (790 | ) | (1,268 | ) | ||||||||
|
Benefit
obligation at end of year
|
$ | 211,504 | $ | 191,976 | $ | 11,607 | $ | 11,666 | ||||||||
|
Change
in Plan Assets
|
||||||||||||||||
|
Fair
value of plan assets at beginning of year
|
$ | 88,866 | $ | 75,986 | $ | - | $ | - | ||||||||
|
Actual
return on assets
|
1,883 | 5,687 | - | - | ||||||||||||
|
Settlement
gains
|
- | - | - | - | ||||||||||||
|
Effects
of exchange rate changes
|
8,374 | 2,474 | - | - | ||||||||||||
|
Employer
contributions
|
9,159 | 10,082 | 174 | 579 | ||||||||||||
|
Participant
contributions
|
2,886 | 2,774 | 616 | 689 | ||||||||||||
|
Benefits
paid
|
(11,622 | ) | (8,137 | ) | (790 | ) | (1,268 | ) | ||||||||
|
Fair
value of plan assets at end of year
|
$ | 99,546 | $ | 88,866 | $ | - | $ | - | ||||||||
|
Funded
status at end of year
|
$ | (111,958 | ) | $ | (103,110 | ) | $ | (11,607 | ) | $ | (11,666 | ) | ||||
The
amounts recognized in the accompanying consolidated balance sheets, net of tax
effects, are as follows:
|
Other Postretirement
|
||||||||||||||||
|
Pension Benefits
|
Benefits
|
|||||||||||||||
|
December 31,
|
December 31,
|
|||||||||||||||
|
(in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
|
Other
noncurrent assets
|
$ | - | $ | 1 | $ | - | $ | - | ||||||||
|
Deferred
tax asset
|
9,834 | 7,177 | 1,113 | 1,427 | ||||||||||||
|
Total
assets
|
$ | 9,834 | $ | 7,178 | $ | 1,113 | $ | 1,427 | ||||||||
|
Current
liabilities
|
(3,462 | ) | (3,604 | ) | (1,099 | ) | (1,107 | ) | ||||||||
|
Long-term
liabilities
|
(108,496 | ) | (99,507 | ) | (10,508 | ) | (10,559 | ) | ||||||||
|
Deferred
tax liability
|
(22 | ) | (238 | ) | - | - | ||||||||||
|
Total
liabilities
|
$ | (111,980 | ) | $ | (103,349 | ) | $ | (11,607 | ) | $ | (11,666 | ) | ||||
|
Accumulated
other comprehensive income
|
29,050 | 20,504 | 1,771 | 2,270 | ||||||||||||
|
Net
amount recognized
|
$ | (73,096 | ) | $ | (75,667 | ) | $ | (8,723 | ) | $ | (7,969 | ) | ||||
- 80
-
Amounts
recognized in AOCI consist of:
|
Other Postretirement
|
||||||||||||||||
|
Pension Benefits
|
Benefits
|
|||||||||||||||
|
December 31,
|
December 31,
|
|||||||||||||||
|
(in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
|
Net
actuarial loss
|
$ | 38,694 | $ | 27,056 | $ | 2,884 | $ | 3,697 | ||||||||
|
Net
prior service cost
|
168 | 262 | - | - | ||||||||||||
|
Net
transition obligation
|
- | 125 | - | - | ||||||||||||
|
Pretax
AOCI
|
$ | 38,862 | $ | 27,443 | $ | 2,884 | $ | 3,697 | ||||||||
|
Less
deferred taxes
|
9,812 | 6,939 | 1,113 | 1,427 | ||||||||||||
|
Post
tax AOCI
|
$ | 29,050 | $ | 20,504 | $ | 1,771 | $ | 2,270 | ||||||||
Information
for pension plans with an accumulated benefit obligation in excess of plan
assets:
|
December 31,
|
||||||||
|
(in
thousands)
|
2010
|
2009
|
||||||
|
Projected
benefit obligation
|
$ | 211,504 | $ | 191,785 | ||||
|
Accumulated
benefit obligation
|
200,574 | 182,594 | ||||||
|
Fair
value of plan assets
|
99,546 | 88,674 | ||||||
Components
of net periodic benefit cost:
|
Other Postretirement
|
||||||||||||||||||||||||
|
Pension Benefits
|
Benefits
|
|||||||||||||||||||||||
|
(in thousands)
|
2010
|
2009
|
2008
|
2010
|
2009
|
2008
|
||||||||||||||||||
|
Service
cost
|
$ | 8,108 | $ | 8,375 | $ | 6,980 | $ | 58 | $ | 50 | $ | 50 | ||||||||||||
|
Interest
cost
|
8,415 | 8,003 | 7,910 | 605 | 676 | 635 | ||||||||||||||||||
|
Expected
return on assets
|
(4,662 | ) | (3,991 | ) | (4,458 | ) | - | - | - | |||||||||||||||
|
Amortization
of actuarial losses
|
124 | 240 | 240 | - | - | - | ||||||||||||||||||
|
Amortization
of prior service
|
86 | 138 | 141 | - | - | - | ||||||||||||||||||
|
Amortization
of net loss
|
1,002 | 1,652 | 155 | 265 | 281 | 168 | ||||||||||||||||||
|
Settlement
gains
|
- | (1,148 | ) | (2,259 | ) | - | - | - | ||||||||||||||||
|
Net
periodic benefit cost
|
$ | 13,073 | $ | 13,269 | $ | 8,709 | $ | 928 | $ | 1,007 | $ | 853 | ||||||||||||
Other
changes in plan assets and benefit obligations recognized in AOCI:
|
Other Postretirement
|
||||||||||||||||||||||||
|
Pension Benefits
|
Benefits
|
|||||||||||||||||||||||
|
(in thousands)
|
2010
|
2009
|
2008
|
2010
|
2009
|
2008
|
||||||||||||||||||
|
Net
actuarial (gain) loss
|
$ | 12,640 | $ | (7,994 | ) | $ | 26,214 | $ | (548 | ) | $ | 1,020 | $ | 670 | ||||||||||
|
Net
prior service (credit)
|
(8 | ) | (37 | ) | (3 | ) | - | - | - | |||||||||||||||
|
Net
transition obligation
|
(1 | ) | 1 | 32 | - | - | - | |||||||||||||||||
|
Amortization
|
(1,212 | ) | (2,030 | ) | (536 | ) | (265 | ) | (281 | ) | (168 | ) | ||||||||||||
|
Total
recognized in AOCI
|
$ | 11,419 | $ | (10,060 | ) | $ | 25,707 | $ | (813 | ) | $ | 739 | $ | 502 | ||||||||||
|
Total recognized in net
periodic benefit cost and
AOCI
|
$ | 24,493 | $ | 3,209 | $ | 34,416 | $ | 114 | $ | 1,746 | $ | 1,355 | ||||||||||||
The
estimated net loss, prior service cost and transition obligation for the defined
benefit plans that will be amortized from AOCI into net periodic benefit cost
over the next fiscal year are $1.6 million. The estimated net loss and prior
service credit for the other postretirement plans that will be amortized from
AOCI into net periodic benefit cost over the next fiscal year is $0.2
million.
- 81
-
The
amounts in AOCI that are expected to be amortized as net expense (income) during
fiscal year 2011 are as follows:
|
Other
|
||||||||
|
Pension
|
Postretirement
|
|||||||
|
(in
thousands)
|
Benefits
|
Benefits
|
||||||
|
Amount
of net transition obligation (asset)
|
$ | - | $ | - | ||||
|
Amount
of net prior service cost
|
0.1 | - | ||||||
|
Amount
of net loss
|
1.5 | 0.2 | ||||||
The
weighted average assumptions used to determine benefit obligations for the
Company's plans, principally in foreign locations, are as follows:
|
|
Other Postretirement
|
|||||||||||||||||||||||
|
|
Pension Benefits
|
Benefits
|
||||||||||||||||||||||
|
|
2010
|
2009
|
2008
|
2010
|
2009
|
2008
|
||||||||||||||||||
|
Discount
rate
|
4.1 | % | 4.7 | % | 4.5 | % | 5.0 | % | 5.5 | % | 6.3 | % | ||||||||||||
|
Rate
of compensation increase
|
2.6 | % | 2.7 | % | 2.7 | % | n/a | n/a | n/a | |||||||||||||||
|
Health
care cost trend
|
n/a | n/a | n/a | 8.0 | % | 8.5 | % | 9.0 | % | |||||||||||||||
|
Ultimate
health care cost trend
|
n/a | n/a | n/a | 5.0 | % | 5.0 | % | 5.0 | % | |||||||||||||||
|
Years
until ultimate trend is reached
|
n/a | n/a | n/a | 7.0 | 8.0 | 9.0 | ||||||||||||||||||
The
weighted average assumptions used to determine net periodic benefit cost for the
Company's plans, principally in foreign locations, are as follows:
|
|
Other Postretirement
|
|||||||||||||||||||||||
|
|
Pension Benefits
|
Benefits
|
||||||||||||||||||||||
|
|
2010
|
2009
|
2008
|
2010
|
2009
|
2008
|
||||||||||||||||||
|
Discount
rate
|
4.7 | % | 4.5 | % | 5.0 | % | 5.5 | % | 6.3 | % | 6.3 | % | ||||||||||||
|
Expected
return on plan assets
|
5.2 | % | 5.2 | % | 5.4 | % | n/a | n/a | n/a | |||||||||||||||
|
Rate
of compensation increase
|
2.7 | % | 2.7 | % | 2.8 | % | n/a | n/a | n/a | |||||||||||||||
|
Health
care cost trend
|
n/a | n/a | n/a | 8.0 | % | 8.5 | % | 9.0 | % | |||||||||||||||
|
Ultimate
health care cost trend
|
n/a | n/a | n/a | 5.0 | % | 5.0 | % | 5.0 | % | |||||||||||||||
|
Years
until ultimate trend is reached
|
n/a | n/a | n/a | 7.0 | 8.0 | 9.0 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Measurement Date
|
12/31/2010
|
12/31/2009
|
12/31/2008
|
12/31/2010
|
12/31/2009
|
12/31/2008
|
||||||||||||||||||
To
develop the assumptions for the expected long-term rate of return on assets, the
Company considered the current level of expected returns on risk free
investments (primarily government bonds), the historical level of the risk
premium associated with the other asset classes in which the assets are invested
and the expectations for future returns of each asset class. The
expected return for each asset class was then weighted based on the target asset
allocations to develop the assumptions for the expected long-term rate of return
on assets.
Assumed
health care cost trend rates have an impact on the amounts reported for
postretirement benefits. A one percentage point change in assumed healthcare
cost trend rates would have the following effects for the year ended December
31, 2010:
|
|
Other Postretirement
|
|||||||
|
|
Benefits
|
|||||||
|
(in thousands)
|
1% Increase
|
1% Decrease
|
||||||
|
|
||||||||
|
Effect
on total of service and interest cost components
|
$ | 59 | $ | (49 | ) | |||
|
Effect
on postretirement benefit obligation
|
988 | (845 | ) | |||||
Fair
Value Measurements of Plan Assets
The fair
value of the Company's pension plan assets at December 31, 2010 are presented in
the table below by asset category. Over 80% of the total plan assets are
categorized as Level 1, and therefore, the values assigned to these pension
assets are based on quoted prices available in active markets. For
the other category levels, a description of the valuation is provided in Note 1,
Significant Accounting Policies, under the “fair value measurement”
heading.
- 82
-
|
December 31, 2010
|
||||||||||||||||
|
(in
thousands)
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
|
Assets
Category
|
||||||||||||||||
|
Cash
and cash equivalents
|
$ | 3,028 | $ | 2,775 | $ | 253 | $ | - | ||||||||
|
Equity
securities:
|
||||||||||||||||
|
U.
S.
|
1,103 | 1,103 | - | - | ||||||||||||
|
International
|
29,944 | 29,944 | - | - | ||||||||||||
|
Fixed
income securities:
|
||||||||||||||||
|
Fixed
rate bonds (a)
|
41,215 | 41,215 | - | - | ||||||||||||
|
Other
types of investments:
|
||||||||||||||||
|
Mutual
funds (b)
|
8,857 | 417 | 8,440 | - | ||||||||||||
|
Common
trusts (c)
|
1,648 | - | - | 1,648 | ||||||||||||
|
Insurance
contracts
|
4,858 | - | 3,034 | 1,824 | ||||||||||||
|
Hedge
funds
|
1,334 | - | - | 1,334 | ||||||||||||
|
Real
estate
|
7,559 | 7,199 | - | 360 | ||||||||||||
|
Total
|
$ | 99,546 | $ | 82,653 | $ | 11,727 | $ | 5,166 | ||||||||
|
December 31, 2009
|
||||||||||||||||
|
(in
thousands)
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
|
Assets
Category
|
||||||||||||||||
|
Cash
and cash equivalents
|
$ | 3,180 | $ | 3,038 | $ | 142 | $ | - | ||||||||
|
Equity
securities:
|
||||||||||||||||
|
U.
S.
|
954 | 954 | - | - | ||||||||||||
|
International
|
27,907 | 27,907 | - | - | ||||||||||||
|
Fixed
income securities:
|
||||||||||||||||
|
Fixed
rate bonds (a)
|
35,350 | 35,350 | - | - | ||||||||||||
|
Other
types of investments:
|
||||||||||||||||
|
Mutual
funds (b)
|
7,872 | - | 7,872 | - | ||||||||||||
|
Common
trusts (c)
|
1,932 | 90 | - | 1,842 | ||||||||||||
|
Insurance
contracts
|
4,567 | - | 2,825 | 1,742 | ||||||||||||
|
Hedge
funds
|
1,672 | - | - | 1,672 | ||||||||||||
|
Real
estate
|
5,432 | 5,107 | - | 325 | ||||||||||||
|
Total
|
$ | 88,866 | $ | 72,446 | $ | 10,839 | $ | 5,581 | ||||||||
|
(a)
|
This
category includes fixed income securities invested primarily in Swiss
bonds, foreign bonds in Swiss currency, foreign currency bonds, mortgage
notes and pledged letters.
|
|
(b)
|
Mutual
funds balanced between moderate-income generation and moderate capital
appreciation with investments allocation of approximately 50% equities and
50% fixed income investments.
|
|
(c)
|
This
category includes common/collective funds with investments in
approximately 65% equities and 35% in fixed income
investments.
|
- 83
-
The
following tables provide a reconciliation from December 31, 2009 to December 31,
2010 for the plans assets categorized as Level 3. No assets were
transferred in or out of the Level 3 category during the year ended December 31,
2010.
|
Changes within Level 3 Category for
|
||||||||||||||||||||
|
Year Ended December 31, 2010
|
||||||||||||||||||||
|
Common
|
Insurance
|
Hedge
|
Real
|
|||||||||||||||||
|
(in thousands)
|
Trust
|
Contracts
|
Funds
|
Estate
|
Total
|
|||||||||||||||
|
Beginning
balance at December 31, 2009
|
$ | 1,842 | $ | 1,742 | $ | 1,672 | $ | 325 | $ | 5,581 | ||||||||||
|
Actual
return on plan assets:
|
||||||||||||||||||||
|
Relating
to assets still held at the reporting date
|
116 | 29 | 37 | - | 182 | |||||||||||||||
|
Relating
to assets sold during the period
|
46 | - | - | - | 46 | |||||||||||||||
|
Purchases,
sales and settlements
|
(356 | ) | 109 | (541 | ) | - | (788 | ) | ||||||||||||
|
Effects
of exchange rate changes
|
- | (56 | ) | 166 | 35 | 145 | ||||||||||||||
|
Ending
balance at December 31, 2010
|
$ | 1,648 | $ | 1,824 | $ | 1,334 | $ | 360 | $ | 5,166 | ||||||||||
The
following tables provide a reconciliation from December 31, 2008 to December 31,
2009 for the plans assets categorized as Level 3. No assets were
transferred in or out of the Level 3 category during the year ended December 31,
2009.
|
Changes within Level 3 Category for
|
||||||||||||||||||||
|
Year Ended December 31, 2009
|
||||||||||||||||||||
|
Common
|
Insurance
|
Hedge
|
Real
|
|||||||||||||||||
|
(in thousands)
|
Trust
|
Contracts
|
Funds
|
Estate
|
Total
|
|||||||||||||||
|
Beginning
balance at December 31, 2008
|
$ | 1,233 | $ | 1,578 | $ | 1,002 | $ | 314 | $ | 4,127 | ||||||||||
|
Actual
return on plan assets:
|
||||||||||||||||||||
|
Relating
to assets still held at the reporting date
|
239 | 31 | (224 | ) | - | 46 | ||||||||||||||
|
Relating
to assets sold during the period
|
16 | - | - | - | 16 | |||||||||||||||
|
Purchases,
sales and settlements
|
354 | 89 | 832 | - | 1,275 | |||||||||||||||
|
Effects
of exchange rate changes
|
- | 44 | 62 | 11 | 117 | |||||||||||||||
|
Ending
balance at December 31, 2009
|
$ | 1,842 | $ | 1,742 | $ | 1,672 | $ | 325 | $ | 5,581 | ||||||||||
Fair
values for Level 3 assets are determined as follows:
Common
Trusts and Hedge Funds: The investments are valued using the net
asset value provided by the administrator of the trust or fund, which is based
on the fair value of the underlying securities.
Real
Estate: Investment is stated by its appraised value.
Insurance
Contracts: The value of the asset represents the mathematical reserve of the
insurance policies and is calculated by the insurance firms using their own
assumptions.
Cash
Flows
In 2011,
the Company expects to contribute $6.2 million to its defined benefit pension
plans and $1.1 million to its postretirement medical plans.
- 84
-
Estimated
Future Benefit Payments
|
(in thousands)
|
Pension
Benefits
|
Other
Postretirement
Benefits
|
||||||
|
2011
|
$ | 8,368 | $ | 1,099 | ||||
|
2012
|
8,656 | 1,124 | ||||||
|
2013
|
9,569 | 1,080 | ||||||
|
2014
|
10,140 | 1,046 | ||||||
|
2015
|
10,058 | 978 | ||||||
|
2016-2019
|
59,982 | 4,149 | ||||||
NOTE
14 – RESTRUCTURING AND OTHER COSTS
Restructuring
Costs
Restructuring
costs of $5.8 million and $5.9 million for 2010 and 2009, respectively, are
reflected in Restructuring and other costs in the statement of operations and
the associated liabilities are recorded in accrued liabilities and other
non-current liabilities in the consolidated balance sheet. These
costs consist of employee severance benefits, payments due under operating
contracts, and other restructuring costs. These costs consist of employee
severance benefits, payments due under operating contracts, and other
restructuring costs. During 2010 and 2009, the Company initiated
several restructuring plans primarily related to the closure and/or
consolidation of certain production and selling facilities in the United States,
Europe and South America to better leverage the Company’s resources by reducing
costs and obtaining operational efficiencies. Additionally, the
Company executed targeted reductions in workforce both in the manufacturing and
non-manufacturing business functions in certain locations on 2009.
The 2010
restructuring plans and ongoing benefits associated with these plans were
immaterial to the current period as well as future periods. The
majority of the benefits of the 2009 and 2008 and prior period restructuring
plans have been incorporated into the Company’s results. While
certain restructuring plans continue to be executed, the future benefits of
these on the Company’s results would be immaterial in the period
realized.
As of
December 31, 2010, the Company’s restructuring accruals were as
follows:
|
Severances
|
||||||||||||||||
|
2008 and
|
||||||||||||||||
|
(in thousands)
|
Prior Plans
|
2009 Plans
|
2010 Plans
|
Total
|
||||||||||||
|
Balance,
December 31, 2009
|
$ | 5,505 | $ | 3,240 | $ | - | $ | 8,745 | ||||||||
|
Provisions
and adjustments
|
(700 | ) | (514 | ) | 6,552 | 5,338 | ||||||||||
|
Amounts
applied
|
(2,780 | ) | (1,873 | ) | (1,292 | ) | (5,945 | ) | ||||||||
|
Balance,
December 31, 2010
|
$ | 2,025 | $ | 853 | $ | 5,260 | $ | 8,138 | ||||||||
|
Lease/contract terminations
|
||||||||
|
2008 and
|
||||||||
|
(in thousands)
|
Prior Plans
|
Total
|
||||||
|
Balance,
December 31, 2009
|
$ | 1,093 | $ | 1,093 | ||||
|
Provisions
and adjustments
|
- | - | ||||||
|
Amounts
applied
|
(97 | ) | (97 | ) | ||||
|
Balance,
December 31, 2010
|
$ | 996 | $ | 996 | ||||
- 85
-
|
Other restructuring costs
|
||||||||||||||||
|
2008 and
|
||||||||||||||||
|
(in thousands)
|
Prior Plans
|
2009 Plans
|
2010 Plans
|
Total
|
||||||||||||
|
Balance,
December 31, 2009
|
$ | 112 | $ | 16 | $ | - | $ | 128 | ||||||||
|
Provisions
and adjustments
|
90 | 209 | 206 | 505 | ||||||||||||
|
Amounts
applied
|
(161 | ) | (209 | ) | (206 | ) | (576 | ) | ||||||||
|
Balance,
December 31, 2010
|
$ | 41 | $ | 16 | $ | - | $ | 57 | ||||||||
The
following table provides the cumulative amounts for the provisions and
adjustments and amounts applied for all the plans by segment:
|
December 31,
|
Provisions
|
Amounts
|
December 31,
|
|||||||||||||
|
(in thousands)
|
2009
|
and adjustments
|
applied
|
2010
|
||||||||||||
|
U.S.,
Germany and Certain Other European Regions Consumable
Businesses
|
$ | 1,247 | $ | 405 | $ | (561 | ) | $ | 1,091 | |||||||
|
France,
U.K., Italy and Certain Other European Countries, CIS, Middle East,
Africa, Pacific Rim Businesses
|
84 | 422 | (391 | ) | 115 | |||||||||||
|
Canada/Latin
America/Endodontics/ Orthodontics
|
638 | 582 | (820 | ) | 400 | |||||||||||
|
Dental
Laboratory Business/ Implants/Non-Dental
|
7,997 | 4,434 | (4,846 | ) | 7,585 | |||||||||||
|
Total
Balance
|
$ | 9,966 | $ | 5,843 | $ | (6,618 | ) | $ | 9,191 | |||||||
Other
Costs
In 2010,
the Company recorded certain other costs of $5.2 million, of which $3.7 million
related to legal matters. The remaining portion consists of
impairments related to intangible assets and acquisition related
costs. In 2009, the Company recorded certain other costs of $0.9
million related to legal matters and an impairment of an intangible
asset.
NOTE
15 – FINANCIAL INSTRUMENTS AND DERIVATIVES
Derivative
Instruments and Hedging Activities
The
Company's activities expose it to a variety of market risks, which primarily
include the risks related to the effects of changes in foreign currency exchange
rates, interest rates and commodity prices. These financial exposures
are monitored and managed by the Company as part of its overall risk management
program. The objective of this risk management program is to reduce the
volatility that these market risks may have on the Company's operating results
and equity.
Certain
of the Company's inventory purchases are denominated in foreign currencies,
which expose the Company to market risk associated with foreign currency
exchange rate movements. The Company's policy generally is to hedge
major foreign currency transaction exposures through foreign exchange forward
contracts. These contracts are entered into with major financial
institutions thereby minimizing the risk of credit loss. In addition,
the Company's investments in foreign subsidiaries are denominated in foreign
currencies, which create exposures to changes in foreign currency exchange
rates. The Company uses debt and derivatives denominated in the
applicable foreign currency as a means of hedging a portion of this
risk.
With the
Company’s significant level of variable interest rate long-term debt and net
investment hedges, changes in the interest rate environment can have a major
impact on the Company’s earnings, depending upon its interest rate
exposure. As a result, the Company manages its interest rate exposure
with the use of interest rate swaps, when appropriate, based upon market
conditions.
The
manufacturing of some of the Company’s products requires the use of commodities,
which are subject to market fluctuations. In order to limit the
unanticipated impact on income from such market fluctuations, the Company
selectively enters into commodity swaps for certain materials used in the
production of its products. Additionally, the Company uses
non-derivative methods, such as the precious metal consignment agreements to
effectively hedge commodity risks.
- 86
-
Cash
Flow Hedges
The
Company uses interest rate swaps to convert a portion of its variable interest
rate debt to fixed interest rate debt. As of December 31, 2010, the
Company has two groups of significant variable interest rate to fixed rate
interest rate swaps. One of the groups of swaps has notional amounts
totaling 12.6 billion Japanese yen, and effectively converts the underlying
variable interest rates to an average fixed interest rate of 1.6% for a term of
ten years, ending in March 2012. Another swap has a notional amount
of 65.0 million Swiss francs, and effectively converts the underlying variable
interest rates to a fixed interest rate of 4.2% for a term of seven years,
ending in March 2012. The Company enters into interest rate swap
contracts infrequently as they are only used to manage interest rate risk on
long-term debt instruments and not for speculative purposes.
The
Company selectively enters into commodity swaps to effectively fix certain
variable raw material costs. At December 31, 2010, the Company had
swaps in place to purchase 270 troy ounces of platinum bullion for use in the
production of its impression material products. The average fixed
rate of this agreement is $1,739 per troy ounce. In addition, the
Company had swaps in place to purchase 5,736 troy ounces of silver bullion for
use in the production of its dental amalgam products at an average fixed rate of
$16 per troy ounce.
The
Company enters into forward exchange contracts to hedge the foreign currency
exposure of its anticipated purchases of certain inventory. In
addition, exchange contracts are used by certain of the Company's subsidiaries
to hedge intercompany inventory purchases, which are denominated in non-local
currencies. The forward contracts that are used in these programs
typically mature in twelve months or less. For these derivatives
which qualify as hedges of future anticipated cash flows, the effective portion
of changes in fair value is temporarily deferred in AOCI and then recognized in
earnings when the hedged item affects earnings.
The
following tables summarize the fair value of the Company’s cash flow hedges at
December 31, 2010.
|
Foreign Exchange Forward Contracts
|
Notional Amounts
|
Fair Value Net
Asset (Liability)
|
||||||||||
|
(in thousands)
|
2010
|
2011
|
December 31, 2010
|
|||||||||
|
Forward
sale, 11.2 million Australian dollars
|
$ | 10,460 | $ | 972 | $ | (784 | ) | |||||
|
Forward
purchase, 8.4 million British pounds
|
(12,286 | ) | (772 | ) | 250 | |||||||
|
Forward
sale, 34.3 million Canadian dollars
|
31,114 | 3,428 | (664 | ) | ||||||||
|
Forward
sale, 5.2 million Danish krone
|
925 | - | 10 | |||||||||
|
Forward
sale, 5.2 million euros
|
6,923 | - | 1,916 | |||||||||
|
Forward
sale, 407.5 million Japanese yen
|
5,019 | - | 268 | |||||||||
|
Forward
sale, 118.7 million Mexican pesos
|
9,615 | - | 12 | |||||||||
|
Forward
purchase, 1.5 million Norwegian krone
|
(262 | ) | - | 1 | ||||||||
|
Forward
sale, 2.0 million Singapore dollars
|
1,585 | - | (10 | ) | ||||||||
|
Forward
sale, 527.9 million South Korean won
|
509 | - | (3 | ) | ||||||||
|
Forward
purchase, 11.5 million Swiss francs
|
(12,324 | ) | - | 423 | ||||||||
|
Forward
sale, 23.6 million Taiwanese dollars
|
805 | - | 4 | |||||||||
|
Total
foreign exchange forward contracts
|
$ | 42,083 | $ | 3,628 | $ | 1,423 | ||||||
|
Notional Amount
|
Fair Value Net
Asset (Liability)
|
|||||||||||||||||||||||
|
Interest Rate Swaps
(in thousands)
|
2011
|
2012
|
2013
|
2014
|
2015 and
Beyond
|
December 31, 2010
|
||||||||||||||||||
|
Euro
|
$ | 1,262 | $ | 1,262 | $ | 1,262 | $ | 965 | $ | 3,136 | $ | (660 | ) | |||||||||||
|
Japanese
yen
|
- | 154,626 | - | - | - | (2,058 | ) | |||||||||||||||||
|
Swiss
francs
|
- | 69,560 | - | - | - | (3,026 | ) | |||||||||||||||||
|
Total
interest rate swaps
|
$ | 1,262 | $ | 225,448 | $ | 1,262 | $ | 965 | $ | 3,136 | $ | (5,744 | ) | |||||||||||
- 87
-
|
Notional
Amount
|
Fair Value Net
Asset (Liability)
|
|||||||
|
Commodity Contracts
(in thousands)
|
2011
|
December 31, 2010
|
||||||
|
Silver
swap - U.S. dollar
|
$ | (93 | ) | $ | 82 | |||
|
Platinum
swap - U.S. dollar
|
(470 | ) | 6 | |||||
|
Total
commodity contracts
|
$ | (563 | ) | $ | 88 | |||
Hedges
of Net Investments in Foreign Operations
The
Company has numerous investments in foreign subsidiaries. The net
assets of these subsidiaries are exposed to volatility in currency exchange
rates. Currently, the Company uses non-derivative financial
instruments, including foreign currency denominated debt held at the parent
company level and derivative financial instruments to hedge some of this
exposure. Translation gains and losses related to the net assets of
the foreign subsidiaries are offset by gains and losses in the non-derivative
and derivative financial instruments designated as hedges of net
investments.
During
the first quarter of 2010, the Company entered into new cross currency basis
swaps of Swiss francs 100.0 million and Swiss francs 55.5 million (collectively
the “Swiss Swaps”). The Swiss Swaps mature in February 2013, and the Company
pays three month Swiss franc London Inter-Bank Offered Rate (“LIBOR”) and
receives three month U.S. dollar LIBOR. The new contracts were entered into to
replace maturing contracts. During the fourth quarter of 2010, the Company
entered into new cross currency basis swaps of euro 108.0 million (“Euro
Swaps”). The Euro Swaps mature in December 2013, and the Company pays three
month Euro Inter-Bank Offered Rate (“EURIBOR”) and receives three month U.S.
dollar LIBOR. The new contracts were entered into to replace maturing contracts.
The Swiss franc and euro cross currency interest rate swaps are designated as
net investment hedges of the Swiss franc and euro denominated net
assets. The interest rate differential is recognized in income as
interest income or interest expense as it is accrued, the foreign currency
revaluation is recorded in AOCI, net of tax.
The fair
value of these cross currency interest rate swap agreements is the estimated
amount the Company would either pay or receive at the reporting date, taking
into consideration the effective interest rates and foreign exchange
rates. As of December 31, 2010 and December 31, 2009, the estimated
net fair values of the swap agreements were negative $169.1 million and negative
$176.6 million, respectively, which are recorded in AOCI, net of tax, and as
other noncurrent liabilities and other noncurrent assets in the consolidated
balance sheets.
At
December 31, 2010 and December 31, 2009, the Company had Swiss franc-denominated
and Japanese yen-denominated debt and cross currency basis swaps denominated in
euro and Swiss franc to hedge the currency exposure related to a designated
portion of the net assets of its European, Swiss and Japanese
subsidiaries. At December 31, 2010 and 2009, the accumulated
translation gains on investments in foreign subsidiaries, primarily denominated
in euro, Swiss franc and Japanese yen, net of these net investment hedges, were
$45.4 million and $111.1 million, respectively, which are included in AOCI,
net of tax.
The
following table summarizes the fair value of the Company’s cross currency basis
swaps that are designated as hedges of net investments in foreign operations at
December 31, 2010:
|
Notional Amount
|
Fair Value Net
Asset (Liability)
|
|||||||||||||||
|
Cross Currency Basis Swaps
(in thousands)
|
2011
|
2012
|
2013
|
December 31, 2010
|
||||||||||||
|
Swiss
franc 592.5 million @ 1.17 pay CHF 3 mth. LIBOR rec. USD 3 mth.
LIBOR
|
$ | 86,040 | $ | 60,570 | $ | 487,455 | $ | (126,987 | ) | |||||||
|
Euro
358.0 million @ $1.22 pay EUR 3 mth. EURIBOR rec. USD 3 mth.
LIBOR
|
- | - | 478,360 | (42,118 | ) | |||||||||||
|
Total
cross currency basis swaps
|
$ | 86,040 | $ | 60,570 | $ | 965,815 | $ | (169,105 | ) | |||||||
As of
December 31, 2010, net losses on derivative instruments of $0.8 million, which
were recorded in AOCI, net of tax, are expected to be reclassified to current
earnings during the next twelve months. This reclassification is
primarily due to the sale of inventory that includes previously hedged purchases
and interest rate swaps. The maximum term over which the Company is
hedging exposures to variability of cash flows (for all forecasted transactions,
excluding interest payments on variable interest rate debt) is eighteen
months. Overall, the derivatives designated as cash flow hedges are
highly effective. Any cash flows associated with these instruments
are included in cash provided by operating activities in the consolidated
statements of cash flows in accordance with the Company’s policy of classifying
the cash flows from these instruments in the same category as the cash flows
from the items being hedged.
- 88
-
The
following tables summarize the fair value and location on the consolidated
balance sheets of the Company’s derivatives at:
|
December 31, 2010
|
||||||||||||||||
|
Prepaid
|
||||||||||||||||
|
(in thousands)
|
Expenses
|
Other
|
Other
|
|||||||||||||
|
and Other
|
Noncurrent
|
Accrued
|
Noncurrent
|
|||||||||||||
|
Designated as Hedges
|
Current Assets
|
Assets, Net
|
Liabilities
|
Liabilities
|
||||||||||||
|
Foreign
exchange forward contracts
|
$ | 2,455 | $ | 21 | $ | 1,139 | $ | 135 | ||||||||
|
Commodity
contracts
|
88 | - | - | - | ||||||||||||
|
Interest
rate swaps
|
- | - | 4,213 | 871 | ||||||||||||
|
Cross
currency basis swaps
|
- | - | 21,516 | 147,589 | ||||||||||||
|
Total
|
$ | 2,543 | $ | 21 | $ | 26,868 | $ | 148,595 | ||||||||
|
Not Designated as Hedges
|
||||||||||||||||
|
Foreign
exchange forward contracts
|
$ | 821 | $ | - | $ | 600 | $ | - | ||||||||
|
Interest
rate swaps
|
- | - | 104 | 556 | ||||||||||||
|
Total
|
$ | 821 | $ | - | $ | 704 | $ | 556 | ||||||||
|
December 31, 2009
|
||||||||||||||||
|
Prepaid
|
||||||||||||||||
|
(in thousands)
|
Expenses
|
Other
|
Other
|
|||||||||||||
|
and Other
|
Noncurrent
|
Accrued
|
Noncurrent
|
|||||||||||||
|
Designated as Hedges
|
Current Assets
|
Assets, Net
|
Liabilities
|
Liabilities
|
||||||||||||
|
Foreign
exchange forward contracts
|
$ | 598 | $ | 5 | $ | 1,010 | $ | 16 | ||||||||
|
Commodity
contracts
|
293 | - | - | - | ||||||||||||
|
Interest
rate swaps
|
- | - | 6,130 | 2,775 | ||||||||||||
|
Cross
currency basis swaps
|
- | - | 52,411 | 124,210 | ||||||||||||
|
Total
|
$ | 891 | $ | 5 | $ | 59,551 | $ | 127,001 | ||||||||
|
Not
Designated as Hedges
|
||||||||||||||||
|
Foreign
exchange forward contracts
|
$ | 556 | $ | - | $ | 409 | $ | - | ||||||||
|
Interest
rate swaps
|
- | - | - | 882 | ||||||||||||
|
Total
|
$ | 556 | $ | - | $ | 409 | $ | 882 | ||||||||
- 89
-
The
following tables summarize the statements of operations impact of the Company’s
cash flow hedges for the years ended December 31, 2010 and 2009:
|
December 31, 2010
|
|||||||||
|
Derivatives in Cash Flow Hedging
|
Effective Portion
|
||||||||
|
Gain (Loss)
|
Classification
|
Reclassified from
|
|||||||
|
(in thousands)
|
in AOCI
|
of Gains (Losses)
|
AOCI into Income
|
||||||
|
Interest
rate contracts
|
$ | (1,978 | ) |
Interest
expense
|
$ | (5,636 | ) | ||
|
Foreign
exchange forward contracts
|
2,314 |
Cost
of products sold
|
665 | ||||||
|
Foreign
exchange forward contracts
|
670 |
SG&A
expenses
|
630 | ||||||
|
Commodity
contracts
|
324 |
Cost
of products sold
|
662 | ||||||
|
Total
|
$ | 1,330 | $ | (3,679 | ) | ||||
|
Derivatives in Cash Flow Hedging
|
Ineffective portion
|
|||||
|
Classification
|
Recognized
|
|||||
|
(in thousands)
|
of Gains (Losses)
|
in Income
|
||||
|
Interest
rate contracts
|
Other
expense, net
|
$ | 232 | |||
|
Foreign
exchange forward contracts
|
Interest
expense
|
(658 | ) | |||
|
Foreign
exchange forward contracts
|
Interest
expense
|
(14 | ) | |||
|
Commodity
contracts
|
Interest
expense
|
(14 | ) | |||
|
Total
|
$ | (454 | ) | |||
|
December 31, 2009
|
|||||||||
|
Derivatives in Cash Flow Hedging
|
Effective Portion
|
||||||||
|
Gain (Loss)
|
Classification
|
Reclassified from
|
|||||||
|
(in thousands)
|
in AOCI
|
of Gains (Losses)
|
AOCI into Income
|
||||||
|
Interest
rate contracts
|
$ | (4,186 | ) |
Interest
expense
|
$ | (8,035 | ) | ||
|
Foreign
exchange forward contracts
|
(999 | ) |
Cost
of products sold
|
905 | |||||
|
Foreign
exchange forward contracts
|
660 |
SG&A
expenses
|
459 | ||||||
|
Commodity
contracts
|
1,655 |
Cost
of products sold
|
(1,149 | ) | |||||
|
Total
|
$ | (2,870 | ) | $ | (7,820 | ) | |||
|
Derivatives in Cash Flow Hedging
|
Ineffective portion
|
|||||
|
Classification
|
Recognized
|
|||||
|
(in thousands)
|
of Gains (Losses)
|
in Income
|
||||
|
Interest
rate contracts
|
Other
expense, net
|
$ | (168 | ) | ||
|
Foreign
exchange forward contracts
|
Interest
expense
|
(330 | ) | |||
|
Foreign
exchange forward contracts
|
Interest
expense
|
(40 | ) | |||
|
Commodity
contracts
|
Interest
expense
|
(48 | ) | |||
|
Total
|
$ | (586 | ) | |||
- 90
-
The
following tables summarize the statement of operations impact of the Company’s
hedges of net investments for the years ended December 31, 2010 and
2009:
|
December 31, 2010
|
|||||||||
|
Derivatives in Net Investment Hedging
|
Gain (Loss)
|
||||||||
|
Gain (Loss)
|
Classification
|
Recognized
|
|||||||
|
(in thousands)
|
in AOCI
|
of Gains (Losses)
|
in Income
|
||||||
|
Cross
currency interest rate swaps
|
$ | (61,211 | ) |
Interest
income
|
$ | 869 | |||
|
Interest
expense
|
(105 | ) | |||||||
|
Cross
currency interest rate swaps
|
34,862 |
Interest
expense
|
(2,508 | ) | |||||
|
Total
|
$ | (26,349 | ) | $ | (1,744 | ) | |||
|
December 31, 2009
|
|||||||||
|
Derivatives in Net Investment Hedging
|
Gain (Loss)
|
||||||||
|
Gain (Loss)
|
Classification
|
Recognized
|
|||||||
|
(in thousands)
|
in AOCI
|
of Gains (Losses)
|
in Income
|
||||||
|
Cross
currency interest rate swaps
|
$ | (13,877 | ) |
Interest
income
|
$ | 1,420 | |||
|
Interest
expense
|
(85 | ) | |||||||
|
Cross
currency interest rate swaps
|
(13,868 | ) |
Interest
expense
|
(4,098 | ) | ||||
|
Total
|
$ | (27,745 | ) | $ | (2,763 | ) | |||
The
following table summarizes the statement of operations impact of the Company’s
hedges not designated as hedging for the years ended December 31, 2010 and
2009:
|
Derivatives Not Designated as Hedging
|
||||||||||
|
Classification
|
December 31,
|
|||||||||
|
(in thousands)
|
of Gains (Losses)
|
2010
|
2009
|
|||||||
|
Foreign
exchange forward contracts
|
Other
expense, net
|
$ | 1,181 | $ | (14,984 | ) | ||||
|
Interest
rate contracts
|
Other
expense, net
|
- | (2 | ) | ||||||
|
Interest
rate contracts
|
Interest
expense
|
(155 | ) | (514 | ) | |||||
|
Total
|
$ | 1,026 | $ | (15,500 | ) | |||||
Amounts
recorded in AOCI related to cash flow hedging instruments at:
|
December 31,
|
||||||||
|
(in thousands, net of tax)
|
2010
|
2009
|
||||||
|
Beginning
balance
|
$ | (4,799 | ) | $ | (7,874 | ) | ||
|
Changes
in fair value of derivatives
|
1,248 | (1,627 | ) | |||||
|
Reclassifications
to earnings from equity
|
2,083 | 4,702 | ||||||
|
Total
activity
|
3,331 | 3,075 | ||||||
|
Ending
balance
|
$ | (1,468 | ) | $ | (4,799 | ) | ||
- 91
-
Amounts
recorded in AOCI related to hedges of net investments in foreign operations
at:
|
December 31,
|
||||||||
|
(in thousands, net of tax)
|
2010
|
2009
|
||||||
|
Beginning
balance
|
$ | 111,115 | $ | 77,584 | ||||
|
Foreign
currency translation adjustment
|
(33,208 | ) | 49,685 | |||||
|
Changes
in fair value of:
|
||||||||
|
foreign
currency debt
|
(16,311 | ) | 881 | |||||
|
derivative
hedge instruments
|
(16,179 | ) | (17,035 | ) | ||||
|
Total
activity
|
(65,698 | ) | 33,531 | |||||
|
Ending
balance
|
$ | 45,417 | $ | 111,115 | ||||
NOTE
16 – FAIR VALUE MEASUREMENT
The
Company records financial instruments at fair value with unrealized gains and
losses related to certain financial instruments reflected in AOCI on the
consolidated balance sheets. In addition, the Company recognizes
certain liabilities at fair value.
The fair
value of financial instruments is determined by reference to various market data
and other valuation techniques as appropriate. The Company believes the carrying
amounts of cash and cash equivalents, accounts receivable (net of allowance for
doubtful accounts), prepaid expenses and other current assets, accounts payable,
accrued liabilities, income taxes payable and notes payable approximate fair
value due to the short-term nature of these instruments. The Company
estimates the fair value and carrying value of its total long-term debt,
including current portion, was $611.2 million and $606.5 million, respectively,
as of December 31, 2010. As of December 31, 2009, the fair
value approximated the carrying value, which was $453.7 million. The
interest rate on the $250.0 million Private Placement Note is a fixed rate of
4.1%, and the fair value is based on the interest rates as of December 31,
2010. The interest rates on term loan debt and commercial paper are
variable, and therefore the fair value of these instruments approximates their
carrying values.
The
following tables set forth by level within the fair value hierarchy the
Company’s financial assets and liabilities that were accounted for at fair value
on a recurring basis as of December 31, 2010 and December 31, 2009, which are
classified as “Cash and cash equivalents,” “Prepaid expenses and other current
assets,” “Long-Term investments,” “Other noncurrent assets, net,” “Accrued
liabilities,” and “Other noncurrent liabilities.” Financial assets
and liabilities that are recorded at fair value as of the balance sheet date are
classified in their entirety based on the lowest level of input that is
significant to the fair value measurement.
|
|
December 31, 2010
|
|||||||||||||||
|
(in thousands)
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
|
|
||||||||||||||||
|
Assets
|
||||||||||||||||
|
Money
market funds
|
$ | 380,593 | $ | 380,593 | $ | - | $ | - | ||||||||
|
Commodity
forward purchase contracts
|
88 | - | 88 | - | ||||||||||||
|
Foreign
exchange forward contracts
|
3,297 | - | 3,297 | - | ||||||||||||
|
Corporate
convertible bonds
|
66,024 | - | - | 66,024 | ||||||||||||
|
Total
assets
|
$ | 450,002 | $ | 380,593 | $ | 3,385 | $ | 66,024 | ||||||||
|
Liabilities
|
||||||||||||||||
|
Interest
rate swaps
|
$ | 5,744 | $ | - | $ | 5,744 | $ | - | ||||||||
|
Cross
currency interest rate swaps
|
169,105 | - | 169,105 | - | ||||||||||||
|
Foreign
exchange forward contracts
|
1,874 | - | 1,874 | - | ||||||||||||
|
Total
liabilities
|
$ | 176,723 | $ | - | $ | 176,723 | $ | - | ||||||||
- 92
-
|
December 31, 2009
|
||||||||||||||||
|
(in thousands)
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
|
Assets
|
||||||||||||||||
|
Money
market funds
|
$ | 364,765 | $ | 364,765 | $ | - | $ | - | ||||||||
|
Interest
rate swaps
|
293 | - | 293 | - | ||||||||||||
|
Foreign
exchange forward contracts
|
1,159 | - | 1,159 | - | ||||||||||||
|
Total
assets
|
$ | 366,217 | $ | 364,765 | $ | 1,452 | $ | - | ||||||||
|
Liabilities
|
||||||||||||||||
|
Interest
rate swaps
|
$ | 9,787 | $ | - | $ | 9,787 | $ | - | ||||||||
|
Cross
currency interest rate swaps
|
176,621 | - | 176,621 | - | ||||||||||||
|
Commodity
forward purchase contracts
|
1,435 | - | 1,435 | - | ||||||||||||
|
Total
liabilities
|
$ | 187,843 | $ | - | $ | 187,843 | $ | - | ||||||||
Derivative
valuations are based on observable inputs to the valuation model including
interest rates, foreign currency exchange rates, future commodities prices and
credit risks.
The
commodity forward purchase contracts, interest rate swaps and foreign exchange
forward contracts are considered cash flow hedges and cross currency interest
rate swaps are considered hedge of net investments in foreign operations as
discussed in Note 15, Financial Instruments and Derivatives.
The
Company’s investment in corporate convertible bonds relates specifically to
convertible bonds issued by DIO Corporation, as discussed in Note 3, Business
Acquisitions and Investments in Affiliates, and is reported in “Other noncurrent
assets, net,” on the consolidated balance sheets. The Company has
designated the corporate bond investment as an available-for-sale security and
therefore records the changes in fair value of the investment through
AOCI. The income method valuation technique is used by the Company to
fair value the corporate bonds. The significant unobservable inputs
for valuing the corporate bonds are DIO Corporation’s stock volatility factor
and corporate bond rating. Significant other observable inputs used
to value the corporate bonds include foreign exchange rates and DIO
Corporation’s period-ending market stock price.
The
following table presents a reconciliation of the Company’s assets measured at
fair value on a recurring basis using unobservable inputs (Level
3):
|
(in thousands)
|
||||
|
Level 3
|
||||
|
Balance,
December 31, 2009
|
$ | - | ||
|
Purchases,
gross
|
49,654 | |||
|
Sales,
gross
|
- | |||
|
Gains
and (losses):
|
||||
|
Reported
in AOCI - corporate convertible bonds
|
16,370 | |||
|
Balance,
December 31, 2010
|
$ | 66,024 | ||
NOTE
17 - COMMITMENTS AND CONTINGENCIES
Leases
The
Company leases automobiles and machinery and equipment and certain office,
warehouse and manufacturing facilities under non-cancellable leases. The leases
generally require the Company to pay insurance, taxes and other expenses related
to the leased property. Total rental expense for all operating leases was $34.9
million for 2010, $32.2 million for 2009 and $29.5 million for
2008.
- 93
-
Rental
commitments, principally for real estate (exclusive of taxes, insurance and
maintenance), automobiles and office equipment are as
follows:
|
(in thousands)
|
||||
|
2011
|
$ | 25,778 | ||
|
2012
|
17,295 | |||
|
2013
|
10,262 | |||
|
2014
|
7,259 | |||
|
2015
|
4,848 | |||
|
2016
and thereafter
|
9,072 | |||
| $ | 74,514 | |||
Litigation
On June
18, 2004, Marvin Weinstat, DDS and Richard Nathan, DDS filed a class action suit
in San Francisco County, California alleging that the Company misrepresented
that its Cavitron® ultrasonic scalers are suitable for use in oral surgical
procedures. The Complaint seeks a recall of the product and refund of
its purchase price to dentists who have purchased it for use in oral
surgery. The Court certified the case as a class action in June 2006
with respect to the breach of warranty and unfair business practices
claims. The class is defined as California dental professionals who
purchased and used one or more Cavitron® ultrasonic scalers for the performance
of oral surgical procedures. The Company filed a motion for
decertification of the class and this motion was granted. Plaintiffs
appealed the decertification of the class to the California Court of Appeals and
the Court of Appeals reversed the decertification decision of the trial
Court. This case has been remanded to and is pending in the San
Francisco County Court.
On
December 12, 2006, a Complaint was filed by Carole Hildebrand, DDS and Robert
Jaffin, DDS in the Eastern District of Pennsylvania (the Plaintiffs subsequently
added Dr. Mitchell Goldman as a named class representative). The case
was filed by the same law firm that filed the Weinstat case in
California. The Complaint asserts putative class action claims on
behalf of dentists located in New Jersey and Pennsylvania. The
Complaint seeks damages and asserts that the Company’s Cavitron® ultrasonic
scaler was negligently designed and sold in breach of contract and warranty
arising from misrepresentations about the potential uses of the product because
it cannot assure the delivery of potable or sterile water. Plaintiffs
have filed their Motion for class certification to which the Company has filed
its response. The Company also filed other motions, including a
Motion to dismiss the claims of Drs. Hildebrand and Jaffin for lack of
standing. The Court granted this Motion for lack of standing of the
individuals and did not allow the plaintiffs to amend the complaint to
substitute their corporate practices, leaving Dr. Goldman as a putative class
representative in Pennsylvania, raising a question of jurisdiction of the U.S.
District Court. The plaintiffs have now filed another complaint in
which they named the corporate practices of Drs. Hildebrand and Jaffin as class
representatives. The Company has moved to dismiss this
complaint.
On
November 21, 2008, Guidance Endodontics LLC filed a complaint in the U.S.
District Court of New Mexico asserting claims against DENTSPLY arising
principally out of a breach of a manufacturing and supply contract between the
parties. Prior to trial, Guidance had claimed its damages were $1.2
million. The case went to trial in late September and early October
2009. On October 9, 2009, a jury returned a verdict against DENTSPLY, in the
amount of approximately $4.0 million for past and future compensatory damages
and $40.0 million in punitive damages. In April 2010, the District
Court Judge formally entered the verdict that was reached in October
2009. The Company believes that this decision is not supported by the
facts in the case or the applicable law and intends to vigorously pursue all
available options to challenge it. The Company has filed a number of
separate post-trial motions with the District Court to overturn various aspects
of the verdict, including the punitive and future damages, or in the alternative
to be granted a new trial, because of the inappropriateness of such
verdicts. The Court has denied the Company’s post-trial Motions on
which it has ruled. The Company has two remaining Motions pending
which the Court has not yet ruled on.
As of
December 31, 2010, a reasonable estimate of a possible range of loss related to
the above litigation cannot be made except as reflected in the preceding
paragraph. DENTSPLY does not believe the outcome of any of these
matters will have a material adverse effect on its financial
position. In the event that one or more of these matters is
unfavorably resolved, it is possible the Company’s results from operations could
be materially impacted.
- 94
-
Other
The
Company has no material non-cancelable purchase commitments.
The
Company has employment agreements with its executive officers. These agreements
generally provide for salary continuation for a specified number of months under
certain circumstances. If all of the employees under contract were to be
terminated by the Company without cause, as defined in the agreements, the
Company's liability would be approximately $13.4 million at December 31,
2010.
- 95
-
QUARTERLY
FINANCIAL INFORMATION (UNAUDITED)
Quarterly
Financial Information (Unaudited)
(in
thousands, except per share amounts)
|
First
|
Second
|
Third
|
Fourth
|
Total
|
||||||||||||||||||||
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Rounding
|
Year
|
|||||||||||||||||||
|
2010
|
||||||||||||||||||||||||
|
Net
sales
|
$ | 545,944 | $ | 565,086 | $ | 541,815 | $ | 568,169 | $ | - | $ | 2,221,014 | ||||||||||||
|
Gross
profit
|
282,038 | 287,595 | 272,814 | 287,711 | - | 1,130,158 | ||||||||||||||||||
|
Operating
income
|
89,324 | 104,969 | 90,419 | 95,561 | - | 380,273 | ||||||||||||||||||
|
Net
income attributable to
|
||||||||||||||||||||||||
|
DENTSPLY
International
|
61,843 | 72,386 | 63,653 | 67,826 | - | 265,708 | ||||||||||||||||||
|
Earnings
per common share - basic
|
$ | 0.42 | $ | 0.50 | $ | 0.45 | $ | 0.48 | $ | - | $ | 1.85 | ||||||||||||
|
Earnings
per common share - diluted
|
$ | 0.41 | $ | 0.49 | $ | 0.44 | $ | 0.47 | $ | 0.01 | $ | 1.82 | ||||||||||||
|
Cash
dividends declared per common share
|
$ | 0.05 | $ | 0.05 | $ | 0.05 | $ | 0.05 | $ | - | $ | 0.20 | ||||||||||||
|
2009
|
||||||||||||||||||||||||
|
Net
sales
|
$ | 506,949 | $ | 552,832 | $ | 531,203 | $ | 568,394 | $ | - | $ | 2,159,378 | ||||||||||||
|
Gross
profit
|
265,732 | 285,668 | 271,730 | 283,233 | - | 1,106,363 | ||||||||||||||||||
|
Operating
income
|
86,175 | 98,726 | 92,941 | 103,401 | - | 381,243 | ||||||||||||||||||
|
Net
income attributable to
|
||||||||||||||||||||||||
|
DENTSPLY
International
|
61,743 | 70,199 | 67,483 | 74,833 | 274,258 | |||||||||||||||||||
|
Earnings
per common share - basic
|
$ | 0.42 | $ | 0.47 | $ | 0.45 | $ | 0.50 | $ | 0.01 | $ | 1.85 | ||||||||||||
|
Earnings
per common share - diluted
|
$ | 0.41 | $ | 0.47 | $ | 0.45 | $ | 0.50 | $ | - | $ | 1.83 | ||||||||||||
|
Cash
dividends declared per common share
|
$ | 0.05 | $ | 0.05 | $ | 0.05 | $ | 0.05 | $ | - | $ | 0.20 | ||||||||||||
Net
sales, excluding precious metal content, were $497.5 million, $519.3 million,
$494.3 million and $520.7 million, respectively, for the first, second, third
and fourth quarters of 2010. Net sales, excluding precious metal
content, were $465.6 million, $511.5 million, $493.8 million
and $519.8 million, respectively, for the first, second, third and fourth
quarters of 2009. This measurement should be considered a non-US GAAP measure as
discussed further in Management's Discussion and Analysis of Financial Condition
and Results of Operations.
- 96
-
Supplemental
Stock Information
The
common stock of the Company is traded on the NASDAQ National Market under the
symbol “XRAY.” The following table sets forth high, low and closing sale prices
of the Company's common stock for the periods indicated as reported on the
NASDAQ National Market:
|
Market Range of Common Stock
|
Period-end
|
Cash
|
||||||||||||||
|
Closing
|
Dividend
|
|||||||||||||||
|
High
|
Low
|
Price
|
Declared
|
|||||||||||||
|
2010
|
||||||||||||||||
|
First
Quarter
|
$ | 36.82 | $ | 32.10 | $ | 34.88 | $ | 0.050 | ||||||||
|
Second
Quarter
|
38.15 | 29.91 | 30.17 | 0.050 | ||||||||||||
|
Third
Quarter
|
32.44 | 27.76 | 31.97 | 0.050 | ||||||||||||
|
Fourth
Quarter
|
34.89 | 30.52 | 34.17 | 0.050 | ||||||||||||
|
2009
|
||||||||||||||||
|
First
Quarter
|
$ | 29.19 | $ | 21.80 | $ | 26.85 | $ | 0.050 | ||||||||
|
Second
Quarter
|
30.99 | 25.20 | 30.57 | 0.050 | ||||||||||||
|
Third
Quarter
|
36.08 | 27.79 | 34.54 | 0.050 | ||||||||||||
|
Fourth
Quarter
|
36.80 | 32.30 | 35.17 | 0.050 | ||||||||||||
|
2008
|
||||||||||||||||
|
First
Quarter
|
$ | 47.06 | $ | 36.07 | $ | 38.60 | $ | 0.045 | ||||||||
|
Second
Quarter
|
42.58 | 35.21 | 36.80 | 0.045 | ||||||||||||
|
Third
Quarter
|
42.05 | 36.21 | 37.54 | 0.045 | ||||||||||||
|
Fourth
Quarter
|
39.22 | 22.85 | 28.24 | 0.050 | ||||||||||||
The
Company estimates, based on information supplied by its transfer agent, that
there are 421 holders of record of the Company’s common stock. Approximately
73,800 holders of the Company’s common stock are “street name” or beneficial
holders, whose shares are held of record by banks, brokers and other financial
institutions.
- 97
-
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
|
|||
|
By:
|
/s/
|
Bret W. Wise
|
||
|
Bret
W. Wise
|
||||
|
Chairman
of the Board and
|
||||
|
Chief
Executive Officer
|
||||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|
/s/
|
Bret W. Wise
|
February 18, 2011
|
||
|
Bret
W. Wise
|
Date
|
|||
|
Chairman
of the Board and
|
||||
|
Chief
Executive Officer
|
||||
|
(Principal
Executive Officer)
|
||||
|
/s/
|
William R. Jellison
|
February 18, 2011
|
||
|
William
R. Jellison
|
Date
|
|||
|
Senior
Vice President and
|
||||
|
Chief
Financial Officer
|
||||
|
(Principal
Financial and Accounting Officer)
|
||||
|
/s/
|
John C. Miles II
|
February 18, 2011
|
||
|
John
C. Miles II
|
Date
|
|||
|
Director
|
||||
|
/s/
|
Dr. Michael C. Alfano
|
February 18, 2011
|
||
|
Dr.
Michael C. Alfano
|
Date
|
|||
|
Director
|
||||
|
/s/
|
Eric K. Brandt
|
February 18, 2011
|
||
|
Eric
K. Brandt
|
Date
|
|||
|
Director
|
||||
|
/s/
|
Paula H. Cholmondeley
|
February 18, 2011
|
||
|
Paula
H. Cholmondeley
|
Date
|
|||
|
Director
|
||||
|
/s/
|
Michael J. Coleman
|
February 18, 2011
|
||
|
Michael
J. Coleman
|
Date
|
|||
|
Director
|
- 98
-
|
/s/
|
William
F. Hecht
|
February
18, 2011
|
||
|
William
F. Hecht
|
Date
|
|||
|
Director
|
|
/s/
|
Leslie
A. Jones
|
February
18, 2011
|
||
|
Leslie
A. Jones
|
Date
|
|||
|
Director
|
||||
|
/s/
|
Francis
J. Lunger
|
February
18, 2011
|
||
|
Francis
J. Lunger
|
Date
|
|||
|
Director
|
||||
|
/s/
|
John
L. Miclot
|
February
18, 2011
|
||
|
John
L. Miclot
|
Date
|
|||
|
Director
|
- 99
-