SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ X ]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission file number 0-16211
DENTSPLY International Inc.
(Exact name of registrant as specified in its charter)
Delaware 39-143466
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
221 West Philadelphia Street, York, Pennsylvania 17405-0872
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (717)
845-7511
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
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 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. [ ]
Indicate by check mark whether the registrant is an
accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes [X] No [ ]
The aggregate market value of the voting common stock held
by non-affiliates of the registrant as of June 28, 2002 was
$2,827,512,659.
The number of shares of the registrant's Common Stock
outstanding as of the close of business on March 1, 2004 was
80,239,253.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the definitive Proxy Statement of
DENTSPLY International Inc. to be used in connection with the
2004 Annual Meeting of Stockholders (the "Proxy Statement") are
incorporated by reference into Part III of this Annual Report on
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 Annual Report on Form 10-K.
PART I
Item 1. Business
Certain statements made by the Company, including without
limitation, statements containing the words "plans",
"anticipates", "believes", "expects", or words of similar import
may be deemed to be forward-looking statements and are made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that
forward-looking statements involve risks and uncertainties which
are described in this Item 1 and which may materially affect the
Company's business and prospects.
History and Overview
DENTSPLY International Inc. ("DENTSPLY" or the "Company"), a
Delaware corporation, was created by a merger of Dentsply
International Inc. ("Old Dentsply") and GENDEX Corporation in
1993. Old Dentsply, founded in 1899, was a manufacturer and
distributor of artificial teeth, dental equipment, and dental
consumable products. GENDEX, founded in 1983, was a manufacturer
of dental x-ray equipment and handpieces. On December 11, 2003,
the Company entered into a definitive agreement to sell the x-ray
equipment business of the prior GENDEX Corporation to Danaher
Corporation for $102.5 million which was completed on February
27, 2004. Reference is made to the information about discontinued
operations set forth in Note 6 of the Notes to Consolidated
Financial Statements in this Annual Report on Form 10-K.
DENTSPLY is the world's largest designer, developer,
manufacturer and marketer of a broad range of products for the
dental market. The Company's worldwide headquarters and executive
offices are located in York, Pennsylvania.
The Company operates within five operating segments all of
which are primarily engaged in the design, manufacture and
distribution of dental products in three principal categories: 1)
Dental consumables, 2) Dental laboratory products, and 3)
Specialty dental products. Sales of the Company's dental products
accounted for approximately 98% of DENTSPLY's consolidated sales
for the year ended December 31, 2003. The remaining 2% of
consolidated sales is primarily related to materials sold to the
investment casting industry.
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 including Brazil,
Mexico, Argentina, Colombia, and Chile; in South Africa; and in
the Pacific Rim including Australia, New Zealand, China
(including Hong Kong), Thailand, India, Philippines, Taiwan,
Korea, Vietnam, Indonesia and Japan. DENTSPLY has also
established marketing activities in Moscow, Russia to serve the
countries of the former Soviet Union.
For 2003, 2002, and 2001, the Company's sales to customers
outside the United States, including export sales, accounted for
approximately 58%, 56% and 39%, respectively, of consolidated net
sales. Reference is made to the information about the Company's
United States and foreign sales by shipment origin and assets set
forth in Note 4 of the Notes to Consolidated Financial Statements
in this Annual Report on Form 10-K.
As a result of the Company's significant international
operations, DENTSPLY 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 impact of foreign
currency fluctuations of European currencies on operating income
is partially offset by sales in the United States of products
sourced from plants and third party suppliers located overseas,
principally in Germany and Switzerland. The Company enters into
forward foreign exchange contracts to selectively hedge assets,
liabilities and purchases denominated in foreign currencies.
Reference is made to the information regarding foreign exchange
risk management activities set forth in Quantitative and
Qualitative Disclosure About Market Risk under Item 7A and Note
17 of the Notes to Consolidated Financial Statements in this
Annual Report on Form 10-K.
DENTSPLY believes that the dental products industry is
experiencing substantial consolidation with respect to both
product manufacturing and distribution, although it continues to
be fragmented creating numerous acquisition opportunities. As a
result, during the past three years, the Company has made
numerous acquisitions including three significant acquisitions
made during 2001. In January 2001, the Company acquired the
outstanding shares of Friadent GmbH ("Friadent"), a global dental
implant manufacturer and marketer previously headquartered in
Mannheim, Germany. In March 2001, the Company acquired the dental
injectible anaesthetic assets of AstraZeneca ("AZ Assets"). The
assets acquired in the business consisted primarily of an
exclusive, perpetual, royalty-free licensing rights to the dental
products and tradenames. In addition, certain limited equipment
was acquired, but no production facilities were acquired as part
of the transaction. In October 2001, the Company acquired the
Degussa Dental Group ("Degussa Dental"), a manufacturer and
seller of dental products, including precious metal alloys,
ceramics, dental laboratory equipment and chairside products
previously headquartered in Hanau, Germany. Information about
these acquisitions and other acquisition and divestiture
activities is set forth in Note 3 of the Notes to Consolidated
Financial Statements in the Company's 2003 Annual Report to
Shareholders and is incorporated herein by reference. These
acquisitions are intended to supplement DENTSPLY's core growth
and assure ongoing expansion of its business. In addition,
acquisitions have provided DENTSPLY with new technologies and
additional product breadth.
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 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 collectively own approximately 10% of the
outstanding common stock of DENTSPLY, which may discourage a
third party from attempting to acquire control of DENTSPLY in a
transaction that is opposed by DENTSPLY's management and
employees.
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
consumables, dental laboratory products and dental specialty products. These
products are produced by the Company in the United States and internationally
and are distributed throughout the world under some of the most well-established
brand names and trademarks in the industry, including ANKYLOS(R), AQUASIL(TM),
CAULK(R), CAVITRON(R), CERAMCO(R), CERCON(R), CITANEST(R), DELTON(R),
DENTSPLY(R), DETREY(R), ELEPHANT(R), ESTHET.X(R), FRIALIT(R), GAC
ORTHOWORKS(TM), GOLDEN GATE(R), IN-OVATION(TM), MAILLEFER(R), MIDWEST(R),
MYSTIQUE(TM), NUPRO(R), PEPGEN P-15(TM), POLOCAINE(R), PROFILE(R), PROTAPER(TM),
RINN(R), R&R(R), SANI-TIP(R), THERMAFIL(R), TRUBYTE(R) and XYLOCAINE(R).
Dental Consumables. Consumable products consist of dental
sundries used in dental offices in the treatment of patient and
small equipment used by the dental professional. DENTSPLY's
products in this category include dental anesthetics, prophylaxis
paste, dental sealants, impression materials, restorative
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. Sales of general
dental consumables accounted for approximately 35% of the
Company's consolidated sales for the year ended December 31, 2003.
Dental Laboratory Products. 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, and crown and bridge materials. Small equipment in
this category includes computer aided machining (CAM) ceramics
systems and porcelain furnaces. Sales of dental laboratory
products accounted for approximately 33% of the Company's
consolidated sales for the year ended December 31, 2003.
Dental Specialty Products. Specialty dental products are used
for specific purposes within the dental office and laboratory
settings. DENTSPLY's products in this category include
endodontic (root canal) instruments and materials, implants, and
orthodontic appliances and accessories. Sales of specialty
products accounted for approximately 30% of the Company's
consolidated sales for the year ended December 31, 2003.
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
professional in some markets. No single customer accounted for
more than ten percent of consolidated net sales in 2003.
Reference is made to the information about the Company's
foreign and domestic operations and export sales set forth in
Note 4 of the Notes to Consolidated Financial Statements in this
Annual Report on Form 10-K.
Although much 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 1,700 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 dealers and the
end users. The Company conducts extensive distributor and
end-user marketing programs and trains laboratory technicians and
dentists in the proper use of its products, introducing them to
the latest technological developments at its Educational Centers
located throughout the world in key dental markets. The Company
also maintains ongoing relationships with various dental
associations and recognized worldwide opinion leaders in the
dental field.
DENTSPLY believes that demand in a given geographic market for
dental procedures and products varies according to the stage of
social, economic and technical development that the market has
attained. Geographic markets for DENTSPLY's dental products can
be categorized into the following three stages of development:
The United States, Canada, Western Europe, the United Kingdom,
Japan, and Australia are highly developed markets that demand the
most advanced dental procedures and products and have the highest
level of expenditures on dental care. In these markets, the focus
of dental care is increasingly upon preventive care and
specialized dentistry. In addition to basic procedures such as
the excavation and filling of cavities and 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 protection against infection and patient
cross-contamination.
In certain countries in Central America, South America and the
Pacific Rim, dental care is often limited to the excavation 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 and custom
restorative devices.
In the People's Republic of China, India, Eastern Europe, the
countries of the former Soviet Union, and other developing
countries, dental ailments are treated primarily through tooth
extraction and denture replacement. These procedures require
basic surgical instruments, artificial teeth for dentures and
bridgework.
The Company offers products and equipment for use in markets at
each of these stages of development. The Company believes that as
each of these markets develop, demand for more technically
advanced products will increase. 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 following trends support the
Company's confidence in its industry growth outlook:
o Increasing worldwide population.
o Growth of the population 65 or older - The percentage of the
United States, European and Japanese 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.
o 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.
o The Changing Dental Practice in the U.S. - Dentistry in
North America 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.
o Per capita and discretionary incomes are increasing in
emerging nations - As personal incomes continue to rise in the
emerging nations of the Pacific Rim and Latin America,
healthcare, including dental services, are a growing priority.
o 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.
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 innovations represent
sequential improvements of existing products, the Company also
continues to successfully launch products that represent
fundamental change. Its research centers throughout the world
employ approximately 400 scientists, Ph.D.'s, engineers and
technicians dedicated to research and product development.
Approximately $43.3 million, $39.9 million, and $27.3 million,
respectively, was internally invested by the Company in
connection with the development of new products and in the
improvement of existing products in the years ended 2003, 2002,
and 2001, respectively. 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, or that
if such approvals are obtained, such products will be accepted in
the marketplace. Additionally, there is no assurance that
entirely new technology or approaches to dental treatment will
not be introduced that could obsolete the Company's products.
Operating and Technical Expertise
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.The Company continues to
automate its global manufacturing operations in order to remain a
low cost producer.
DENTSPLY has completed or has in progress a number of key
initiatives around the world that are focused on helping the
Company improve its operating margins.
o The Company is constructing a major dental anesthetic
filling plant outside Chicago. The Company believes that the
plant will become operational late in 2004, following the FDA
validation of manufacturing practices, at which time it will
begin to supply products to certain international markets. This
initiative is very important to the Company since the assets
acquired from AstraZeneca did not include production
facilities. The company has a contract with AstraZeneca to
produce the company's requirements at their facilities on a
contract manufacturing basis pending the completion of the
Company's manufacturing facility in Chicago, Illinois. The
contract with AstraZeneca has recently been renegotiated and
extended to March 2005, with further extensions available to
the Company with six months advance notice. Based on the
current contract manufacturing arrangement in place, the
Company believes that it has sufficient sources of supply and
contractual flexibility to ensure a continued source of supply
until the facilities in Chicago are completed.
o A Corporate Purchasing office has been established to
leverage the buying power of Dentsply around the world and
reduce our product costs through lower prices and reduced
related overhead.
o The Company has centralized its warehousing and distribution
in North America and Europe. While the initial gains from this
strategy have been realized, ongoing efforts are in place to
maximize additional opportunities that can be gained through
improving our functional expertise in supply chain management.
In an effort to improve customer service levels and reduce
costs, the Company is currently in the process of relocating
its European warehouse form Nijmegen, The Netherlands to
Radolfzell, Germany. This relocation is expected to be complete
by the first quarter of 2004.
o A Corporate Quality group is focused on improving
manufacturing and distribution processes throughout the Company
with a goal to eliminate non-value added activities, improving
product quality and expanding product margins.
o DENTSPLY has seen significant gains from the formation of a
North American Shared Services group. The Company is evaluating
the possible efficiency opportunities related to consolidating
accounting and finance processes within Europe.
o Information technology initiatives are underway to
standardize worldwide telecommunications, implement improved
manufacturing and financial accounting systems and an ongoing
training of IT users to maximize the capabilities of global
systems.
o DENTSPLY continues to pursue opportunities to leverage its
assets by consolidating business units where appropriate and to
optimize its diversity of worldwide manufacturing capabilities.
Financing
DENTSPLY's long-term debt at December 31, 2003 was $790.2
million and the ratio of long-term debt to total capitalization
was 41.3%. This capitalization ratio is down from 54.3% at
December 31, 2001, the quarter in which the Degussa Dental
acquisition was completed. DENTSPLY may incur additional debt in
the future, including the funding of additional acquisitions and
capital expenditures. DENTSPLY's ability to make payments on its
indebtedness, 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 that are beyond its control.
Although the 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 and operate its
business.
DENTSPLY's existing borrowing documentation contains a number
of covenants and financial ratios which it is required to
satisfy. 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.
The Company has $21.1 million of long-term debt coming due in
the next year. Additional information about DENTSPLY's working
capital, liquidity and capital resources provided in
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in this Annual Report on 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, and its commitment to customer
service and technical support.
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 in certain of
its product offerings.
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.
Regulation
The Company's products are subject to regulation by, among
other governmental entities, the United States 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 United States are safe and effective, the FDA regulates the
introduction, manufacture, advertising, labeling, packaging,
marketing and distribution of, and record-keeping for, such
products. The anesthetic products sold by the Company are
regulated as a drug by the FDA and by all other similar
regulatory agencies around the world.
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.
DENTSPLY's facilities are subject to periodic inspection by the
FDA to monitor DENTSPLY's compliance with these regulations.
There can be no assurance that the FDA will not raise compliance
concerns. Failure to satisfy FDA requirements can result in FDA
enforcement actions, including product seizure, injunction and/or
criminal or civil proceedings. 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 sign 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 United States Public Health Service have each indicated
that no direct hazard to humans from exposure to dental amalgams
has been demonstrated. If the FDA were to reclassify dental
mercury and amalgam filling materials as classes of products
requiring FDA pre-market approval, there can be no assurance that
the required approval would be obtained or that the FDA would
permit the continued sale of amalgam filling materials pending
its determination. In Europe, in particular in Scandinavia and
Germany, the contents of mercury in amalgam filling materials has
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 under eighteen years of age and to women of childbearing
age. DENTSPLY also manufactures and sells non-amalgam dental
filling materials that do not contain mercury.
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 foreign regulatory requirements that are applicable to its
products and manufacturing operations.
Sources and Supply of Raw Materials
All of the raw materials used by the Company in the manufacture
of its products are purchased from various suppliers and are
available from numerous sources. No single supplier accounts for
a significant percentage of DENTSPLY's raw material requirements.
Intellectual Property
Products manufactured by DENTSPLY are sold primarily under its
own trademarks and trade names. DENTSPLY also owns and maintains
more than 1,000 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 United States
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, 2003, the Company and its subsidiaries
employed approximately 7,600 employees. A small percentage of
the Company's employees are represented by labor unions. Hourly
workers at the Company's Ransom & Randolph facility in Maumee,
Ohio are 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, 2008. Hourly workers at the Company's Midwest Dental
Products facility in Des Plaines, Illinois are represented by
International Association of Machinists and Aerospace Workers,
AFL-CIO in Chicago under a collective bargaining agreement that
expires on May 31, 2006. In addition, approximately 30% of
DeguDent, a German subsidiary, are represented by labor unions.
The Company believes that its relationship with its employees is
good.
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.
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.
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 Securities and Exchange Commission.
Item 2. Properties
The following is a current list of DENTSPLY's principal
manufacturing locations:
Leased
Location Function or Owned
United States:
Los Angeles, California Manufacture and distribution of investment Leased
casting products
Yucaipa , California Manufacture and distribution of dental Owned
laboratory products and dental ceramics
Lakewood, Colorado Manufacture and distribution of bone grafting Leased
materials and hydroxylapatite plasma-feed coating
materials and distribution of dental implant poducts
Milford, Delaware Manufacture of consumable dental products Owned
Des Plaines, Illinois Manufacture and assembly of dental handpieces Leased
Elk Grove Village, Illinois Future manufacture of anesthetic products Owned and Leased
Elgin, Illinois Manufacture of dental x-ray film holders, film Owned
mounts and accessories
Maumee, Ohio Manufacture and distribution of investment Owned
casting products
York, Pennsylvania Manufacture and distribution of artificial teeth Owned
and other dental laboratory products;
York, Pennsylvania Manufacture of small dental equipment and Owned
preventive dental products
Johnson City, Tennessee Manufacture and distribution of endodontic Leased
instruments and materials
Foreign:
Catanduva, Brazil Manufacture and distribution of consumable Owned
dental products
Petropolis, Brazil Manufacture and distribution of artificial teeth Owned
and consumable dental products
Leased
Location Function or Owned
Bonsucesso, Brazil Manufacture and distribution of dental Owned
anesthetics
Tianjin, China Manufacture and distribution of dental products Leased
Plymouth, England Manufacture of dental hand instruments Leased
Ivry Sur-Seine, France Manufacture and distribution of investment Leased
casting products
Bohmte, Germany Manufacture and distribution of dental Owned
laboratory products
Hanau, Germany Manufacture and distribution of precious metal Owned
dental alloys, dental ceramics and dental
implant products
Konstanz, Germany Manufacture and distribution of consumable Owned
dental products
Mannheim, Germany Manufacture and distribution of dental Owned
implant products
Munich, Germany Manufacture and distribution of endodontic Owned
instruments and materials
Rosbach, Germany Manufacture and distribution of dental ceramics Owned
New Delhi, India Manufacture and distribution of dental products Leased
Nasu, Japan Manufacture and distribution of precious metal Owned
dental alloys, consumable dental products and
orthodontic products
Hoorn, Netherlands Manufacture and distribution of precious metal Owned
dental alloys and dental ceramics
Las Piedras, Puerto Rico Manufacture of crown and bridge materials Owned
Ballaigues, Switzerland Manufacture and distribution of endodontic Owned
instruments
Ballaigues, Switzerland Manufacture and distribution of endodontic Owned
instruments, plastic components and
packaging material
Le Creux, Switzerland Manufacture and distribution of endodontic Owned
instruments
In addition, the Company maintains sales and distribution
offices at certain of its foreign and domestic manufacturing
facilities, as well as at various other United States and
international locations. Most of the various sites around the
world that are used exclusively for sales and distribution are
leased.
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
DENTSPLY and its subsidiaries are from time to time parties to
lawsuits arising out of their respective operations. The Company
believes it is remote that pending litigation to which DENTSPLY
is a party will have a material adverse effect upon its
consolidated financial position or results of operations.
In June 1995, the Antitrust Division of the United States
Department of Justice initiated an antitrust investigation
regarding the policies and conduct undertaken by the Company's
Trubyte Division with respect to the distribution of artificial
teeth and related products. On January 5, 1999 the Department of
Justice filed a Complaint against the Company in the U.S.
District Court in Wilmington, Delaware alleging that the
Company's tooth distribution practices violate the antitrust laws
and seeking an order for the Company to discontinue its
practices. The trial in the government's case was held in April
and May 2002. On August 14, 2003, the Judge entered a decision
that the Company's tooth distribution practices do not violate
the antitrust laws. On October 14, 2003, the Department of
Justice appealed this decision to the U.S. Third Circuit Court of
Appeals. The parties are proceeding under the briefing schedule
issued by the Third Circuit.
Subsequent to the filing of the Department of Justice Complaint
in 1999, several private party class actions were filed based on
allegations similar to those in the Department of Justice case,
on behalf of laboratories, and denture patients in seventeen
states who purchased Trubyte teeth or products containing Trubyte
teeth. These cases were transferred to the U.S. District Court in
Wilmington, Delaware. The private party suits seek damages in an
unspecified amount. The Court has granted the Company's Motion
on the lack of standing of the laboratory and patient class
actions to pursue damage claims. The Plaintiffs in the
laboratory case have filed a petition with the Third Circuit to
hear an interlocutory appeal of this decision. Also, private
party class actions on behalf of indirect purchasers were filed
in California and Florida state courts. The California and
Florida cases have been dismissed by the Plaintiffs following the
decision by the Federal District Court Judge issued in August
2003.
On March 27, 2002, a Complaint was filed in Alameda County,
California (which was transferred to Los Angeles County) by Bruce
Glover, D.D.S. alleging, inter alia, breach of express and
implied warranties, fraud, unfair trade practices and negligent
misrepresentation in the Company's manufacture and sale of
Advance(R) cement. The Complaint seeks damages in an unspecified
amount for costs incurred in repairing dental work in which the
Advance(R) product allegedly failed. In September 2003, the
Plaintiff filed a Motion for class certification, which the
Company opposed. Oral arguments were held in December 2003, and
in January, 2004, the Judge entered an Order granting class
certification only on the claims of breach of warranty and
fraud. In general, the Class is defined as California dentists
who purchased and used Advance(R) cement and were required, because
of failures of Advance(R), to repair or reperform dental
procedures. The Company has filed a Writ of Mandate in the
appellate court seeking reversal of the class certification. The
Advance(R) cement product was sold from 1994 through 2000 and total
sales in the United States during that period were approximately
$5.2 million.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Registrant
The following table sets forth certain information regarding
the executive officers of the Company as of February 28, 2004.
Name Age Position
Gerald K. Kunkle Jr. 57 Vice Chairman of the
Board and Chief Executive Officer
Thomas L. Whiting 61 President and Chief
Operating Officer
Christopher T. Clark 42 Senior Vice President
William R. Jellison 46 Senior Vice President
Rudolf Lehner 46 Senior Vice President
James G. Mosch 46 Senior Vice President
J. Henrik Roos 46 Senior Vice President
Bret W. Wise 43 Senior Vice President
and Chief Financial Officer
Brian M. Addison 49 Vice President,
Secretary and General Counsel
Gerald K. Kunkle Jr. was named Vice Chairman of the Board and
Chief Executive Officer of the Company effective January 1,
2004. Prior thereto, Mr. Kunkle served as President and Chief
Operating Officer since January, 1997. Prior to joining
DENTSPLY, Mr. Kunkle served as President of Johnson and Johnson's
Vistakon Division, a manufacturer and marketer of contact lenses,
from January 1994 and, from early 1992 until January 1994, was
President of Johnson and Johnson Orthopaedics, Inc., a
manufacturer of orthopaedic implants, fracture management
products and trauma devices.
Thomas L. Whiting was named President and Chief Operating
Officer of the Company effective January 1, 2004. Prior thereto,
Mr. Whiting was appointed Executive Vice President since
November, 2002.Prior to this appointment, Mr. Whiting served as
Senior Vice President since early 1995. Prior to his Senior Vice
President appointment, Mr. Whiting was Vice President and General
Manager of the Company's L.D. Caulk Operating unit from March
1987 to early 1995. Prior to that time, Mr. Whiting held
management positions with Deseret Medical and the Parke-Davis
Company.
Christopher T. Clark was named Senior Vice President effective
November 1, 2002 and oversees the following areas: North American
Group Marketing and Administration; Alliance and Government
Sales; and the Ransom and Randolph, DENTSPLY Sankin, L.D. Caulk,
and DeDent operating units. Prior to this appointment, Mr. Clark
served as Vice President and General Manager of the Gendex
operating unit since June 1999. Prior to that time, he served as
Vice President and General Manager of the Trubyte operating unit
since July of 1996. Prior to that, Mr. Clark was Director of
Marketing of the Trubyte Operating Unit since September 1992 when
he started with the Company.
William R. Jellison was named Senior Vice President effective
November 1, 2002 and oversees the following operating units:
DENTSPLY Asia, DENTSPLY Professional, Maillefer, Dentsply
Endodontics, including Tulsa Dental Products and Vereinigte
Dentalwerke ("VDW"). Prior to this appointment, Mr. Jellison
served as Senior Vice President and Chief Financial Officer of
the Company since April 1998. Prior to that time, 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.
Rudolf Lehner was named Senior Vice President effective
December 12, 2001 and oversees the following operating units:
Degussa Dental Germany, Degussa Dental Austria, Elephant Dental,
DENTSPLY France, DENTSPLY Italy, DENTSPLY Russia, DENTSPLY United
Kingdom, and Middle East/Africa. Prior to that time, Mr Lehner
was Chief Operating Officer of Degussa Dental since mid-2000.
From 1999 to mid 2000, he had the overall responsibilities for
Sales & Marketing at Degussa Dental. From 1994 to 1999, Mr.
Lehner held the position of Chief Executive Officer of Elephant
Dental. From 1990 to 1994, he had overall responsibility for
international activities at Degussa Dental. Prior to that, Mr
Lehner held various positions at Degussa Dental and its parent,
Degussa AG, since starting in 1984.
James G. Mosch was named Senior Vice President effective
November 1, 2002 and oversees the following operating units:
DENTSPLY Pharmaceutical, DENTSPLY Australia, DENTSPLY Brazil,
DENTSPLY Canada, DENTSPLY Latin America and DENTSPLY Mexico..
Prior to this appointment, Mr. Mosch served as Vice President and
General Manager of the DENTSPLY Professional operating unit since
July 1994 when he started with the Company.
J. Henrik Roos was named Senior Vice President effective June
1, 1999 and oversees the following operating units: Ceramco,
CeraMed, Friadent, GAC, and Trubyte. Prior to his Senior Vice
President appointment, Mr. Roos served as Vice President and
General Manager of the Company's Gendex division from June 1995
to June 1999. Prior to that, he served as President of Gendex
European operations in Frankfurt, Germany since joining the
Company in August 1993.
Bret W. Wise was named Senior Vice President and Chief
Financial Officer of the Company effective December 1, 2002. In
this position, he is also responsible for Business Development,
Accounting, Treasury, Tax, Information Technology, Internal Audit
and the Rinn operating unit. Prior to that time, Mr. Wise was
Senior Vice President and Chief Financial Officer with Ferro
Corporation of Cleveland, OH. Prior to joining Ferro Corporate in
1999, Mr. Wise held the position of Vice President and Chief
Financial Officer at WCI Steel, Inc., of Warren, OH, from 1994 to
1999. Prior to joining WCI Steel, Inc., Mr. Wise was a partner
with KPMG LLP. Mr. Wise is a Certified Public Accountant.
Brian M. Addison has been Vice President, Secretary and General
Counsel of the Company since January 1, 1998. Prior to that he
was Assistant Secretary and Corporate Counsel since December
1994. From August 1994 to December 1994 he was a Partner at the
Harrisburg, Pennsylvania law firm of McNees, Wallace & Nurick.
Prior to that he was Senior Counsel at Hershey Foods Corporation.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The information set forth under the caption "Supplemental Stock
Information" is filed as part of this Annual Report on Form 10-K.
Item 6. Selected Financial Data
The information set forth under the caption "Selected Financial
Data" is filed as part of this Annual Report on 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 Annual Report on 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 Annual Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data
The information set forth under the captions "Management's
Financial Responsibility," "Report of Independent Accountants,"
"Consolidated Statements of Income," "Consolidated Balance
Sheets," "Consolidated Statements of Stockholders' Equity,"
"Consolidated Statements of Cash Flows," and "Notes to
Consolidated Financial Statements" is filed as part of this
Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
(a) Evaluation 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 of the end of the period
covered by this report have been designed and are functioning
effectively 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. The Company believes that a controls
system, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the controls system are
met, and no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a
company have been detected.
(b) Change in Internal Control over Financial Reporting
No change in the Company's internal control over financial
reporting occurred during the Company's most recent fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial
reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information (i) set forth under the caption "Executive
Officers of the Registrant" in Part I of this Annual Report on
Form 10-K and (ii) set forth under the captions "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the 2004 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 all of the Company's employees. This Code
of Business Conduct and Ethics is provided as Exhibit 99.1 of
this Annual Report on Form 10-K.
Item 11. Executive Compensation
The information set forth under the caption "Executive
Compensation" in the 2004 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" in the 2004 Proxy
Statement is incorporated herein by reference.
Securities Authorized For Issuance Under Equity Compensation Plans
The following table provides information at December 31, 2003
regarding compensation plans and arrangements under which equity
securities of DENTSPLY are authorized for issuance.
Number of
Number of securities Weighted average securities remaining
to be issued upon exercise price available for future issuance
exercise of of outstanding under equity compensation
outstanding options, options, warrants plans (excluding securities
Plan category warrants and rights and rights reflected in column (a))
(a) (b) (c)
Equity compensation plans approved
by security holders (1) 8,132,457 28.42 6,116,264 (2)
Equity compensation plans not approved
by security holders (3) 45,000 14.83 n/a
Other equity compensation plans not approved
by security holders (4) 99,555 n/a n/a
Total 8,277,012
(1) Consists of the DENTSPLY International Inc. 1993 Stock
Option Plan, 1998 Stock Option Plan and 2002 Stock Option
Plan.
(2) The maximum number of shares available for issuance under
the 2002 Stock Option Plan is 7,000,000 shares of common
stock (plus any shares of common stock covered by any
unexercised portion of canceled or terminated stock options
granted under the 1993 Stock Option Plan or 1998 Stock
Option Plan) (the "Maximum Number"). The Maximum Number
(which includes shares already granted as options under the
plan) may be increased on January 1 of each calendar year
during the term of the 2002 Stock Option Plan to equal 7% of
the outstanding shares of common stock on such date, prior
to such increase if greater than 7,000,000.
(3) Consists of the Burton C. Borgelt Nonstatutory Stock Option
Agreement granted on January 13, 1994. These options were
fully exercised in January 2004..
(4) See below for a description of the Directors' Deferred
Compensation Plan and the Supplemental Executive Retirement
Plan pursuant to which shares of common stock may be issued
to outside directors and certain management employees.
Directors Deferred Compensation Plan
Effective January 1, 1997, the Company established a Directors'
Deferred Compensation Plan (the "Deferred Plan"). The Deferred
Plan permits non-employee directors to elect to defer receipt of
directors fees or other compensation for their services as
directors. Non-employee directors can elect to have their
deferred payments administered as a cash with interest account or
a stock unit account. Distributions to a director under the
Deferred Plan will not be made to any non-employee director until
the non-employee director ceases to be a member of the Board of
Directors. Upon ceasing to be a member of the Board of Directors,
the deferred non-employee director fees are paid based on an
earlier election to have their accounts distributed immediately
or in annual installments for up to ten (10) years.
Supplemental Executive Retirement Plan
Effective January 1, 1999, the Board of Directors of the
Company adopted a Supplemental Executive Retirement Plan (the
"Plan"). The purpose of the Plan is to provide additional
retirement benefits for a limited group of management employees
whom the Board concluded were not receiving competitive
retirement benefits. No actual benefits are put aside for
participants and the participants are general creditors of the
Company for payment of the benefits upon retirement or
termination from the Company. Participants can elect to have
these benefits administered as a cash with interest or stock unit
account. Upon retirement/termination, the participant is paid
the benefits in their account based on an earlier election to
have their accounts distributed immediately or in annual
installments for up to five (5) years.
Item 13. Certain Relationships and Related Transactions
No relationships or transactions are required to be reported.
Item 14. Principal Accountant Fees and Services
The information set forth under the caption "Relationship with
Independent Auditors" in the 2004 Proxy Statement is incorporated
herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(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 Annual Report on Form 10-K:
Report of Independent Auditors
Consolidated Statements of Income - Years ended December 31,
2003, 2002 and 2001
Consolidated Balance Sheets - December 31, 2003 and 2002
Consolidated Statements of Stockholders' Equity - Years
ended December 31, 2003, 2002 and 2001
Consolidated Statements of Cash Flows - Years ended December
31, 2003, 2002 and 2001
Notes to Consolidated Financial Statements
2 Financial Statement Schedules
The following financial statement schedule is
filed as part of this Annual Report on Form 10-K:
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 this Annual Report on
Form 10-K.
Exhibit
Number Description
3.1 Restated Certificate of Incorporation (17)
3.2 By-Laws, as amended (16)
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. (13)
(b) United States Commercial Paper Dealer Agreement dated as of March 28, 2002 between the Company and Salomon Smith
Barney Inc. (18)
(c) United States Commercial Paper Dealer Agreement dated as of April 30, 2002 between the Company and Credit Suisse
First Boston Corporation. (18)
(d) Euro Commercial Paper Note Agreement dated as of July 18, 2002 between the Company and Citibank International plc. (18)
(e) Euro Commercial Paper Dealer Agreement dated as of July 18, 2002 between the Company and Citibank International
plc and Credit Suisse First Boston (Europe) Limited. (18)
4.2 (a) Note Agreement (governing Series A, Series B and Series C Notes) dated March 1, 2001 between the Company and
Prudential Insurance Company of America. (14)
(b) First Amendment to Note Agreement dated September 1, 2001 between the Company and Prudential Insurance Company of
America. (16)
4.3 (a) 5-Year Competitive Advance, Revolving Credit and Guaranty Agreements dated as of May 25, 2001 among the Company,
the guarantors named therein, the banks named therein, the ABN Amro Bank, N.V as Administrative Agent, and First Union
National Bank and Harris Trust and Savings Bank as Documentation Agents. (16)
(b) 364-Day Competitive Advance, Revolving Credit and Guaranty Agreements dated as of May 25, 2001 among the Company,
the guarantors named therein, the banks named therein, the ABN Amro Bank, N.V as Administrative Agent, and
First Union National Bank and Harris Trust and Savings Bank as Documentation Agents. (16)
(c) Amendment to the 5-Year Competitive Advance, Revolving Credit and Guaranty Agreements dated as of May 25, 2001 among
the Company, the guarantors named therein, the banks named therein, the ABN Amro Bank, N.V as Administrative
Agent, and First Union National Bank and Harris Trust and Savings Bank as Documentation Agents. (18)
(d) Amendment to the 364-Day Competitive Advance, Revolving Credit and Guaranty Agreements dated as of May 25, 2001
among the Company, the guarantors named therein, the banks named therein, the ABN Amro Bank, N.V as Administrative
Agent, and First Union National Bank and Harris Trust and Savings Bank as Documentation Agents. (18)
(e) Amendment to the 5-Year Competitive Advance, Revolving Credit and Guaranty Agreements dated as of August 30, 2001
among the Company, the guarantors named therein, the banks named therein, the ABN Amro Bank, N.V as Administrative
Agent, and First Union National Bank and Harris Trust and Savings Bank as Documentation Agents. (18)
(f) Amendment to the 364-Day Competitive Advance, Revolving Credit and Guaranty Agreements dated as of August 30, 2001
among the Company, the guarantors named therein, the banks named therein, the ABN Amro Bank, N.V as Administrative
Agent, and First Union National Bank and Harris Trust and Savings Bank as Documentation Agents. (18)
(g) Amendment to the 364-Day Competitive Advance, Revolving Credit and Guaranty Agreements dated as of May 24, 2002
among the Company, the guarantors named therein, the banks named therein, the ABN Amro Bank, N.V as Administrative
Agent, and First Union National Bank and Harris Trust and Savings Bank as Documentation Agents. (18)
(h) Amendment to the 364-Day Competitive Advance, Revolving Credit and Guaranty Agreements dated as of May 23, 2003
among the Company, the guarantors named therein, the banks named therein, the ABN Amro Bank, N.V as Administrative
Agent, and First Union National Bank and Harris Trust and Savings Bank as Documentation Agents.
4.4 Private placement note dated December 28, 2001 between the Company and Massachusetts Mutual Life Insurance Company
and Nationwide Life Insurance Company. (16)
4.5 (a) Eurobonds Agency Agreement dated December 13, 2001 between the Company and Citibank, N.A. (16)
(b) Eurobond Subscription Agreement dated December 11, 2001 between the Company and Credit Suisse First Boston (Europe)
Limited, UBS AG, ABN AMRO Bank N.V., First Union Securities, Inc.; and Tokyo-Mitsubishi International plc
(the Managers). (16)
(c) Pages 4 through 16 of the Company's Eurobond Offering Circular dated December 11, 2001. (16)
10.1 1993 Stock Option Plan (2)
10.2 1998 Stock Option Plan (1)
10.3 2002 Stock Option Plan (17)
10.4 Nonstatutory Stock Option Agreement between the Company and Burton C. Borgelt (3)
10.5 (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. (14)
(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. (14)
10.6 Written Description of the Chairman's Agreement between the Company and John C. Miles II
10.7 Employment Agreement dated January 1, 1996 between the Company and W. William Weston (9)*
10.8 Employment Agreement dated January 1, 1996 between the Company and Thomas L. Whiting (9)*
10.9 Employment Agreement dated October 11,1996 between the Company and Gerald K. Kunkle Jr. (10)*
10.10 Employment Agreement dated April 20, 1998 between the Company and William R. Jellison (12)*
10.11 Employment Agreement dated September 10, 1998 between the Company and Brian M. Addison (12)*
10.12 Employment Agreement dated June 1, 1999 between the Company and J. Henrik Roos (13)*
10.13 Employment Agreement dated October 1, 2001 between the Company and Rudolf Lehner (16)*
10.14 Employment Agreement dated November 1, 2002 between the Company and Christopher T. Clark (18)*
10.15 Employment Agreement dated November 1, 2002 between the Company and James G. Mosch (18)*
10.16 Employment Agreement dated December 1, 2002 between the Company and Bret W. Wise (18)*
10.17 DENTSPLY International Inc. Directors' Deferred Compensation Plan effective January 1, 1997 (10)*
10.18 Supplemental Executive Retirement Plan effective January 1, 1999 (12)*
10.19 Written Description of Year 2003 Incentive Compensation Plan.
10.20(a) AZLAD Products Agreement, dated January 18, 2001 between AstraZeneca AB and Maillefer Instruments Holdings, S.A.
(a subsidiary of the Company). (14)
(b) AZLAD Products Manufacturing Agreement, dated January 18, 2001 between AstraZeneca AB and Maillefer Instruments
Holdings, S.A. (14)
(c) AZ Trade Marks License Agreement, dated January 18, 2001 between AstraZeneca AB and Maillefer Instruments Holdings,
S.A. (14)
(d) AZLAD Products Manufacturing Agreement, effective March 1, 2004 between AstraZeneca AB and Maillefer Instruments
Holdings, S.A.
10.21 Sale and Purchase Agreement of Gendex Equipment Business between the Company and Danaher Corporation Dated
December 11, 2003.
10.22(a) Precious metal inventory Purchase and Sale Agreement dated November 30, 2001 between Fleet Precious Metal Inc.
and the Company. (16)
(b) Precious metal inventory Purchase and Sale Agreement dated December 20, 2001 between JPMorgan Chase Bank
and the Company. (16)
(c) Precious metal inventory Purchase and Sale Agreement dated December 20, 2001 between Mitsui & Co., Precious
Metals Inc. and the Company. (16)
21.1 Subsidiaries of the Company
23.1 Consent of Independent Auditors - PricewaterhouseCoopers LLP
31 Section 302 Certification Statements
32 Section 906 Certification Statement
99.1 DENTSPLY International Inc. Code of Business Conduct and Ethics
* Management contract or compensatory plan.
(1) Incorporated by reference to exhibit included in the
Company's Registration Statement on Form S-8 (No. 333-56093).
(2) Incorporated by reference to exhibit included in the
Company's Registration Statement on Form S-8 (No. 33-71792).
(3) Incorporated by reference to exhibit included in the
Company's Registration Statement on Form S-8 (No. 33-79094).
(4) Incorporated by reference to exhibit included in the
Company's Registration Statement on Form S-8 (No. 33-52616).
(5) Incorporated by reference to exhibit included in the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1993, File No. 0-16211.
(6) Incorporated by reference to exhibit included in the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 0-16211.
(7) Incorporated by reference to exhibit included in the
Company's Annual Report on Form 10-K for the fiscal year
December 31, 1994, File No. 0-16211.
(8) Incorporated by reference to exhibit included in the
Company's Current Report on Form 8-K dated January 10, 1996,
File No. 0-16211.
(9) Incorporated by reference to exhibit included in the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, File No. 0-16211.
(10) Incorporated by reference to exhibit included in the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, File No. 0-16211.
(11) Incorporated by reference to exhibit included in the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, File No. 0-16211.
(12) Incorporated by reference to exhibit included in the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 0-16211.
(13) Incorporated by reference to exhibit included in the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, File No. 0-16211.
(14) Incorporated by reference to exhibit included in the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000, File No. 0-16211.
(15) Incorporated by reference to exhibit included in the
Company's Quarterly Report on Form 10-Q for the period ended
June 30, 2001, File No. 0-16211.
(16) Incorporated by reference to exhibit included in the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2001, File No. 0-16211.
(17) Incorporated by reference to exhibit included in the
Company's Registration Statement on Form S-8 (No.
333-101548).
(18) Incorporated by reference to exhibit included in the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2002, File No. 0-16211.
Loan Documents
The Company and certain of its subsidiaries have entered into
various loan and credit agreements and issued various promissory
notes and guaranties of such notes, listed below, the aggregate
principal amount of which is less than 10% of its assets on a
consolidated basis. The Company has not filed copies of such
documents but undertakes to provide copies thereof to the
Securities and Exchange Commission supplementally upon request.
(1) Master Grid Note dated November 4, 1996 executed in
favor of The Chase Manhattan Bank in connection with a line
of credit up to $20,000,000 between the Company and The
Chase Manhattan Bank.
(2) Agreement dated June 13, 2001 between Midland Bank PLC
and Dentsply Limited for GBP 3,000,000 overdraft and
$2,000,000 foreign exchange facility.
(3) Agreement dated June 21, 2001 in the principal amount
of $6,000,000 between Dentsply Research and Development
Corp, Hong Kong Branch and Bank of Tokyo Mitsubishi.
(4) Form of "comfort letters" to various foreign commercial
lending institutions having a lending relationship with one
or more of the Company's international subsidiaries.
(b) Reports on Form 8-K
On January 28, 2004, the Company filed a Form 8-K, under
item 12, furnishing the press release issued on January 27,
2004 regarding its fourth quarter 2003 sales and earnings.
On February 3, 2004, the Company filed a Form 8-K, under
item 12, furnishing a transcript of its January 28, 2004,
conference call regarding the Company's discussion of its
fourth quarter 2003 sales and earnings.
On March 1, 2004, the Company filed a Form 8-K, under item
5, furnishing a summary of the Company's quarterly results
of operations for the fiscal years 2003 and 2002, related to
its continuing and discontinued operations.
SCHEDULE II
DENTSPLY INTERNATIONAL INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 2003
Additions
-----------------------------
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
(in thousands)
Allowance for doubtful accounts:
For Year Ended December 31,
2001 $ 6,360 $ 2,844 $ 5,289 (a) $(1,638) $ (253) $ 12,602
2002 12,602 2,904 3,560 (b) (1,987) 1,413 18,492
2003 18,492 569 (29) (4,771) 2,041 16,302
Allowance for trade discounts:
For Year Ended December 31,
2001 1,629 555 - (1,194) (77) 913
2002 913 988 - (871) 61 1,091
2003 1,091 1,494 19 (1,681) 139 1,062
Inventory valuation reserves:
For Year Ended December 31,
2001 14,942 4,369 8,409 (c) (2,996) (365) 24,359
2002 24,359 4,855 4,671 (d) (5,581) 2,366 30,670
2003 30,670 2,845 (22) (3,418) 3,037 33,112
Deferred tax asset valuation allowance:
For Year Ended December 31,
2001 2,353 909 - (215) (183) 2,864
2002 2,864 3,431 - (1,129) 176 5,342
2003 5,342 5,764 - (2,596) 1,139 9,649
- ------------------
(a) Includes $389 from acquisition of Friadent and $4,900 from acquisition of Degussa Dental.
(b) Includes $797 from acquisition of Austenal and $2,763 related to the acquisition of Degussa Dental.
(c) Includes $1,580 from acquisition of Friadent and $6,829 from acquisition of Degussa Dental.
(d) Includes $588 from acquisition of Austenal and $4,083 related to the acquisition of Degussa Dental.
DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
Year ended December 31,
2003 2002 2001 2000 1999
(dollars in thousands, except per share amounts)
Statement of Income Data:
Net sales $ 1,570,925 $ 1,417,600 $ 1,045,275 $ 810,409 $ 763,093
Net sales without precious metal content 1,365,890 1,230,511 994,630 810,409 763,093
Gross profit 773,201 704,411 542,838 438,728 406,933
Restructuring and other costs (income) 3,700 (2,732) 5,073 (56) -
Operating income 267,983 249,452 170,209 155,571 143,099
Income before income taxes 251,196 214,090 179,522 146,907 134,216
Net income from continuing operations (1) $ 169,853 $ 143,641 $ 117,714 $ 97,822 $ 87,586
Net income from discontinued operations 4,330 4,311 3,782 3,194 2,277
Total net income (1) $ 174,183 $ 147,952 $ 121,496 $ 101,016 $ 89,863
Earnings per common share - basic:
Continuing operations (1) $ 2.16 $ 1.84 $ 1.51 $ 1.26 $ 1.11
Discontinued operations 0.05 0.05 0.05 0.04 0.03
Total earnings per common share - basic (1) $ 2.21 $ 1.89 $ 1.56 $ 1.30 $ 1.14
Earnings per common share - diluted
Continuing operations (1) $ 2.11 $ 1.80 $ 1.49 $ 1.25 $ 1.10
Discontinued operations 0.05 0.05 0.05 0.04 0.03
Total earnings per common share - diluted (1) $ 2.16 $ 1.85 $ 1.54 $ 1.29 $ 1.13
Cash dividends declared per
common share $ 0.19700 $ 0.18400 $ 0.18333 $ 0.17083 $ 0.15417
Weighted Average Common Shares Outstanding:
Basic 78,823 78,180 77,671 77,785 79,131
Diluted 80,647 79,994 78,975 78,560 79,367
Balance Sheet Data:
Cash and cash equivalents $ 163,755 $ 25,652 $ 33,710 $ 15,433 $ 11,418
Total assets 2,445,587 2,087,033 1,798,151 866,615 863,730
Total debt 812,175 774,373 731,158 110,294 165,467
Stockholders' equity 1,122,069 835,928 609,519 520,370 468,872
Return on average stockholders' equity 17.8% 20.5% 21.5% 20.4% 20.4%
Long-term debt to total capitalization 41.3% 47.9% 54.3% 17.4% 23.7%
Other Data:
Depreciation and amortization $ 45,661 $ 41,352 $ 51,512 $ 39,170 $ 37,479
Capital expenditures 76,583 55,476 47,529 26,885 31,944
Property, plant and equipment, net 376,211 313,178 240,890 181,341 180,536
Goodwill and other intangibles, net 1,209,739 1,134,506 1,012,160 344,753 349,421
Interest expense, net 24,205 27,389 18,256 6,735 12,247
Cash flows from operating activities 257,992 172,983 211,068 145,622 125,622
Inventory days 93 100 93 114 122
Receivable days 50 49 46 52 52
Income tax rate 32.4% 32.9% 34.4% 33.4% 34.7%
(1) In the first and second quarters of 2003, the Company
recorded pre-tax charges of $4.1 million and $5.5 million,
respectively, related primarily to adjustments to inventory,
accounts receivable and prepaid expense accounts at one division
in the United States and two international subsidiaries. Of the
$9.6 million in total pre-tax charges, $2.4 million were
determined to be properly recorded as changes in estimates, $0.4
million were determined to be errors between the first and second
quarters of 2003, and the remaining $6.8 million ($4.6 million
after-tax) were determined to errors relating to prior periods.
In addition, the Company determined that $4.8 million of reserves
reversed in 2003 and $4.1 million of reserves reversed in 2001
and 2002 should have been reversed in earlier periods or had been
erroneously established. In the aggregate, had the charge and
reserve errors been recorded in the proper period, reported net
income would have increased by $0.8 million ($0.1 per basic and
diluted share) in 2000, increased by $1.2 million ($0.02 per
basic and diluted share) in 2001, and decreased by $3.4 million
($0.04 per basic and diluted share) in 2002. The effect of
recording the Charge Errors and Reserve Errors in 2003 reduced
net income by $1.3 million ($0.02 per basic and diluted share).
Following a quantitative and qualitative assessment of
materiality, Company concluded that the charges and reserve
errors were not material to the results of operations and
financial position of the Company for the years ended December
31, 2000, 2001, 2002 and 2003 and accordingly, the prior period
financial statements have not been restated. See Note 19 to the
consolidated financial statements for additional information
related to this matter.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements made by the Company, including without
limitation, statements in the Overview section below and other
statements containing the words "plans", "anticipates",
"believes", "expects", or words of similar import may be deemed to
be forward-looking statements and are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act
of 1995. 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 I, Part I of this Annual Report on Form 10-K.
OVERVIEW
Dentsply International Inc. is the world's largest manufacturer
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. While
the United States and Europe are the Company's largest markets,
the Company serves all of the major professional dental markets
worldwide. In 2003, sales to customers outside the United States
represented 58% of the Company's net sales.
There are several important aspects of its business which the
Company has commented on in the past. These include: (1)
internal growth in the United States, Europe and the Pacific Rim;
(2) the development and introduction of innovative new products;
(3) growth through acquisition; and (4) continued focus on
controlling costs and enhancing efficiency. We define "internal
growth" as the increase in our net sales from period to period,
excluding precious metal content, the impact of changes in
currency exchange rates, and the net sales, for a period of
twelve months following the transaction date, of businesses that
we have acquired or divested.
In 2003, overall economic conditions resulted in a slowing of
the Company's internal growth rate in the United States, the
largest dental market in the world. Our internal growth rate in
the United States slowed to 3.3% in 2003, down from rates of 9.0%
and 7.2% experienced in 2002 and 2001, respectively. Management
expects that economic conditions will improve in the United
States in 2004 and thus anticipates that our internal growth rate
will accelerate as economic conditions improve. In contrast to
the United States, the rate of internal growth in Europe in 2003
improved to 8.6%, compared to 6.6% and 5.0% in 2002 and 2001,
respectively. Management believes that this growth rate resulted
from strong market acceptance in Europe of our product portfolio
and our improved market presence stemming from the acquisitions
we completed throughout 2001. Management anticipates continued
strong growth in Europe in 2004. Japan represents the third
largest dental market in the world behind the United States and
Europe. Japan's dental market growth closely parallels its
economic growth. The Company views the Japanese market as an
important growth opportunity, both in terms of a recovery in the
Japanese economy and the opportunity to increase our market
share. In 2002 and early 2003, the growth rate in the dental
markets in Asia was among the highest in the world. The SARs
crisis experienced in 2003 caused substantial disruption in the
dental markets in several key Asian countries. Trends in late
2003 and early 2004 show a recovery in Asian dental market
conditions, but it is not yet clear whether this improvement is
sustainable. Although Asia, excluding Japan, represented only
3.3% of the Company's sales in 2003, management believes that the
Asian markets represent a long-term growth opportunity for the
industry and the Company.
Product innovation is an important element of the Company's
growth strategy. Management plans include an acceleration of
investment in research and development of approximately 20% in
2004 to support new and innovative products and technology.
Management believes that the Company's strategy of being a lead
innovator in the industry is an important element to the
long-term success of the Company.
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 acquisition.
Management believes that there will continue to be adequate
opportunities to participate as a consolidator in the industry
for the foreseeable future.
The Company also remains focused on reducing costs and
improving competitiveness. Management expects to continue to
consolidate operations or functions and reduce the cost of those
operations and functions while improving service levels. The
Company believes that the benefits from these opportunities will
improve the cost structure and offset areas of rising costs such
as energy, benefits, regulatory oversight and compliance and
financial reporting in the United States.
FACTORS IMPACTING COMPARABILITY BETWEEN YEARS
Acquisitions
In January 2002, the Company acquired the partial denture
business of Austenal Inc. ("Austenal"), and in 2001 the Company
made three significant acquisitions. In January 2001, the
Company acquired the outstanding shares of Friadent GmbH
("Friadent"), a global dental implant manufacturer and marketer.
In March 2001, the Company acquired the dental injectible
anaesthetic assets of AstraZeneca ("AZ Assets"). In October 2001,
the Company acquired the Degussa Dental Group ("Degussa Dental"),
a manufacturer and seller of dental products, including precious
metal alloys, ceramics, dental laboratory equipment and chairside
products. The details of these transactions are discussed in
Note 3 to the Consolidated Financial Statements. The results of
these acquired companies have been included in the consolidated
financial statements since the dates of acquisition. These
acquisitions, accounted for using the purchase method,
significantly impact the comparability between 2001 and 2002.
Accounting Charges and Reserve Reversals
In the first and second quarters of 2003, the Company recorded
pretax charges of $4.1 million and $5.5 million, respectively,
related primarily to adjustments to inventory, accounts
receivable, and prepaid expense accounts at one division in the
United States and two international subsidiaries. All of these
operating units had been involved in integrating one or more of
the acquisitions completed in 2001. Of the $9.6 million in total
pretax charges recorded in the first and second quarters of 2003,
$2.4 million were determined to be properly recorded as changes
in estimate, $0.4 million were determined to be errors between
the first and second quarters of 2003, and the remaining $6.8
million ($4.6 million after tax) were determined to be errors
relating in prior periods ("Charge Errors"). The Charge Errors
included $3.0 million related to inaccurate reconciliations and
valuation of inventory, $2.0 million related to inaccurate
reconciliations and valuation of accounts receivable, $1.3
million related to unrecoverable prepaid expenses and $0.5
million related to other accounts. Had the Charge Errors been
recorded in the proper period, net income as reported would have
been decreased by $0.6 million ($0.01 per diluted share) in 2001
and $4.0 million ($0.05 per diluted share) in 2002. Recording
the effect of the Charge Errors in 2003 reduced net income by
$4.6 million ($0.06 per diluted share).
In addition to the aforementioned, in the first and second
quarters of 2003, the Company determined that $4.8 million in
reserves reversed in 2003 and $4.1 million of reserves reversed
in 2001 and 2002 should have been reversed in earlier years or
had been erroneously established ("Reserve Errors). The Reserve
Errors occurred in 2000 through 2002 and related primarily to
asset valuation accounts and accrued liabilities, including (on a
pre-tax basis) $5.1 million related to product return provisions,
$1.1 million related to bonus accruals, $0.8 million related to
product warranties, $0.7 million related to inventory valuation
and $1.2 million related to other accounts. Had the Reserve
Errors been recorded in the proper period, they would have
increased net income as reported by $0.8 million ($0.01 per
diluted share) in 2000, $1.8 million ($0.02 per diluted share) in
2001 and $0.7 million ($0.01 per diluted share) in 2002.
Recording the effect of the Reserve Errors in 2003 increased net
income by $3.3 million ($0.04 per diluted share).
The above described charges (including the $2.4 million changes
in estimates) and Reserve Errors amounted to $19.9 million
(pre-tax) on an absolute basis and occurred from 2000 through the
second quarter of 2003. Included in this total, are $2.0 million
of Reserve Errors and $0.4 million of Charge Errors that
originated and reversed in different quarters of same year. In
the aggregate, had the Charge Errors and Reserve Errors described
above been recorded in the proper period, reported net income
would have increased by $0.8 million ($0.01 per diluted share) in
2000, $1.2 million ($0.02 per diluted share) in 2001 and
decreased by $3.4 million ($0.04 per diluted share) in 2002. The
effect of recording the Reserve Errors and Charge Errors in 2003
reduced net income by $1.3 million ($0.02 per diluted share).
The Company performed an analysis of the Charge Errors and
Reserve Errors on both a qualitative and quantitative basis and
concluded that the errors were not material to the results of
operations and financial position of the Company for the years
ended December 31, 2000, 2001, 2002 and 2003. Accordingly, prior
period financial statements have not been restated.
Discontinued Operations
In December 2003, the Company entered into an agreement to sell
its Gendex equipment business to Danaher Corporation.
Additionally, the Company announced to its dental needle
customers that it was discontinuing production of dental needles.
The sale of the Gendex business and discontinuance of dental
needle production have been accounted for as discontinued
operations pursuant to Statement of Financial Accounting Standard
No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". The results of operations for all periods presented have
been restated to reclassify the results of operations for both
the Gendex equipment and the dental needle businesses to
discontinued operations.
Reclassifications
Certain other reclassifications have been made to prior years'
data in order to conform to current year presentation.
RESULTS OF CONTINUING OPERATIONS, 2003 COMPARED TO 2002
Net Sales
The discussions below summarize the Company's sales growth,
excluding precious metals, 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.
As the presentation of net sales excluding precious metal
content could be considered a measure not calculated in
accordance with generally accepted accounting principles (a
so-called non-GAAP measure), the Company provides the following
reconciliation of net sales to net sales excluding precious metal
content. Our 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,
2003 2002 2001
(in millions)
Net Sales $ 1,570.9 $ 1,417.6 $1,045.3
Precious Metal Content of Sales (205.0) (187.1) (50.7)
Net Sales Excluding Precious Metal Conten $ 1,365.9 $ 1,230.5 $ 994.6
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 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 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 alloy sale prices are adjusted when the prices of
underlying precious metals change.
Net sales in 2003 increased $153.3 million, or 10.8%, to
$1,570.9 million. Net sales, excluding precious metal content,
increased $135.4 million, or 11.0%, to $1,365.9 million. Sales
growth excluding precious metal content was comprised of 4.5%
internal growth, 6.6% foreign currency translation less 0.1% for
net acquisitions/divestitures. The 4.5% internal growth was
comprised of 8.6% in Europe, 3.3% in the United States and 0.4%
for all other regions combined.
The internal sales growth in 2003, excluding precious metal
content, was highest in Europe with strong growth in endodontic,
dental implant and certain laboratory products. In the United
States internal sales growth was strongest in endodontic and
orthodontic products and other chairside consumables, offset by a
softening in sales to dental laboratories. The market for dental
laboratory products tends to be the most sensitive to economic
cycles and contracted in the United States in 2003.
Gross Profit
Gross profit was $773.2 million in 2003 compared to $704.4
million in 2002, an increase of $68.8 million, or 9.8%. Gross
profit, including precious metal content, represented 49.2% of
net sales in 2003 compared to 49.7% in 2002. The gross profit for
2003, excluding precious metal content, represented 56.6% of net
sales compared to 57.2% in 2002. Gross profit as reported would
have been higher by $2.8 million in 2003 and lower by $5.4
million in 2002 had the Charge Errors and Reserve Errors been
recorded in the proper periods. In addition, geographic mix
negatively influenced gross margins in 2003 compared to 2002.
Operating Expenses
Selling, general and administrative ("SG&A") expense increased
$43.8 million, or 9.6%, to $501.5 million in 2003 from $457.7
million in 2002. The 9.6% increase in expenses, as reported,
reflects increases for the translation impact from a weaker U.S.
dollar of approximately $35.3 million. As a percentage of sales,
including precious metal content, SG&A expenses decreased to
31.9% compared to 32.3% in 2002. As a percentage of sales,
excluding precious metal content, SG&A expenses decreased to
36.7% compared to 37.2% in 2002. SG&A would have been higher by
$0.8 million in 2003 and lower by $0.3 million in 2002, had the
Charge Errors and Reserve Errors been recorded in the proper
periods. The leveraging of general and administrative expenses
was the primary reason for the percentage decrease in SG&A
expenses from 2002 to 2003.
During 2003, the Company recorded restructuring and other costs
of $3.7 million. The largest portion of this was an impairment
charge related to certain investments made in emerging
technologies that the Company no longer views as recoverable. In
addition, in December 2003, the Company announced the
consolidation of its U.S. laboratory businesses and recorded a
charge for a portion of the costs to complete the consolidation.
Based on the restructuring activities undertaken in 2003, the
U.S. laboratory businesses are expected to incur additional
restructuring costs of approximately $2.5 million in 2004 to
complete the plan. The Company made the decision to consolidate
these laboratory businesses in order to improve operational
efficiencies, to broaden customer penetration and to strengthen
customer service. Upon completion, which is expected in late
2004, this plan is projected to result in future annual expense
reductions of approximately $1.5 million, primarily within SG&A.
During 2002, the Company recorded restructuring and other
income of $2.7 million, including a $3.7 million benefit which
resulted from changes in estimates related to prior period
restructuring initiatives, offset somewhat by a restructuring
charge for the combination of the CeraMed and U.S. Friadent
divisions of $1.7 million. In addition, the Company recognized a
gain of $0.7 million related to the insurance settlement for fire
damages sustained at the Company's Maillefer facility. (see Note
16 to the Consolidated Financial Statements).
Other Income and Expenses
Net interest expense and other expenses were $16.8 million in
2003 compared to $35.4 million in 2002. The year 2003 included
$24.2 million of net interest expense, less $7.4 million of
income from PracticeWorks, Inc., including a $5.8 million pre-tax
gain realized and recognized in the fourth quarter of 2003 on the
sale of the Company's interest in PracticeWorks, Inc. The year
2002 included: $27.4 million of net interest; $3.5 million of
currency transaction losses; a $1.1 million loss realized on the
share exchange with PracticeWorks, Inc.; and a $2.5 million
mark-to-market loss related to PracticeWorks warrants.
Earnings
The effective tax rate decreased to 32.4% in 2003 from 32.9% in
2002.
Income from continuing operations increased $26.3 million, or
18.3%, to $169.9 million in 2003 from $143.6 million in 2002.
Fully diluted earnings per share from continuing operations were
$2.11 in 2003, an increase of 17.2% from $1.80 in 2002. Had the
Charge Errors and Reserve Errors described above been recorded in
the proper periods, income from continuing operations would have
been higher by $1.3 million ($.02 per diluted share) in 2003 and
lower by $3.4 million ($.04 per diluted share) in 2002.
Discontinued Operations
The Company entered into an agreement to sell its Gendex
equipment business to Danaher Corporation in December, 2003, and
completed the transaction in the first quarter of 2004. In
addition, the Company announced to its dental needle customers
that it was discontinuing production of dental needles.
Accordingly, the Gendex equipment and needle businesses have been
reported as discontinued operations for all periods presented.
Income from discontinued operations was $4.3 million in both
2003 and 2002. Fully diluted earnings per share from
discontinued operations were $.05 in both 2003 and 2002.
Operating Segment Results
The Company has five operating groups, which are managed by
five Senior Vice Presidents and equate to our operating
segments. 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 of the Consolidated Financial Statements.
The management of each group is evaluated for performance and
incentive compensation purposes on the net third party sales,
excluding precious metal content and segment operating income.
Dental Consumables--U.S. and Europe/Japan/Non-dental
Net sales for this group were $264.6 million in 2003, a 9.3%
increase compared to $242.1 million in 2002. Internal growth was
2.8% and currency translation added 6.5% to sales in 2003. The
U.S. consumables business had the highest growth in the group,
which was offset by lower sales in the Japanese market and low
growth in the non-dental business.
Operating profit increased $11.5 million to $82.4 million from
$70.9 million in 2002. Sales growth in the U.S. dental
consumable business and gross margin improvement in the European
dental consumable business were the most significant contributors
to the increase. Operating profit benefited from currency
translation. Operating profit would have been lower by $2.7
million in 2003 and higher by $1.6 million in 2002 if the Reserve
Errors had been recorded in the proper period.
Endodontics/Professional Division Dental Consumables/Asia
Net sales for this group increased $23.9 million, or 6.7%, up
from $357.6 million in 2002. Internal growth was 3.8% and
currency translation added 2.9% to 2003 sales. Sales growth was
strongest in the endodontic business. This was offset by lower
sales in the dental consumables business due to aggressive
competitive pressures in the U.S. market.
Operating profit was $154.0 million, an increase of $12.4
million from $141.6 million in 2002. Continued growth in the
endodontic business was primarily responsible for the increase.
In addition, operating profit benefited from currency translation
partially offset by the negative currency impact of intercompany
transactions. Operating profit would have been lower by $0.7
million in 2003 and lower by $0.6 million in 2002 if the Reserve
Errors had been recorded in the proper period.
Dental Consumables--United Kingdom, France, Italy, CIS, Middle
East, Africa/European Dental Laboratory Business
Net sales for this group were $307.0 million in 2003, a 27.3%
increase compared to $241.1 million in 2002. Internal growth was
7.0% and currency translation added 19.9% to sales in 2003. The
primary reason for the sales growth was strong sales performance
in Germany, France, CIS and Africa.
Operating profit increased $19.2 million to $30.6 million from
$11.4 million in 2002. The primary reason for the profit
improvement was sales increases and margin improvement in the
European dental laboratory business including improvements from
the consolidation of the historical Dentsply tooth business in
Europe into the DeguDent business. In addition, operating profit
benefited from currency translation. Operating profit would have
been lower by $0.3 million in 2003 if the Charge Errors and
Reserve Errors had been recorded in the proper period.
Australia/Canada/Latin America/Pharmaceutical
Net sales for this group increased $4.8 million, or 4.4%,
compared to $108.5 million in 2002. Internal growth was 3.6% and
currency translation added 0.8% to 2003 sales. Sales were
strongest in the U.S. pharmaceutical business and in Latin
America. Canada and Australia experienced slower sales growth.
Operating profit was $12.0 million, a $2.8 million decrease
from $14.8 million in 2002. Lower operating margins in Latin
America hurt profitability. Operating profit would have been
higher by $1.0 million in 2003 and lower by $0.7 million in 2002
if the Charge Errors and Reserve Errors had been recorded in the
proper period.
U.S. Dental Laboratory Business/Implants/Orthodontics
Net sales for this group were $278.7 million in 2003, a 6.9%
increase compared to $260.7 million in 2002. Internal growth was
3.2% and currency translation added 3.7% to sales in 2003. Sales
growth was adversely impacted by the soft U.S. dental laboratory
market. Sales growth for implants in Europe and the orthodontic
business showed continued strong sales growth.
Operating profit decreased $8.8 million to $41.4 million from
$50.2 million in 2002. The soft U.S. dental laboratory market
and the negative currency impact of intercompany transactions
adversely impacted operating profit. Operating profit would have
been higher by $4.7 million in 2003 and lower by $5.3 million in
2002 if the Charge Errors and Reserve Errors had been booked in
the proper period.
RESULTS OF CONTINUING OPERATIONS, 2002 COMPARED TO 2001
Net Sales
Net sales in 2002 increased $372.3 million, or 35.6%, to
$1,417.6 million. Net sales, excluding precious metal content,
increased $235.9 million, or 23.7%, to $1,230.5 million. The
growth in sales, excluding precious metal content, was driven by
internal growth of 6.7%, 15.8% growth from acquisitions and a
1.2% positive impact from currency translation as several major
currencies strengthened against the U.S. dollar during the year.
The 6.7% of internal growth was comprised of 9.0% in the United
States, 6.6% in Europe, and 1.1% for all other regions combined.
Internal growth for the dental business was 7.1% excluding
precious metal content.
The internal sales growth in 2002, excluding precious metal
content, was highest in United States, with strong growth in
endodontic and orthodontic products and other chairside
consumable products. In Europe internal sales growth was 6.6%
with strong sales gains in endodontic and orthodontic products,
implants, and other chairside consumable products. The internal
sales growth, excluding precious metal content, in all other
regions was 1.1%, with strong sales growth in Canada and Japan
offset by softening sales in Latin America and the Middle East
regions.
Gross Profit
Gross profit was $704.4 million in 2002 compared to $542.8
million in 2001, an increase of $161.6 million, or 29.8%. Gross
profit, including precious metal content, represented 49.7% of
net sales in 2002 compared to 51.9% in 2001. The decline in 2002
is due to the inclusion of the Degussa Dental business for a full
year versus just one quarter in 2001 and the corresponding
relatively high precious metal content of Degussa Dental's sales.
Gross profit for 2002, excluding precious metal content,
represented 57.2% of net sales compared to 54.6% in 2001. The
gross profit margin in 2002, excluding the precious metal content
pass through, benefited from new product introductions, a
favorable product mix, and the integration and restructuring
benefits related to acquisitions completed over the past several
years. The 2001 period included the negative impact of the
amortization of the Friadent and Degussa Dental inventory
step-ups recorded in connecton with purchase price accounting.
Gross profit as reported would have been lower by $5.4 million in
2002 and higher by $1.8 million in 2001 had the Charge Errors and
Reserve Errors been recorded in the proper periods.
Operating Expenses
Selling, general and administrative ("SG&A") expense increased
$90.1 million, or 24.5%, to $457.7 million in 2002 from $367.6
million in 2001. As a percentage of sales, including precious
metal content, SG&A expenses decreased to 32.3% compared to 35.2%
in 2001. This decrease is mainly due to the discontinuation of
goodwill and indefinite-lived intangible asset amortization in
2002, which in 2001 amounted to $17.6 million ($13.8 million, net
of tax). As a percentage of sales, excluding precious metal
content, SG&A expenses increased to 37.2% compared to 37.0% in
2001. This increase was primarily driven by the inclusion of the
Degussa Dental business, and its higher SG&A expense ratio
(excluding precious metal content), for a full year versus one
quarter in 2001, offset by the discontinuation of goodwill and
indefinite-lived intangible asset amortization in 2002. This
increase was also reflective of higher insurance and legal
expenses in 2002. SG&A would have been lower by $0.3 million in
2002 and lower by $0.1 million in 2001, had the Charge Errors and
Reserve Errors been recorded in the proper periods.
During 2002, the Company recorded restructuring and other
income of $2.7 million, including $3.7 million which resulted
from changes in estimates related to prior period restructuring
initiatives, offset somewhat by a restructuring charge for the
combination of the CeraMed and U.S. Friadent divisions of $1.7
million. In addition, the Company recognized a gain of $0.7
million related to the insurance settlement for fire damages
sustained at the Company's Maillefer facility. The 2001 period
included a restructuring charge of $5.5 million to improve
efficiencies in Europe, Brazil and North America and $11.5
million of restructuring and other costs primarily related to the
Degussa Dental acquisition and its integration with DENTSPLY. An
additional cost of $2.4 million was recorded for a payment made
at the point of regulatory filings related to Oraqix, a product
for which the Company acquired rights in the AZ Asset
acquisition. These charges were offset by a gain of $8.5 million
related to the restructuring of the Company's U.K. pension
arrangements and a gain of $5.8 million for an insurance
settlement for equipment destroyed in the fire at the Company's
Maillefer facility in Switzerland. The above items in 2001, on a
net basis, amount to charges of $5.1 million (see Note 16 to the
Consolidated Financial Statements).
Other Income and Expenses
Net interest expense increased $9.1 million in 2002 due to
higher debt levels associated with the acquisition activities in
2002 and 2001. Other income decreased $35.5 million in 2002, due
primarily to income recognized in 2001 of $24.5 million ($15.1
million, net of tax) which included a $23.1 million gain from the
sale of Infosoft, LLC and a $1.4 million minority interest
benefit related to an intangible impairment charge included in
restructuring and other costs. Other income and expense in 2002
also included a $4.7 million unfavorable change in currency
transaction gain/loss resulting from the significant weakening of
the U.S. dollar in 2002, a $1.1 million loss realized on the
share exchange with PracticeWorks, Inc. and a net loss of $2.5
million on mark-to-market adjustment for the warrants received in
the transaction. Also contributing to the decrease in other
income in 2002 was a decrease of $0.8 million in accrued
dividends related to the PracticeWorks, Inc. preferred stock
prior to the time of the PracticeWorks share exchange.
Earnings
The effective tax rate decreased to 32.9% in 2002 from 34.4% in
2001. This decrease was largely related to the discontinuance of
goodwill amortization in 2002, which in the past negatively
impacted the effective tax rate since much of this amortization
was non-deductible for tax purposes.
Net income from continuing operations increased $25.9 million,
or 22.0%, to $143.6 million in 2002 from $117.7 million in 2001.
Fully diluted earnings per share from continuing operations were
$1.80 in 2002, an increase of 20.8% from $1.49 in 2001. Had the
Charge Errors and Reserve Errors described above been recorded in
the proper periods, net income from continuing operations would
have been lower by $3.4 million ($.04 per diluted share) in 2002
and higher by $1.2 million ($.02 per diluted share) in 2001.
Discontinued Operations
Net income from discontinued operations was $4.3 million in
2002 compared to $3.8 million in 2001. Fully diluted earnings
per share from discontinued operations were $.05 in both 2002 and
2001.
Operating Segment Results
Dental Consumables--U.S. and Europe/Japan/Non-dental
Net sales for the group were $242.1 million in 2002, a 27.0%
increase compared to $190.7 million in 2001. Internal growth was
6.3%, currency translation added 6.3% and acquisitions added
14.4% to sales in 2002. Sales of dental consumables in the U.S.
and Europe and sales in Japan had strong growth. This was
partially offset by soft sales of non-dental products.
Operating profit increased $11.1 million to $70.9 million from
$59.8 million in 2001. The two primary reasons for this increase
are the higher margins associated with the dental consumables
sales increase and a full year of sales in 2002 for the Sankin
business in Japan which was acquired as part of the Degussa
Dental acquisition on October 1, 2001. Operating profit would
have been higher by $1.6 million in 2002 and higher by $0.5
million in 2001 if the Reserve Errors had been recorded in the
proper period.
Endodontics/Professional Division Dental Consumables/Asia
Net sales for this group increased $41.3 million, or 13.1%, up
from $316.3 million in 2001. Internal growth was 11.1%, currency
translation added 1.5% and acquisitions added 0.5% to 2002
sales. The endodontics business experienced substantial growth
during 2002, especially in the U.S. and Europe.
Operating profit was $141.6 million, an increase of $31.5
million from $110.1 million in 2002. The increase was a result
of the strong growth in high margin endodontic products. In
addition, operating profit benefited from currency translation.
Operating profit would have been lower by $0.6 million in 2002
and higher by $1.3 million in 2001 if the Reserve Errors had been
recorded in the proper period.
Dental Consumables--United Kingdom, France, Italy, CIS, Middle
East, Africa/European Dental Laboratory Business
Net sales for this group were $241.1 million in 2002, a 72.8%
increase compared to $139.5 million in 2001. Internal growth was
0.6%, currency translation added 1.9% and acquisitions added
70.3% to 2002 sales. The Company acquired the Degussa Dental
business in October, 2001, which competes primarily in the
European dental laboratory market. This market was soft during
2002.
Operating profit increased to $11.4 million in 2002 from
breakeven in 2001. The increase was primarily due to improved
margins and a full year of operations in 2002 for the Degussa
Dental business compared to three months in 2001. In addition,
operating profit benefited from currency translation. Operating
profit would have been higher by $0.3 in 2001 if the Charge
Errors and Reserve Errors had been recorded in the proper period.
Australia/Canada/Latin America/Pharmaceutical
Net sales for this group decreased $13.5 million, or 11.1%,
compared to $122.0 million in 2001. Internal growth was 4.7%,
acquisitions added 6.8%, while currency translation had a
negative impact of 22.6% on sales mainly due to the devaluation
in the currencies of Latin America. Internal growth came mainly
from the Canadian, Australian and U.S. pharmaceutical businesses
offset partially by the softening Latin American economies.
Operating profit was $14.8 million, a $5.4 million decrease
from $20.2 million in 2001. The main reason for the decrease was
the redistribution in 2002 of the non-U.S. pharmaceutical
business across the other operating groups. In 2001, the
worldwide pharmaceutical business was accounted for in this
group. In addition, operating profit was negatively impacted
from currency translation as a result of the devalued Latin
American currencies. Operating profit would have been lower by
$0.7 million in 2002 and lower by $0.5 million in 2001 had the
Charge Errors and Reserve Errors been recorded in the proper
period.
U.S. Dental Laboratory Business/Implants/Orthodontics
Net sales for this group were $260.7 million in 2002, a 24.6%
increase compared to $209.2 million in 2001. Internal growth was
7.4%, currency translation added 6.1% and acquisitions added
11.1% to 2002 sales. The internal growth came mainly from
significant growth in both the implant and orthodontic
businesses. Acquisition growth came from the acquisition of
Degussa Dental in October, 2001.
Operating profit increased $8.2 million to $50.2 million from
$42.0 million in 2001. The increase primarily came from the
significant increase in sales of the implant and orthodontic
businesses. In addition, operating profit benefited from currency
translation. Operating profit would have been lower by $5.3
million in 2002 and higher by $0.2 million in 2001 had the Charge
Errors and Reserve Errors been reported in the proper period.
FOREIGN CURRENCY
Since approximately 55% of the Company's 2003 revenues were
generated in currencies other than the U.S. dollar, the value of
the U.S. dollar in relation to those currencies affects the
results of operations of the Company. The impact of currency
fluctuations in any given period can be favorable or
unfavorable. The impact of foreign currency fluctuations of
European currencies on operating income is partially offset by
sales in the U.S. of products sourced from plants and third party
suppliers located overseas, principally in Germany, Switzerland,
and the Netherlands. On a net basis, net income benefited from
changes in currency translation in both 2003 and 2002 compared to
the prior year.
CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The Company has identified below the accounting estimates
believed to be critical to its business and results of
operations. These critical estimates represent those accounting
policies that involve the most complex or subjective decisions or
assessments.
Goodwill and Other Long-Lived Assets
Effective January 1, 2002, the Company adopted Statement of
Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill
and Other Intangible Assets". This statement requires that the
amortization of goodwill and indefinite-lived intangible assets
be discontinued and instead an annual impairment approach be
applied. The Company performed the annual impairment tests during
2002 and 2003, as required, and no impairment was identified.
These impairment tests are based upon a fair value approach
rather than an evaluation of the undiscounted cash flows. If
impairment is identified under SFAS 142, 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. 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 long-lived assets, such as identifiable intangible assets
and fixed assets, are amortized or depreciated over their
estimated useful lives. 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 with
impairment being based upon an evaluation of the identifiable
undiscounted cash flows. If impaired, the resulting charge
reflects the excess of the asset's carrying cost over its fair
value.
If market conditions become less favorable, future cash flows,
the key variable in assessing the impairment of these assets, may
decrease and as a result the Company may be required to recognize
impairment charges. The Company's impairment tests relating to
the perpetual license rights to the trademarks and formulations
for dental anaesthetic products acquired from Astra Zeneca in
2001 are highly sensitive to cash flow assumptions resulting from
the sale of these products and the Company's success in
completing and starting up a greenfield sterile filling plant to
produce these products in the United States.
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.
Accounts Receivable
The Company sells dental equipment and supplies primarily
through a worldwide network of distributors, although certain
product lines are sold directly to the end user. 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. If the
financial condition of the Company's customers were to
deteriorate, their ability to make required payments may become
impaired, and increases in these allowances may be required. In
addition, a negative impact on sales to those customers may
occur.
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 in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), which
requires recognition of deferred income tax liabilities and
assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns.
Under this method, deferred income tax liabilities and assets are
determined based on the difference between financial statements
and tax bases of liabilities and assets using enacted tax rates
in effect for the year in which the differences are expected to
reverse. SFAS 109 also provides for the recognition of deferred
tax assets if it is more likely than not that the assets will be
realized in future years. A valuation allowance has been
established for deferred tax assets for which realization is not
likely. In assessing the valuation allowance, the Company has
considered future taxable income and ongoing tax planning
strategies. Changes in these circumstances, such as a decline in
future taxable income, may result in an additional valuation
allowance being required. As of December 31, 2003, the Company
had recorded a valuation allowance of $9.6 million on net
operating carryforwards of its foreign subsidiaries, essentially
fully reserving these losses. If profitability improves in
those foreign subsidiaries in the future, some, or all, of the
valuation allowance may be reversed to income. Except for
certain earnings that the Company intends to reinvest
indefinitely, provision has been made for the estimated U.S.
federal income tax liabilities applicable to undistributed
earnings of affiliates and associated companies. Judgement is
required in assessing the future tax consequences of events that
have been recognized in our financial statements or tax returns.
If the outcome of these future tax consequences differs from our
estimates the outcome could materially impact our financial
position or our results of operations. In addition, we operate
within multiple taxing jurisdictions and are subject to audit in
these jurisdictions. We record accruals for the estimated
outcomes of these audits and the accruals may change in the
future due to the outcome of these audits.
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 made by management are
based on an analysis made by internal and external legal counsel
which considers information known at the time. The Company
believes it has estimated any liabilities for probable losses
well in the past; however, the unpredictability of court
decisions could cause liability to be incurred in excess of
estimates.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities during the year ended
December 31, 2003 were $258.0 million compared to $173.0 million
during the year ended December 31, 2002. The increase of $85.0
million results primarily from increased earnings and deferred
taxes and more favorable working capital changes versus the prior
year specifically with respect to accounts receivable,
inventories and accounts payable.
Investing activities, for the year ended December 31, 2003,
include capital expenditures of $76.6 million. The Company
expects that capital expenditures will be approximately $65
million in 2004. Net acquisition activity for the year ended
December 31, 2003 was $17.4 million which relates to the purchase
of one of the Company's suppliers, additional investments in
partially owned subsidiaries, a payment related to the Oraqix
agreement and the final payment related the Degussa Dental
acquisition. In December 2003, final payments of $16.0 million
became due to AstraZeneca upon the approval of Oraqix by the Food
and Drug Administration in the United States, and accordingly,
the Company accrued the payments in December 2003 and made the
payments in January 2004 (see Note 3 to the Consolidated
Financial Statements). In addition, during the fourth quarter,
the Company received $23.5 million in proceeds from its common
stock and warrant holdings in PracticeWorks as a result of the
Eastman Kodak acquisition. In February 2004, the Company
completed the sale of its Gendex equipment business and received
cash proceeds of $102.5 million.
The Company's long-term debt increased by $20.4 million during
the year ended December 31, 2003 to $790.2 million. This net
change included an increase of $109.8 million due to exchange
rate fluctuations on debt denominated in foreign currencies and
changes in the value of interest rate swaps, net of $70.1 million
of debt payments made during the year. During the year ended
December 31, 2003, the Company's ratio of long-term debt to total
capitalization decreased to 41.3% compared to 47.9% at December
31, 2002.
Under its multi-currency revolving credit agreement, the
Company is able to borrow up to $250 million through May 2006
("the five-year facility") and $250 million through May 2004 ("the
364 day facility"). The 364-day facility terminates in May 2004,
but may be extended, subject to certain conditions, for
additional periods of 364 days. This revolving credit agreement
is unsecured and contains various financial and other covenants.
The Company also has available an aggregate $250 million under
two commercial paper facilities; a $250 million U.S. facility and
a $250 million U.S. dollar equivalent European facility ("Euro CP
facility"). Under the Euro CP facility, borrowings can be
denominated in Swiss francs, Japanese yen, Euros, British pounds
and U.S. dollars. The 364-day facility serves as a back-up to
these commercial paper facilities. The total available credit
under the commercial paper facilities and the 364-day facility in
the aggregate is $250 million and no debt was outstanding under
these facilities at December 31, 2003.
The Company also has access to $88.0 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.
The Company had unused lines of credit of $472.0 million
available at December 31, 2003 contingent upon the Company's
compliance with certain affirmative and negative covenants
relating to its operations and financial condition. 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 plus
depreciation and amortization to interest expense. At December
31, 2003, the Company was in compliance with these covenants.
The following table presents the Company's scheduled contractual cash
obligations at December 31, 2003:
Greater
Less Than 1-3 3-5 Than
Contractual Obligations 1 Year Years Years 5 Years Total
(in thousands)
Long-term debt $ 22,780 $743,831 $ 44,727 $ -- $811,338
Operating leases 18,115 19,633 7,385 6,830 $ 51,963
Precious metal consignment agreements 61,300 -- -- -- $ 61,300
$102,195 $763,464 $ 52,112 $ 6,830 $924,601
Upon acquiring Degussa Dental in October 2001, Dentsply
management changed Degussa Dental's practice of holding a long
position in precious metals used in the production of precious
metal alloy products, to holding the precious metal on a
consignment basis from various financial institutions. In
connection with this change in practice, the Company sold certain
precious metals to various financial institutions in the fourth
quarter of 2001 for a value of $41.8 million and in the first
quarter of 2002 for a value of $6.8 million. These transactions
effectively transferred the price risk on the precious metals to
the financial institutions and allow the Company to acquire the
precious metal at 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 financing to fund an ownership position in the required
precious metal inventory levels. At December 31, 2003, the value
of the consigned precious metals held by the Company was $61.3
million.
The Company's cash increased $138.1 million during the year
ended December 31, 2003 to $163.8 million. The Company
accumulated cash in 2003 rather than reduce debt due to
pre-payment penalties that would be incurred in retiring debt and
the related interest rate swap agreements. The Company
anticipates that cash will continue to build throughout 2004.
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 funds generated from operations and
amounts available under its existing credit facilities.
NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board
("FASB") issued Interpretation No. 46 ("FIN 46"), "Consolidation
of Variable Interest Entities, an interpretation of ARB 51". The
primary objectives of this interpretation are to provide guidance
on the identification of entities for which control is achieved
through means other than through voting rights ("variable
interest entities") and how to determine when and which business
enterprise should consolidate the variable interest entity (the
"primary beneficiary"). This new model for consolidation applies
to an entity which either (1) the equity investors (if any) do
not have a controlling financial interest or (2) the equity
investment at risk is insufficient to finance that entity's
activities without receiving additional subordinated financial
support from other parties. In addition, FIN 46 requires that
both the primary beneficiary and all other enterprises with a
significant variable interest in a variable interest entity make
additional disclosures. Certain disclosure requirements of FIN 46
are effective for financial statements issued after January 31,
2003. The remaining provisions of FIN 46 are effective
immediately for all variable interests in entities created after
January 31, 2003. Adoption of this provision did not have an
effect on the Company. In December 2003, the FASB released a
revised version of FIN 46, FIN 46R, to clarify certain aspects of
FIN 46 and to provide certain entities with exemptions from the
requirements of FIN 46. FIN 46R requires the application of
either FIN 46 or FIN 46R to all Special Purpose Entitied
("SPE's") created prior to February 1, 2003 at the end of the
first interim or annual reporting period ending after December
15, 2003. Adoption of this provision did not have an effect on
the Company. FIN 46R will be applicable to all non-SPE entities
created prior to February 1, 2003 at the end of the first interim
or annual reporting period ending after March 15, 2004. The
Company does not expect the application of this portion of FIN
46R to have a material impact on the Company's financial
statements.
In April 2003, the FASB issued Statement of Financial
Accounting Standards No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". The statement
amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under SFAS
133, "Accounting for Derivative Instruments and Hedging
Activities". Specifically, the statement clarifies under what
circumstances a contract with an initial net investment meets the
characteristic of a derivative. In addition, it clarifies when a
derivative contains a financing component that warrants special
reporting in the statement of cash flows. SFAS 149 is effective
for contracts entered into or modified after June 30, 2003. The
Application of this standard has not had a material impact on the
Company's financial statements.
In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150 ("SFAS 150"), " Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity". This Statement establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that
an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. Adoption
of the provisions of SFAS No. 150 in the third quarter of 2003
related to mandatorily redeemable financial instruments had no
effect on the Company's financial statements. In November 2003,
the FASB issued FSP No. 150-3, "Effective Date, Disclosures and
Transition for Mandatorily Redeemable Financial Instruments of
Certain Nonpublic Entities and Certain Mandatorily Redeemable
Noncontrolling Interests under FASB Statement No. 150, Accounting
for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity". For public companies, FSP 150-3 deferred
the provisions of SFAS 150 related to classification and
measurement of certain mandatorily redeemable noncontrolling
interests issued prior to November 5, 2003. For mandatorily
redeemable noncontrolling interests issued after November 5,
2003, SFAS 150 applies without any deferral. The Company
continues to analyze the provisions of SFAS 150 related to
mandatorily redeemable noncontrolling interests, but does not
believe that application of these provisions will have a material
impact on the Company's financial statements.
In January 2004, the FASB released FASB Staff Position ("FSP")
No. 106-1, "Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of
2003." SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" requires a company to consider
current changes in applicable laws when measuring its
postretirement benefit costs and accumulated postretirement
benefit obligation. However, because of uncertainties of the
effect of the provisions of the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the "Act") on plan
sponsors and certain accounting issues raised by the Act, FSP
106-1 allows plan sponsors to elect a one-time deferral of the
accounting for the Act. The Company is electing the deferral
provided by FSP 106-1 to analyze the impact of the Act on
prescription drug coverage provided to a limited number of
retirees from one of its business units. The Company does not
expect the Act to have a material impact on the Company's
postretiremenent benefits liabilities or the Company's financial
statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information below provides information about the Company's
market sensitive financial instruments and includes
"forward-looking statements" that involve risks and
uncertainties. Actual results could differ materially from those
expressed in the forward-looking statements. 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. A
portion of the Company's borrowings are denominated in foreign
currencies which expose the Company to market risk associated
with exchange rate movements. The Company's policy generally is
to hedge major foreign currency 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 price 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, 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 of
its total long-term debt was $815.8 million versus its carrying
value of $811.3 million as of December 31, 2003. The fair value
approximated the carrying value since much of the Company's debt
is variable rate and reflects current market rates. The fixed
rate Eurobonds are effectively converted to variable rate as a
result of an interest rate swap and the interest rates on
revolving debt and commercial paper are variable and therefore
the fair value of these instruments approximates their carrying
values. The Company has fixed rate Swiss franc and Japanese yen
denominated notes with estimated fair values that differ from
their carrying values. At December 31, 2003, the fair value of
these instruments was $241.8 million versus their carrying values
of $237.4 million. The fair values differ from the carrying
values due to lower market interest rates at December 31, 2003
versus the rates at issuance of the notes.
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, 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.
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. Determination of hedge activity is based
upon market conditions, the magnitude of the foreign currency
assets and liabilities and perceived risks. The Company's
significant contracts outstanding as of December 31, 2003 are
summarized in the table that follows. These foreign exchange
contracts generally have maturities of less than twelve months
and counterparties to the transactions are typically large
international financial institutions.
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 long-term intercompany loans, for which
settlement is not planned or anticipated in the foreseeable
future 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.
At December 31, 2003 and 2002, the Company had Swiss
franc-denominated and Japanese yen-denominated debt (at the
parent company level) to hedge the currency exposure related to
a designated portion of the net assets of its Swiss and
Japanese subsidiaries. At December 31, 2003, the Company also
had Euro-denominated debt designated as a hedge of a designated
portion of the net assets of its European subsidiaries, due to
the change in the cross-currency element of the integrated
transaction discussed below. At December 31, 2003 and 2002,
the accumulated translation losses related
to foreign currency denominated-debt included in Accumulated
Other Comprehensive income (loss) were $83.5 million and $26.4
million, respectively.
Interest Rate Risk Management The Company uses interest rate
swaps to convert a portion of its variable rate debt to fixed
rate debt. As of December 31, 2003, the Company has two groups
of significant variable rate to fixed rate interest rate
swaps. One of the groups of swaps was entered into in January
2000 and February 2001, has a notional amount totaling 180
million Swiss francs, and effectively converts the underlying
variable interest rates on the debt to a fixed rate of 3.3% for
a period of approximately four years. The other significant
group of swaps entered into in February 2002, has notional
amounts totaling 12.6 billion Japanese yen, and effectively
converts the underlying variable interest rates to an average
fixed rate of 1.6% for a term of ten years. As part of
entering into the Japanese yen swaps in February 2002, the
Company entered into reverse swap agreements with the same
terms to offset 115 million of the 180 million of Swiss franc
swaps. Additionally, in the third quarter of 2003, the Company
exchanged the remaining portion of the Swiss franc swaps, 65
million Swiss francs, for a forward-starting variable to fixed
interest rate swap. Completion of this exchange allowed the
Company to pay down debt and the forward-starting interest rate
swap locks in the rate of borrowing for future Swiss franc
variable rate debt, that will arise upon the maturity of the
Company's fixed rate Swiss franc notes in 2005, at 4.2% for a
term of seven years.
The Company uses interest rate swaps to convert a portion of
its fixed rate debt to variable rate debt. In December 2001,
the Company issued 350 million in Eurobonds at a fixed rate of
5.75% maturing in December 2006 to partially finance the
Degussa Dental acquisition. Coincident with the issuance of
the Eurobonds, the Company entered into two integrated
transactions: (a) an interest rate swap agreement with
notional amounts totaling Euro 350 million which converted the
5.75% fixed rate Euro-denominated financing to a variable rate
(based on the London Interbank Borrowing Rate) Euro-denominated
financing; and (b) a cross-currency basis swap which converted
this variable rate Euro-denominated financing to variable rate
U.S. dollar-denominated financing.
The Euro 350 million interest rate swap agreement was
designated as a fair value hedge of the Euro 350 million in
fixed rate debt pursuant to SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133).
In accordance with SFAS No. 133, the interest rate swap and
underlying Eurobond have been marked-to-market via the income
statement. As of December 31, 2003 and 2002, the accumulated
fair value of the interest rate swap was $14.1 million and
$10.9 million, respectively, and was recorded in Other
Noncurrent Assets. The notional amount of the underlying
Eurobond was increased by a corresponding amount at December
31, 2003 and 2002.
From inception through the first quarter of 2003, the
cross-currency element of the integrated transaction was not
designated as a hedge and changes in the fair value of the
cross-currency element of the integrated transaction were
marked-to-market in the income statement, offsetting the impact
of the change in exchange rates on the Eurobonds that were also
recorded in the income statement. As of December 31, 2003 and
2002, the accumulated fair value of the cross-currency element
of the integrated transaction was $56.6 million and $52.3
million, respectively, and was recorded in Other Noncurrent
Assets. The notional amount of the underlying Eurobond was
increased by a corresponding amount at December 31, 2003 and
2002.See Hedges of Net Investments in Foreign Operations below
for further information related to the cross-currency element
of the integrated transaction.
In the first quarter of 2003, the Company amended the
cross-currency element of the integrated transaction to realize
the $ 51.8 million of accumulated value of the cross-currency
swap. The amendment eliminated the final payment (at a fixed
rate of $.90) of $315 million by the Company in exchange for
the final payment of Euro 350 million by the counterparty in
return for the counterparty paying the Company LIBOR plus 4.29%
for the remaining term of the agreement or approximately $14.0
million on an annual basis. Other cash flows associated with
the cross-currency element of the integrated transaction,
including the Company's obligation to pay on $315 million LIBOR
plus approximately 1.34% and the counterparty's obligation to
pay on Euro 350 million LIBOR plus approximately 1.47%,
remained unchanged by the amendment. Additionally, the
cross-currency element of the integrated transaction continue
to be marked-to-market.
No gain or loss was recognized upon the amendment of the
cross currency element of the integrated transaction, as the
interest rate of LIBOR plus 4.29% was established to ensure
that the fair value of the cash flow streams before and after
amendment were equivalent.
Since, as a result of the amendment, the Company became
economically exposed to the impact of exchange rates on the
final principal payment on the Euro 350 million Eurobonds, the
Company designated the Euro 350 million Eurobonds as a hedge of
net investment, on the date of the amendment. Since March
2003, the effect of currency on the Euro 350 million Eurobonds
of $ 35.2 million has been recorded as part of Accumulated
Other Comprehensive income (loss).
The fair value of these swap agreements is the estimated
amount the Company would receive (pay) at the reporting date,
taking into account the effective interest rates and foreign
exchange rates. As of December 31, 2003 and 2002, the estimated
net fair values of the swap agreements was $63.1 million and
$52.4 million, respectively.
Commodity Price Risk Management The Company selectively
enters into commodity price 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 under SFAS
133. 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. At December 31, 2003, the Company
had no commodity swaps in place.
Consignment Arrangements
The Company consigns the precious metals used in the
production of precious metal 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. 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 alloy products and
revises the prices customers are charged for precious metal
alloy products accordingly, depending upon the magnitude of the
fluctuation. While the Company does not separately invoice
customers for the precious metal content of our precious metal
alloy products, the underlying precious metal content is the
primary component of the cost and sales price of the precious
metal 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 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
alloys, maintaining its margin on the products.
At December 31, 2003, the Company had 149,097 troy ounces of
precious metal, primarily gold, platinum and palladium) on
consignment for periods of less than one year with a market
value of $61.3 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, 2003, the
average annual rate charged by the consignor banks was 2.5%.
These compensatory payments are considered to be a cost of the
metals purchased and are recorded as cost of products sold.
EXPECTED MATURITY DATES DECEMBER 31, 2003
(represents notional amounts for derivative financial instruments)
2009 and Carrying Fair
2004 2005 2006 2007 2008 beyond Value Value
(dollars in thousands)
Financial Instruments
Notes Payable:
Denmark krone denominated $ 59 $ - $ - $ - $ - $ - $ 59 $ 59
Average interest rate 6.50% 6.50%
Euro denominated 623 - - - - - 623 623
Average interest rate 5.46% 5.46%
Japanese yen denominated 155 - - - - - 155 155
Average interest rate 1.38% 1.38%
---------------------------------------------------------------------------------------------
837 - - - - - 837 837
4.78% 4.78%
Current Portion of
Long-term Debt:
U.S. dollar denominated 408 - - - - - 408 408
Average interest rate 4.01% 4.01%
Japanese yen denominated 20,728 - - - - - 20,728 20,847
Average interest rate 1.44% 1.44%
---------------------------------------------------------------------------------------------
21,136 - - - - - 21,136 21,255
1.49% 1.49%
Long Term Debt:
U.S. dollar denominated - 329 310 27 - - 666 666
Average interest rate 3.59% 3.42% 3.40% 3.50%
Swiss franc denominated - 44,701 109,321 44,700 - - 198,722 202,939
Average interest rate 4.49% 4.77% 4.49% 4.64%
Japanese yen denominated 1,505 19,708 116,659 - - - 137,872 137,991
Average interest rate 0.03% 1.40% 0.56% 0.67%
Euro denominated - - 452,712 - - - 452,712 452,712
Average interest rate 5.75% 5.75%
Thai baht denominated 139 - - - - - 139 139
Average interest rate 2.75% 2.75%
Chile peso denominated - - 91 - - - 91 91
Average interest rate 6.80% 6.80%
---------------------------------------------------------------------------------------------
1,644 64,738 679,093 44,727 - - 790,202 794,538
0.26% 3.54% 4.70% 4.49% 4.58%
Derivative Financial Instruments
Foreign Exchange
Forward Contracts:
Forward sale, 9.9 million
Australian dollars 7,444 - - - - - 63 63
Forward sale, 0.8 million
Swedish krone 117 - - - - - 1 1
Forward sale, 3.0 billion
Japanese yen 28,851 - - - - - 248 248
Forward sale, 6.1 million
British pounds 10,869 - - - - - 12 12
Forward sale, 0.3 million
US Dollar 300 - - - - - 19 19
Forward purchase, 13.5 million
Canadian dollars 10,526 - - - - - (70) (70)
Interest Rate Swaps:
Interest rate swaps - U.S. dollar,
terminated 2/2001 (33) (21) - - - - (54) (54)
Interest rate swaps - Japanese yen - - - - - 116,767 (3,717) (3,717)
Average interest rate 1.6%
Interest rate swaps - Swiss francs - - - - - 52,242 (3,868) (3,868)
Average interest rate 4.2%
Interest rate swaps - Euro - - 329,092 - - - 14,092 14,092
Average interest rate 3.6%
Basis swap - Euro-U.S. Dollar - - 315,000 - - - 56,620 56,620
Average interest rate 2.5%
Management's Financial Responsibility
The management of DENTSPLY International Inc. is responsible
for the preparation and integrity of the consolidated financial
statements and all other information contained in this Annual
Report. The financial statements were prepared in accordance
with generally accepted accounting principles and include amounts
that are based on management's informed estimates and judgments.
In fulfilling its responsibility for the integrity of financial
information, management has established a system of internal
accounting controls supported by written policies and
procedures. This provides reasonable assurance that assets are
properly safeguarded and accounted for and that transactions are
executed in accordance with management's authorization and
recorded and reported properly.
The financial statements have been audited by our independent
auditors, PricewaterhouseCoopers LLP, whose unqualified report is
presented below. The independent accountants perform audits of
the financial statements in accordance with generally accepted
auditing standards, which includes consideration of the system of
internal accounting controls to determine the nature, timing and
extent of audit procedures to be performed.
The Audit and Information Technology Committee (the
"Committee") of the Board of Directors, consisting solely of
outside Directors, meets with the independent accountants with
and without management to review and discuss the major audit
findings, internal control matters and quality of financial
reporting. The independent accountants also have access to the
Committee to discuss auditing and financial reporting matters
with or without management present.
/s/ Gerald K. Kunkle, Jr. /s/ Thomas L. Whiting /s/Bret W. Wise
Gerald K. Kunkle, Jr. Thomas L. Whiting Bret W. Wise
Vice Chairman and President and Senior Vice President
Chief Executive Officer Chief Operating and Chief Financial
Officer Officer
Report of Independent Auditors
To the Board of Directors and Shareholders
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, 2003 and
2002, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 2003
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. These financial
statements and the financial statement schedule are the
responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements and the
financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing
standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes 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. We believe that
our audits provide a reasonable basis for our opinion.
As discussed in Notes 1 and 9 to the consolidated financial
statements, on January 1, 2002 the Company adopted Statement of
Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets".
PricewaterhouseCoopers LLP
Philadelphia, PA
March 15, 2004
DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
2003 2002 2001
(in thousands, except per share amounts)
Net sales (Note 4) $ 1,570,925 $ 1,417,600 $ 1,045,275
Cost of products sold 797,724 713,189 502,437
Gross profit 773,201 704,411 542,838
Selling, general and administrative expenses 501,518 457,691 367,556
Restructuring and other costs (income) (Note 16) 3,700 (2,732) 5,073
Operating income 267,983 249,452 170,209
Other income and expenses:
Interest expense 26,079 29,242 19,358
Interest income (1,874) (1,853) (1,102)
Other (income) expense, net (Note 5) (7,418) 7,973 (27,569)
Income before income taxes 251,196 214,090 179,522
Provision for income taxes (Note 14) 81,343 70,449 61,808
Income from continuing operations 169,853 143,641 117,714
Income from discontinued operations, net of tax (Note 6) 4,330 4,311 3,782
Net income $ 174,183 $ 147,952 $ 121,496
Earnings per common share - basic (Note 2)
Continuing operations $ 2.16 $ 1.84 $ 1.51
Discontinued operations 0.05 0.05 0.05
Total earnings per common share - basic $ 2.21 $ 1.89 $ 1.56
Earnings per common share - diluted (Note 2)
Continuing operations $ 2.11 $ 1.80 $ 1.49
Discontinued operations 0.05 0.05 0.05
Total earnings per common share - diluted $ 2.16 $ 1.85 $ 1.54
Cash dividends declared per common share $ 0.19700 $ 0.18400 $ 0.18333
Weighted average common shares outstanding (Note 2):
Basic 78,823 78,180 77,671
Diluted 80,647 79,994 78,975
The accompanying notes are an integral part of these financial statements.
DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2003 2002
(in thousands)
Assets
Current Assets:
Cash and cash equivalents $ 163,755 $ 25,652
Accounts and notes receivable-trade, net (Note 1) 241,385 221,262
Inventories, net (Notes 1 and 7) 205,587 214,492
Prepaid expenses and other current assets 88,463 79,595
Assets held for sale (Note 6) 28,262 --
Total Current Assets 727,452 541,001
Property, plant and equipment, net (Notes 1 and 8) 376,211 313,178
Identifiable intangible assets, net (Notes 1 and 9) 246,475 236,009
Goodwill, net (Notes 1 and 9) 963,264 898,497
Other noncurrent assets 114,736 98,348
Noncurrent assets held for sale (Note 6) 17,449 --
Total Assets $ 2,445,587 $ 2,087,033
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 86,338 $ 66,625
Accrued liabilities (Note 10) 172,684 190,783
Income taxes payable 36,483 35,907
Notes payable and current portion
of long-term debt (Note 11) 21,973 4,550
Liabilities of discontinued operations (Note 6) 20,206 --
Total Current Liabilities 337,684 297,865
Long-term debt (Note 11) 790,202 769,823
Deferred income taxes 51,241 27,039
Other noncurrent liabilities (Note 12) 142,704 155,119
Noncurrent liabilities of discontinued operations (Note 6) 1,269 --
Total Liabilities 1,323,100 1,249,846
Minority interests in consolidated subsidiaries 418 1,259
Commitments and contingencies (Note 18)
Stockholders' Equity:
Preferred stock, $.01 par value; .25 million
shares authorized; no shares issued -- --
Common stock, $.01 par value; 200 million shares authorized;
81.4 million shares issued at December 31, 2003 and December 31, 2002 814 814
Capital in excess of par value 166,952 156,898
Retained earnings 889,601 730,971
Accumulated other comprehensive income 104,920 1,624
Unearned ESOP compensation (380) (1,899)
Treasury stock, at cost, 2.1 million shares at December 31, 2003
and 3.0 million shares at December 31, 2002 (39,838) (52,480)
Total Stockholders' Equity 1,122,069 835,928
Total Liabilities and Stockholders' Equity $ 2,445,587 $ 2,087,033
The accompanying notes are an integral part of these financial statements.
DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated Total
Capital in Other Unearned Stock-
Common Excess of Retained Comprehensive ESOP Treasury holders'
Stock Par Value Earnings Income (Loss) Compensation Stock Equity
(in thousands)
Balance at December 31, 2000 $ 543 $ 151,899 $ 490,167 $ (49,296) $ (4,938) $ (68,005) $ 520,370
Comprehensive Income:
Net income - - 121,496 - - - 121,496
Other comprehensive loss, net of tax:
Foreign currency translation adjustment - - - (26,566) - - (26,566)
Cumulative effect of change in accounting
principle for derivative and hedging
activities (SFAS 133) - - - (503) - - (503)
Net loss on derivative financial
instruments - - - (810) - - (810)
Minimum pension liability adjustment - - - (213) - - (213)
Comprehensive Income 93,404
Exercise of stock options - (45) - - - 8,062 8,017
Tax benefit from stock options exercised - 1,333 - - - - 1,333
Repurchase of common stock, at cost - - - - - (875) (875)
Cash dividends ($0.18333 per share) - - (14,249) - - - (14,249)
Decrease in unearned ESOP compensation - - - - 1,519 - 1,519
Three-for-two common stock split 271 (271) - - - - -
Balance at December 31, 2001 814 152,916 597,414 (77,388) (3,419) (60,818) 609,519
Comprehensive Income:
Net income - - 147,952 - - - 147,952
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment - - - 88,739 - - 88,739
Unrealized loss on available-for-sale
securities - - - (4,854) - - (4,854)
Net loss on derivative financial
instruments - - - (4,670) - - (4,670)
Minimum pension liability adjustment - - - (203) - - (203)
Comprehensive Income 226,964
Exercise of stock options - 715 - - - 8,338 9,053
Tax benefit from stock options exercised - 3,320 - - - - 3,320
Cash dividends ($0.184 per share) - - (14,395) - - - (14,395)
Decrease in unearned ESOP compensation - - - - 1,520 - 1,520
Fractional share payouts - (53) - - - - (53)
Balance at December 31, 2002 814 156,898 730,971 1,624 (1,899) (52,480) 835,928
Comprehensive Income:
Net income - - 174,183 - - - 174,183
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment - - - 95,984 - - 95,984
Unrealized gain on available-for-sale
securities - - - 5,005 - - 5,005
Net gain on derivative financial
instruments - - - 2,430 - - 2,430
Minimum pension liability adjustment - - - (123) - - (123)
Comprehensive Income 277,479
Exercise of stock options - 4,229 - - - 12,642 16,871
Tax benefit from stock options exercised - 5,825 - - - - 5,825
Cash dividends ($0.197 per share) - - (15,553) - - - (15,553)
Decrease in unearned ESOP compensation - - - - 1,519 - 1,519
Balance at December 31, 2003 $ 814 $ 166,952 $ 889,601 $ 104,920 $ (380) $ (39,838) $1,122,069
The accompanying notes are an integral part of these financial statements.
DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-------------------------------
2003 2002 2001
(in thousands)
Cash flows from operating activities:
Net income from continuing operations $ 169,853 $ 143,641 $ 117,714
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 36,897 32,338 23,702
Amortization 8,764 9,014 27,810
Deferred income taxes 32,411 (8,435) 7,021
Restructuring and other (income) costs 3,700 (2,732) 5,073
Other non-cash costs (income) (1,173) 9,281 (3,849)
Gain on sale of business -- -- (23,121)
Loss on disposal of property, plant and equipment 459 1,703 54
Gain on sale of PracticeWorks securities (5,806) -- --
Non-cash ESOP compensation 1,519 1,520 1,519
Changes in operating assets and liabilities, net of
acquisitions and divestitures:
Accounts and notes receivable-trade, net (4,899) (13,030) (3,783)
Inventories, net 15,197 (5,686) 16,241
Prepaid expenses and other current assets 4,894 (1,601) --
Accounts payable 16,538 (7,698) 8,416
Accrued liabilities (26,561) (12,922) 24,679
Income taxes (271) 20,425 3,608
Other, net (657) 3,712 (4,004)
Cash flows from discontinued operating activities 7,127 3,453 9,988
Net cash provided by operating activities 257,992 172,983 211,068
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (15,038) (49,805) (812,523)
Expenditures for identifiable intangible assets (2,410) (2,629) (2,414)
Proceeds from bulk sale of precious metals inventory -- 6,754 41,814
Insurance proceeds received for fire-destroyed equipment -- 2,535 8,980
Redemption of PracticeWorks preferred stock -- 15,000 --
Proceeds from sale of PracticeWorks securities 23,506 -- --
Proceeds from sale of property, plant and equipment 2,959 1,777 645
Capital expenditures (76,583) (55,476) (47,529)
Cash flows used in discontinued operations' investing activities (1,811) (2,658) (3,659)
Net cash used in investing activities (69,377) (84,502) (814,686)
Cash flows from financing activities:
Proceeds from long-term borrowings, net of deferred financing costs 634 100,244 1,435,175
Payments on long-term borrowings (70,738) (190,589) (819,186)
(Decrease) increase in short-term borrowings (3,277) (3,666) 7,511
Proceeds from exercise of stock options and warrants 16,871 9,053 8,017
Cash paid for treasury stock -- -- (875)
Cash dividends paid (14,999) (14,358) (14,228)
Realization of cross currency swap value 10,736 -- --
Proceeds from the termination of a pension plan -- -- 8,486
Fractional share payout -- (53) --
Net cash (used in) provided by financing activities (60,773) (99,369) 624,900
Effect of exchange rate changes on cash and cash equivalents 10,261 2,830 (3,005)
Net increase (decrease) in cash and cash equivalents 138,103 (8,058) 18,277
Cash and cash equivalents at beginning of period 25,652 33,710 15,433
Cash and cash equivalents at end of period $ 163,755 $ 25,652 $ 33,710
The accompanying notes are an integral part of these financial statements.
DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2003 2002 2001
(in thousands)
Supplemental disclosures of cash flow information:
Interest paid $25,796 $25,545 $15,967
Income taxes paid 57,733 55,913 47,215
Supplemental disclosures of non-cash transactions:
Receipt of PracticeWorks convertible preferred stock
in connection with the sale of Infosoft business -- -- 32,000
Receipt of PracticeWorks common stock and stock warrants
in exchange for convertible preferred stock -- 18,582 --
The company assumed liabilities in conjunction
with the following acquisitions:
Fair Value Cash Paid for
of Assets Assets or Liabilities
Date Acquired Acquired Capital Stock Assumed
(in thousands)
Austenal, Inc. January 2002 $ 31,929 $ 17,770 $ 14,159
Degussa Dental Group October 2001 654,878 528,487 126,391
CeraMed Dental (remaining 49%) July 2001 20,000 20,000 --
Tulsa Dental Products (earn-out payment) May 2001 84,627 84,627 --
Dental injectible anesthetic assets of
AstraZeneca March 2001 130,469 119,347 11,122
Friadent GmbH January 2001 128,356 97,749 30,607
The accompanying notes are an integral part of these financial statements.
DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Description of Business
DENTSPLY designs, develops, manufactures and markets a broad
range of products for the dental market. The Company believes
that it is the world's leading manufacturer and distributor of
dental prosthetics, precious metal dental alloys, dental
ceramics, endodontic instruments and materials, prophylaxis
paste, dental sealants, ultrasonic scalers and crown and bridge
materials; the leading United States manufacturer and distributor
of dental handpieces, dental x-ray film holders, film mounts and
bone substitute/grafting materials; and a leading worldwide
manufacturer or distributor of dental injectable anesthetics,
impression materials, orthodontic appliances, dental cutting
instruments and dental implants. 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 new products for the dental market.
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and all majority-owned subsidiaries. Intercompany
accounts and transactions are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles in the United States
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, if different assumptions are made or if
different conditions exist.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Accounts and Notes Receivable-Trade
The Company sells its products through a worldwide network of
distributors or direct to the end user. 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. Accounts
and notes receivable-trade are stated net of these allowances
which were $15.1 million and $18.5 million at December 31, 2003
and 2002, respectively. 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 in accordance with EITF
01-09, " Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendor's Products)".
Inventories
Inventories are stated at the lower of cost or market. At
December 31, 2003 and 2002, the cost of $11.4 million, or 6%, and
$13.0 million, or 6%, 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, 2003 and December
31, 2002 by $1.0 million and $0.8 million, respectively.
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 charged to operations;
replacements and major improvements are capitalized. 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. Impairment is based upon an
evaluation of the identifiable undiscounted cash flows. If
impaired, the resulting charge reflects the excess of the asset's
carrying cost over its fair value.
Identifiable Finite-lived Intangible Assets
Identifiable finite-lived intangible assets, which primarily
consist of patents, trademarks and licensing agreements, are
amortized on a straight-line basis over their estimated useful
lives, ranging from 5 to 40 years. 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. The Company performs ongoing impairment analysis on
intangible assets related to new technology. Impairment is based
upon an evaluation of the identifiable undiscounted cash flows.
If impaired, the resulting charge reflects the excess of the
asset's carrying cost over its fair value.
Goodwill and Indefinite-Lived Intangible Assets
Effective January 1, 2002, the Company adopted Statement of
Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill
and Other Intangible Assets". This statement requires that the
amortization of goodwill and indefinite-lived intangible assets
be discontinued and instead an annual impairment approach be
applied. The Company performed the the annual impairment tests
during 2002 and 2003, as required, and no impairment was
identified. These impairment tests are based upon a fair value
approach rather than an evaluation of the undiscounted cash
flows. If impairment is identified under SFAS 142, 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 value. If impairment is identified on
indefinite-lived intangibles, the resulting charge reflects the
excess of the asset's carrying cost over its fair value.
Derivative Financial Instruments
The Company adopted Statement of Financial Accounting Standards
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities", on January 1, 2001. This standard, as
amended by SFAS 138 and 149, requires that all derivative
instruments be recorded on the balance sheet at their fair value
and that changes in fair value be recorded each period in current
earnings or comprehensive income.
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, 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.
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 made by management
based on an analysis made by internal and external legal counsel
which considers information known at the time.
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 exchange rates on the balance sheet date; revenue and expenses
are translated at the average year-to-date rates of exchange.
The effects of these translation adjustments are reported in
stockholders' equity within "Accumulated other comprehensive
income". During the years ended December 31, 2003 and 2002 the
Company had translation gains of $153.0 million and $121.4
million, respectively, offset by losses of $57.0 million and
$32.7 million, respectively, on its loans designated as hedges of
net investments. During the year ended December 31, 2001 the
Company had translation losses of $32.1 million offset by gains
of $5.5 million on its loans designated as hedges of net
investments.
Exchange gains and losses arising from transactions denominated
in a currency other than the functional currency of the entity
involved and translation adjustments in countries with highly
inflationary economies are included in income. Exchange gains of
$0.3 million in 2003 and $1.2 million in 2001 and exchange losses
of $3.5 million in 2002 are included in "Other expense (income),
net".
Revenue Recognition
Revenue, net of related discounts and allowances, is recognized
at the time of shipment in accordance with shipping terms and as
title and risk of loss pass to customers. Net sales include
shipping and handling costs collected from customers in
connection with the sale.
A significant portion of the Company's net sales is comprised
of sales of precious metals generated through its precious metal
alloy product offerings. The precious metals content of sales was
$205.0 million, $187.1 million and $50.7 million for 2003, 2002
and 2001, respectively.
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.
Research and Development Costs
Research and development ("R&D") costs relate primarily to
internal costs for salaries and direct overhead costs. 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 has
general R&D uses and expenses such equipment that is solely for
specific R&D projects. The depreciation 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 approximately $43.3 million, $39.9
million and $27.3 million for 2003, 2002 and 2001, respectively.
Income Taxes
Income taxes are determined in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), which
requires recognition of deferred income tax liabilities and
assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns.
Under this method, deferred income tax liabilities and assets are
determined based on the difference between financial statements
and tax bases of liabilities and assets using enacted tax rates
in effect for the year in which the differences are expected to
reverse. SFAS 109 also provides for the recognition of deferred
tax assets if it is more likely than not that the assets will be
realized in future years. A valuation allowance has been
established for deferred tax assets for which realization is not
likely.
The Company accounts for income tax contingencies in accordance
with the Statement of Financial Standards No. 5, "Accounting for
Contingencies".
Earnings Per Share
Basic earnings per share is 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.
Stock Compensation
The Company has stock-based employee compensation plans which
are described more fully in Note 13. The Company applies the
intrinsic value method in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees",
and related interpretations in accounting for stock compensation
plans. Under this method, no compensation expense is recognized
for fixed stock option plans, provided that the exercise price is
greater than or equal to the price of the stock at the date of
grant. The following table illustrates the effect on net income
and earnings per share if the Company had applied the fair value
recognition provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", to
stock-based employee compensation.
Year Ended December 31,
2003 2002 2001
(in thousands, except per share amounts)
Net income as reported $ 174,183 $ 147,952 $ 121,496
Deduct: Stock-based employee compensation
expense determined under fair value
method, net of related tax (11,062) (9,576) (6,137)
Pro forma net income $ 163,121 $ 138,376 $ 115,359
Basic earnings per common share
As reported $ 2.21 $ 1.89 $ 1.56
Pro forma under fair value based method $ 2.07 $ 1.77 $ 1.49
Diluted earnings per common share
As reported $ 2.16 $ 1.85 $ 1.54
Pro forma under fair value based method $ 2.02 $ 1.73 $ 1.46
Other Comprehensive Income (Loss)
Other comprehensive income (loss) 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 fair value of the Company's
available-for-sale investment securities and certain derivative
financial instruments and changes in its minimum pension
liability are recorded in other comprehensive income (loss).
These adjustments are recorded in other comprehensive income
(loss) net of any related tax effects. For the years ended 2003
and 2002, these adjustments were net of tax benefits of $29.1
million and $32.9 million, respectively. For the year ended 2001,
these adjustments were net of tax liabilities of $5.6 million.
The balances included in accumulated other comprehensive income
(loss) in the consolidated balance sheets are as follows:
December 31,
2003 2002
(in thousands)
Foreign currency translation adjustments $ 109,532 $ 13,548
Net loss on derivative financial
instruments (3,553) (5,983)
Unrealized gain (loss) on available-for-sale securities 151 (4,854)
Minimum pension liability (1,210) (1,087)
$ 104,920 $ 1,624
The cumulative foreign currency translation adjustments included
translation gains of $193.0 million and $39.9 million as of
December 31, 2003 and 2002, respectively, offset by losses of
$83.5 million and $26.4 million, respectively, on loans
designated as hedges of net investments.
Reclassifications
Certain reclassifications have been made to prior years' data
in order to conform to the current year presentation.
New Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board
("FASB") issued Interpretation No. 46 ("FIN 46"), "Consolidation
of Variable Interest Entities, an interpretation of ARB 51". The
primary objectives of this interpretation are to provide guidance
on the identification of entities for which control is achieved
through means other than through voting rights ("variable
interest entities") and how to determine when and which business
enterprise should consolidate the variable interest entity (the
"primary beneficiary"). This new model for consolidation applies
to an entity which either (1) the equity investors (if any) do
not have a controlling financial interest or (2) the equity
investment at risk is insufficient to finance that entity's
activities without receiving additional subordinated financial
support from other parties. In addition, FIN 46 requires that
both the primary beneficiary and all other enterprises with a
significant variable interest in a variable interest entity make
additional disclosures. Certain disclosure requirements of FIN 46
are effective for financial statements issued after January 31,
2003. The remaining provisions of FIN 46 are effective
immediately for all variable interests in entities created after
January 31, 2003. Adoption of this provision did not have an
effect on the Company. In December 2003, the FASB released a
revised version of FIN 46, FIN 46R, to clarify certain aspects of
FIN 46 and to provide certain entities with exemptions from the
requirements of FIN 46. FIN 46R requires the application of
either FIN 46 or FIN 46R to all Special Purpose Entitied
("SPE's") created prior to February 1, 2003 at the end of the
first interim or annual reporting period ending after December
15, 2003. Adoption of this provision did not have an effect on
the Company. FIN 46R will be applicable to all non-SPE entities
created prior to February 1, 2003 at the end of the first interim
or annual reporting period ending after March 15, 2004. The
Company does not expect the application of this portion of FIN
46R to have a material impact on the Company's financial
statements.
In April 2003, the FASB issued Statement of Financial
Accounting Standards No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". The statement
amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under SFAS
133, "Accounting for Derivative Instruments and Hedging
Activities". Specifically, the statement clarifies under what
circumstances a contract with an initial net investment meets the
characteristic of a derivative. In addition, it clarifies when a
derivative contains a financing component that warrants special
reporting in the statement of cash flows. SFAS 149 is effective
for contracts entered into or modified after June 30, 2003. The
Application of this standard has not had a material impact on the
Company's financial statements.
In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150 ("SFAS 150"), " Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity". This Statement establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that
an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. Adoption
of the provisions of SFAS No. 150 in the third quarter of 2003
related to mandatorily redeemable financial instruments had no
effect on the Company's financial statements. In November 2003,
the FASB issued FSP No. 150-3, "Effective Date, Disclosures and
Transition for Mandatorily Redeemable Financial Instruments of
Certain Nonpublic Entities and Certain Mandatorily Redeemable
Noncontrolling Interests under FASB Statement No. 150, Accounting
for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity". For public companies, FSP 150-3 deferred
the provisions of SFAS 150 related to classification and
measurement of certain mandatorily redeemable noncontrolling
interests issued prior to November 5, 2003. For mandatorily
redeemable noncontrolling interests issued after November 5,
2003, SFAS 150 applies without any deferral. The Company
continues to analyze the provisions of SFAS 150 related to
mandatorily redeemable noncontrolling interests, but does not
believe that application of these provisions will have a material
impact on the Company's financial statements.
In January 2004, the FASB released FASB Staff Position ("FSP")
No. 106-1, "Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of
2003." SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" requires a company to consider
current changes in applicable laws when measuring its
postretirement benefit costs and accumulated postretirement
benefit obligation. However, because of uncertainties of the
effect of the provisions of the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the "Act") on plan
sponsors and certain accounting issues raised by the Act, FSP
106-1 allows plan sponsors to elect a one-time deferral of the
accounting for the Act. The Company is electing the deferral
provided by FSP 106-1 to analyze the impact of the Act on
prescription drug coverage provided to a limited number of
retirees from one of its business units. The Company does not
expect the Act to have a material impact on the Company's
postretiremenent benefits liabilities or the Company's financial
statements.
NOTE 2 - EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and
diluted earnings per common share:
Earnings per common share
--------------------------------------
Income From Income From
Continuing Discontinued Net Continuing Discontinued
Operations Operations Income Shares Operations Operations Total
(in thousands, except per share amounts)
Year Ended December 31, 2003
Basic $169,853 $ 4,330 $174,183 78,823 $ 2.16 $ 0.05 $ 2.21
Incremental shares from
assumed exercise of
dilutive options -- -- -- 1,824
Diluted $169,853 $ 4,330 $174,183 80,647 $ 2.11 $ 0.05 $ 2.16
Year Ended December 31, 2002
Basic $143,641 $ 4,311 $147,952 78,180 $ 1.84 $ 0.05 $ 1.89
Incremental shares from
assumed exercise of
dilutive options -- -- -- 1,814
Diluted $143,641 $ 4,311 $147,952 79,994 $ 1.80 $ 0.05 $ 1.85
Year Ended December 31, 2001
Basic $117,714 $ 3,782 $121,496 77,671 $ 1.51 $ 0.05 $ 1.56
Incremental shares from
assumed exercise of
dilutive options -- -- -- 1,304
Diluted $117,714 $ 3,782 $121,496 78,975 $ 1.49 $ 0.05 $ 1.54
Options to purchase 1.4 million and 0.1 million shares of
common stock that were outstanding during the years ended 2003
and 2002, respectively, were not included in the computation of
diluted earnings per share since the options' exercise prices
were greater than the average market price of the common shares
and, therefore, the effect would be antidilutive.
NOTE 3 - BUSINESS ACQUISITIONS AND DIVESTITURES
Acquisitions
All acquisitions completed in 2002 and 2001 were accounted for
under the purchase method of accounting; accordingly, the results
of the operations acquired are included in the accompanying
financial statements for the periods subsequent to the respective
dates of the acquisitions. The purchase prices were allocated on
the basis of estimates of the fair values of assets acquired and
liabilities assumed.
In January 2002, the Company acquired the partial denture
business of Austenal Inc. ("Austenal") in a cash transaction
valued at approximately $17.8 million. Previously headquartered
in Chicago, Illinois, Austenal manufactured dental laboratory
products and was the world leader in the manufacture and sale of
systems used by dental laboratories to fabricate partial
dentures.
In October 2001, the Company completed the acquisition of the
Degussa Dental Group ("Degussa Dental"). The Company paid 548
million Euros or $503 million at the closing date and paid 12.1
million Euros, or $11.4 million, as a closing balance sheet
adjustment in June 2002. The final closing balance payment to
Degussa of $9.3 million was made in December 2003, as a result of
an arbitration ruling.
Prior to the acquisition, Degussa Dental had carried large
amounts of precious metals, for its production of precious metal
alloy products, in inventory which resulted in exposure to the
risk of price changes in the precious metals. After the
acquisition, Dentsply management changed Degussa Dental's
practice of holding a long position in the metal to holding metal
on a consignment basis from various financial institutions. In
connection with this change in practice, the Company sold certain
precious metals to various financial institutions in the fourth
quarter of 2001 for a value of $41.8 million and in the first
quarter of 2002 for a value of $6.8 million. These transactions
effectively transferred the price risk on the precious metals to
the financial institutions and allows the Company to acquire the
precious metal at approximately the same time and for the same
price as alloys are sold to the Company's customers. As the
precious metal inventory was recorded at fair value as of the
acquisition date, which was based on the value realized in the
transactions with the financial institutions, the Company did not
recognize a gain or loss on these transactions.
In March 2001, the Company acquired the dental injectible
anesthetic assets of AstraZeneca ("AZ Assets"). The total
purchase price of this transaction was composed of the following:
an initial $96.5 million payment which was made at closing in
March 2001; a $20 million contingency payment (including related
accrued interest) associated with the first year sales of
injectible dental anesthetic which was paid during the first
quarter of 2002.
In a separate agreement, as amended, the Company acquired
the know-how, patent and trademark rights to the non-injectible
periodontal anesthetic product known as Oraqix with a purchase
price composed of the following: a $2.0 million payment upon
submission of a New Drug Application ("NDA") in the U.S. and a
Marketing Authorization Application ("MAA") in Europe for the
Oraqix product under development; payments of $6.0 million and
$2.0 million upon the approval of the NDA and MAA, respectively,
for licensing rights; and a $10.0 million prepaid royalty payment
upon approval of both applications. The $2.0 million payment
related to the application filings was accrued as restructuirng
and other costs during the fourth quarter of 2001 and was paid
during the first quarter of 2002. The MAA was approved in Sweden,
the European Union member reference state, and the Company made
the required $2.0 million payment to AstraZeneca in the second
quarter of 2003. The NDA application was approved in December
2003 and as a result the remaining payments of $16.0 million
became due and were accrued in 2003 and the payments were made in
January 2004. These payments were capitalized and will be
amortized over the term of the licensing agreement.
In January 2001, the Company acquired the outstanding shares of
Friadent GmbH ("Friadent") for 220 million German marks or $106
million ($105 million, net of cash acquired). During the first
quarter of 2002, the Company received cash of 16.5 million German
marks or approximately $7.3 million, representing a final balance
sheet adjustment. As a result of this closing balance sheet
adjustment, goodwill was reduced by approximately $7.3 million.
Previously headquartered in Mannheim, Germany, Friadent was a
major global dental implant manufacturer and marketer with
subsidiaries in Germany, France, Denmark, Sweden, the United
States, Switzerland, Brazil, and Belgium.
The respective purchase prices plus direct acquisition costs
for Austenal, Degussa Dental, Friadent and the AZ Assets have
been allocated on the basis of estimated fair values at the dates
of acquisition. The purchase price allocations for these
acquisitions are as follows:
Austenal Degussa Dental AZ Assets Friadent
(in thousands)
Current assets $ 5,991 $ 166,216 $ -- $ 16,244
Property, plant and equipment 2,413 71,641 878 4,184
Identifiable intangible assets and goodwill 20,227 402,678 129,591 98,282
Other long-term assets 3,298 14,343 -- 4,882
Current liabilities (8,357) (62,550) (11,122) (18,855)
Other long-term liabilities (5,802) (63,841) -- (6,988)
$ 17,770 $ 528,487 $ 119,347 $ 97,749
A summary of the identifiable intangible assets and goodwill
acquired in these acquisitions is as follows:
Austenal Degussa Dental AZ Assets Friadent
---------------------- ----------------------- ----------------------- -----------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amorti- Amorti- Amorti- Amorti-
Value zation Value zation Value zation Value zation
Assigned Period Assigned Period Assigned Period Assigned Period
Finite-lived intangible assets:
Patents $ 548 9.0 $ 8,300 12.3 $ - $ 2,302 7.3
Trademarks - 6,800 40.0 - 603 10.0
Licensing agreements - 4,143 18.0 - 1,909 3.3
Other - 1,479 3.0 - 875 2.8
548 9.0 20,722 21.9 - 5,689 5.6
Indefinite-lived intangible assets:
Licensing agreements - N/A - N/A 129,591 N/A - N/A
Goodwill 19,679 N/A 381,956 N/A - N/A 92,593 N/A
$20,227 $402,678 $ 129,591 $98,282
The factors that contributed to the purchase price for
Austenal, and the resulting goodwill, included its partial
denture products which helped to expand the Company's product
offerings. None of the goodwill recognized as a result of the
Austenal transaction is expected to be deductible for tax
purposes.
The factors that contributed to the purchase price for Degussa
Dental, and the resulting goodwill, included its product breadth
and worldwide position in precious metal alloys used in
dentistry, its ceramics technology for crown and bridge
applications and its strong position in Europe and Japan. The
Company expects that approximately 50% of the goodwill recognized
as a result of the transaction will be deductible for tax
purposes.
The factors that contributed to the purchase price for
Friadent, and the resulting goodwill, included its strong
position in dental implants, one of the highest growth areas in
dentistry. The Company expects that approximately 25% of the
goodwill recognized as a result of the transaction will be
deductible for tax purposes.
In August 1996, the Company purchased a 51% interest in CeraMed
Dental ("CeraMed") for $5 million with the right to acquire the
remaining 49% interest. In March 2001, the Company entered into
an agreement for an early buy-out of the remaining 49% interest
in CeraMed at a cost of $20 million, which was made in July 2001,
with a potential contingent consideration ("earn-out") provision
capped at $5 million. The earn-out was based on future sales of
CeraMed products during the August 1, 2001 to July 31, 2002 time
frame, with any additional pay out due on September 30, 2002. The
Company was not required to make a payment under this earn-out
provision.
Certain assets of Tulsa Dental Products LLC were purchased in
January 1996 for $75.1 million, plus $5.0 million paid in May
1999 related to earn-out provisions in the purchase agreement
based on performance of the acquired business. The purchase
agreement provided for an additional earn-out payment based upon
the operating performance of the Tulsa Dental business for one of
the three two-year periods ending December 31, 2000, December 31,
2001 or December 31, 2002, as selected by the seller. The seller
chose the two-year period ended December 31, 2000 and the final
earn-out payment of $84.6 million was made in May 2001 resulting
in an increase in goodwill.
Divestitures
In March 2001, the Company sold InfoSoft, LLC to PracticeWorks
Inc. ("PracticeWorks"). InfoSoft, LLC was the wholly owned
subsidiary of the Company, that developed and sold software and
related products for dental practice management. In the
transaction, the Company received 6.5% convertible preferred
stock in PracticeWorks, with a fair value of $32 million. The
sale resulted in a $23.1 million pretax gain which was included
in "Other expense (income), net" in 2001. The Company recorded
the preferred stock investment and subsequent accrued dividends
to "Other noncurrent assets".
In June 2002, the Company completed a transaction with
PracticeWorks to exchange the accumulated balance of this
preferred stock investment for a combination of $15.0 million of
cash, 1.0 million shares of PracticeWorks' common stock valued at
$15.0 million and 450,000 seven-year term stock warrants issued
by PracticeWorks, valued at $3.6 million, based on the
Black-Scholes option pricing model. The transaction resulted in a
loss to the Company of $1.1 million, which is included in "Other
expense (income), net" in 2002.
In October 2003, PracticeWorks was acquired by Eastman Kodak in
a cash transaction and as a result the Company received $23.5
million for its common stock and warrant holdings. This buyout
resulted in a Company recognizing a $5.8 million pre-tax gain,
which is included in "Other expense (income), net" in 2003.
NOTE 4 - SEGMENT AND GEOGRAPHIC INFORMATION
Segment Information
The Company follows Statement of Financial Accounting Standards
No. 131 ("SFAS 131"), "Disclosures about Segments of an
Enterprise and Related Information". SFAS 131 establishes
standards for disclosing information about reportable segments in
financial statements. 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 98%, 98%
and 97% of sales in 2003, 2002 and 2001, respectively.
Operating businesses are combined into five operating groups
which have overlapping product offerings, geographical presence,
customer bases, distribution channels, and regulatory oversight.
In determining reportable segments, the Company considers its
operating and management structure and the types of information
subject to regular review by its chief operating decision-maker.
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). The
Company measures segment income for reporting purposes as net
operating profit before restructuring, interest and taxes. A
description of the services provided within each of the Company's
five reportable segments follows:
Dental Consumables - U.S. and Europe/Japan/Non-Dental
This business group includes responsibility for the design,
manufacturing, sales, and distribution for certain small
equipment and chairside consumable products in the U.S., Germany,
Scandinavia, Iberia and Eastern Europe; the design and
manufacture of certain chairside consumable and laboratory
products in Japan, the sales and distribution of all Company
products in Japan; and the design and the Company's non-dental
business.
Endodontics/Professional Division Dental Consumables/Asia
This business group includes the responsibility for the design
and manufacturing for endodontic products in the U.S.,
Switzerland and Germany; certain small equipment and chairside
consumable products in the U.S.; and laboratory products in
China. The business is responsible for sales and distribution of
all Company products throughout Asia - except Japan; all Company
endodontic products in the U.S., Canada, Swtizerland, Benelux,
Scandinavia, and Eastern Europe, and certain endodontic products
in Germany; and certain small equipment and chairside consumable
products in the U.S.
Dental Consumables - United Kingdom, France, Italy, CIS, Middle
East, Africa/European Dental Laboratory Business
This business group includes responsibility for the design and
manufacture of dental laboratory products in Germany and the
Netherlands and the sales and distribution of these products in
Europe, Eastern Europe, Middle East, Africa and the CIS. The
group also has responsibility for sales and distribution of the
Company's other products in France, United Kingdom, Italy, Middle
East, Africa and the CIS.
Australia/Canada/Latin America/U.S. Pharmaceutical
This business group includes responsibility for the design,
manufacture, sales and distribution of dental anesthetics in the
U.S. and Brazil; chairside consumable and laboratory products in
Brazil. It also has responsibility for the sales and
distribution of all Company products sold in Australia, Canada,
Latin America and Mexico.
U.S. Dental Laboratory Business/Implants/Orthodontics
This business group includes the responsibility for the design,
manufacture, sales and distribution for laboratory products in
the U.S. and the sales and distribution of U.S. manufactured
laboratory products in certain international markets; the design,
manufacture, world-wide sales and distribution of the Company's
dental implant and bone generation products; and the world-wide
sales and distribution of the Company's orthodontic products.
Significant interdependencies exist among the Company's
operations in certain geographic areas. Inter-group sales are at
prices intended to provide a reasonable profit to the
manufacturing unit after recovery of all manufacturing costs and
to provide a reasonable profit for purchasing locations after
coverage of marketing and general and administrative costs.
Generally, the Company evaluates performance of segments based
on the segments operating income and net third party sales
excluding precious metal content.
The following table sets forth information about the Company's
operating groups for 2003, 2002 and 2001.
Third Party Net Sales
2003 2002 2001
Dental Consumables - U.S. and Europe/Japan/Non-dental $ 277,304 $ 254,503 $ 193,788
Endodontics/Professional Division Dental Consumables/Asia 384,706 358,227 316,257
Dental Consumables - UK, France, Italy, CIS, Middle East,
Africa/European Dental Laboratory Business 455,431 376,441 178,382
Australia/Canada/Latin America/U.S. Pharmaceutical 114,447 109,661 122,052
U.S. Dental Laboratory Business/Implants/Orthodontics 318,292 298,287 217,839
All Other (a) 20,745 20,481 16,957
Total $1,570,925 $1,417,600 $1,045,275
Third Party Net Sales, excluding precious metal content
2003 2002 2001
Dental consumables - U.S. and Europe/Japan/Non-dental $ 264,648 $ 242,117 $ 190,708
Endodontics/Professional Division Dental Consumables/Asia 381,509 357,643 316,257
Dental Consumables - UK, France, Italy, CIS, Middle East,
Africa/European Dental Laboratory Business 307,017 241,135 139,530
Australia/Canada/Latin America/U.S. Pharmaceutical 113,262 108,454 121,983
U.S. Dental Laboratory Business/Implants/Orthodontics 278,709 260,682 209,195
All Other 20,745 20,481 16,957
Total excluding precious metal content 1,365,890 1,230,512 994,630
Precious Metal Content 205,035 187,088 50,645
Total including Precious Metal Content $1,570,925 $1,417,600 $1,045,275
Intersegment Net Sales
2003 2002 2001
Dental consumables - U.S. and Europe/Japan/Non-dental $ 207,284 $ 190,520 $ 173,875
Endodontics/Professional Division Dental Consumables/Asia 158,501 151,125 144,110
Dental Consumables - UK, France, Italy, CIS, Middle East,
Africa/European Dental Laboratory Business 76,648 63,636 15,511
Australia/Canada/Latin America/U.S. Pharmaceutical 33,276 37,923 21,714
U.S. Dental Laboratory Business/Implants/Orthodontics 31,737 29,036 29,005
All Other 158,377 153,842 109,680
Eliminations (665,823) (626,082) (493,895)
Total $ - $ - $ -
Depreciation and amortization
2003 2002 2001
Dental consumables - U.S. and Europe/Japan/Non-dental $ 6,719 $ 6,869 $ 6,127
Endodontics/Professional Division Dental Consumables/Asia 11,042 10,574 16,166
Dental Consumables - UK, France, Italy, CIS, Middle East,
Africa/European Dental Laboratory Business 9,189 7,140 1,768
Australia/Canada/Latin America/U.S. Pharmaceutical 1,715 1,259 2,791
U.S. Dental Laboratory Business/Implants/Orthodontics 7,652 7,259 7,800
All Other 9,344 8,251 16,860
Total $ 45,661 $ 41,352 $ 51,512
Segment Operating Income
2003 2002 2001
Dental consumables - U.S. and Europe/Japan/Non-dental $ 82,378 $ 70,941 $ 59,789
Endodontics/Professional Division Dental Consumables/Asia 154,025 141,585 110,111
Dental Consumables - UK, France, Italy, CIS, Middle East,
Africa/European Dental Laboratory Business 30,545 11,356 (72)
Australia/Canada/Latin America/U.S. Pharmaceutical 12,031 14,758 20,167
U.S. Dental Laboratory Business/Implants/Orthodontics 41,428 50,191 42,034
All Other (48,724) (42,111) (56,747)
Segment Operating Income 271,683 246,720 175,282
Reconciling Items:
Restructuring and other costs (income) 3,700 (2,732) 5,073
Interest Expense 26,079 29,242 19,358
Interest Income (1,874) (1,853) (1,102)
Other (income) expense, net (7,418) 7,973 (27,569)
Income before income taxes $ 251,196 $ 214,090 $ 179,522
Assets
2003 2002 2001
Dental consumables - U.S. and Europe/Japan/Non-dental $ 187,248 $ 181,747 $ 149,664
Endodontics/Professional Division Dental Consumables/Asia 1,215,723 1,189,961 1,160,798
Dental Consumables - UK, France, Italy, CIS, Middle East,
Africa/European Dental Laboratory Business 590,208 517,067 499,812
Australia/Canada/Latin America/U.S. Pharmaceutical 256,299 169,989 124,926
U.S. Dental Laboratory Business/Implants/Orthodontics 311,782 310,258 253,870
All Other (115,673) (281,989) (390,919)
Total $2,445,587 $2,087,033 $1,798,151
Capital Expenditures
2003 2002 2001
Dental consumables - U.S. and Europe/Japan/Non-dental $ 8,569 $ 8,394 $ 8,444
Endodontics/Professional Division Dental Consumables/Asia 8,517 12,550 18,458
Dental Consumables - UK, France, Italy, CIS, Middle East,
Africa/European Dental Laboratory Business 5,075 9,624 2,525
Australia/Canada/Latin America/U.S. Pharmaceutical 39,547 3,434 2,752
U.S. Dental Laboratory Business/Implants/Orthodontics 5,265 8,870 10,356
All Other 9,610 12,604 4,994
Total $ 76,583 $ 55,476 $ 47,529
(a) Includes: two operating divisions not managed by named
segments, operating expenses of two distribution warehouses not
managed by named segments, Corporate and inter-segment
eliminations.
Geographic Information
The following table sets forth information about the Company's
operations in different geographic areas for 2003, 2002 and
2001. 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
States Germany Foreign Consolidated
(in thousands)
2003
Net sales $ 705,541 $ 397,357 $ 468,027 $ 1,570,925
Long-lived assets 213,607 121,481 129,059 464,147
2002
Net sales $ 684,809 $ 325,301 $ 407,490 $ 1,417,600
Long-lived assets 178,978 100,707 114,099 393,784
2001
Net sales $ 578,755 $ 152,010 $ 314,510 $ 1,045,275
Long-lived assets 130,362 66,756 91,288 288,406
Product and Customer Information
The following table presents sales information by product category:
Year Ended December 31,
2003 2002 2001
(in thousands)
Dental consumables $ 555,738 $ 523,060 $ 457,344
Dental laboratory products 521,131 473,485 225,788
Specialty dental products 460,506 388,066 327,150
Non-dental 33,550 32,989 34,993
$1,570,925 $1,417,600 $1,045,275
Dental consumable products consist of dental sundries and small
equipment products used in dental offices in the treatment of
patients. DENTSPLY's products in this category include dental
injectable anesthetics, prophylaxis paste, dental sealants,
impression materials, restorative 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, and crown
and bridge materials and small equipment products used in
laboratories consisting of computer aided machining (CAM)
ceramics systems and porcelain furnaces.
Specialty dental products are used for specific purposes within
the dental office and laboratory settings. DENTSPLY's products
in this category include endodontic (root canal) instruments and
materials, dental implants, 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 casted products.
Third party export sales from the United States are less than
ten percent of consolidated net sales. No customers accounted
for more than ten percent of consolidated net sales in 2003 and
2002. In 2001, one customer, a distributor, accounted for 11% of
consolidated net sales.
NOTE 5 - OTHER (INCOME) EXPENSE
Other (income) expense, net consists of the following:
Year Ended December 31,
-----------------------------
2003 2002 2001
(in thousands)
Foreign exchange transaction (gains) losses $ (263) $ 3,481 $ (1,177)
Gain on sale of InfoSoft, LLC -- -- (23,121)
(Gain) loss on PracticeWorks securities (7,395) 2,598 (1,710)
Minority interests (312) 364 (1,265)
Other 552 1,530 (296)
$ (7,418) $ 7,973 $(27,569)
NOTE 6 - DISCONTINUED OPERATIONS
During the fourth quarter of the year ended December 31, 2003,
the Company's management and board of directors made the decision
to divest of its Gendex equipment business. The sale of Gendex
narrows the Company's product lines to focus primarily on dental
consumables. Gendex is a manufacturer of dental x-ray equipment
and accessories and intraoral cameras. On December 11, 2003, the
Company entered into a definitive agreement to sell the assets
and related liabilities of the Gendex business to Danaher
Corporation for $102.5 million cash, plus the assumption of
certain pension liabilities. The agreement also contains a
provision for a post-closing adjustment to the purchase price
bosed on changes in certain balance sheet accounts. The
transaction closed on February 27, 2004.
Also during the fourth quarter of the year ended December 31,
2003, the Company's management and board of directors made a
decision to discontinue the operations of the Company's dental
needle business.
The Gendex business and the dental needle business are
distinguishable as separate components of the Company in
accordance with Statement of Financial Accounting Standards No.
144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets". The Gendex business and the needle business
are classified as held for sale at December 31, 2003 in
accordance with SFAS 144. Direct costs to transact the sales are
comprised of, but not limited to, broker commissions, legal and
title transfer fees and closing costs. The statements of
operations and related financial statement disclosures for all
prior years have been restated to present the Gendex business and
needle business as discontinued operations separate from
continuing operations.
Discontinued operations net revenue and income before income
taxes for the periods presented were as follows:
Year Ended December 31,
-----------------------------
2003 2002 2001
(in thousands)
Net sales $106,313 $ 96,142 $ 87,693
Income before income taxes 7,329 6,893 5,605
The following assets and liabilities are reclassified as held
for sale for the periods presented as follows:
December 31,
2003
(in thousands)
Accounts and notes receivable-trade, net $10,626
Inventories, net 16,848
Prepaid expenses and other current assets 788
Current assets of discontinued operations held for sale $28,262
Property, plant and equipment, net $ 7,656
Identifiable intangible assets, net 4,022
Goodwill, net 5,771
Noncurrent assets of discontinued operations held for sale $17,449
Accounts payable $10,021
Accrued liabilities 10,185
Current liabilities of discontinued operations $20,206
Other noncurrent liabilities $ 1,269
Noncurrent liabilities of discontinued operations $ 1,269
NOTE 7 - INVENTORIES
Inventories consist of the following:
December 31,
2003 2002
(in thousands)
Finished goods $123,290 $134,989
Work-in-process 41,997 39,065
Raw materials and supplies 40,300 40,438
$205,587 $214,492
NOTE 8- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
December 31,
2003 2002
(in thousands)
Assets, at cost:
Land $ 40,553 $ 34,746
Buildings and improvements 190,222 160,566
Machinery and equipment 295,354 274,915
Construction in progress 60,036 28,368
586,165 498,595
Less: Accumulated depreciation 209,954 185,417
$376,211 $313,178
NOTE 9 - GOODWILL AND INTANGIBLE ASSETS
Effective January 1, 2002, the Company adopted Statement of
Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill
and Other Intangible Assets". This statement requires that the
amortization of goodwill and indefinite-lived intangible assets
be discontinued and instead an annual impairment test approach be
applied. The impairment tests are required to be performed
annually (or more often if adverse events occur) and are based
upon a fair value approach rather than an evaluation of
undiscounted cash flows. If goodwill impairment is identified,
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. 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 will continue to be amortized
over their useful lives.
The Company performed the required annual impairment tests in
the second quarter of 2003 and no impairment was identified. This
impairment assessment was based upon a review of twenty reporting
units.
In accordance with SFAS 142, prior period amounts have not been
restated. The following table presents prior year reported
amounts adjusted to eliminate the amortization of goodwill and
indefinite-lived intangible assets.
Year Ended December 31,
2003 2002 2001
(in thousands, except per share amounts)
Reported net income $ 174,183 $ 147,952 $ 121,496
Add: amortization adjustment, net of related tax - - 13,963
Adjusted net income $ 174,183 $ 147,952 $ 135,459
Reported basic earnings per share $ 2.21 $ 1.89 $ 1.56
Add: amortization adjustment - - 0.18
Adjusted basic earnings per share $ 2.21 $ 1.89 $ 1.74
Reported diluted earnings per share $ 2.16 $ 1.85 $ 1.54
Add: amortization adjustment - - 0.18
Adjusted diluted earnings per share $ 2.16 $ 1.85 $ 1.72
The table below presents the net carrying values of goodwill
and identifiable intangible assets.
December 31,
2003 2002
(in thousands)
Goodwill $ 963,264 $ 898,497
Indefinite-lived identifiable intangible assets:
Trademarks $ 4,080 $ 4,080
Licensing agreements 165,621 149,254
Finite-lived identifiable intangible assets 76,774 82,675
Total identifiable intangible assets $ 246,475 $ 236,009
A reconciliation of changes in the Company's goodwill is as
follows:
December 31,
2003 2002
(in thousands)
Balance, beginning of the year $ 898,497 $ 763,270
Acquisition activity 15,153 28,176
Changes to purchase price allocation (28,381) 40,025
Reclassification to assets held
for sale(Note 6) (5,771) --
Impairment charges (Note 16) (360) --
Effects of exchange rate changes 84,126 67,026
Balance, end of the year $ 963,264 $ 898,497
The change in the net carrying value of goodwill in 2003 was
primarily due to the final payment related to the Degussa Dental
acquisition, several small acquisitions including the purchase of
one of the Company's suppliers and additional investments in
partially owned subsidiaries, foreign currency translation
adjustments, reclassification to assets held for sale and changes
to the purchase price allocations of Austenal, Degussa Dental and
Friadent. These purchase price allocation changes were primarily
related to the reversal of preacquisition tax contingencies due
to expiring statutes.
The increase in indefinite-lived licensing agreements was due
to foreign currency translation adjustments. These intangible
assets relate exclusively to the royalty-free licensing rights to
AstraZeneca's dental products and tradenames, which are
primarily denominated in Swiss francs. The change in finite-lived
identifiable intangible assets was due primarily to amortization
for the period, reclassification to assets held for sale,
additions related to the Oraqix agreement and foreign currency
translation adjustments.
Finite-lived identifiable intangible assets consist of the
following:
December 31, 2003 December 31, 2002
---------------------------------- -----------------------------------
Gross Net Gross Net
Carrying Accumulated Carrying Carrying Accumulated Carrying
Amount Amortization Amount Amount Amortization Amount
(in thousands)
Patents $ 55,142 $ (33,425) $ 21,717 $ 53,902 $ (30,015) $ 23,887
Trademarks 34,936 (7,142) 27,794 37,145 (6,608) 30,537
Licensing agreements 30,858 (8,105) 22,753 23,730 (6,411) 17,319
Other 12,573 (8,063) 4,510 26,151 (15,219) 10,932
$ 133,509 $ (56,735) $ 76,774 $ 140,928 $ (58,253) $ 82,675
Amortization expense for finite-lived identifiable intangible
assets for 2003, 2002 and 2001 was $8.8 million, $9.0 million and
$10.4 million, respectively. The annual estimated amortization
expense related to these intangible assets for each of the five
succeeding fiscal years is $8.1 million, $7.2 million, $6.4
million, $5.7 million and $5.2 million for 2004, 2005, 2006, 2007
and 2008, respectively.
NOTE 10 - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
December 31,
2003 2002
(in thousands)
Payroll, commissions, bonuses and
other cash compensation $ 42,200 $ 44,490
Employee benefits 14,692 13,181
General insurance 15,852 14,965
Sales and marketing programs 15,944 15,424
Restructuring and other costs (Note 16) 7,781 15,190
Accrued Oraqix payments 16,000 --
Warranty liabilities 3,629 7,429
Other 56,586 80,104
$172,684 $190,783
A reconciliation of changes in the Company's warranty liability
for 2003 is as follows:
Warranty Liability
December 31,
2003
(in thousands)
Balance, beginning of the year $ 7,429
Accruals for warranties issued during the year 5,064
Accruals related to pre-existing warranties (1,328)
Warranty settlements made during the year (4,663)
Reclassification to liabilities of discontinued operations (3,378)
Effects of exchange rate changes 505
Balance, end of the year $ 3,629
NOTE 11 - FINANCING ARRANGEMENTS
Short-Term Borrowings
Short-term bank borrowings amounted to $0.8 million and $3.2
million at December 31, 2003 and 2002, respectively. The weighted
average interest rates of these borrowings were 4.8% and 2.5% at
December 31, 2003 and 2002, respectively. Unused lines of credit
for short-term financing at December 31, 2003 and 2002 were $84.9
million and $80.0 million, respectively. Substantially all
short-term borrowings were classified as long-term as of December
31, 2003 and 2002, reflecting the Company's intent and ability to
refinance these obligations beyond one year and are included in
the table below. 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,
2003 2002
(in thousands)
$250 million multi-currency revolving credit agreement expiring May 2006,
Japanese yen 12.6 billion at 0.56% $ 116,659 $ 152,803
$250 million multi-currency revolving credit agreement expiring May 2004 - -
Prudential Private Placement Notes, Swiss franc denominated, 84.4 million at 4.56%
and 82.5 million at 4.42% maturing March 2007, 80.4 million at 4.96% maturing October 2006 198,722 178,881
ABN Private Placement Note, Japanese yen 6.2 billion at 1.39% maturing December 2005 38,646 52,562
Euro 350.0 million Eurobonds at 5.75% maturing December 2006 452,712 378,144
$250 million commercial paper facility rated A/2-P/2 U.S. dollar borrowings - -
Other borrowings, various currencies and rates 4,599 8,836
811,338 771,226
Less: Current portion (included in notes payable and current portion of long-term debt) 21,136 1,403
$ 790,202 $ 769,823
The table below reflects the contractual maturity dates of
the various borrowings at December 31, 2003 (in thousands). The
individual borrowings under the revolving credit agreement are
structured to mature on a quarterly basis but because the Company
has the intent and ability to extend them until the expiration
date of the agreement, these borrowings are considered
contractually due in May 2006.
2004 $ 22,780
2005 64,738
2006 679,093
2007 44,727
$811,338
The Company utilizes interest rate swaps to convert the
variable rate Japanese yen-denominated debt under the revolving
facility to fixed rate debt. In addition, swaps are used to
convert the fixed rate Eurobond to variable rate financing. The
Company's use of interest rate swaps is further described in "
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK" and in
Note 17.
The Company has a $500 million revolving credit agreement with
participation from thirteen banks. The revolving credit
agreements contain certain affirmative and negative covenants as
to the operations and financial condition of the Company, the
most restrictive of which pertain to asset dispositions,
maintenance of certain levels of net worth, and prescribed ratios
of indebtedness to total capital and operating income plus
depreciation and amortization to interest expense. The Company
pays a facility fee of 0.125 % annually on the amount of the
commitment under the $250 million five year facility ("facility
B") and 0.125% annually under the $250 million 364-day facility
("facility A"). 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 Moody's and Standard and
Poors.
The $250 million facility A may be extended, subject to certain
conditions, for additional periods of 364 days, which the Company
intends to extend annually. The entire $500 million revolving
credit agreement has a usage fee of 0.125 % annually if
utilization exceeds 50% of the total available facility.
The Company has complementary U.S. dollar and Euro
multicurrency commercial paper facilities totaling $250 million
which have utilization, dealer, and annual appraisal fees which
on average cost 0.11% annually. The $250 million facility A acts
as back-up credit to this commercial paper facility. The total
available credit under the commercial paper facilities and the
facility A is $250 million There were no outstanding commercial
paper obligations at December 31, 2003.
In March 2001, the Company issued Series A and B private
placement notes to Prudential Capital Group totaling Swiss francs
166.9 million at an average rate of 4.49% with six year final
maturities. The notes were issued to finance the acquisition of
the AZ Assets. In October 2001, the Company issued a Series C
private placement note to Prudential Capital Group for Swiss
francs 80.4 million at a rate of 4.96% with a five year final
maturity. The series A and B notes were also amended in October
2001 to increase the interest rate by 30 basis points, reflecting
the Company's higher leverage. In December 2001, the Company
issued a private placement note through ABN AMRO for Japanese yen
6.2 billion at a rate of 1.39% with a four year final maturity.
The Series C note and the ABN note were issued to partially
finance the Degussa Dental acquisition.
In December 2001, the Company issued 350 million Eurobonds with
a coupon of 5.75%, maturing December 2006 at an effective yield
of 5.89%. These bonds were issued to partially finance the
Degussa Dental acquisition.
At December 31, 2003, the Company had total unused lines of
credit, including lines available under its short-term
arrangements, of $472 million.
NOTE 12 - OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consist of the following:
December 31,
2003 2002
(in thousands)
Pension benefits (Note 15) $ 67,854 $ 55,063
Noncurrent income taxes payable (Note 18) 45,750 67,880
Other postretirement benefits (Note 15) 10,711 10,676
Derivative instruments (Note 17) 5,843 7,890
Other 12,546 13,610
$142,704 $155,119
NOTE 13 - STOCKHOLDERS' EQUITY
The Board of Directors authorized the repurchase of up to 1.5
million shares of common stock for the year ended December 31,
2001 on the open market or in negotiated transactions, with the
authorization expiring on December 31 of that year. The Company
repurchased 37,500 shares for $0.9 million in 2001. No share
repurchases were made during 2003 and 2002. In December 2003, the
Board of Directors authorized the repurchase of up to 1.0 million
shares of common stock for the year ended December 31, 2004 on
the open market.
The Company has stock options outstanding under three stock
option plans (1993 Plan, 1998 Plan and 2002 Plan). Further
grants can only be made under the 2002 Plan. Under the 1993 and
1998 Plans, a committee appointed by the Board of Directors
granted to key employees and directors of the Company options to
purchase shares of common stock at an exercise price determined
by such committee, but not less than the fair market value of the
common stock on the date of grant. 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 that they become
immediately exercisable upon death, disability or retirement.
The 2002 Plan authorized grants of 7.0 million shares of common
stock, (plus any unexercised portion of canceled or terminated
stock options granted under the DENTSPLY International Inc. 1993
and 1998 Stock Option Plans), subject to adjustment as follows:
each January, if 7% of the outstanding common shares of the
Company exceed 7.0 million, the excess becomes available for
grant under the Plan. The 2002 Plan enables the Company to grant
"incentive stock options" ("ISOs") within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended, to key
employees of the Company, and "non-qualified stock options"
("NSOs") which do not constitute ISOs to key employees and
non-employee directors of the Company. Grants of options to key
employees are solely discretionary with the Board of Directors of
the Company. ISOs and NSOs generally expire ten years from date
of grant and become exercisable over a period of three years
after the date of grant at the rate of one-third per year, except
that they become immediately exercisable upon death, disability
or retirement. Such options are granted at exercise prices not
less than the fair market value of the common stock on the grant
date.
Future option grants may only be made under the 2002 Plan,
which will include the unexercised portion of canceled or
terminated options granted under the 1993 or 1998 Plans. Each
non-employee director receives an automatic grant of NSOs to
purchase 9,000 shares of common stock on the date he or she
becomes a non-employee director and an additional 9,000 options
on the third anniversary of the date of the non-employee director
was last granted an option.
The following is a summary of the status of the Plans as of
December 31, 2003, 2002 and 2001 and changes during the years
ending on those dates:
Outstanding Exercisable
--------------------- ----------------------
Weighted Weighted Available
Average Average for
Exercise Exercise Grant
Shares Price Shares Price Shares
December 31, 2000 5,792,243 17.85 2,989,478 $ 15.64 3,226,467
Authorized (Lapsed) - (83,444)
Granted 1,605,900 30.43 (1,605,900)
Exercised (497,813) 16.01 -
Expired/Canceled (167,087) 18.47 167,087
December 31, 2001 6,733,243 20.97 3,732,179 16.76 1,704,210
Authorized (Lapsed) - 7,023,106
Granted 1,574,550 36.91 (1,574,550)
Exercised (515,565) 17.33 -
Expired/Canceled (100,639) 19.08 100,639
December 31, 2002 7,691,589 24.50 4,649,889 18.99 7,253,405
Authorized (Lapsed) - 177,882
Granted 1,434,300 43.84 (1,434,300)
Exercised (829,155) 19.30 -
Expired/Canceled (119,277) 29.38 119,277
December 31, 2003 8,177,457 $ 28.35 5,225,300 $ 22.22 6,116,264
The following table summarizes information about stock options
outstanding under the Plans at December 31, 2003:
Options Outstanding Options Exercisable
--------------------------------- ------------------------
Weighted
Number Average Number
Outstanding Remaining Weighted Exercisable Weighted
at Contractual Average at Average
December 31 Life Exercise December 31 Exercise
Exercise Price Range 2003 (in years) Price 2003 Price
$10.01 - $15.00 528,751 1.4 $ 13.12 528,751 $ 13.12
15.01 - 20.00 2,211,089 5.0 16.44 2,211,089 16.44
20.01 - 25.00 1,166,026 6.8 24.62 1,132,926 24.66
25.01 - 30.00 69,650 7.5 27.94 41,000 27.98
30.01 - 35.00 1,272,412 7.9 31.23 822,662 31.20
35.01 - 40.00 1,570,929 8.9 36.93 488,872 36.97
40.01 - 45.00 1,346,400 9.9 44.26 - -
45.01 - 50.00 12,200 9.7 45.53 - -
8,177,457 7.1 $ 28.35 5,225,300 $ 22.22
The Company uses the Black-Scholes option pricing model to
value option awards. The per share weighted average fair value of
stock options and the weighted average assumptions used to
determine these values are as follows:
Year Ended December 31,
2003 2002 2001
Per share fair value $ 14.85 $ 12.69 $ 11.47
Expected dividend yield 0.48% 0.50% 0.61%
Risk-free interest rate 3.36% 3.35% 5.01%
Expected volatility 31% 34% 33%
Expected life (years) 5.50 5.50 5.50
The Black-Scholes option pricing model was developed for
tradable options with short exercise periods and is therefore not
necessarily an accurate measure of the fair value of compensatory
stock options.
The rollforward of the common shares and the treasury shares
outstanding is as follows:
Common Treasury Outstanding
Shares Shares Shares
(in thousands)
Balance at December 31, 2000 81,389 (3,971) 77,418
Exercise of stock options -- 500 500
Repurchase of common stock, at cost -- (38) (38)
Balance at December 31, 2001 81,389 (3,509) 77,880
Exercise of stock options -- 519 519
Fractional share payouts (1) -- (1)
Balance at December 31, 2002 81,388 (2,990) 78,398
Exercise of stock options -- 853 853
Balance at December 31, 2003 81,388 (2,137) 79,251
NOTE 14 - INCOME TAXES
The components of income before income taxes from continuing
operations are as follows:
Year Ended December 31,
2003 2002 2001
(in thousands)
United States ("U.S.") $113,994 $116,160 $131,010
Foreign 137,202 97,930 48,512
$251,196 $214,090 $179,522
The components of the provision for income taxes from continuing
operations are as follows:
Year Ended December 31,
2003 2002 2001
(in thousands)
Current:
U.S. federal $ 28,693 $ 47,627 $ 42,159
U.S. state 1,941 2,520 1,331
Foreign 18,298 28,737 11,297
Total 48,932 78,884 54,787
Deferred:
U.S. federal 12,077 (7,586) 12,854
U.S. state 2,466 (908) 2,359
Foreign 17,868 59 (8,192)
Total 32,411 (8,435) 7,021
$ 81,343 $ 70,449 $ 61,808
The reconcilation of the U.S. federal statutory tax rate to the
effective rate is as follows:
Year Ended December 31,
2003 2002 2001
Statutory federal income tax rate 35.0 % 35.0 % 35.0 %
Effect of:
State income taxes, net of federal benefit 1.1 0.5 1.3
Nondeductible amortization of goodwill - - 1.1
Foreign earnings at lower rates than US federal (4.5) (2.3) (2.2)
Foreign tax credit - - (0.8)
Extraterritorial income (0.9) (1.1) (1.0)
Taxes on unremitted earnings of certain
foreign subsidiaries 2.5 - 0.1
Other (0.8) 0.8 0.9
Effective income tax rate on continuing operations 32.4 % 32.9 % 34.4 %
The tax effect of temporary differences giving rise to deferred
tax assets and liabilities are as follows:
December 31, 2003 December 31, 2002
Current Noncurrent Current Noncurrent
Asset Asset Asset Asset
(Liability) (Liability) (Liability) (Liability)
(in thousands)
Employee benefit accruals $ 2,225 $ 9,053 $ 1,496 $ 9,961
Product warranty accruals 1,155 -- 1,012 --
Insurance premium accruals 4,035 -- 3,919 --
Commission and bonus accrual 1,526 -- 3,156 --
Sales and marketing accrual 1,474 -- 2,612 --
Restructuring and other cost accruals 2,947 2,824 7,595 4,352
Differences in financial reporting and tax basis for:
Inventory 8,467 -- 7,838 --
Property, plant and equipment -- (34,793) -- (29,272)
Identifiable intangible assets -- (59,578) -- (35,086)
Unrealized losses (gains) included in other
comprehensive income -- 45,305 -- 18,324
Miscellaneous Accruals 12,561 -- 10,403 --
Other 3,884 8,455 855 5,515
Discontinued Operations 1,883 4,293 2,633 4,315
Tax loss carryforwards in foreign jurisdictions -- 9,649 -- 9,521
Valuation allowance for tax loss carryforwards -- (9,649) -- (5,342)
$ 40,157 $(24,441) $ 41,519 $(17,712)
Current and noncurrent deferred tax assets and liabilities are included
in the following balance sheet captions:
December 31,
2003 2002
(in thousands)
Prepaid expenses and other current assets $ 41,427 $ 42,096
Income taxes payable (1,270) (577)
Other noncurrent assets 26,800 9,327
Deferred income taxes (51,241) (27,039)
Certain foreign subsidiaries of the Company have tax loss
carryforwards of $30.6 million at December 31, 2003, of which
$4.9 million expire through 2011 and $25.7 million may be carried
forward indefinitely. The tax benefit of these tax loss
carryforwards has been fully offset by a valuation allowance as
of December 31, 2003. The valuation allowance of $9.6 million
and $5.3 million at December 31, 2003 and 2002, respectively,
relates to foreign tax loss carryforwards for which realizability
is uncertain. The change in the valuation allowances for 2003
and 2002 results primarily from the generation of additional
foreign tax loss carryforwards in excess of loss carryforwards
utilized in certain foreign jurisdictions.
The Company has provided for the potential repatriation of
certain undistributed earnings of its foreign subsidiaries and
considers earnings above the amounts on which tax has been
provided to be permanently reinvested. Income taxes have not
been provided on $343 million of undistributed earnings of
foreign subsidiaries, which will continue to be permanently
reinvested. If remitted as dividends, these earnings could
become subject to additional tax, however such repatriation is
not anticipated.
The pretax income from discontinued operations for the years
ended December 31, 2003, 2002 and 2001 was $7.3 million, $6.9
million and $5.6 million, respectively. The income tax expense
related to discontinued operations for the years ended December
31, 2003, 2002 and 2001 was $3.0 million, $2.6 million and $1.8
million, respectively.
NOTE 15 - 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 $13.5 million in 2003, $11.5 million in 2002 and $7.9
million in 2001.
Defined Contribution Plans
The DENTSPLY Employee Stock Ownership Plan ("ESOP") is a
non-contributory defined contribution plan that covers
substantially all of the United States based non-union employees
of the Company. Contributions to the ESOP were $2.2 million for
2003, $2.2 million for 2002 and $2.1 million for 2001. The
Company makes annual contributions to the ESOP of not less than
the amounts required to service ESOP debt. In connection with the
refinancing of ESOP debt in March 1994, the Company agreed to
make additional cash contributions totaling at least $0.6 million
through 2003. Dividends received by the ESOP on allocated shares
are either reinvested in participants' accounts or passed through
to Plan participants, at the participant's election. Most ESOP
shares were initially pledged as collateral for its debt. As the
debt is repaid, shares are released from collateral and allocated
to active employees based on the proportion of debt service paid
in the year. At December 31, 2003, the ESOP held 7.0 million
shares, of which 6.9 million were allocated to plan participants
and 0.1 million shares were unallocated and pledged as collateral
for the ESOP debt. Unallocated shares were acquired prior to
December 31, 1992 and are accounted for in accordance with
Statement of Position 76-3. Accordingly, all shares held by the
ESOP are considered outstanding and are included in the earnings
per common share computations.
The Company sponsors an employee 401(k) savings plan for its
United States workforce to which enrolled participants may
contribute up to IRS defined limits.
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 United States. 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 legal funding requirements. Pension plan assets are held
in trust and consist mainly of common stock and fixed income
investments.
The Company maintains defined benefit pension plans for its
employees in Germany, Japan, The Netherlands, and Switzerland.
These plans provide benefits based upon age, years of service and
remuneration. 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 United States
are covered by government health plans.
Postretirement Healthcare
The plans for postretirement healthcare have no plan assets.
The postretirement healthcare plan covers certain union and
salaried employee groups in the United States 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.
The Company uses a December 31 measurement date for the
majority of it plans. Reconciliations of changes in the above
plans' benefit obligations, fair value of assets, and statement
of funded status are as follows:
Other Postretirement
Pension Benefits Benefits
----------------------- ---------------------
December 31, December 31,
2003 2002 2003 2002
(in thousands)
Reconciliation of Benefit Obligation
Benefit obligation at beginning of year $ 103,711 $ 81,134 $ 10,735 $ 7,877
Service cost 4,137 3,428 235 419
Interest cost 5,358 4,464 726 833
Participant contributions 1,185 972 570 442
Actuarial (gains) losses (3,561) 2,877 1,165 2,537
Amendments 343 -- -- --
Acquisitions -- -- -- --
Effects of exchange rate changes 15,248 14,955 -- --
Benefits paid (3,854) (4,119) (1,231) (1,373)
Benefit obligation at end of year $ 122,567 $ 103,711 $ 12,200 $ 10,735
Reconciliation of Plan Assets
Fair value of plan assets at beginning of year $ 51,238 $ 43,348 $ -- $ --
Actual return on assets 520 (10) -- --
Acquisitions -- -- -- --
Effects of exchange rate changes 5,584 7,716 -- --
Employer contributions 5,435 3,331 661 931
Participant contributions 1,185 972 570 442
Benefits paid (3,854) (4,119) (1,231) (1,373)
Fair value of plan assets at end of year $ 60,108 $ 51,238 $ -- $ --
Reconciliation of Funded Status
Actuarial present value of projected
benefit obligations $ 122,567 $ 103,711 $ 12,200 $ 10,735
Plan assets at fair value 60,108 51,238 -- --
Funded status (62,459) (52,473) (12,200) (10,735)
Unrecognized transition obligation 1,495 1,581 -- --
Unrecognized prior service cost 795 590 3,743 2,998
Unrecognized net actuarial loss (gain) 6,043 7,499 (2,254) (2,940)
Net amount recognized $ (54,126) $ (42,803) $ (10,711) $ (10,677)
The amounts recognized in the accompanying Consolidated Balance
Sheets are as follows:
Other Postretirement
Pension Benefits Benefits
----------------- ------------------
December 31, December 31,
2003 2002 2003 2002
(in thousands)
Other noncurrent liabilities $ (67,854) $ (55,063) $ (10,711) $ (10,676)
Other noncurrent assets 11,905 10,498 - -
Accumulated other
comprehensive loss 1,823 1,762 - -
Net amount recognized $ (54,126) $ (42,803) $ (10,711) $ (10,676)
Information for pension plans with an accumulated benefit obligation
in excess of plan assets
December 31,
2003 2002
(in thousands)
Projected benefit obligation $ 122,569 $ 104,528
Accumulated benefit obligation 116,865 97,304
Fair value of plan assets 60,109 50,973
Components of the net periodic benefit cost for the plans are as follows:
Other Postretirement
Pension Benefits Benefits
--------------------------------- --------------------------------
2003 2002 2001 2003 2002 2001
(in thousands)
Service cost $ 4,137 $ 3,428 $ 1,877 $ 235 $ 419 $ 205
Interest cost 5,358 4,464 3,548 726 833 539
Expected return on plan assets (3,018) (2,706) (2,525) -- -- --
Net amortization and deferral 576 445 287 (265) 27 (63)
Net periodic benefit cost $ 7,053 $ 5,631 $ 3,187 $ 696 $ 1,279 $ 681
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
--------------------------------- ---------------------------------
2003 2002 2001 2003 2002 2001
Discount rate 5.0% 5.1% 5.4% 6.0% 6.8% 7.3%
Expected return on plan assets 5.5% 5.5% 5.0% n/a n/a n/a
Rate of compensation increase 3.0% 3.0% 2.5% n/a n/a n/a
Initial health care cost trend n/a n/a n/a 9.5% 10.0% 7.0%
Ultimate health care cost trend n/a n/a n/a 5.0% 5.0% 7.0%
Years until ultimate trend is reached n/a n/a n/a 9.0 10.0 n/a
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
--------------------------------- ---------------------------------
2003 2002 2001 2003 2002 2001
Discount rate 5.1% 5.4% 5.7% 6.8% 7.3% 7.0%
Expected return on plan assets 5.5% 5.0% 5.7% n/a n/a n/a
Rate of compensation increase 3.0% 2.5% 3.5% n/a n/a n/a
Initial health care cost trend n/a n/a n/a 10.0% 7.0% 7.0%
Ultimate health care cost trend n/a n/a n/a 5.0% 7.0% 7.0%
Years until ultimate trend is reached n/a n/a n/a 10.0 n/a n/a
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, 2003:
Other Postretirement
Benefits
---------------------
1% Increase 1% Decrease
(in thousands)
Effect on total of service and interest cost components $ 131 $ (105)
Effect on postretirement benefit obligation 1,416 (1,162)
Plan Assets:
The weighted average asset allocations of the U.S. plans at
December 31, 2003 and 2002 by asset category are as follows:
Target December 31,
Allocation 2003 2002
Equity 40%-65% 51% 44%
Debt 35%-60% 47% 53%
Real estate 0%-15% 0% 0%
Other 0%-15% 2% 3%
--------- ---------
Total 100% 100%
--------- ---------
Equity securities do not include Company stock of Dentsply International
Inc. 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.
Cash Flows:
The Company expects to contribute $0.7 million to its U.S. defined benefit
pension plans and $0.7 million to its other postretirement benefit plan in 2004.
NOTE 16 - RESTRUCTURING AND OTHER COSTS (INCOME)
Restructuring and other costs (income) consists of the
following:
Year Ended December 31,
2003 2002 2001
(in thousands)
Restructuring and other costs $ 4,497 $ 1,669 $ 17,774
Reversal of restructuring charges due to
changes in estimates (797) (3,687) (802)
Gain on pension plan termination -- -- (8,486)
Gain on insurance settlement associated with fire -- (714) (5,758)
Costs related to the Oraqix agreement -- -- 2,345
Total restructuring and other costs (income) $ 3,700 $ (2,732) $ 5,073
During the fourth quarter of 2003, the Company recorded
restructuring and other costs of $4.5 million. These costs were
primarily related to impairment charges recorded to certain
investments in emerging technologies. The products related to
these technologies were abandoned and therefore these assets were
no longer viewed as being recoverable. In addition, certain costs
were associated with the consolidation of the Company's U.S.
laboratory businesses. Included in this charge were severance
costs of $0.9 million, lease/contract termination costs of $0.6
million and intangible and other asset impairment charges of $3.0
million. This restructuring plan will result in the elimination
of approximately 65 administrative and manufacturing positions
primarily in the United States, most of which remain to be
eliminated as of December 31, 2003. Certain of these positions
will need to be replaced at the consolidated site and therefore
the net reduction in positions is expected to be approximately
25. This plan is expected to be complete by December 31, 2004.
The major components of these charges and the remaining
outstanding balances at December 31, 2003 are as follows:
Amounts Balance
2003 Applied December 31,
Provisions 2003 2003
Severance $ 908 $ (49) $ 859
Lease/contract terminations 562 (410) 152
Other restructuring costs 27 (27) --
Intangible and other asset impairment charges 3,000 (3,000) --
$ 4,497 $(3,486) $ 1,011
On January 25, 2001, the Company suffered a fire at its
Maillefer facility in Switzerland. The fire caused severe damage
to a building and to most of the equipment it contained. During
the third quarter of 2002, the Company received insurance
proceeds for settlement of the damages caused to the building.
These proceeds resulted in the Company recognizing a net gain on
the damaged building of approximately $0.7 million. The Company
also received insurance proceeds on the destroyed equipment
during the fourth quarter of 2001 and recorded the related
disposal gains of $5.8 million during that period.
During the second quarter of 2002, the Company recorded a
charge of $1.7 million for restructuring and other costs. The
charge primarily related to the elimination of duplicative
functions created as a result of combining the Company's Ceramed
and U.S. Friadent divisions. Included in this charge were
severance costs of $0.6 million, lease/contract termination costs
of $0.9 million and $0.2 million of impairment charges on fixed
assets that will be disposed of as a result of the restructuring
plan. This restructuring plan resulted in the elimination of
approximately 35 administrative and manufacturing positions in
the United States and was substantially complete as of December
31, 2002.
As part of combining Austenal with the Company in 2002, $4.4
million of liabilities were established through purchase price
accounting for the restructuring of the acquired company's
operations, primarily in the United States and Germany. Included
in this liability were severance costs of $2.9 million,
lease/contract termination costs of $1.4 million and other
restructuring costs of $0.1 million. During 2003 the Company
reversed a total of $1.1 million, which was recorded to goodwill,
as a change in estimate as it determined the costs to complete
the plan were lower than originally estimated. This restructuring
plan included the elimination of approximately 75 administrative
and manufacturing positions in the United States and Germany, 20
of which remain to be eliminated as of December 31, 2003. The
Company anticipates that most aspects of this plan will be
completed by the first quarter of 2004.
The major components of the 2002 restructuring charges and the
amounts recorded through purchase price accounting and the
remaining outstanding balances at December 31, 2003 are as
follows:
Change
in Estimate
Amounts Recorded
Recorded Through
Through Amounts Change Amounts Purchase Balance
2002 Purchase Applied in Estimate Applied Accounting December 31,
Provisions Accounting 2002 2002 2003 2003 2003
Severance $ 541 $ 2,927 $ (530) $ (164) $ (988) $ (878) $ 908
Lease/contract terminations 895 1,437 (500) 120 (665) (245) 1,042
Other restructuring costs 38 60 (60) (36) -- -- 2
Fixed asset impairment charges 195 -- (195) -- -- -- --
$ 1,669 $ 4,424 $(1,285) $ (80) $(1,653) $(1,123) $ 1,952
The Company's subsidiary in the United Kingdom restructured its
pension plans in the fourth quarter of 2001, simplifying its
structure by consolidating its two separate defined contribution
plans into one plan and terminating the other plan. An
unallocated surplus of approximately $8.5 million existed in the
terminated plan. As a result, these unallocated funds reverted
back to the Company.
As discussed in Note 3, the Company agreed in 2001 to a payment
of $2.0 million to AstraZeneca related to the submission of the
Oraqix product New Drug Application in the U.S. and a Marketing
Authorization Application in Europe. Under the terms of the
agreement, this payment and related estimated application costs
were accrued during the fourth quarter of 2001.
In the fourth quarter of 2001, the Company recorded a charge of
$12.3 million for restructuring and other costs. The charge
included costs of $6.0 million to restructure the Company's
existing operations, primarily in Germany, Japan and Brazil, as a
result of the integration with Degussa Dental. Included in this
charge were severance costs of $2.1 million, lease/contract
termination costs of $1.1 million and other restructuring costs
of $0.2 million. In addition, the Company recorded $2.6 million
of impairment charges on fixed assets that will be disposed of as
a result of the restructuring plan. The remaining charge of $6.3
million involves impairment charges on intangible assets. During
2002 and 2003 the Company reversed a net total of $1.0 million
and $0.8 million, respectively, as a change in estimate as it
determined the costs to complete the plan were lower than
originally estimated. This restructuring plan resulted in the
elimination of approximately 160 administrative and manufacturing
positions in Germany, Japan and Brazil. As part of these
reorganization activities, some of these positions were replaced
with lower-cost outsourced services. This plan was substantially
complete at December 31, 2003. The impairment charge of $6.3
million includes the impairment of intangible assets related to
two acquisitions made in prior periods. One of these acquisitions
involved the exclusive patent rights for technology related to
cutting teeth in preparation for restoration, which was acquired
in September 1996. The other acquisition involved technology
related to a line of lotions and creams used to protect the hands
from irritants, which was acquired in September 2000. Based on a
slowing trend in sales related to the product lines associated
with these technologies in 2001, the Company performed impairment
evaluations, and as a result, recorded impairment charges of $2.0
million and $4.3 million for the teeth preparation product
intangibles and lotion product intangibles, respectively.
In the first quarter of 2001, the Company recorded a charge of
$5.5 million related to reorganizing certain functions within
Europe, Brazil and North America. The primary objectives of this
reorganization were to consolidate duplicative functions and to
improve efficiencies within these regions. Included in this
charge were severance costs of $3.1 million, lease/contract
termination costs of $0.6 million and other restructuring costs
of $0.8 million. In addition, the Company recorded $1.0 million
of impairment charges on fixed assets that will be disposed of as
a result of the restructuring plan. This restructuring plan
resulted in the elimination of approximately 310 administrative
and manufacturing positions in Brazil and Germany. As part of
these reorganization activities, some of these positions were
replaced with lower-cost outsourced services. During the first
quarter of 2002, this plan was substantially completed and the
remaining accrual balances of $1.9 million were reversed as a
change in estimate.
As part of combining Friadent and Degussa Dental with the
Company in 2001, $14.1 million of liabilities were established
through purchase price accounting for the restructuring of the
acquired companies' operations in Germany, Brazil, the United
States and Japan. Included in this liability were severance costs
of $11.9 million, lease/contract termination costs of $1.1
million and other restructuring costs of $1.1 million. During
2003 the Company reversed a total of $3.4 million, which was
recorded to goodwill, as a change in estimate as it determined
the costs to complete the plan were lower than originally
estimated. This restructuring plan resulted in the elimination of
approximately 190 administrative and manufacturing positions in
Germany, Brazil and the United States. This plan was
substantially complete at December 31, 2003.
The major components of the 2001 restructuring charges and the
amounts recorded through purchase price accounting and the
remaining outstanding balances at December 31, 2003 are as
follows:
Change Change
in Estimate in Estimate
Amounts Recorded Recorded
Recorded Through Through
Through Amounts Amounts Change Purchase Amounts Change Purchase Balance
2001 Purchase Applied Applied in Estimate Accounting Applied in Estimate Accounting December
Provisions Accounting 2001 2002 2002 2002 2003 2003 2003 31, 2003
Severance $ 5,270 $ 11,929 $ (1,850) $ (6,257) $ (655) $ (174) $ (985) $ (816) $ (2,971) $ 3,491
Lease/contract
terminations 1,682 1,071 (563) (579) (721) 203 (291) - (50) 752
Other restructuring
costs 897 1,062 - (552) (759) 458 (175) 19 (375) 575
Fixed asset
impairment charges 3,634 - (3,634) 223 (747) 524 - - - -
Intangible asset
impairment charges 6,291 - (6,291) - - - - - - -
$ 17,774 $ 14,062 $ (12,338) $ (7,165) $(2,882) $1,011 $(1,451) $ (797) $ (3,396) $ 4,818
During the fourth quarter 2003, the Company made the decision
to discontinue the operations of its dental needle business. The
business consists of one manufacturing location which will cease
operations by March 31, 2004. As a result of this decision, the
Company has recorded a charge of $1.6 million included in income
from discontinued operations. Included in this charge were
severance costs of $0.4 million, fixed asset impairment charges
of $0.5 million, $0.4 million of impairment charges related to
goodwill and other restructuring costs of $0.3 million. This plan
will result in the elimination of approximately 55 administrative
and manufacturing positions in the United States, most of which
remain to be eliminated at December 31, 2003. This plan is
expected to be substantially completed by March 31, 2004. The
major components of these charges and the remaining outstanding
balances at December 31, 2003 are as follows:
Amounts Balance
2003 Applied December 31,
Provisions 2003 2003
Severance $ 405 $ -- $ 405
Other restructuring costs 300 (300) --
Fixed asset impairment charges 520 (520) --
Goodwill impairment charges 360 (360) --
$ 1,585 $(1,180) $ 405
NOTE 17 - FINANCIAL INSTRUMENTS AND DERIVATIVES
Fair Value of 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, 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 of
its total long-term debt was $815.8 million versus its carrying
value of $811.3 million as of December 31, 2003. The fair value
approximated the carrying value since much of the Company's debt
is variable rate and reflects current market rates. The fixed
rate Eurobonds are effectively converted to variable rate as a
result of an interest rate swap and the interest rates on
revolving debt and commercial paper are variable and therefore
the fair value of these instruments approximates their carrying
values. The Company has fixed rate Swiss franc and Japanese yen
denominated notes with estimated fair values that differ from
their carrying values. At December 31, 2003, the fair value of
these instruments was $241.8 million versus their carrying values
of $237.4 million. The fair values differ from the carrying
values due to lower market interest rates at December 31, 2003
versus the rates at issuance of the notes.
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 potentially adverse effects that these market risks
may have on the Company's operating results.
A portion of the Company's borrowings and certain inventory
purchases are denominated in foreign currencies which exposes the
Company to market risk associated with 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 creates exposures to
changes in exchange rates. The Company uses debt denominated in
the applicable foreign currency as a means of hedging a portion
of this risk.
With the Company's significant level of long-term debt, 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 earnings fluctuations from
such market fluctuations, the Company selectively enters into
commodity price swaps, primarily for silver, used in the
production of dental amalgam. Additionally, the Company uses
non-derivative methods, such as the precious metal consignment
agreement to effectively hedge commodity risks.
Cash Flow Hedges
The Company uses interest rate swaps to convert a portion of
its variable rate debt to fixed rate debt. As of December 31,
2003, the Company has two groups of significant variable rate to
fixed rate interest rate swaps. One of the groups of swaps was
entered into in January 2000 and February 2001, has a notional
amount totaling 180 million Swiss francs, and effectively
converts the underlying variable interest rates on the debt to a
fixed rate of 3.3% for a period of approximately four years. The
other significant group of swaps entered into in February 2002,
has notional amounts totaling 12.6 billion Japanese yen, and
effectively converts the underlying variable interest rates to an
average fixed rate of 1.6% for a term of ten years. As part of
entering into the Japanese yen swaps in February 2002, the
Company entered into reverse swap agreements with the same terms
to offset 115 million of the 180 million of Swiss franc swaps.
Additionally, in the third quarter of 2003, the Company exchanged
the remaining portion of the Swiss franc swaps, 65 million Swiss
francs, for a forward-starting variable to fixed interest rate
swap. Completion of this exchange allowed the Company to pay
down debt and the forward-starting interest rate swap locks in
the rate of borrowing for future Swiss franc variable rate debt,
that will arise upon the maturity of the Company's fixed rate
Swiss franc notes in 2005, at 4.2% for a term of seven years.
The Company selectively enters into commodity price swaps to
effectively fix certain variable raw material costs. In November
2002, the Company entered into a commodity price swap agreement
with notional amounts totaling 300,000 troy ounces of silver
bullion to hedge forecasted purchases throughout calendar year
2003. The average fixed rate of this agreement is $4.65 per troy
ounce. The Company generally hedges between 33% and 67% of its
projected annual silver needs.
The Company enters into forward exchange contracts to hedge the
foreign currency exposure of its anticipated purchases of certain
inventory from Japan. The forward contracts that are used in this
program mature in twelve months or less. The Company generally
hedges between 33% and 67% of its anticipated purchases from
Japan.
During 2002 and 2001, the Company recognized net losses of $0.1
million and $0.4 million, respectively, in "Other expense
(income), net", which represented the total ineffectiveness of
all cash flow hedges. During 2003, the Company recognized gains
of $0.1 million offset by losses of $0.1 million due to
ineffectiveness of its cash flow hedges.
As of December 31, 2003, $0.3 million of deferred net gains on
derivative instruments recorded in "Accumulated other
comprehensive gain (loss)" are expected to be reclassified to
current earnings during the next twelve months. Transactions and
events that are expected to occur over the next twelve months
that will necessitate such a reclassification include the sale of
inventory that includes previously hedged purchases made in
Japanese yen. The maximum term over which the Company is hedging
exposures to variability of cash flows (for all forecasted
transactions, excluding interest payments on variable-rate debt)
is eighteen months.
Fair Value Hedges
The Company uses interest rate swaps to convert a portion of
its fixed rate debt to variable rate debt. In December 2001, the
Company issued 350 million in Eurobonds at a fixed rate of 5.75%
maturing in December 2006 to partially finance the Degussa Dental
acquisition. Coincident with the issuance of the Eurobonds, the
Company entered into two integrated transactions: (a) an
interest rate swap agreement with notional amounts totaling Euro
350 million which converted the 5.75% fixed rate Euro-denominated
financing to a variable rate (based on the London Interbank
Borrowing Rate) Euro-denominated financing; and (b) a
cross-currency basis swap which converted this variable rate
Euro-denominated financing to variable rate U.S.
dollar-denominated financing.
The Euro 350 million interest rate swap agreement was
designated as a fair value hedge of the Euro 350 million in fixed
rate debt pursuant to SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). In
accordance with SFAS No. 133, the interest rate swap and
underlying Eurobond have been marked-to-market via the income
statement. As of December 31, 2003 and 2002, the accumulated
fair value of the interest rate swap was $14.1million and $10.9
million, respectively, and was recorded in Other Noncurrent
Assets. The notional amount of the underlying Eurobond was
increased by a corresponding amount at December 31, 2003 and
2002.
From inception through the first quarter of 2003, the
cross-currency element of the integrated transaction was not
designated as a hedge and changes in the fair value of the
cross-currency element of the integrated transaction were
marked-to-market in the income statement, offsetting the impact
of the change in exchange rates on the Eurobonds that were also
recorded in the income statement. As of December 31, 2003 and
2002, the accumulated fair value of the cross-currency element of
the integrated transaction was $56.6 million and $52.3 million,
respectively, and was recorded in Other Noncurrent Assets. The
notional amount of the underlying Eurobond was increased by a
corresponding amount at December 31, 2003 and 2002.See Hedges of
Net Investments in Foreign Operations below for further
information related to the cross-currency element of the
integrated transaction.
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 both
non-derivative financial instruments, including foreign currency
denominated debt held at the parent company level and long-term
intercompany loans, for which settlement is not planned or
anticipated in the foreseeable future 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.
At December 31, 2003 and 2002, the Company had Swiss
franc-denominated and Japanese yen-denominated debt (at the
parent company level) to hedge the currency exposure related to a
designated portion of the net assets of its Swiss and Japanese
subsidiaries. At December 31, 2003, the Company also had
Euro-denominated debt designated as a hedge of a designated
portion of the net assets of its European subsidiaries, due to
the change in the cross-currency element of the integrated
transaction discussed below. At December 31, 2003 and 2002, the
accumulated translation losses related to foreign
currency denominated-debt included in Accumulated Other
Comprehensive income (loss) were $83.5 million and $26.4 million,
respectively.
In the first quarter of 2003, the Company amended the
cross-currency element of the integrated transaction to realize
the $ 51.8 million of accumulated value of the cross-currency
swap. The amendment eliminated the final payment (at a fixed
rate of $.90) of $315 million by the Company in exchange for the
final payment of Euro 350 million by the counterparty in return
for the counterparty paying the Company LIBOR plus 4.29% for the
remaining term of the agreement or approximately $14.0 million on
an annual basis. Other cash flows associated with the
cross-currency element of the integrated transaction, including
the Company's obligation to pay on $315 million LIBOR plus
approximately 1.34% and the counterparty's obligation to pay on
Euro 350 million LIBOR plus approximately 1.47%, remained
unchanged by the amendment. Additionally, the cross-currency
element of the integrated transaction continue to be
marked-to-market.
No gain or loss was recognized upon the amendment of the cross
currency element of the integrated transaction, as the interest
rate of LIBOR plus 4.29% was established to ensure that the fair
value of the cash flow streams before and after amendment were
equivalent.
Since, as a result of the amendment, the Company became
economically exposed to the impact of exchange rates on the final
principal payment on the Euro 350 million Eurobonds, the Company
designated the Euro 350 million Eurobonds as a hedge of net
investment, on the date of the amendment. Since March 2003, the
effect of currency on the Euro 350 million Eurobonds of $ 35.2
million has been recorded as part of Accumulated Other
Comprehensive income (loss).
Other
As of December 31, 2003, the Company had recorded assets
representing the fair value of derivative instruments of $8.4
million in "Prepaid expenses and other current assets" and $62.5
million in "Other noncurrent assets" on the balance sheet and
liabilities representing the fair value of derivative instruments
of $1.8 million in "Accrued liabilities" and $5.8 million in
"Other noncurrent liabilities".
In accordance with SFAS 52, "Foreign Currency Translation", the
Company utilizes long-term intercompany loans to eliminate
foreign currency transaction exposures of certain foreign
subsidiaries. Net gains or losses related to these long-term
intercompany loans, those for which settlement is not planned or
anticipated in the foreseeable future, are included "Accumulated
other comprehensive income (loss)".
NOTE 18 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases automobiles and machinery and equipment and
certain office, warehouse, and manufacturing facilities under
non-cancelable operating leases. These 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 $20.7 million for 2003, $17.4 million for 2002, and
$12.0 million for 2001.
Rental commitments, principally for real estate (exclusive of
taxes, insurance and maintenance), automobiles and office
equipment are as follows (in thousands):
2004 $ 18,115
2005 11,778
2006 7,855
2007 4,420
2008 2,965
2009 and thereafter 6,830
$ 51,963
Litigation
DENTSPLY and its subsidiaries are from time to time parties to
lawsuits arising out of their respective operations. The Company
believes it is remote that pending litigation to which DENTSPLY
is a party will have a material adverse effect upon its
consolidated financial position or results of operations.
In June 1995, the Antitrust Division of the United States
Department of Justice initiated an antitrust investigation
regarding the policies and conduct undertaken by the Company's
Trubyte Division with respect to the distribution of artificial
teeth and related products. On January 5, 1999 the Department of
Justice filed a Complaint against the Company in the U.S.
District Court in Wilmington, Delaware alleging that the
Company's tooth distribution practices violate the antitrust laws
and seeking an order for the Company to discontinue its
practices. The trial in the government's case was held in April
and May 2002. On August 14, 2003, the Judge entered a decision
that the Company's tooth distribution practices do not violate
the antitrust laws. On October 14, 2003, the Department of
Justice appealed this decision to the U.S. Third Circuit Court of
Appeals. The parties are proceeding under the briefing schedule
issued by the Third Circuit.
Subsequent to the filing of the Department of Justice Complaint
in 1999, several private party class actions were filed based on
allegations similar to those in the Department of Justice case,
on behalf of laboratories, and denture patients in seventeen
states who purchased Trubyte teeth or products containing Trubyte
teeth. These cases were transferred to the U.S. District Court in
Wilmington, Delaware. The private party suits seek damages in an
unspecified amount. The Court has granted the Company's Motion
on the lack of standing of the laboratory and patient class
actions to pursue damage claims. The Plaintiffs in the
laboratory case have filed a petition with the Third Circuit to
hear an interlocutory appeal of this decision. Also, private
party class actions on behalf of indirect purchasers were filed
in California and Florida state courts. The California and
Florida cases have been dismissed by the Plaintiffs following the
decision by the Federal District Court Judge issued in August
2003.
On March 27, 2002, a Complaint was filed in Alameda County,
California (which was transferred to Los Angeles County) by Bruce
Glover, D.D.S. alleging, inter alia, breach of express and
implied warranties, fraud, unfair trade practices and negligent
misrepresentation in the Company's manufacture and sale of
Advance(R) cement. The Complaint seeks damages in an unspecified
amount for costs incurred in repairing dental work in which the
Advance(R) product allegedly failed. In September 2003, the
Plaintiff filed a Motion for class certification, which the
Company opposed. Oral arguments were held in December 2003, and
in January, 2004, the Judge entered an Order granting class
certification only on the claims of breach of warranty and
fraud. In general, the Class is defined as California dentists
who purchased and used Advance(R) cement and were required, because
of failures of Advance(R), to repair or reperform dental
procedures. The Company has filed a Writ of Mandate in the
appellate court seeking reversal of the class certification. The
Advance(R) cement product was sold from 1994 through 2000 and total
sales in the United States during that period were approximately
$5.2 million.
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 $11.4
million at December 31, 2003.
Noncurrent Income Taxes Payable, included as part of Other
Noncurrent Liabilities (Note 12), represent accruals for tax
contingencies, the majority of which are attributable to acquired
companies. These reserves were established at the time of
purchase to provide for the adverse outcome of tax proceedings
related to pre-acquisition periods. The Company is subject to
ongoing tax examinations and assessments in various
jurisdictions. Accordingly, the Company may record incremental
tax expense or reductions of excess purchase price based on the
outcome of such matters. The change from 2002 to 2003 of $22.1
million is primarily related the reversal of preacquisition tax
contingencies as discussed in Note 9.
NOTE 19 - ACCOUNTING CHARGES AND RESERVE REVERSALS
In the first and second quarters of 2003, the Company recorded
pretax charges of $4.1 million and $5.5 million, respectively,
related primarily to adjustments to inventory, accounts
receivable, and prepaid expense accounts at one division in the
United States and two international subsidiaries. All of these
operating units had been involved in integrating one or more of
the acquisitions completed in 2001. Of the $9.6 million in total
pretax charges recorded in the first and second quarters of 2003,
$2.4 million were determined to be properly recorded as changes
in estimate, $0.4 million were determined to be errors between
the first and second quarters of 2003, and the remaining $6.8
million ($4.6 million after tax) were determined to be errors
relating in prior periods ("Charge Errors"). The Charge Errors
included $3.0 million related to inaccurate reconciliations and
valuation of inventory, $2.0 million related to inaccurate
reconciliations and valuation of accounts receivable, $1.3
million related to unrecoverable prepaid expenses and $0.5
million related to other accounts. Had the Charge Errors been
recorded in the proper period, net income as reported would have
been decreased by $0.6 million ($0.01 per diluted share) in 2001
and $4.0 million ($0.05 per diluted share) in 2002. Recording
the effect of the Charge Errors in 2003 reduced net income by
$4.6 million ($0.06 per diluted share).
In addition to the aforementioned, in the first and second
quarters of 2003, the Company determined that $4.8 million in
reserves reversed in 2003 and $4.1 million of reserves reversed
in 2001 and 2002 should have been reversed in earlier years or
had been erroneously established ("Reserve Errors). The Reserve
Errors occurred in 2000 through 2002 and related primarily to
asset valuation accounts and accrued liabilities, including (on a
pre-tax basis) $5.1 million related to product return provisions,
$1.1 million related to bonus accruals, $0.8 million related to
product warranties, $0.7 million related to inventory valuation
and $1.2 million related to other accounts. Had the Reserve
Errors been recorded in the proper period, they would have
increased net income as reported by $0.8 million ($0.01 per
diluted share) in 2000, $1.8 million ($0.02 per diluted share) in
2001 and $0.7 million ($0.01 per diluted share) in 2002.
Recording the effect of the Reserve Errors in 2003 increased net
income by $3.3 million ($0.04 per diluted share).
The above described charges (including the $2.4 million changes
in estimates) and Reserve Errors amounted to $19.9 million
(pre-tax) on an absolute basis and occurred from 2000 through the
second quarter of 2003. Included in this total, are $2.0 million
of Reserve Errors and $0.4 million of Charge Errors that
originated and reversed in different quarters of same year. In
the aggregate, had the Charge Errors and Reserve Errors described
above been recorded in the proper period, reported net income
would have increased by $0.8 million ($0.01 per diluted share) in
2000, $1.2 million ($0.02 per diluted share) in 2001 and
decreased by $3.4 million ($0.04 per diluted share) in 2002. The
effect of recording the Reserve Errors and Charge Errors in 2003
reduced net income by $1.3 million ($0.02 per diluted share).
The Company performed an analysis of the Charge Errors and
Reserve Errors on both a qualitative and quantitative basis and
concluded that the errors were not material to the results of
operations and financial position of the Company for the years
ended December 31, 2000, 2001, 2002 and 2003. Accordingly, prior
period financial statements have not been restated.
NOTE 20 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
(in thousands, except per share amounts)
2003
Net sales $371,236 $394,478 $375,503 $429,708 $1,570,925
Gross profit 182,762 198,075 183,801 208,563 773,201
Operating income 60,524 69,840 63,781 73,838 267,983
Income from continuing operations 37,439 43,450 40,287 48,677 169,853
Income from discontinued operations 828 768 1,027 1,707 4,330
Net income $ 38,267 $ 44,218 $ 41,314 $ 50,384 $ 174,183
Earnings per common share - basic
Continuing operations $ 0.48 $ 0.55 $ 0.51 $ 0.62 $ 2.16
Discontinued operations 0.01 0.01 0.01 0.02 0.05
Total earnings per common share - basic $ 0.49 $ 0.56 $ 0.52 $ 0.64 $ 2.21
Earnings per common share - diluted
Continuing operations $ 0.47 $ 0.54 $ 0.50 $ 0.60 $ 2.11
Discontinued operations 0.01 0.01 0.01 0.02 0.05
Total earnings per common share - diluted $ 0.48 $ 0.55 $ 0.51 $ 0.62 $ 2.16
Cash dividends declared per common share $ 0.046 $ 0.046 $0.0525 $0.0525 $ 0.197
2002
Net sales $331,650 $361,601 $340,301 $384,048 $1,417,600
Gross profit 163,169 178,654 171,239 191,349 704,411
Operating income 55,715 62,945 59,539 71,253 249,452
Income from continuing operations 32,148 35,810 34,900 40,783 143,641
Income from discontinued operations 948 1,010 866 1,487 4,311
Net income $ 33,096 $ 36,820 $ 35,766 $ 42,270 $ 147,952
Earnings per common share - basic
Continuing operations $ 0.41 $ 0.46 $ 0.45 $ 0.52 $ 1.84
Discontinued operations 0.01 0.01 0.01 0.02 0.05
Total earnings per common share - basic $ 0.42 $ 0.47 $ 0.46 $ 0.54 $ 1.89
Earnings per common share - diluted
Continuing operations $ 0.40 $ 0.45 $ 0.44 $ 0.51 $ 1.80
Discontinued operations 0.01 0.01 0.01 0.02 0.05
Total earnings per common share - diluted $ 0.41 $ 0.46 $ 0.45 $ 0.53 $ 1.85
Cash dividends declared per common share $ 0.046 $ 0.046 $ 0.046 $ 0.046 $ 0.184
As described in Note 19, the Company recorded pre-tax charges
of $4.1 million and $5.5 million in the first and second quarters
of 2003, respectively.; Of these amounts, $3.3 million and $3.5
million, respectively, were determined to be errors related
primarily to prior years and $0.8 million and $1.6 million,
respectively, were determined to be changes in estimates. In
addition $0.4 of charges recognized in the second quarter of
2003, should have been recognized in the first quarter of 2003
Also in the first and second quarters of 2003, the Company
reversed $2.4 million and $4.4 million, respectively, of certain
reserves that should have been reversed in earlier periods or had
been erroneously established, including $2.0 million of reserves
reversed in the second quarter of 2003 that should have been
reversed in the first quarter of 2003. If the above described
errors had been recorded in the proper periods, net income would
have been higher by $1.7 million ($0.02 per diluted share) in the
first quarter of 2003 and lower by $0.4 million (less than $0.01
per diluted share) in the second quarter of 2003.
Of the above described charge errors, $6.0 million should have
been recorded as an expense in 2002. Of this amount, $2.1 million
(pre-tax) is related to physical inventory-related issues at one
of the Company's operations in the United States. While the
Company has concluded that the inventory issues arose in 2002,
due to the nature of the issues, the Company is unable to
allocate the $2.1 million to any interim period within 2002. If
the remaining $3.9 million of pre-tax charge errors ($2.6 million
after-tax) had been recorded in the appropriate interim periods,
net income would have decreased by $0.4 million (less than $0.01
per diluted share) in the first quarter of 2002, $1.1 million
($0.01 per diluted share) in the second quarter of 2002, $0.3
million (less than $0.01 per diluted share) in the third quarter
of 2002 and $0.8 million ($0.01 per diluted share) in the fourth
quarter of 2002.
Of the above described reserve errors, $1.0 million pre-tax,
should have been recorded as a reduction of expense in 2002, net
of the impact of reserves that reversed in error in 2002. If
these reserves and reversals had been recorded in the
appropriate interim periods net income would have decreased by
$0.3 million (less than $0.01 per diluted share) in the first
quarter of 2002, increased by $0.6 million ($0.01 per diluted
share) in the second quarter of 2002, decreased by $0.6 million
($0.01 per diluted share) in the third quarter of 2002, and
increased by $1.0 million ($0.01 per diluted share) in the fourth
quarter of 2002.
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
2003
First Quarter $ 37.95 $ 32.10 $ 34.79 $0.04600
Second Quarter 41.10 32.35 40.96 0.04600
Third Quarter 47.05 40.41 44.84 0.05250
Fourth Quarter 47.40 41.85 45.17 0.05250
2002
First Quarter $ 37.93 $ 31.60 $ 37.06 $0.04600
Second Quarter 40.95 35.25 36.91 0.04600
Third Quarter 43.50 31.25 40.17 0.04600
Fourth Quarter 43.10 31.89 37.20 0.04600
2001
First Quarter $ 26.67 $ 21.67 $ 24.33 $0.04583
Second Quarter 31.07 23.33 29.57 0.04583
Third Quarter 31.63 26.01 30.63 0.04583
Fourth Quarter 34.69 28.62 33.47 0.04584
All amounts reflect the 3-for-2 stock split effective January 31, 2002.
The Company estimates, based on information supplied by its transfer agent,
that there are approximately 26,700 holders of common stock, including 493
holders of record.
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/ Gerald K. Kunkle, Jr.
-----------------------------
Gerald K. Kunkle, Jr.
Vice 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/ John C. Miles II March 15, 2004
- ------------------------- --------------------
John C. Miles II Date
Chairman of the Board and a Director
/s/ Gerald K. Kunkle, Jr. March 15, 2004
- ---------------------------- --------------------
Gerald K. Kunkle, Jr. Date
Vice Chairman of the Board and
Chief Executive Officer and a Director
(Principal Executive Officer)
/s/ Bret W. Wise March 15, 2004
- ------------------------- --------------------
Bret W. Wise Date
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Dr. Michael C. Alfano March 15, 2004
- ------------------------- --------------------
Dr. Michael C. Alfano Date
Director
/s/ Paula H. Cholmondeley March 15, 2004
- ------------------------- --------------------
Paula H. Cholmondeley Date
Director
/s/ Michael J. Coleman March 15, 2004
- ------------------------- --------------------
Michael J. Coleman Date
Director
/s/ William F. Hecht March 15, 2004
- ------------------------- --------------------
William F. Hecht Date
Director
/s/ Leslie A. Jones March 15, 2004
- ------------------------- --------------------
Leslie A. Jones Date
Director
/s/ Betty Jane Scheihing March 15, 2004
- ------------------------- --------------------
Betty Jane Scheihing Date
Director
/s/Edgar H. Schollmaier March 15, 2004
- ------------------------- --------------------
Edgar H. Schollmaier Date
Director
/s/ W. Keith Smith March 15, 2004
- ------------------------- --------------------
W. Keith Smith Date
Director
===================================================================
AMENDMENT NO. 4 TO
FACILITY A 364-DAY COMPETITIVE ADVANCE,
REVOLVING CREDIT AND GUARANTY AGREEMENT
dated as of
May 23, 2003
among
DENTSPLY INTERNATIONAL INC., as Borrower,
THE GUARANTORS NAMED HEREIN,
THE BANKS NAMED HEREIN,
ABN AMRO BANK N.V., as Administrative Agent
and
CITIBANK, N.A., as Syndication FLEET NATIONAL BANK,
Agent
HARRIS TRUST AND SAVINGS BANK,
and
WACHOVIA BANK, NATIONAL
ASSOCIATION,
as Co-Documentation Agents
===================================================================
AMENDMENT NO. 4 TO FACILITY A
364-DAY COMPETITIVE ADVANCE, REVOLVING CREDIT AND GUARANTY
AGREEMENT
THIS AMENDMENT NO. 4 (this "Amendment") is dated as of
May 23, 2003, and amends the Facility A 364-Day Competitive
Advance, Revolving Credit and Guaranty Agreement, dated as of May
25, 2001, by and among DENTSPLY INTERNATIONAL INC. (the
"Borrower"), the Guarantors (as such term is defined therein) from
time to time party thereto, the Banks (as such term is defined
therein) from time to time party thereto, ABN AMRO BANK N.V., as
administrative agent (the "Agent"), and the other agents party
thereto, as amended by Amendment No. 1 to Facility A 364-Day
Competitive Advance, Revolving Credit and Guaranty Agreement
dated as of May 25, 2001, Amendment No. 2 to Facility A 364-Day
Competitive Advance, Revolving Credit and Guaranty Agreement
dated as of August 30, 2001, and Amendment No. 3 to Facility A
364-Day Competitive Advance, Revolving Credit and Guaranty
Agreement dated as of May 24, 2002 (the "Facility A Credit
Agreement").
BACKGROUND
The parties hereto desire to amend the Facility A
Credit Agreement to extend the maturity date as permitted by
Section 2.12(e) of the Facility A Credit Agreement, as more fully
set forth below.
OPERATIVE PROVISIONS
NOW THEREFORE, the parties hereto, in consideration of
their mutual covenants and agreements herein contained,
incorporating the above-defined terms herein and intending to be
legally bound hereby agree as follows:
Article I
Amendment
1.01. Defined Terms; References. Terms not otherwise
defined in this Amendment (including in the Background section
above) shall have the respective meanings ascribed to them in the
Facility A Credit Agreement. Each reference to "hereof,"
"hereunder," "herein," and "hereby" and similar references
contained in the Facility A Credit Agreement and each reference
to "this Agreement" and similar references contained in the
Facility A Credit Agreement shall, on and after the date hereof,
refer to the Facility A Credit Agreement as amended hereby.
1.02. Maturity Date. The Maturity Date is hereby
extended for an additional 364 days in accordance with Section
2.12(e) of the Facility A Credit Agreement and the definition of
"Maturity Date" set forth in Section 1.01 of the Facility A
Credit Agreement is hereby amended and restated in its entirety
to read as follows:
"Maturity Date" shall mean May 21, 2004 or such other
Maturity Date then in effect pursuant to Section
2.12(e).
1.03. Applicable Percentage. The table set forth
in the definition of "Applicable Percentage" in Section 1.01 of
the Facility A Credit Agreement is hereby deleted and replaced
with the following:
----------------------------------------------------
Facility LIBOR: Usage
Debt Rating: Fee: Applicable Fee:
S&P and Moody's Applicable Percentage Applicable
Respectively Percentage Percentage
----------------------------------------------------
----------------------------------------------------
A or above, or A2 8.0 32.0 10.0
or above
----------------------------------------------------
----------------------------------------------------
A- or A3 10.0 40.0 12.5
----------------------------------------------------
----------------------------------------------------
BBB+ or Baa1 12.5 50.0 12.5
----------------------------------------------------
----------------------------------------------------
BBB or Baa2 15.0 60.0 15.0
----------------------------------------------------
----------------------------------------------------
BBB- or Baa3 25.0 75.0 25.0
----------------------------------------------------
----------------------------------------------------
BB+ or Ba1 35.0 115.0 25.0
----------------------------------------------------
BB or below or 50.0 175.0 25.0
unrated, or Ba2
or below or
unrated
----------------------------------------------------
1.04.Commitments. Schedule 2.01 of the Facility A
Credit Agreement is hereby deleted in its entirety and is
replaced with Schedule 2.01 hereto.
1.05.Fees. On or before 5:00 p.m. (New York City time)
on May 23, 2003, and as a condition to the effectiveness of this
Amendment, Borrower shall pay in immediately available funds to
each Bank that executes this Amendment, an amount equal to one
twentieth of one percent 0.05% or 5 basis points) of the amount
of such Bank's Commitment as set forth on Schedule 2.01 hereto.
1.06.Agents. As of the effective date of this
Amendment, the agents are ABN AMRO Bank N.V., as administrative
agent, Citibank, N.A., as syndication agent, and Fleet National
Bank, Harris Trust and Savings Bank, and Wachovia Bank, National
Association, as co-documentation agents.
Article II
Representations and Warranties
As of the date hereof, each of the Borrower and each of
the Guarantors, jointly and severally, represent and warrant to
the Agent and each of the Banks as follows:
2.01. The execution and delivery by the Borrower
and the Guarantors of this Amendment, the consummation by the
Borrower and the Guarantors of the transactions contemplated by
the Credit Agreement as amended hereby, and the performance by
each of the Borrower and each Guarantor of its respective
obligations hereunder and thereunder have been duly authorized by
all necessary corporate proceedings on the part of the Borrower
and each Guarantor. On the date of Borrower's execution hereof,
there are no set-offs, claims, defenses, counterclaims, causes of
action, or deductions of any nature against any of the
Obligations.
2.02. This Amendment has been duly and validly
executed and delivered by the Borrower and each Guarantor and
constitutes, and the Credit Agreement as amended hereby
constitutes, the legal, valid and binding obligations of the
Borrower and each Guarantor enforceable in accordance with the
terms hereof and thereof, except as the enforceability of this
Amendment or the Credit Agreement as amended hereby may be
limited by bankruptcy, insolvency or other similar laws of
general application affecting the enforcement of creditors'
rights or by general principles of equity limiting the
availability of equitable remedies.
2.03. Neither the execution and delivery of this
Amendment nor consummation of the transactions contemplated
hereby or by the Credit Agreement as amended hereby nor
compliance with the terms and provisions hereof or of the Credit
Agreement as amended hereby, by the Borrower or any Guarantor,
will (a) violate any Law, (b) conflict with or result in a breach
of or a default under the articles or certificate of
incorporation or bylaws or similar organizational documents of
the Borrower or any Guarantor or any material agreement or
instrument to which the Borrower or any Guarantor is a party or
by which the Borrower or any Guarantor or any of their respective
properties (now owned or hereafter acquired) may be subject or
bound, (c) require any consent or approval of any Person or
require a mandatory prepayment or any other payment under the
terms of any material agreement or instrument to which the
Borrower or any Guarantor is a party or by which the Borrower or
any Guarantor or any of their respective properties (now owned or
hereafter acquired) may be subject or bound, (d) result in the
creation or imposition of any Lien upon any property (now owned
or hereafter acquired) of the Borrower or any Guarantor, or
(e) require any authorization, consent, approval, license, permit,
exemption or other action by, or any registration, qualification,
designation, declaration or filing with, any Governmental
Authority.
2.04. After giving effect to this Amendment: (i) no
Event of Default under and as defined in the Facility A Credit
Agreement and, to the knowledge of the Borrower and the
Guarantors, no event which upon notice or lapse of time or both
would constitute such an Event of Default has occurred and is
continuing, and (ii) the representations and warranties of each
of Borrower and each of the Guarantors contained in the Facility
A Credit Agreement and the other Fundamental Documents are true
and correct on and as of the date hereof with the same force and
effect as though made on such date, except to the extent that any
such representation or warranty expressly relates solely to a
previous date.
Article III
Effect, Effectiveness, Consent of Guarantors
3.01. Effectiveness. Upon (i) Borrower's payment and
performance of all obligations in connection herewith, (ii)
Agent's receipt from each of the Banks (other than the
Non-Extending Banks), the Borrower, and the Guarantors of a
counterpart hereof signed by such party or facsimile or other
written confirmation (in form satisfactory to Agent) that such
party has signed a counterpart hereof, (iii) Agent's receipt of a
certificate signed by the Secretary or Assistant Secretary of
each Borrower and Guarantor certifying that the articles of
incorporation, bylaws, resolutions, specimen signatures and
incumbency of officers previously delivered by such Borrower or
Guarantor to the Agent in connection with the Facility A Credit
Agreement remain in effect and have not been amended and are
effective to authorize such Person's execution, delivery, and
performance of this Amendment, provided that, to the extent such
articles of incorporation, bylaws, resolutions, or incumbency are
no longer in effect or have been amended, such certificate shall
certify as to the changes thereto, this Amendment shall be
effective as of the date hereof, and (iv) an opinion of counsel
with respect to the enforceability of, and the due authorization
and capacity of the Borrower and each of the Guarantors to
execute, deliver and perform, this Amendment.
3.02. Amendment. The Facility A Credit Agreement is
hereby amended in accordance with the terms hereof, and this
Amendment and the Facility A Credit Agreement shall hereafter be
one agreement and any reference to the Facility A Credit
Agreement in any document, instrument, or agreement shall
hereafter mean and include the Facility A Credit Agreement as
amended hereby. In the event of irreconcilable inconsistency
between the terms or provisions hereof and the terms or
provisions of the Facility A Credit Agreement, the terms and
provisions hereof shall control.
3.03. Joinder of Guarantors. Each of the Guarantors
hereby joins in this Amendment to evidence its consent hereto,
and each Guarantor hereby reaffirms its obligations set forth in
the Facility A Credit Agreement, as hereby amended, and in each
other Fundamental Document given by it in connection therewith.
Article IV
Miscellaneous
4.01. Facility A Credit Agreement. Except as
specifically amended by the provisions hereof, the Facility A
Credit Agreement and all other Fundamental Documents shall remain
in full force and effect and are hereby ratified and confirmed by
the parties hereto.
4.02. Counterparts, Telecopy Signatures. This
Amendment may be signed in any number of counterparts each of
which shall be deemed an original, but all of which together
shall constitute one and the same instrument; and, delivery of
executed signature pages hereof by telecopy transmission from one
party to another shall constitute effective and binding execution
and delivery respectively of this Amendment by such party.
4.03. Governing Law. This Amendment shall be
governed by and construed and enforced in accordance with the
laws of the State of New York without regard to its conflict of
laws principles.
4.04. Expenses. Each of the Borrower and each of
the Guarantors agree, jointly and severally, to reimburse the
Agent for its reasonable out-of-pocket expenses arising in
connection with the negotiation, preparation and execution of
this Amendment, including the reasonable fees and expenses of
Buchanan Ingersoll PC, counsel for the Agent.
4.05. Severability. If any provision of this
Amendment, or the application thereof to any party hereto, shall
be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions or
applications of this Amendment which can be given effect without
the invalid and unenforceable provision or application, and to
this end the parties hereto agree that the provisions of this
Amendment are and shall be severable.
4.06. Banks' Consent. Each Bank, by its execution
hereof, hereby consents to this Amendment pursuant Section 10.02
of the Facility A Credit Agreement.
[SIGNATURE PAGES FOLLOW]
[SIGNATURE PAGE 1 OF 15 TO AMENDMENT NO. 4 TO 364-DAY CREDIT
FACILITY]
IN WITNESS WHEREOF, the parties hereto, have caused
this Amendment to be duly executed by their respective authorized
officers as of the day and year first above written.
[BORROWER:]
DENTSPLY INTERNATIONAL INC., a
Delaware corporation
By:
Name:
Title:
[GUARANTORS:]
CERAMCO INC., a Delaware corporation
By:
Name:
Title:
CERAMCO MANUFACTURING CO., a
Delaware corporation
By:
Name:
Title:
[SIGNATURE PAGE 2 OF 15 TO AMENDMENT NO. 4 TO 364-DAY CREDIT
FACILITY]
G.A.C. INTERNATIONAL, INC., a New
York corporation
By:
Name:
Title:
RANSOM & RANDOLPH COMPANY, a
Delaware corporation
By:
Name:
Title:
TULSA DENTAL PRODUCTS INC., a
Delaware corporation
By:
Name:
Title:
AUSTENAL, INC., an Illinois
corporation
By:
Name:
Title:
[SIGNATURE PAGE 3 OF 15 TO AMENDMENT NO. 4 TO 364-DAY CREDIT
FACILITY]
DENTSPLY FINANCE CO., a Delaware
corporation
By:
Name:
Title:
DENTSPLY RESEARCH & DEVELOPMENT
CORP., a Delaware corporation
By:
Name:
Title:
[SIGNATURE PAGE 4 OF 15 TO AMENDMENT NO. 4 TO 364-DAY CREDIT
FACILITY]
[BANKS:]
ABN AMRO BANK N.V., individually
and as Administrative Agent for the
Banks
By:
Name:
Title:
By:
Name:
Title:
[SIGNATURE PAGE 5 OF 15 TO AMENDMENT NO. 4 TO 364-DAY CREDIT
FACILITY]
CITIBANK, N.A., individually and as
Syndication Agent for the Banks
By:
Name:
Title:
[SIGNATURE PAGE 6 OF 15 TO AMENDMENT NO. 4 TO 364-DAY CREDIT
FACILITY]
FLEET NATIONAL BANK, individually
and as Co-Documentation Agent for
the Banks
By:
Name:
Title:
[SIGNATURE PAGE 7 OF 15 TO AMENDMENT NO. 4 TO 364-DAY CREDIT
FACILITY]
HARRIS TRUST AND SAVINGS BANK,
individually and as
Co-Documentation Agent for the
Banks
By:
Name:
Title:
[SIGNATURE PAGE 8 OF 15 TO AMENDMENT NO. 4 TO 364-DAY CREDIT
FACILITY]
WACHOVIA BANK, NATIONAL
ASSOCIATION, individually and as
Co-Documentation Agent for the Banks
By:
Name:
Title:
[SIGNATURE PAGE 9 OF 15 TO AMENDMENT NO. 4 TO 364-DAY CREDIT
FACILITY]
ALLFIRST BANK
By:
Name:
Title:
[SIGNATURE PAGE 10 OF 15 TO AMENDMENT NO. 4 TO 364-DAY CREDIT
FACILITY]
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By:
Name:
Title:
[SIGNATURE PAGE 11 OF 15 TO AMENDMENT NO. 4 TO 364-DAY CREDIT
FACILITY]
DRESDNER BANK AG IN FRANKFURT AM
MAIN
By:
Name:
Title:
By:
Name:
Title:
[SIGNATURE PAGE 12 OF 15 TO AMENDMENT NO. 4 TO 364-DAY CREDIT
FACILITY]
JPMORGAN CHASE BANK
By:
Name:
Title:
[SIGNATURE PAGE 13 OF 15 TO AMENDMENT NO. 4 TO 364-DAY CREDIT
FACILITY]
FIFTH THIRD BANK
By:
Name:
Title:
[SIGNATURE PAGE 14 OF 15 TO AMENDMENT NO. 4 TO 364-DAY CREDIT
FACILITY]
NATIONAL CITY BANK
By:
Name:
Title:
[SIGNATURE PAGE 15 OF 15 TO AMENDMENT NO. 4 TO 364-DAY CREDIT
FACILITY]
UBS AG, STAMFORD BRANCH
By:
Name:
Title:
By:
Name:
Title:
SCHEDULE 2.01 - 5
SCHEDULE 2.01
TO FACILITY A CREDIT AGREEMENT (364-DAY)
Part 1 - Commitments of Banks and Addresses for Notices to Banks
Amount of Ratable
Bank Commitment Share
Name:
ABN AMRO Bank N.V. $30,000,000 12.00%
Address for Notices:
55 East 52nd Street
New York, NY 10055
Attn: Todd Miller
Telephone:(212) 409-7046
Telecopy:(212) 409-1641
- ------------------------------------------
Copy to:
208 S. LaSalle Street, Suite 1500
Chicago, IL 60604-1003
Attn: Nemesia Esangga, Agency Services
Telephone:(312) 992-5082
Telecopy:(312) 992-5157
With a copy to:
Attn: Suzanne Smith, Agency Services
Telephone: (312) 992-5095
Telecopy: (312) 992-5157
With a copy to:
Attn: Dominic Blea, Credit
Administration
Telephone: (312) 992-5196
Telecopy: (312) 992-5111
Address of Lending Office:
208 S. LaSalle Street, Suite 1500
Chicago, IL 60604-1003
Attn: Nemesia Esangga, Agency Services
Telephone:(312) 992-5082
Telecopy:(312) 992-5157
Name:
Citibank, N.A. $30,000,000 12.00%
Address for Notices:
388 Greenwich Street, 23rd Floor
New York, NY 10013
Attn: Stuart G. Miller
Telephone:(212) 816-5414
Telecopy:(212) 816-5402
Address of Lending Office:
Same as Notices
Name:
Fleet National Bank $25,000,000 10.00%
Address for Notices:
502 Carnegie Center
Princeton, NJ 08540
Attn: Peter J. Cahill
Telephone:(609) 627-7810
Telecopy:(609) 799-9262
Address of Lending Office:
Same as Notices
Name:
Harris Trust and Savings Bank $25,000,000 10.00%
Address for Notices:
111 W. Monroe Street
Chicago, IL 60603
Attn: Jeffrey C. Nicholson
Telephone:(312) 461-2736
Telecopy:(312) 461-5225
Address of Lending Office:
Same as Notices
Name:
Wachovia Bank, National Association $25,000,000 10.00%
Address for Notices:
1339 Chestnut Street, 12th Floor
Philadelphia, PA 19107
Attn: Jeanette Griffin
Telephone:(267) 321-6615
Telecopy:(267) 321-6702
Address of Lending Office:
3 Bishopsgate, London EC2N 3AB
United Kingdom
Attn: Matthew Vickers
Telephone:011 44 0 207 962 2868
Telecopy:011 44 0 207 929 4645
Name:
Allfirst Bank $20,000,000 8.00%
Address for Notices:
2055 South Queen Street, MC 182-02-01
York, PA 17403
Attn: Theodore K. Oswald
Telephone:(717) 771-4904
Telecopy:(717) 771-4914
Address of Lending Office:
Same as Notices
Name:
Bank of Tokyo-Mitsubishi Trust Company $20,000,000 8.00%
Address for Notices:
1251 Avenue of the Americas, 12th Floor
New York, NY 10020-1104
Attn: Heather Zimmermann
Telephone:(212) 782-4220
Telecopy:(212) 782-6440
Address of Lending Office:
Same as Notices
Name:
Dresdner Bank AG in Frankfurt am Main $20,000,000 8.00%
Address for Notices:
Gallusanlage 2, 3. OG, Fach 6
D - 60613 Frankfurt
Germany
Attn: Rainer Bleek
Telephone:011 49 (69) 263 12876
Telecopy:011 49 (69) 263 12878
Address of Lending Office:
Gallusanlage 2, 3. OG
D - 60613 Frankfurt
Germany
Attn: Juergen Schecke
Telephone:011 49 (69) 263 12879
Telecopy:011 49 (69) 263 12878
Name:
JPMorgan Chase Bank $20,000,000 8.00%
Address for Notices:
One Riverfront Plaza, 2nd Floor
Newark, NJ 07102
Attn: Sherry Misiak
Telephone:(973) 353-6170
Telecopy:(973) 353-6158
Address of Lending Office:
Same as Notices
Name:
Fifth Third Bank $12,500,000 5.00%
Address for Notices:
38 Fountain Square, MD 109054
Cincinnati, OH 45263
Attn: Christine L. Wagner
Telephone:(513) 744-7348
Telecopy:(513) 744-5947
Address of Lending Office:
Same as Notices
Name:
National City Bank $12,500,000 5.00%
Address for Notices:
================
Attn: ___________
Telephone:____________
Telecopy:____________
Address of Lending Office:
Same as Notices
Name:
UBS AG, Stamford Branch $10,000,000 4.00%
Address for Notices:
677 Washington Blvd., 6th Floor South
Stamford, CT 06901
Attn: Susan Brunner
Telephone:(203) 719-4181
Telecopy:(203) 719-4176
Address of Lending Office:
Same as Notices
Total
$250,000,000 100.00%
SCHEDULE 2.01
COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
Part 2 - Addresses for Notices to Administrative Agent, Borrower,
and Guarantors:
ADMINISTRATIVE AGENT:
Name:
ABN AMRO Bank N.V.
Address for Notices:
55 East 52nd Street
New York, NY 10055
Attn: Todd Miller
Telephone:(212) 409-7046
Telecopy:(212) 409-1641
Copy to:
208 S. LaSalle Street, Suite 1500
Chicago, IL 60604-1003
Attn: Nemesia Esangga, Agency Services
Telephone:(312) 992-5082
Telecopy:(312) 992-5157
With a copy to:
Attn: Suzanne Smith, Agency Services
Telephone: (312) 992-5095
Telecopy: (312) 992-5157
With a copy to:
Attn: Dominic Blea, Credit Administration
Telephone: (312) 992-5196
Telecopy: (312) 992-5111
BORROWER:
Name: DENTSPLY INTERNATIONAL INC.
Address: 570 West College Avenue
P.O. Box 872
York, PA 17405-0872
Attn: Mr. William E. Reardon, Treasurer
Telephone: (717) 849-4262
Telecopy: (717) 849-4759
With a copy to:
Attn: Brian M. Addison, Esq., General Counsel and Secretary
Telephone: (717) 849-4363
Telecopy: (717) 849-4753
GUARANTORS:
Names and addresses:
- ----------------------------------------------------------------------
CERAMCO INC. CERAMCO MANUFACTURING CO.
- ----------------------------------- HC-01 Box 8122
Six Terri Lane State Road 183, KM.19.6
Burlington, NJ 08016 Las Piedras, PR 00671-9738
Attention: Secretary Attention: Secretary
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
DENTSPLY FINANCE CO. DENTSPLY INTERNATIONAL
2337 S. Yates Avenue PREVENTIVE CARE DIVISION L.P.
Los Angeles, CA 90040 570 West College Avenue
Attention: Secretary York, PA 17404
Attention: Secretary
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
DENTSPLY RESEARCH & DEVELOPMENT G.A.C. INTERNATIONAL, INC.
CORP. 185 Oval Drive
2337 S. Yates Avenue Islandia, NY 11749-1413
Los Angeles, CA 90040 Attention: Secretary
Attention: Secretary
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
MIDWEST DENTAL PRODUCTS CORPORATION RANSOM & RANDOLPH COMPANY
901 West Oakton Street 3535 Briarfield Boulevard
Des Plaines, IL 60018 Maumee, OH 43537
Attention: Secretary Attention: Secretary
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
TULSA DENTAL PRODUCTS INC.
5001 E. 68th Street, Suite 500
Tulsa, OK 74136
Attention: Secretary
- ----------------------------------------------------------------------
Chairman's Agreement with John C. Miles II Effective January 1, 2004, the Company entered an Agreement with John C. Miles II, under which he will receive $100,000.00 over the period from January 1, 2004 through the date of the Company's Annual Meeting in 2005, in consideration of his service as Chairman of the Board of the Company.
Summary of 2003 Incentive Compensation Plan At the end of 2002, the Human Resources Committee of the Board of Directors adopted the Year 2003 Incentive Compensation Plan (the "Plan"). The Plan established target award opportunities ranging from 23% of base salary for key employees to 80% of base salary for the Chief Executive Officer. The bonuses were earned based on the achievement of certain financial targets, which are established based on the individual participant's position. For the Chief Executive Officer, the Chief Operating Officer and the Executive President the bonus awards for 100% of targeted performance were set at 80%, 65% and 60%, respectively, of their base salaries. For the Senior Vice Presidents and the General Counsel the bonus awards for 100% of targeted performance were set at 55% and 43%, respectively, of their base salaries. Messrs. Miles, Kunkle, Whiting, Clark, Jellison, Lehner, Mosch, Roos, Weston, Wise and Addison received bonus awards for 2003 of 81.9%, 66.6%, 57.8%, 56.3%, 53.2%, 71.8%, 51.8%, 14.1%, 71.8%, 56.3% and 44.0%, respectively.
Confidential
MANUFACTURING AGREEMENT
This MANUFACTURING AGREEMENT ("Agreement"), having an effective date of the
1st day of March, 2004, (the "Effective Date"), is made and entered into by
and between AstraZeneca LP, having a principal place of business at 50 Otis
Street, Westborough, MA 01581("AZ") and the Dentsply Anesthetics Division of
Maillefer Instruments Trading S.a.r.L., having a place of business at Chemin
du Verger 3, CH-1338 Ballaigues, Switzerland ("Dentsply").
RECITALS
WHEREAS, as of the date last written below (the "Execution Date"), AZ is
manufacturing certain Products (as defined in Article 1 below) for sale
by Dentsply pursuant to the AZLAD Products Manufacturing Agreement
between AstraZeneca AB and Maillefer Instruments Holding S.A. ("MIH")
(the respective parent companies of AZ and Dentsply) dated January 18,
2001 (the "2001 Agreement"); and
WHEREAS, AZ's obligations to manufacture and Dentsply's obligations to
purchase the Products under the 2001 Agreement terminate on February 29,
2004; and
WHEREAS, AZ and Dentsply desire to enter into an arrangement for the
manufacturing of the Products as of the Effective Date, which Products
will be manufactured by AZ for sale by Dentsply, on the terms and
conditions set forth in this Agreement; and
WHEREAS, in order to allow AZ to take into account such manufacturing
obligations for its strategic planning purposes, AZ and Dentsply have
agreed to enter into this Agreement on the Execution Date.
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree
to the following:
1. DEFINITIONS
The following terms for the purpose of this Agreement shall have the
following respective meanings:
1.1 "Active Ingredient" means, with respect to any Product, the active
pharmaceutical ingredient in a Product.
1.2 "Affiliate" means, with respect to any Person, another Person that
directly, or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with such
Person. "Control," and with correlative meanings, the terms
"controlled by" and "under common control with" means the power to
direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by
contract, resolution, regulation or otherwise. With respect to AZ,
"Affiliate" shall also mean any corporation or other business
entity that controls, is controlled by or under common control with
AstraZeneca PLC. With respect to Dentsply, "Affiliate" shall also
mean any corporation or other business entity that controls, is
controlled by, or is under common control with MIH.
1.3 "Annual Period" means a calendar year, provided, however, that the first
Annual Period shall run from the Effective Date through December 31
of such year and is therefore less than a calendar year.
1.4 "Batch" means a quantity of 3,750 Sales Units, and is equal to 375,000
individual dental cartridges of one Product
1.5 "CGMP Requirements" means the FDA's current Good Manufacturing Practice
requirements as promulgated under the FFDCA at 21 CFR (Parts 210
and 211), and as further defined by FDA guidance documents, as such
may be amended from time to time, applicable to the clinical
processing and bulk packaging of the Products.
1.6 "Components" means all containers, closures, packaging components,
labels and labeling necessary for the manufacture of the Product as
finished goods.
1.7 "Confidential Information" has the meaning set forth in Section 12.1 of
this Agreement.
1.8 "Effective Date" means the date written in the preamble of this
Agreement.
1.9 "Facility" means AZ's facility in Westborough, Massachusetts.
1.10 "FDA" means the United States Food and Drug Administration, or any such
successor agency of the Federal government.
1.11 "FFDCA" means the Federal Food, Drug, and Cosmetic Act, 21 U.S.C.ss.ss.301
et seq., as amended.
1.12 "Firm Order" has the meaning set forth in Section 2.3(b) of this
Agreement.
1.13 "Forecast" has the meaning set forth in Section 2.3(b) of this Agreement.
1.14 "Government and Regulatory Authority Approval" means any and all actions
of a Government or Regulatory Authority necessary for the
Manufacture and distribution of the Products.
1.15 "Government or Regulatory Authority" means any United States Federal,
state, or local government, governmental instrumentality or
governmental or other regulatory or administrative authority,
agency, department, board or court, tribunal or judicial,
administrative or arbitration tribunal, and any foreign counterpart
thereof.
1.16 "Law" means any Federal, state or local law, statute or ordinance, or
any rule, regulation, or published guidelines, or any statement
having the effect of law, promulgated by any Government or
Regulatory Authority.
1.17 "Materials" means, with respect to any Product, all inactive raw
materials used in the formulation of the Product necessary for the
manufacture of the Product as finished goods.
1.18 "Manufacture" and "Manufacturing" means the manufacturing, processing,
formulating, packaging and holding of such Product prior to
delivery to Dentsply and performing the in-process and other
testing of the Product required to be performed by AZ pursuant to
the Quality Agreement prior to delivery to Dentsply.
1.19 "Party" means each of AZ and Dentsply.
1.20 "Person" means any natural person, corporation, general partnership,
limited partnership, limited liability company, proprietorship,
other business organization, trust, union, association or
Government or Regulatory Authority.
1.21 "Product" means any of the products set forth in Exhibit A attached
hereto and made a part hereof.
1.22 "Quality Agreement" means the Agreement executed between the Parties on
the date hereof, in the form set forth in Exhibit B hereto, and any
similar successor agreement governing the same subject matter.
1.23 "Specifications" means, with respect to each Product, the Product
description and attributes set forth in Exhibit C attached hereto
and made a part hereof, and any changes thereto as mutually agreed
upon by the Parties in accordance with Section 2.1.
1.24 "Territory" means the United States of America, Canada and Puerto Rico.
1.25 "Sales Unit" means one hundred (100) dental cartridges of a Product
1.26 "Work in Process" shall mean, with respect to any Product, all Materials
and Active Ingredient from the time of pre-weighing for allocation
to a manufacturing lot until satisfactory completion of quality
testing for such manufacturing lot.
2. MANUFACTURE OF PRODUCTS
2.1 Manufacturing. AZ agrees to Manufacture the Products, subject to the
terms and conditions set forth in this Agreement, to meet
Dentsply's requirements for the Products. AZ shall Manufacture the
Products (a) in accordance with the Specifications, as may be
amended in writing from time to time, with written notice by
Dentsply and mutual agreement of the Parties and (b) in material
compliance with the Quality Agreement, this Agreement, the CGMP
Requirements and all other applicable legal requirements.
Notwithstanding the provisions of this Agreement or any of its
Exhibits, including but not limited to the Specifications, AZ shall
implement, as soon as possible, any change to the Manufacture of
Products that is required or recommended by the FDA or required by
CGMP Requirements or other applicable Law, and in such event, will
provide written notice to Dentsply of any such change as soon as is
reasonably practicable. Any and all direct costs (including but
not limited to documented internal administrative costs, costs of
external technical consultants engaged by AZ in effectuating such
changes, the lost value and disposal cost of obsolescent Work in
Process, Materials, Components and completed, packaged Products)
associated with any change in the Manufacture of the Products shall
be borne by Dentsply. If a change is made to the Specifications,
Dentsply shall first obtain any required Government and Regulatory
Authority approvals and shall make any necessary amendments to
regulatory filings.
2.2 Supply and Ownership of Materials. AZ shall arrange to have all Active
Ingredients necessary for the Manufacture of the Products shipped
to AZ unless otherwise mutually agreed by the Parties. AZ shall be
responsible for release of the Active Ingredients in accordance
with the Specifications. AZ shall supply the Components and
Materials necessary for the Manufacture of the Products listed in
Exhibit A. AZ shall retain title and ownership of all Products
until shipment in accordance with Section 2.5.
2.3 Forecasts and Orders
(a) Dentsply shall provide Forecasts and Firm Orders for Products
in whole Batches in accordance with the procedures set forth in
Section 2.3(b). AZ shall use commercially reasonable efforts to
deliver Product in accordance with timelines set forth in the
Firm Orders submitted by Dentsply as set forth in Section 2.3(b).
(b) Commencing on December 1, 2003 (the "Initial Forecast Date"),
Dentsply will provide AZ a forecast of Dentsply's requirements in
Batches for each Product for each month for a twelve (12) month
period (a "Forecast"); provided, however, that from the Initial
Forecast Date until the Effective Date, each Forecast shall
reflect Dentsply's requirements for the twelve-month period
beginning on the Effective Date. Such Forecast shall be revised
monthly for (i) a rolling twelve (12) month period, or (ii)
through the remaining period to termination of this Agreement,
with the first three (3) months' forecast in each twelve (12)
month period beginning on December 1, 2003 reflected in the form
of a firm, non-cancelable purchase order (a "Firm Order"). The
maximum monthly quantity specified in the Forecast or Firm Order
shall not exceed 17 Batches (63,750 Sales Units) per month as the
total for all Products. The minimum monthly quantity specified
in the Forecast or Firm Order shall not be less than 12 Batches
(45,000 Sales Units) per month as the total for all Products.
For the term of this Agreement, should Dentsply provide a Firm
Order that is below the minimum monthly quantity, AZ will invoice
Dentsply as if the minimum monthly quantity of Sales Units of the
highest priced Product had been Manufactured; provided, however,
that Dentsply may provide a Firm Order that is below the minimum
monthly quantity of Batches for the month during which AZ
conducts its annual shutdown of the Facility or for a month that
AstraZeneca determines it can not provide such minimum quantity
due to a decrease in available capacity such as equipment
maintenance or SAP software installation. AZ will notify
Dentsply in writing of the month that such shutdown is to occur
at least three (3) months prior to the first day of such month.
(c) AZ will respond within 10 business days of receiving from
Dentsply the monthly rolling Forecast and Firm Order and will
either (i) confirm acceptance by AZ of the Forecast and Firm
Order quantities or (ii) reject the requested quantities and
initiate a dialogue between the Parties to arrive at mutually
acceptable values for the Forecast and Firm Order. AZ will use
commercially reasonable efforts to accommodate any additional
quantity of Products requested by Dentsply after the Firm Order
has been sent to AZ, but AZ shall not be liable in any respect
for its inability to do so. Notwithstanding anything in this
Agreement to the contrary, AZ shall have no obligation to
Manufacture in any month more than 17 Batches in total for all
Products, and AZ shall have no obligation to Manufacture any
quantity of Products during the specified shutdown month. Firm
Orders may be amended only by mutual agreement of the Parties, in
writing.
2.4 Inability of AZ to meet Requirements. If during the term of this
Agreement AZ cannot meet substantially all of Dentsply's
requirements for the Product for any reason other than Dentsply's
failure to comply with Section 2.3, then AZ promptly shall so
advise Dentsply in writing, and, after a period of forty-five (45)
days with no deliveries, Dentsply shall be free to purchase
replacement Products from other sources for as long as AZ's
inability to supply Dentsply's requirements continues.
2.5 Delivery of Products. AZ agrees to arrange delivery of the Products to
Dentsply F.O.B. AZ's Facility in Westborough, Massachusetts.
Dentsply will select appropriate carriers. AZ agrees to provide
reasonable assistance in this selection. Products shall be shipped
in accordance with FDA regulations, and other applicable federal
and state regulations.
3. MANUFACTURING STANDARDS AND QUALITY ASSURANCE
3.1 Each Product will be Manufactured, controlled, tested, and released in
accordance with the Quality Agreement. If there is any
inconsistency between this Agreement and the Quality Agreement, the
terms of the Quality Agreement shall control with respect to
quality issues, and this Agreement shall control with respect to
all other issues.
3.2 AZ warrants that, as of the date of each delivery hereunder to Dentsply,
and until its date of expiration, each Product, whether for
intended sale in the United States or elsewhere, shall comply with
the provisions of the FFDCA, and such Product shall not, when
delivered to Dentsply, be adulterated or misbranded within the
meaning of the FFDCA. A material default by either Party of the
Quality Agreement shall be deemed a default under this Agreement.
3.3 Dentsply warrants that each Product shall have all necessary and
appropriate Government and Regulatory Approval for commercial sale
by Dentsply in the Territory and further warrants such Product
after delivery to Dentsply will not be adulterated or misbranded
within the meaning of the FFDCA.
4. REGULATORY SUBMISSIONS
4.1 Government and Regulatory Approval. Dentsply shall have responsibility
for making all filings and submissions with respect to the Products
to the FDA or other applicable Government and Regulatory
Authorities in the Territory and for obtaining all Government and
Regulatory Approvals required for the commercial sale of Product in
the Territory. AZ shall, at Dentsply's request, cooperate and
provide reasonable assistance with such filings and submissions,
including, the provision of appropriate data when necessary.
4.2 Government and Regulatory Contacts. Dentsply shall be responsible for
all Government and Regulatory contacts, meetings or filings with
the FDA or equivalent contacts with Government and Regulatory
Authorities in the Territory. AZ agrees to provide reasonable
assistance during this Agreement as required.
4.3 Adverse Experience Reporting. Dentsply and AZ shall report to the other
any information that they have knowledge of concerning any adverse
drug experience in connection with the use of the Products,
including the incidence or severity thereof, associated with
non-clinical toxicity studies, clinical uses, studies,
investigations or tests, whether or not determined to be
attributable to the Products, all as further outlined in the
Quality Agreement.
4.4 Recalls. All coordination of any recall or field correction activities
involving Products shall be handled by Dentsply whether or not such
action was requested by AZ.
4.5 Expenses. In the event that any Product is recalled as a result of (i)
the supply by AZ of Product that does not conform to the warranty
set forth in Section 3.2 or (ii) the negligent or intentionally
wrongful act of AZ or its representatives, then AZ shall bear all
of the reasonable, documented out-of-pocket costs and expenses of
such recall including without limitation expenses related to
communications and meetings with all required Government and
Regulatory Authorities, expenses of replacement stock, the cost of
notifying customers and costs associated with shipment of recalled
Product from customers and shipment of an equal amount of
replacement Product to those customers. In the event that any
Product is recalled as a result of any act other than as set forth
in the immediately preceding sentence, then Dentsply shall bear all
of the reasonable, documented costs and expenses of such recall,
including without limitation expenses related to communications and
meetings with all required Government and Regulatory Authorities,
expenses of replacement stock, the cost of notifying customers and
costs associated with shipment of recalled Product from customers
and shipment of an equal amount of replacement Product to those
customers. In the event that the reason for any recall of Product
hereunder is in part the responsibility of AZ as described in the
first sentence of this Section 4.5 and in part the responsibility
of Dentsply as described in the immediately preceding sentence,
then the expenses related to such recall shall be allocated in an
equitable manner between the Parties.
5. CONSIDERATION
5.1 Price. The price for the Products to be delivered by AZ during the term
of this Agreement, shall be as set forth in Exhibit D. AZ shall
invoice for the Products such amounts upon shipment of the Products
to Dentsply. The terms of payment shall be net thirty (30) days
from date of invoice provided that the invoice is promptly mailed,
sent via overnight courier, or telefaxed, to Dentsply.
5.2 Price Changes. AstraZeneca may increase its price for the Products to
absorb increased costs in the supply price to AstraZeneca of Active
Ingredients, Materials and Components used in the production of
Dentsply Products. AstraZeneca agrees to provide reasonable
documentation to substantiate any such increase.
5.3 Equipment. The Parties have mutually agreed that Exhibit E represents
equipment known to require repair or replacement during 2004.
Within 30 days of the Execution Date, the parties shall undertake
to schedule in a timely manner the repairs or replacement work. The
actual cost of performing these equipment repairs and replacements
will be borne by Dentsply.
5.4 Equipment Repair Costs. During the term of this Agreement, AstraZeneca
shall be responsible for the cost of maintenance, repair, and
replacement for the items of equipment owned by Dentsply and listed
in Exhibit F, with the exception of the maintenance, repairs and
replacements listed in Exhibit E as set forth in Section 5.3
above. Notwithstanding the foregoing, in the event that the cost
of any specific maintenance, repair or replacement, including all
equipment vendor support costs, AstraZeneca labor and materials,
exceeds $50,000, Dentsply shall, upon written notification thereof
by AstraZeneca, reimburse AstraZeneca for the entire cost of that
repair or replacement. AstraZeneca agrees, where reasonably
practicable, to provide Dentsply with written notice of its best
estimate of the cost of such repairs prior to beginning to make, or
have made, those repairs. In addition, in the event the estimated
cost of the repairs exceeds $75,000, Dentsply shall have 72 hours
from receipt of notice of the estimated repair cost and request for
approval to decide whether to give its approval to AstraZeneca
making those repairs, which approval may not be unreasonably
withheld. In the event Dentsply does not respond to AstraZeneca's
request for approval within that 72 hour period, Dentsply shall be
deemed to have given its approval to any such requested repairs.
AstraZeneca agrees to provide reasonable documentation to
substantiate any such maintenance event.
5.5 Equipment Removal and Facility Restoration. For the term of this
Agreement Dentsply will retain ownership of the equipment set forth
in Exhibit F and such Dentsply equipment shall remain at AZ's
Facility. Dentsply shall complete disassembly and removal of this
equipment as soon as reasonably practicable after termination of
this Agreement and as mutually agreed to by the Parties. The
removal of equipment from classified Manufacturing areas must be
scheduled with the annual Westborough site shutdown in order to
minimize disruption to other AstraZeneca activities. The cost of
disassembly, removal and transport of all such equipment, and any
repairs or modifications to the Facility that are necessary to
restore the Facility to working order and area classification, will
be Dentsply's responsibility.
5.6 Active Ingredients, Materials, Components. Upon termination of this
Agreement, all Active Ingredients, Materials and Components unique
to the Manufacture of the products, shall be either (i) destroyed
pursuant to Dentsply's written instructions and at Dentsply's loss
of inventory value and disposal expense, or (ii) sold to Dentsply
at cost FOB Westborough, MA.
6. TERM AND TERMINATION
6.1 Term. Except with respect to Dentsply's forecasting obligations
specified in Section 2.3, the obligations of the Parties hereunder
shall commence on the Effective Date and continue until February,
28, 2005 (the "Termination Date") unless this Agreement is extended
by Dentsply notifying AstraZeneca in writing, no later than
September 1, 2004, of its intention to extend the Agreement beyond
the "Termination Date" to a new date not to extend beyond December
31, 2005.
6.2 Termination for Breach. This Agreement may be terminated by either
Party if the other Party fails to remedy and make good any material
default in the performance of any condition or obligation under
this Agreement within ninety (90) days of the date a written notice
of such default and intention to terminate is sent to the
defaulting Party; provided that if a defaulting Party has promptly
from receipt of notice commenced to cure such default and can
demonstrate that it is diligently attempting to cure such default
at the lapse of such ninety (90) days, then such party shall have
such additional time to cure as may be reasonably required but not
to exceed an additional seventy-five (75) days.
6.3 Termination for Bankruptcy. This Agreement may be terminated by either
Party immediately, or at any time thereafter by notice to the other
if the other becomes bankrupt or insolvent, or enters into
liquidation whether compulsorily or voluntarily, or convenes a
meeting of its creditors, or has a receiver appointed over all or
part of its assets, or ceases for any reason to carry on business.
6.4 Termination for Force Majeure. This Agreement may be terminated by a
Party, upon thirty (30) days written prior notice in the event of
the other Party's inability to substantially perform its
obligations hereunder for more than one hundred eighty (180) days
due to an event of force majeure as defined in Section 11.1 herein,
provided that if the breaching Party reasonably expects that such
condition of force majeure will be remedied within ninety (90) days
from the date on which the breaching Party receives the
non-breaching Party's notice of termination, then the breaching
Party shall have ninety (90) days from the date of such notice to
remedy such breach before termination becomes effective.
6.5 No Waiver. The failure of either Party to terminate this Agreement by
reason of the breach of any of its provisions by the other Party
shall not be construed as a waiver of the rights or remedies
available for any subsequent breach of the terms and provisions of
this Agreement.
6.6 Accrued Liabilities. Termination of this Agreement for any reason shall
not discharge either Party's liability for obligations incurred
hereunder and amounts unpaid at the time of such termination.
Dentsply shall pay AZ for any finished Product ordered by Dentsply
prior to termination. Dentsply shall also pay AZ for any Work in
Process and Materials (supplied by AZ) that were to be used in the
Manufacture of Products hereunder and that are in AZ's possession
upon termination of the Agreement. All Materials, Work in Process
and finished goods of Products ordered by Dentsply in AZ's
possession shall be returned to Dentsply upon termination.
6.7 Property. Subject to the provisions of Section 5.5, in the event of
termination of this Agreement for whatever cause, in addition to
the other obligations of the Parties hereunder, each Party shall
return to the other Party or to the other Party's designee, at the
owner's sole cost and expense, no later than thirty (30) days after
the effective date of termination, all of such other Party's
property, including, but not limited to, all proprietary
information, in its possession, except to the extent required to be
retained by Law or to comply with such Party's continuing
obligations hereunder.
7. INDEPENDENT CONTRACTORS
The Parties acknowledge, agree and declare that the relationship hereby
established between them is solely that of provider and recipient of
manufacturing services and that each Party hereto is an independent
contractor with respect to the other. Nothing contained in this
Agreement shall be construed as creating a partnership, joint venture or
agency relationship between the Parties or, except as otherwise
expressly provided in this Agreement, as granting either Party the
authority to bind or contract any obligation in the name of or on the
account of the other Party or to make any statements, representations,
warranties or commitments on behalf of the other Party. All person
employed by a Party shall be employees of such Party and not of the
other Party and all costs and obligations incurred by reason of any such
employment shall be for the account and expense of such Party.
8. INDEMNIFICATION
8.1 Indemnification by AZ. AZ agrees to indemnify, defend and hold harmless
Dentsply, its Affiliates and their respective employees against any
and all third-party claims, including claims made against Dentsply
by any of its distributors; losses; damages and liabilities;
including reasonable attorney's fees, incurred by any of them
arising out of any material breach of any obligation by AZ
hereunder or any grossly negligent or intentionally wrongful act or
omission by AZ in connection with its Manufacturing services
hereunder.
8.2 Indemnification by Dentsply. Dentsply agrees to indemnify, defend and
hold harmless AZ, its Affiliates and their employees against any
and all third-party claims, losses, damages and liabilities,
including reasonable attorney's fees, incurred by any of them
arising out of any Manufacture of the Products in accordance with
the Specifications, including any claim of infringement of
intellectual property rights as further set forth in Section 14.7,
any breach of any obligation by Dentsply hereunder or any negligent
or intentionally wrongful act or omission of Dentsply in connection
with the marketing, distribution or sale of the Product in the
Territory.
8.3 Procedure. If Dentsply, its Affiliates or their respective employees,
or AZ, its Affiliates or their respective employees (in each case
an "Indemnified Party") receive any written claim which such
Indemnified Party believes is the subject of indemnity hereunder by
AZ or Dentsply as the case may be (in each case an "Indemnifying
Party"), the Indemnified Party shall, as soon as reasonably
practicable after forming such belief, give notice thereof to the
Indemnifying Party; provided, that the failure to give timely
notice to the Indemnifying Party as contemplated hereby shall not
release the Indemnifying Party from any liability to the
Indemnified Party unless the Indemnifying party demonstrates that
the defense of such claim is prejudiced by such failure. The
Indemnifying Party shall have the right, by prompt notice to the
Indemnified Party, to assume the defense of such claim, at its
cost, with counsel reasonably satisfactory to the Indemnified
Party. If the Indemnifying Party does not so assume the defense of
such claim or, having done so, does not diligently pursue such
defense, the Indemnified Party may assume such defense, with
counsel of its choice, but at the cost of the Indemnifying Party.
If the Indemnifying Party so assumes such defense, it shall have
absolute control of the conduct of the litigation; the Indemnified
Party may, nevertheless, participate therein through counsel of its
choice and at its cost. The party not assuming the defense of any
such claim shall render all reasonable assistance to the party
assuming such defense, and all out-of-pocket costs of such
assistance shall be for the account of the Indemnifying Party. No
such claim shall be settled other than by the party defending the
same, and then only with the consent of the other party, which
shall not be unreasonably withheld; provided, that the Indemnified
Party shall have no obligation to consent to any settlement of any
such claim which imposes on the Indemnified Party any liability or
obligation which cannot be assumed and performed in full by the
Indemnifying Party.
9. INSURANCE
9.1 Each Party shall obtain and keep in force during the term of this
Agreement, (a) worker's compensation insurance in compliance with
the worker's compensation laws of the state or states in which such
Party has employees performing work related to this Agreement and
employer's liability insurance with respect to such employees
written on a per occurrence basis with a minimum limit of One
Million Dollars ($1,000,000) per occurrence; and (b) commercial
general liability insurance, written on a per occurrence basis,
including, without limitation, premises, broad form property
damages, contractual and products liability/completed operations
coverage, which shall specifically cover such Party's
indemnification obligations under Section 8.1 or 8.2 hereof, as
applicable, with a combined single limit for bodily injury and
property damage of not less than Ten Million Dollars ($10,000,000).
9.2 Each Party shall furnish certificates of insurance for the policies of
such Party to the other Party within ten (10) days after the
Effective Date. Each Party shall immediately provide the other
with written notice of any cancellation, non-renewal, expiration or
material modification of any policy. Should either Party at any
time neglect or refuse to provide the insurance required herein, or
should such insurance be canceled or materially modified, the other
Party shall have the right to procure the same and the cost thereof
shall be deducted from any compensation then due or thereafter to
become due to the first Party.
10. LIMITATION OF LIABILITY
Limitation. Except in the event of (a) a claim pursuant to a Party's
indemnification obligations herein, (b) a Party's fraud or willful
misrepresentation or willful misconduct, or (c) a breach of a party's
confidentiality obligations herein, in no event shall either Party be
liable to the other for special, indirect, incidental or consequential
damages, including lost profits, in any way arising out of or relating
to this Agreement.
11. FORCE MAJEURE
Force Majeure. Neither Party shall be liable to the other for default
or delay in the performance of its obligations under this Agreement, if
such default or delay shall be caused directly or indirectly by
accident, fire, flood, riot, war, terrorism, act of God, embargo,
strike, failure or delay of normal source of supply of materials, or
delay of carriers, or complete or partial shutdown of plant by any of
the foregoing causes or other causes beyond its reasonable control,
provided same are not due to the fault or neglect of such Party and
provided further that any such delay or failure shall be remedied by
such Party as soon as possible after the cause of such failure or delay.
12. CONFIDENTIALITY
12.1 Any information or data (including but not limited to, any technical
information, experience or data) regarding either Party's
formulations, plans, programs, plants, processes, technical
materials, Product, production requirements, standard
specifications, costs, equipment, operations, procedures,
instructions or customers (all of which is herein referred to as
"Confidential Information") is the sole property of the respective
Party. Each Party shall treat the other Party's Confidential
Information in the same protective manner that it treats its own
Confidential Information. Parties shall not use, except for the
purpose of carrying out this Agreement, or disclose to others or
permit their employees, agents, consultants or subcontractors to
use, except for the purpose of carrying out this Agreement, or
disclose to others, during the term of this Agreement and for a
period of four (4) years from the date of termination or expiration
of this Agreement, Confidential Information which has heretofore
come or hereafter may come within the knowledge of, or which has
been or may hereafter be acquired or developed by the respective
party, its employees, agents, consultants or subcontractors, in the
performance of any services hereunder. This paragraph shall not
prevent either Party from using or disclosing to others information:
(a) which is known to the receiving Party at the time it is
disclosed by or obtained from the disclosing Party, which
knowledge can be established by competent evidence; or
(b) which is, or through no fault of the receiving Party becomes,
lawfully available to the public; or
(c) which lawfully becomes available to the receiving Party from a source
other than the disclosing Party; or
(d) which is independently developed by the Party without reliance upon or
reference to the Confidential Information which independent
development can be established by competent evidence; or
(e) which the receiving Party is required by applicable Law, a
court having jurisdiction, or Government or Regulatory Authority
to disclose.
12.2 Upon termination of this Agreement, if requested, the receiving Party
shall deliver to the disclosing party all notes, drawings,
blueprints, manuals, letters, notebooks, reports and other writings
of or pertaining to Confidential Information, including all copies
thereof, and all other Confidential Information which is in the
possession of or under the control of the receiving Party. Parties
shall restrict access to Confidential Information to as few as
practicable of their employees, agents, consultants and
subcontractors, and in all cases shall restrict such knowledge to
only those employees, agents, consultants and subcontractors who
are directly connected with the performance of the services
hereunder.
13. COMPLIANCE WITH LAW
Each Party shall comply with, and shall not be in material violation of,
all valid, applicable Laws of the Territory which materially affect the
Manufacture, processing, packaging, shipment, or storage of the Products.
14. TRADE NAMES AND TRADEMARKS
14.1 AZ's Rights. Dentsply hereby acknowledges that it does not have, and
shall not acquire by virtue of this Agreement, any rights to or
under any goodwill, trademark, tradename, copyright, patent of AZ,
nor in any of AZ's trademarks or tradenames appearing on the label
or packaging materials of the Products. Dentsply agrees to do
nothing by act or omission which would impair AZ's or its
Affiliates' rights, ownership and title in the aforementioned.
14.2 Dentsply's Rights. AZ hereby acknowledges that it does not have, and
shall not acquire by virtue of this Agreement, any rights to or
under any goodwill, trademark, tradename, copyright, patent or
other intellectual property of Dentsply, nor in any of Dentsply's
trademarks or tradenames appearing on the label or packaging
materials of the Products. AZ agrees to do nothing by act or
omission which would impair Dentsply's or its Affiliates' rights,
ownership and title in the aforementioned.
14.3 No Contest. Each Party further agrees not to contest, deny or dispute
the validity of any trademarks or tradenames owned by the other
Party appearing on the labels or packaging materials of the
Products or the title of such other Party thereto, and not to
assist others in doing so, and not to take action of any kind
inconsistent with the holding of all such trademark rights by such
other Party.
14.4 Use. Neither Party shall use the trademarks or tradenames owned by the
other Party under which the Products are Manufactured on any other
goods or products, except as provided hereunder.
14.5 Infringement. Each Party shall immediately report in writing to the
other Party upon being acquainted through any source whatsoever of
any and all infringements or threatened infringements of the
tradenames or trademarks owned by such other Party appearing on the
labels and packaging materials of the Products, and any attempt on
the part of anyone to register, copy, infringe upon or imitate such
trademarks or tradenames, and if required by such party, the
notifying Party will, at the other Party's sole expense, take such
steps as the other Party may deem advisable against the
infringement or otherwise for the protection of the other Party's
rights.
14.6 Survival. The obligations set forth in this Article 14 shall survive
the termination or expiration of this Agreement.
14.7 Intellectual Property Indemnification. Dentsply shall indemnify, defend
and hold AstraZeneca, its Affiliates, and their employees,
contractors and agents harmless from and against any and all
claims, demands, actions, suits, losses, damages, costs, expenses
(including reasonable attorney's fees), and liabilities which they
may incur, suffer or be required to pay by reason of any patent
infringement suit or other intellectual property suit brought
against them as a result of or in connection with AZ's Manufacture
of a Product provided such Product is manufactured in accordance
with all material Specifications.
15. NOTICES
Any notice or request expressly provided for or permitted under this
Agreement shall be in writing, delivered manually or by mail, telegram,
telefax or cable and shall be deemed sufficiently given if and when
received by the Party to be notified at its address first set forth
below, or if and when mailed by registered mail or certified mail,
postage prepaid, addressed to such party at such address. Either Party,
by notice to the other, may change its address for receiving such
notices.
To AZ: AstraZeneca LP
50 Otis Street
Westborough, MA 01581
Attention: General Manager
With a copy to: General Counsel
AstraZeneca LP
1800 Concord Pike
Wilmington, DE 19850
To Dentsply: Maillefer Instruments Trading S.a.r.L.
Dentsply Anesthetics Division
Chemin du Verger 3
CH-13333 Ballaigues
Switzerland
With a copy to: DENTSPLY Pharmaceutical Division
Concord Executive Center
3427 Concord Road
York, PA 17402
And to: Dentsply International Inc.
570 West College Avenue
York, PA 17404
Attention: Secretary
16. GOVERNING LAW
Other than claims for equitable or injunctive relief, any dispute or
claim under this Agreement or any amendment thereto (unless such
amendment provides otherwise), including without limitation as to their
existence, validity, enforceability, interpretation, performance,
breach, or damages, including claims in tort, whether arising before or
after the termination of this Agreement, shall be settled only by
binding arbitration pursuant to the rules of the American Arbitration
Association (the "Rules"); provided, however, that: (a) the arbitration
shall take place in Wilmington, Delaware; (b) there shall be three (3)
arbitrators, who shall be selected under the normal procedures
prescribed in the Rules, (c) at the arbitration hearing, each party may
make written and oral presentations to the arbitrators, present
testimony and written evidence, and examine witnesses; (d) the
arbitrators shall have the power to award as damages the expenses of the
arbitrators and of the administrator's fees for the arbitration; (e) the
arbitrators shall issue a written decision explaining the basis for such
decision; (f) such decision shall be final, binding, and enforceable in
any court having jurisdiction over either of the parties..
The parties hereby irrevocably and unconditionally consent to the
exclusive jurisdiction of the courts of the State of Delaware for any
action, suit, or proceeding for equitable or injunctive relief arising
out of or relating to this Agreement, and agree not to commence any such
action, suit, or proceeding related thereto except in such courts.
17. COMPLETE CONTRACT
This document, together with the exhibits thereto constitutes the
complete and exclusive statement of the terms of the Agreement between
the Parties hereto with reference to the subject matter hereof, and no
statement or agreements, oral or written, made prior to or at the
signing hereof shall vary or modify the written terms hereof, and
neither Party shall claim any modification or rescission from any
provision hereof unless such modification or rescission is in writing,
signed by the other Party.
18.
NONASSIGNABILITY
During the term of this Agreement the rights of either Party under this
Agreement shall not be assigned, nor shall the performance of either
Party's duties be delegated without the other Party's prior written
consent, except either Party may assign this agreement to an Affiliate
without obtaining the other Party's prior written consent. Notice of
assignment shall be given to other Party at least thirty (30) days prior
to the effective date of said assignment.
19. WAIVER
A Party's failure to enforce, at any time or for any period of time, any
provision of this Agreement, or to exercise any right or remedy, shall
not constitute a waiver of that provision, right or remedy or prevent
such Party from enforcing any or all provisions of this Agreement and
exercising any rights or remedies. All rights and remedies are
cumulative and do not exclude any other right or remedy provided by Law
or otherwise available.
20. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and all of which taken together shall
be deemed to constitute one and the same instrument. An executed
signature page of this Agreement delivered by facsimile transmission
shall be as effective as an original executed signature page.
21. NO BENEFIT TO OTHERS
The provisions of this Agreement are for the sole benefit of the Parties
and their successors and permitted assigns, and they shall not be
construed as conferring any rights in any other persons except as
otherwise provided in this Agreement.
22. SEVERABILITY
If any provision of this Agreement is held to be invalid, illegal or
unenforceable, in nay respect, then, to the fullest extent permitted by
applicable Law and if the rights or obligations of any Party will not be
materially and adversely affected: (a) such provision will be given no
effect by the Parties and shall not form part of this Agreement, (b) all
other provisions of this Agreement shall remain in full force and effect
and (c) the Parties will use their best efforts to negotiate a provision
in replacement of the provision held invalid, illegal or unenforceable
that is consistent with applicable Law and achieves, as nearly as
possible, the original intention of the Parties. To the fullest extent
permitted by applicable Law, the Parties waive any provision of law that
would render any provision of this Agreement invalid, illegal or
unenforceable in any respect.
23. SURVIVAL
The respective rights and obligations of the Parties set forth in this
Agreement shall survive the expiration or termination of this Agreement
to the extent necessary to the intended preservation of such rights and
obligations.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their respective duly authorized representatives as of the Execution Date.
Maillefer Instruments Trading S.a.r.L. ASTRAZENECA LP
By: _________________________ By: ________________________
Name: _________________________ Name: ________________________
Title: _________________________ Title:________________________
Date: _________________________ Date: ___________________________
PURCHASE OF ASSETS AGREEMENT
as of
December 11, 2003
Between
DENTSPLY International Inc.
Ceramco Inc.
Dentsply Research & Development Corp.
PDEX Acquisition Corp.
DENTSPLY France S.A.S.
DENTSPLY DeTrey GmbH
and
DENTSPLY Italia S.r.l.
as Sellers
and
DAS Equipment Company
as Buyer
INDEX
Page
Recitals ............................................1
Article 1 Definitions...............................1
1.1 Affiliate...............................2
1.2 Ancillary Agreements....................2
1.3 Assets..................................2
1.4 Base Financial Statements...............2
1.5 Business................................2
1.6 Closing.................................3
1.7 Closing Date............................3
1.8 Confidential Information................3
1.9 Contracts...............................3
1.10 Damages.................................3
1.11 Encumbrance.............................4
1.12 EU Business.............................4
1.13 Excluded Obligations....................4
1.14 GAAP....................................4
1.15 Gendex Management Employees.............4
1.16 Gendex Operating Units..................4
1.17 Governmental Authority..................4
1.18 Hart-Scott-Rodino.......................4
1.19 Income from Operations..................4
1.20 Initial Payment.........................5
1.21 Intercompany Locations..................5
1.22 Inventories.............................5
1.23 Laws....................................5
1.24 Liability...............................5
1.25 Material Adverse Effect.................5
1.26 Net Sales...............................5
1.27 Person..................................5
1.28 Product Liability Claim.................5
1.29 Products................................5
1.30 Purchase Price..........................6
1.31 Schedules...............................6
1.32 Third Party Receivables.................6
1.33 Third Party Payables....................6
1.34 Transactions Contemplated Hereby........6
1.35 Transferred Employee....................6
(i)
1.36 US and USA..............................6
1.37 US Business.............................6
1.38 US Facility.............................6
1.39 VAT.....................................6
Article 2 Purchase and Sale of Assets...............6
2.1 Transfer................................6
2.2 Payment of Purchase Price...............7
2.3 Adjustments to Purchase Price...........7
2.4 Assumption of Obligations;
Retention of Excluded Obligations..... 8
2.5 Proration...............................9
2.6 Instrument of Transfer and Assumption;
Deliverables........................... 9
2.7 Consents...............................11
2.8 Further Assurances.....................12
2.9 Sales and Transfer Taxes; Fees.........13
2.10 Relocation of Assets...................13
2.11 Transferred Employees..................14
Article 3 Conditions Precedent.................. 14
3.1 Conditions to Buyer Closing............14
3.2 Conditions to Sellers Closing..........15
Article 4 Representations and Warranties
of Seller........................... 15
4.1 Sellers Organization and Good Standing.15
4.2 Authority; Execution and Delivery......16
4.3 Consents; No Conflicts.................16
4.4 Legal Proceedings......................16
4.5 Financial Information..................17
4.6 Permits and Registrations..............17
4.7 Absence of Certain Changes or Events...17
4.8 Contracts..............................18
4.9 Assets.................................19
4.10 Inventory..............................19
4.11 Intellectual Property..................20
4.12 Employee Matters.......................22
4.13 Litigation.............................25
4.14 Compliance with Laws...................25
4.15 Product Warranties.....................25
4.16 Receivables............................26
4.17 Brokers................................26
4.18 Complete Copies of Contracts...........26
(ii)
4.19 Environmental Matters..................26
4.20 Real Property..........................27
4.21 Significant Customers and Suppliers....28
4.22 Taxes..................................28
4.23 Bank Accounts; Powers of Attorney......29
4.24 Backlog................................29
4.25 Unlawful Payments......................29
4.26 Absence of Claims; Business
Relationships with Affiliates....... 29
4.27 Books and Records......................30
4.28 Trade Accounts Payable.................30
Article 5 ..Representations and Warranties of Buyer30
5.1 Buyer's Organization, Power, Execution.30
5.2 Non-Violation..........................30
5.3 Legal Proceedings......................31
5.4 Brokers................................31
5.5 Cash Resources.........................31
Article 6 Covenants of Seller................. 31
6.1 Conduct of the Business................31
6.2 Certain Changes........................31
6.3 Access to Information..................32
6.4 Exclusivity............................32
6.5 VAT Refund.............................32
Article 7 Other Agreements.................... 33
7.1 Books and Records......................33
7.2 Bulk Sales Laws........................33
7.3 Allocation of Purchase Price
and Tax Matters................... 33
7.4 No Implied Representations.............34
7.5 Currency Exchange......................34
7.6 Intercompany Effects...................34
7.7 Cause Conditions to be Satisfied.......35
7.8 Notification of Certain Matters........35
7.9 Transitional Services Agreement........35
Article 8 Termination......................... 35
8.1 General Termination....................35
8.2 Termination by Buyer...................36
8.3 Termination by Seller..................36
8.4 Effect of Termination..................36
(iii)
Article 9 Indemnities......................... 36
9.1 Indemnity Claims.......................36
9.2 Indemnification by Sellers.............38
9.3 Indemnification by Buyer...............39
Article 10 Survival; Claims.......................39
10.1 Survival...............................39
10.2 Limitation of Indemnification
Obligations............................40
10.3 Determination of Damages...............41
10.4 Exclusivity of Remedies................42
Article 11 Confidentiality........................42
11.1 Confidentiality........................42
11.2 Reasonable Restraint...................42
11.3 Severability; Reformation..............43
11.4 Materiality............................43
Article 12 Miscellaneous............................43
12.1 Cooperation............................43
12.2 Payment of Expenses....................43
12.3 Modifications; Waivers.................43
12.4 Successor/Assignability................44
12.5 Dispute Resolution.....................44
12.6 Specific Performance; Remedies.........44
12.7 Governing Law..........................44
12.8 Arbitration............................45
12.9 Publicity..............................45
12.10 Notices................................46
12.11 Captions; Mutual Product...............46
12.12 Further Representations................46
12.13 Counterparts...........................47
12.14 No Third Party Beneficiaries...........47
12.15 Right to Set Off.......................47
12.16 Entire Agreement.......................47
12.17 Usage..................................47
12.18 Guarantees.............................48
(iv)
SCHEDULES
--------------------------------------------------
Description Schedule
--------------------------------------------------
--------------------------------------------------
Assets 1.3 A
--------------------------------------------------
--------------------------------------------------
Excluded Assets 1.3 B
--------------------------------------------------
--------------------------------------------------
Products 1.28
--------------------------------------------------
--------------------------------------------------
Assumed Obligations 2.4
--------------------------------------------------
--------------------------------------------------
Consents 2.6(a)(x)
--------------------------------------------------
--------------------------------------------------
Exceptions 4
--------------------------------------------------
--------------------------------------------------
Financial Information 4.5
--------------------------------------------------
--------------------------------------------------
Material Contracts 4.8(b)
--------------------------------------------------
--------------------------------------------------
Additional Contracts 4.8(c)
--------------------------------------------------
--------------------------------------------------
Fixed Assets 4.9
--------------------------------------------------
--------------------------------------------------
Patents 4.11 A
--------------------------------------------------
--------------------------------------------------
Trademarks 4.11 B
--------------------------------------------------
--------------------------------------------------
Other Intellectual Property 4.11 C
--------------------------------------------------
--------------------------------------------------
Employment Terms 4.12
--------------------------------------------------
--------------------------------------------------
Litigation 4.13
--------------------------------------------------
--------------------------------------------------
Warranty 4.15
--------------------------------------------------
--------------------------------------------------
Environmental Matters 4.19
--------------------------------------------------
--------------------------------------------------
Real Property 4.20
--------------------------------------------------
--------------------------------------------------
Significant Customers and Suppliers 4.21(a)
--------------------------------------------------
--------------------------------------------------
Taxes 4.22
--------------------------------------------------
--------------------------------------------------
Bank Accounts, Power of Attorney 4.23
--------------------------------------------------
--------------------------------------------------
Claims; Business Relationships 4.26
with Affiliates
--------------------------------------------------
--------------------------------------------------
Disclosures 10.3
--------------------------------------------------
--------------------------------------------------
Description Exhibit
--------------------------------------------------
--------------------------------------------------
Sublease 2.6A
--------------------------------------------------
--------------------------------------------------
Manufacturing Agreement 2.6B
--------------------------------------------------
--------------------------------------------------
Representative Agreement 2.6C
--------------------------------------------------
--------------------------------------------------
Transitional Services Agreement 7.9
--------------------------------------------------
(v)
PURCHASE OF ASSETS AGREEMENT
This Purchase of Assets Agreement ("Agreement"), dated as of
December __, 2003, is made and entered into by and between DAS
Equipment Company, a corporation organized and existing under the
laws of Delaware, USA, with a principal place of business at 2099
Pennsylvania Avenue, N.W., Washington, D.C. 20006-1813 (herein
referred to as "Buyer"), AND DENTSPLY International Inc., a
corporation organized and existing under the laws of Delaware,
USA, with a principal place of business at 570 West College
Avenue, York, Pennsylvania 17404 ("Dentsply") Dentsply Research &
Development Corp., a Delaware corporation with a principal place
of business at 2283 Cosmos Court, Carlsbad, California 92009
("DRDC"), PDEX Acquisition Corp., a Delaware corporation with a
principal place of business at 1209 Orange Street, Wilmington,
Delaware 19801 ("PDEX"), Ceramco Inc., a Delaware corporation
with a principal place of business at Six Terri Lane, Burlington,
NJ 08016 ("Ceramco"), Dentsply DeTrey GmbH, a company organized
and existing under the laws of Germany, with a principal place of
business at DeTrey Strasse 1, D-78467 Konstanz, Germany
("DeTrey"), Dentsply Italia S.r.l., a company organized and
existing under the laws of Italy, with a principal place of
business at Via A. Cavaglieri, 26, 1-00173 Rome, Italy
("Italia"), and Dentsply France S.A.S., a company organized and
existing under the laws of France, with a principal place of
business at 17, rue Michael Faraday, 78180 Montigny le
Bretonneux, France ("France") (collectively referred to as the
"Sellers").
W I T N E S S E T H:
WHEREAS, Sellers are engaged in the business of developing,
manufacturing, marketing, producing, selling and distributing
dental imaging products and related services throughout the world;
WHEREAS, Sellers desire to divest themselves of such business and
substantially all of the assets and certain of the liabilities
associated therewith;
WHEREAS, Buyer desires to acquire such business and assets and is
willing to assume such liabilities; and
WHEREAS, Buyer and Sellers desire to consummate the transactions
contemplated hereby both directly and through their respective
Affiliates.
NOW, THEREFORE, in consideration of the mutual obligations herein
contained, intending to be legally bound, the parties agree as
follows:
ARTICLE I - DEFINITIONS
1. Definitions. In this Agreement, the following terms shall
have the meanings assigned to them below:
1.1 "Affiliate" of a specified Person (natural or juridical)
shall mean (A) a Person that directly or indirectly,
through one or more intermediaries, controls, or is
controlled by, or is under common control with the
Person specified or (B) any director, officer, partner,
member or trustee of such Person. As used herein,
"controls," "control" and "controlled" means the
possession, direct or indirect, of the power to direct
the management and policies of a Person, whether
through the ownership of 50% or more of the voting
interests of such Person, through agreement or
otherwise.
1.2 "Ancillary Agreements" shall mean all agreements, other than
this Agreement, entered or to be entered by the Sellers
and Buyer in furtherance of or in connection with the
transactions described in this Agreement, including,
but not limited to, the Bill of Sale, Assignment and
Assumption Agreement, Manufacturing Agreement,
Representative Agreement, Sublease Agreement and any
Transitional Services Agreements.
1.3 "Assets" shall mean (a) all the Patents, Trademarks and
Fixed Assets owned or used by any Sellers in connection
with the Business as currently conducted by Sellers,
(b) all Scheduled Contracts, (c) all Contracts, entered
into by any Seller in the ordinary course of business
consistent with past practice that are primarily
related to the Business and that are not required to be
listed on Schedule 4.8(b) or 4.8(c), and (d) all other
assets (other than Contracts) and rights and permits
owned by, registered in the name of, or used or held
for use by, any Sellers primarily in connection with
the Business, as conducted prior to the Closing,
including, with respect to (a) - (d) above, the assets
and rights described on Schedule 1.3A, Assets but
excluding the items described on Schedule 1.3B,
Excluded Assets.
1.4 "Base Financial Statements" shall mean the pro forma
condensed balance sheet of the Gendex Operating Units
as of, and the pro forma statement of operations for
the Business for the nine (9) month period ended,
September 30, 2003, each as set forth on Schedule 4.5.
1.5 "Business" shall mean the business represented by the
research and development, manufacturing, marketing,
selling and distribution of the Products worldwide by
Sellers, including the operations of the Business
conducted by the Gendex Operating Units and
Intercompany Locations and including all research and
product development activities and information related
to the Products. Unless otherwise indicated,
"Business" refers to the Business as conducted by
Sellers as of the date hereof and as of the Closing.
1.6 "Closing" shall mean the meeting of the parties at which the
sale, assignment, transfer and delivery of the Assets
by Sellers to Buyer, the payment of the Initial Payment
by Buyer and the other transactions contemplated hereby
are completed. The Closing shall take place at the
offices of Dentsply, York, Pennsylvania, USA, on the
later of January 2, 2004 (if the Closing occurs on
January 2, 2004, it shall be deemed to have occurred at
12:01 a.m. on January 1, 2004, or the third business
day in York, Pennsylvania following the expiration of
the Hart-Scott-Rodino waiting period; if the conditions
precedent to the Closing have not been fulfilled by
such time, then the Closing shall take place at the
same time of day in the same place on the third
business day following the day on which such conditions
precedent are fulfilled. For purposes of determining
whether an event occurred before or after the Closing
(other than the satisfaction of the closing conditions,
the delivery of the certificate contemplated by Section
3.1(vi) and the determination of any indemnification
rights and obligations in connection with the
representations and warranties set forth in Articles IV
and V), the Closing shall be deemed to have taken place
at the 12:01 a.m. on the day of Closing.
1.7 "Closing Date" shall mean the date on which the Closing
occurs.
1.8 "Confidential Information" means any information which is
proprietary or not known publicly or by the trade,
including, without limitation, information with respect
to present or future business, operations, services,
products, research, inventions, discoveries, drawings,
designs, plans, processes, models, technical
information, facilities, methods, trade secrets,
copyrights, software, source code, systems, patents,
procedures, manuals, specifications, any other
intellectual property, confidential reports, price
lists, pricing formulas, customer lists, financial
information (including the revenues, costs, or profits
associated with any products or services), business
plans, lease structure, projections, prospects,
opportunities or strategies, acquisitions or mergers,
advertising or promotions, personnel matters or legal
matters (including confidential and proprietary
information and trade secrets entrusted by third
parties in confidence).
1.9 "Contracts" shall mean all contracts, leases, commitments,
licenses, guarantees, arrangements and agreements of
every type and description to which any of the Sellers
are a party or by which any of them are bound, whether
written or oral.
1.10 "Damages" shall mean claims, losses, obligations,
Liabilities, damages (including any amounts that a
party seeking Damages is required to pay to a third
party and punitive damages), deficiencies, costs,
expenses (including, without limitation, reasonable
fees and expenses of counsel and consultants, traveling
expenses of employees and expenses of investigation),
actions, suits, proceedings, (including informal and
administrative proceedings), investigations, demands,
assessments, adjustments, audits, settlement payments,
Taxes, penalties, fines, interest (including interest
from the date of determination of such damages) and
judgments (including, without limitation, any
proceedings to establish insurance coverage).
1.11 "Encumbrance" shall mean any lien (statutory or otherwise),
security interest, charge or encumbrance of any kind or
nature whatsoever.
1.12 "EU Business" shall mean the Gendex operating units located
in Cusano Milanino, Italy and Hamburg, Germany.
1.13 "Excluded Obligations" shall mean all Liabilities of the
Business, the Gendex Operating Units and Sellers not
constituting Assumed Obligations.
1.14 "GAAP" shall mean USA generally accepted accounting
principles, consistently applied.
1.15 "Gendex Management Employees" shall mean Gary Berg, Marco
Dolci,
Gary Radwanski, Keith Trecker, John Miller, Roberto
Molteni and
Gary Sieckman.
1.16 "Gendex Operating Units" shall mean the three Gendex
operating locations of the Business based in Des
Plaines, IL, Cusano Milanino, Italy and Hamburg,
Germany.
1.17 "Governmental Authority" shall mean any federal, state,
local or foreign, governmental or quasi-governmental
entity or municipality or subdivision thereof or any
authority, department, commission, board, bureau,
agency, court, tribunal instrumentality, or applicable
self-regulatory organization (each, a "Governmental
Authority").
1.18 "Hart-Scott-Rodino" shall mean the USA Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
1.19 "Income from Operations" shall mean Net Sales of the
Business, less cost of goods sold and distribution,
selling, general and administrative and research and
development expenses of the Gendex Operating Units, and
cost of goods sold at standard and direct expenses
and/or allocation of selling and distribution expenses
as described in Schedule 4.5 for Intercompany
Locations. Income from Operations does not include
interest, taxes, restructuring costs (including plant
relocation costs), European information technology
costs, elimination of manufacturing margin associated
with product remaining in inventory in Intercompany
Locations, and/or currency exchange gains/losses. 2003
Income from Operations includes a pro forma adjustment
to reflect the new cost structure for the DenOptix
Product under the new Alara agreement as if all product
sold in 2003 was purchased under the new agreement.
1.20 "Initial Payment" shall mean US $102.5 million.
1.21 "Intercompany Locations" shall mean Affiliate locations
that sell Products and are not a part of the Gendex
Operating Units.
1.22 "Inventories" shall be as defined on Schedule 1.3A,
Assets.
1.23 "Laws" shall mean all applicable laws, orders,
judgments, rules, codes, statutes, regulations,
requirements, variances, decrees, writs, injunctions,
awards, rulings or ordinances of any Governmental
Authority.
1.24 "Liability" shall mean any direct or indirect
obligation, indebtedness, claim, loss, damage,
deficiency, cost, expense or responsibility, whether
accrued, unaccrued, absolute, contingent, mature,
unmature or otherwise and whether known or unknown,
fixed or unfixed, choate or inchoate, liquidated or
unliquidated, secured or unsecured.
1.25 "Material Adverse Effect" shall mean any change, event
or effect with respect to the Business or Assets,
together with all other changes, events and effects
that have occurred prior to the date of determination,
that has a material adverse effect on (i) the
operations, assets or financial condition of the
Business taken as a whole, but which shall not include
general economic conditions which affects similarly
situated businesses in a similar manner or (ii) the
ability of Sellers to consummate the transactions
contemplated hereby or to perform their obligations
hereunder.
1.26 "Net Sales" shall mean gross third party sales of the
Business less provision for customer discounts,
rebates, promotions, and returns and allowances of the
Gendex Operating Units, and less only customer returns
at Intercompany Locations.
1.27 "Person" shall mean any natural person, corporation,
general partnership, limited partnership, limited
liability company, limited liability partnership,
proprietorship, trust, union, association or other
entity, enterprise or business organization.
1.28 "Product Liability Claim" shall mean any claim for
personal or bodily injury which is based on or arises
out of the design, manufacture, labeling, sale of, use
of or exposure to any Product, regardless of whether
such claim is founded in product liability, strict
liability, breach of contract, breach of express or
implied warranty, negligence, gross negligence,
enterprise or alternate liability, concert of action,
nuisance, the intentional or unintentional acts or
omissions of the party against which the claim is made,
its employees, agents or representatives, or any other
theory of recovery.
1.29."Products" shall mean the products described on
Schedule 1.28, Products.
1.30 "Purchase Price" shall mean US$102.5 million as may be
subsequently adjusted pursuant to Section 2.3 and the
other provisions of this Agreement.
1.31 "Schedules" shall mean the Schedules to this Agreement.
1.32 "Third Party Receivables" shall mean amounts due from
non-Affiliates resulting from the sale of Product.
1.33 "Third Party Payables" shall mean amounts due to
non-Affiliates for goods and services provided.
1.34 The phrase "transactions contemplated hereby (or by
this Agreement)" shall include, without limitation, the
Ancillary Agreements.
1.35 "Transferred Employee" shall mean employees of Sellers
who are employed in connection with the Business by
Sellers and become an employee of Buyer in connection
with the transactions contemplated hereby.
1.36."US" and "USA" shall mean United States of America.
1.37 "US Business" shall mean the Gendex operating unit
located in Des Plaines, Illinois, USA.
1.38 "US Facility" shall mean the property located at 901 W.
Oakton Street,
Des Plaines, Illinois, which is partially utilized by
the Business.
1.39."VAT" shall mean any applicable value added tax.
ARTICLE II - PURCHASE AND SALE OF ASSETS
2.1 Transfer.
(a) At the Closing, Sellers shall sell, assign, transfer and
deliver the Assets to Buyer free and clear of all
Encumbrances, restrictions and rights of others
(except for Permitted Encumbrances), and Buyer
shall purchase and acquire the Assets from Sellers.
(b) At any time after the Closing and prior to the second (2nd)
anniversary of the Closing, Sellers shall assign,
transfer and deliver to Buyer at Buyer's request
any Contract (other than an Excluded Asset)
relating primarily to the Business that was in
effect prior to the Closing and that should have
been on the Scheduled Contract list but was
omitted (each, an "After-Assigned Contract"), and
Buyer shall assume such After-Assigned Contract
from Sellers. The consideration for the
assignment of the After-Assigned Contracts shall
be the payment of the Purchase Price under Section
2.2 of this Agreement and no further consideration
shall be paid for such assignment. Sellers shall
have no obligation under this provision to renew
or re-enter any expired Contract.
2.2 Payment of Purchase Price. Buyer shall pay the Initial
Payment to the order of Dentsply at the Closing by the
wire transfer of immediately available funds from banks
selected by Buyer to the account(s) selected by
Dentsply and notified in writing to Buyer no later than
one (1) business day prior to the Closing.
2.3 Adjustments to Purchase Price.
(a) There shall be an adjustment to the Purchase Price for the
Gendex Operating Units, if necessary, as set forth
in this paragraph. Within ninety (90) days of
Closing, the Buyer shall provide a statement to
Dentsply of Buyer's calculation of the amount of
Inventory, Third Party Payables, accrued
liabilities (which does not include the liability
for the frozen Gendex pension plan), Fixed Assets
(gross asset value without depreciation or
amortization) and other assets (prepaid assets and
travel advances) for the Gendex Operating Units
and Third Party Receivables for the EU Business
("Gendex Operating Unit Net Working Capital") as
of Closing determined consistent with the past
practices and accounting policies of Dentsply. To
the extent the Gendex Operating Unit Net Working
Capital is between $19,661,000 and $23,661,000,
then no adjustments to the Purchase Price shall be
made. To the extent that the Gendex Operating
Unit Net Working Capital exceeds $23,661,000,
Buyer shall pay such additional amount to
Dentsply. To the extent the Gendex Operating Unit
Net Working Capital is less than $19,661,000,
Dentsply shall pay Buyer such amount.
(b) There shall also be an adjustment to the Purchase Price, if
necessary, for the Inventory at Intercompany
Locations, as set forth in this paragraph. Within
thirty (30) days of Closing, the Dentsply shall
provide a statement to Buyer of the book value of
the total Inventory at Intercompany Locations as
of Closing. For purposes of this Section 2.3, the
"value" of the Inventory shall mean the value
computed in accordance with the first sentence of
Section 4.10. If the book value of such Inventory
is less than $1 million, Dentsply shall pay to
Buyer the amount by which the value of such
Inventory is below $1 million. Except as provided
in the preceding sentence, there shall be no
adjustment to the Purchase Price pursuant to this
Section 2.3(b).
(c) In the event that either Dentsply or Buyer provides notice
that it disagrees/objects to any of the other
Party's valuations as set forth in this Section
2.3, and the parties are unable to resolve such
objection within thirty (30) days of such notice
(the "Resolution Period") then such valuations
shall be determined in accordance with the
provisions of this Agreement by a USA national or
large regional public accounting firm ("Neutral
Auditor"). The fees and expenses of the Neutral
Auditor shall be shared equally by Buyer and
Dentsply. Buyer and Dentsply shall furnish to the
Neutral Auditor such work papers and other
documents and information relating to the disputed
issues as the Neutral Auditor may request and are
available to that party, and Buyer and Dentsply
shall be afforded the opportunity to present to
the Neutral Auditor any material relating to the
determination and to discuss the determination
with the Neutral Auditor. The Neutral Auditor
shall determine only those issues still in dispute
and shall apply appropriate accounting standards
in reaching such determination. The Neutral
Auditor's determination shall be made within
thirty (30) days of its selection, shall be set
forth in a written statement delivered to Dentsply
and Buyer, and shall be final, binding and
conclusive, except for manifest error.
(d) "Neutral Auditor" shall mean KPMG LLP, or, in the event KPMG
LLP has an actual conflict of interest at the time
such dispute is to be submitted to it, to another
public accounting firm mutually agreed on by the
parties, or if the parties cannot agree on such
firm within thirty (30) days after the conclusion
of the Resolution Period, a USA national or large
regional public accounting firm chosen by lot from
a group of four (4) comprised of two (2) such
firms nominated by each party (which shall not
include a firm that has an existing relationship
with either party). The failure of one party to
submit the names of two such firms within five (5)
business days of a written request to do so by the
other party shall constitute a waiver of that
right.
(e) Any adjustments to the Purchase Price made pursuant to this
Section 2.3 shall, within five (5) business days
after the determination is agreed to by Buyer and
Dentsply or is ultimately determined by the
Neutral Auditor, be paid by wire transfer in
immediately available funds to the account
specified by the party to whom such payment is
owed.
2.4 Assumption of Obligations; Retention of Excluded
Obligations.
(a) Buyer shall assume the obligations and liabilities
described on Schedule 2.4, Assumed Obligations,
and only the Assumed Obligations, as of the
Closing. Buyer shall perform all Assumed
Obligations and shall promptly reimburse Sellers
for the reasonable out-of-pocket cost of
performance actually incurred by Sellers in
performing any Assumed Obligation the performance
of which by Buyer is not accepted by the obligee
in the exercise of such obligee's lawful rights.
(b) Sellers shall retain the Excluded Obligations.
Sellers shall perform all Excluded Obligations and
shall promptly reimburse Buyer for the reasonable
out-of-pocket cost of performance actually
incurred by Buyer in performing any Excluded
Obligation the performance of which any Seller is
legally obligated to provide but is not provided
by Sellers.
2.5 Proration. Real and personal property Taxes and
assessments and other similar items which relate to an
obligation with regard to the Assets for a time period
which does not coincide with the Closing Date, shall be
prorated between Sellers and Buyer based on the number
of days in the period up to the Closing Date and after
the Closing Date, and all other Taxes shall be prorated
between Buyer and Sellers as if the tax period ended as
of the close of business at 12:01 a.m. on the Closing
Date, in each case with Sellers being responsible for
payment of all such items with respect to the period
before the Closing and Buyer being responsible for all
such items with respect to the period after the
Closing, regardless of when levied or due.
2.6..Instruments of Transfer and Assumption; Deliverables.
(a) Sellers shall deliver to Buyer the following at the Closing
(the delivery of any of which may be waived in
writing by Buyer):
(i) Assignment and Assumption Agreement. An
Assignment and Assumption Agreement in a form
reasonably acceptable to the parties duly
executed by the appropriate Seller(s);
(ii) Bill of Sale. A Bill of Sale selling,
assigning, conveying and transferring the
Assets to Buyer free and clear of all
Encumbrances in a form reasonably acceptable
to the parties duly executed by the
appropriate Seller(s);
(iii)Sublease. A Sublease in the form attached
hereto as Exhibit 2.6A duly executed by the
appropriate Seller(s);
(iv) Patent Assignment. A Patent Assignment
assigning Sellers entire right, title and
interest in any Patents included in the
Assets in a form reasonably acceptable to the
parties duly executed by the appropriate
Seller(s);
(v) Trademark Assignment. A Trademark Assignment
assigning Sellers entire right, title and
interest in any Trademarks included in the
Assets in a form reasonably acceptable to the
parties duly executed by the appropriate
Seller(s);
(vi) Opinion of Counsel. An opinion of Dentsply's General
Counsel, dated the Closing Date, in a form
reasonably acceptable to the parties;
(vii) Secretary's Certificate. A certificate executed by the
Secretary of Dentsply certifying the due
authorization of the Transactions
contemplated herein by the Sellers and
specimen signatures of the officers of
Sellers authorized to sign this Agreement and
the other documents contemplated hereby;
(viii).....Encumbrance Releases. Releases of all encumbrances
(other than Permitted Encumbrances) on the
Assets;
(ix) Consents. The consents from the other party to assignment
of the Material Contracts identified on
Schedule 2.6(a)(x);
(x) Manufacturing Agreement. A Manufacturing Agreement in the
form attached hereto as Exhibit 2.6B duly
executed by the appropriate Seller(s);
(xi) Representative Agreement. A Representative Agreement in the
form attached hereto as Exhibit 2.6C duly
executed by the appropriate Seller(s); and
(xii) Non-Compete Agreement. A Non-Compete Agreement as agreed to
by the parties.
(b) Buyer shall deliver to Dentsply the following at the Closing
(the delivery of any of which may be waived in
writing by Seller):
(i) Initial Payment. The Initial Payment by wire transfer of
immediately available funds;
(ii) Assignment and Assumption Agreement. An
Assignment and Assumption Agreement in a form
reasonably acceptable to the parties duly
executed by Buyer;
(iii)Sublease. A Sublease in the form attached
hereto as Exhibit 2.6A duly executed by Buyer;
(iv) Opinion of Counsel. An opinion of Wilmer,
Cutler & Pickering, counsel to Buyer, dated
the Closing Date, in a form reasonably
acceptable to the parties;
(v) Secretary's Certificate. A certificate
executed by the Secretary of Buyer certifying
that the due authorization of the
Transactions contemplated herein by the Buyer
and specimen signatures of the officers of
Buyer authorized to sign this Agreement and
the other documents contemplated hereby;
(vi) Manufacturing Agreement. A Manufacturing
Agreement in the form attached hereto as
Exhibit 2.6B duly executed by Buyer;
(vii) Representative Agreement. A Representative Agreement in the
form attached hereto as Exhibit 2.6C duly
executed by Buyer; and
(viii).....Non-Compete Agreement. A Non-Compete Agreement as
agreed to by the parties.
(c) Before, at and after the Closing, Sellers shall take such
reasonable and practicable steps to put Buyer in
actual possession and operating control of the
Assets as of the Closing. Without limiting the
foregoing, as between Buyer and Sellers, Buyer
shall have the unlimited right to possess and
control the Assets as of the Closing, except as
provided otherwise in this Agreement.
2.7..Consents.
(a) Buyer and Sellers shall cooperate in securing before and
after the Closing the prompt consent, approval,
waiver or permit from each person or Governmental
Authority whose consent, approval, waiver or
permit is necessary to the Closing or for the
conduct of the Business by Buyer after the
Closing. The initial Hart-Scott-Rodino filings
shall be made by Buyer and Dentsply within ten
(10) business days after the date hereof and
diligently prosecuted thereafter, looking toward a
timely Closing. Buyer and Sellers agree to comply
with other reasonable requests for information
from Governmental Authorities, to the extent
required by applicable Law. The parties will make
all other filings required by any applicable
antitrust or competition laws of any other
jurisdiction as soon as practicable. Except as
may be restricted by applicable Law, (i) the
parties hereto shall cooperate with each other
with respect to the obtaining of information
needed for the preparation of the Notification and
Report Forms required to be filed pursuant to
Hart-Scott-Rodino or the applicable Law of any
other jurisdiction in connection with the
transactions contemplated hereby, (ii) the parties
shall use reasonable efforts and shall cooperate
in responding to any written or oral requests from
Governmental Authorities for additional
information or documentary evidence, and (iii) the
parties shall cooperate and shall provide notice
and opportunity to consult regarding all meetings
with Governmental Authorities, whether in person
or telephonic, and regarding all written
communications with Governmental Authorities, in
each case in connection with the transactions
contemplated hereby. Notwithstanding this Section
2.7 or any other provision of this Agreement, for
purposes of or in connection with obtaining
clearance or approval from any Governmental
Authority of the transaction described in this
Agreement, Buyer shall not be obligated to (and
shall not be obligated to cause any of its
Affiliates to), agree to divest, hold separate or
otherwise materially restrict the use or operation
of any business or assets of Buyer (or any of its
Affiliates) or agree to divest, hold separate or
otherwise materially restrict the use or operation
of the Business or Assets.
(b) Nothing in this Agreement shall be deemed to constitute or
require an assignment or an attempt to assign any
Contract if the attempted assignment thereof,
without the consent of any other party to such
Contract, would constitute a breach thereof or
adversely affect in any way the rights of any of
the Sellers and its assignee thereunder. If,
after Sellers shall have used commercially
reasonable efforts (which shall not include or
require the payment of additional amounts) to
obtain such consents from any such third party,
any such consent shall not have been obtained at
or prior to the Closing, or the attempted
assignment of such Contract without such consent
at the Closing would have an adverse effect on
such rights or Buyer would not in fact receive
such rights, Sellers shall continue to use
commercially reasonable efforts following the
Closing to obtain such consent or, at Buyer's
request, Sellers shall cooperate with Buyer in any
reasonable arrangement, which shall not require
additional cost or expense to Sellers (except for
costs and expenses for which Buyer agrees to
reimburse Sellers), designed to provide for Buyer
the benefits thereunder, including enforcing for
the benefit of Buyer, at Buyer's expense, any
rights of Sellers against any such third party
arising out of the breach or cancellation thereof
by any such third party or otherwise. Nothing in
this Section 2.7(b) shall be deemed to negate,
limit or satisfy the deliveries required by
Section 2.6(a)(x).
2.8..Further Assurances.
(a) Buyer and Sellers shall each, from time to time after the
Closing, at the request of the other and without
further consideration, promptly execute and
deliver such further instruments of assignment,
transfer or assumption, and take such further
action as the other may reasonably request in
order to effectively transfer, reduce to
possession and record title to any of the Assets,
to permit Buyer to operate the Business or to
implement the assumption of the obligations
described in Section 2.4.
(b) Within six (6) months after the Closing, Buyer shall, at its
expense, prepare and submit to Sellers for
signature the documentation necessary to record
the transfers of the trademarks, patents and any
applications therefor included in the Assets.
Buyer shall thereafter exert reasonable efforts to
promptly complete the recordation of such
transfers. After the Closing, Sellers' obligation
with respect to the maintenance of any Assets
which are the subject of this Agreement, including
trademark registrations, patents and patent
applications not yet formally transferred to
Buyer, shall be limited to prompt transmittal to
Buyer of written notices relating thereto which
are received by any of the Sellers.
(c) Subsequent to Closing, Buyer shall take no action for the
purpose of diminishing Sellers' ability to collect
outstanding accounts receivables for Products sold
by Sellers prior to Closing. This provision shall
in no way restrict Buyer from operating the
Business in the ordinary course.
(d) Subsequent to Closing, Sellers shall take no action for the
purpose of diminishing Buyer's ability to collect
outstanding accounts receivables for Products sold
by Buyer after Closing or the accounts receivable
included in the Assets. This provision shall in
no way restrict Sellers from collecting accounts
receivable or conducting its business in the
ordinary course. To the extent customers submit
payment to Sellers of EU Receivables after
Closing, Sellers shall promptly deliver such
payment to Buyer (and in any event no later than
five (5) business days after receipt).
2.9 Sales and Transfer Taxes; Fees. All sales, transfer,
documentary, use, filing and other Taxes and fees
(including, without limitation, withholding, excise and
customs taxes) applicable to the sale, assignment,
transfer or delivery of the Assets hereunder shall be
borne equally by Buyer and Sellers. To the extent the
sale of any of the Assets is subject to VAT or any
similar such tax, Sellers shall be entitled to charge
such Tax to Buyer in addition to the Purchase Price by
presenting a bill corresponding to the applicable Tax.
2.10 Relocation of Assets. Buyer shall determine and advise
Sellers within ninety (90) days of Closing where the
Assets are to be delivered (other than inventory at
Intercompany locations which may be left in place as
consigned goods pursuant to the Representative
Agreement). The costs of relocating Assets, to the
extent necessary, from Sellers' premises to Buyer's
premises shall be borne by Buyer. Such costs shall
include, without limitation, delivery and
transportation costs, dismantling, engineering costs
associated with removing machinery and equipment and
making consequent repairs to the vacated space for any
damage or injury caused by such removal. The parties
shall agree on a reasonable schedule for such
relocation of Assets after the Closing, taking into
account the need and capabilities of their Affiliates
and the objective to complete such relocation on a
reasonably prompt basis.
2.11 Transferred Employees. Buyer shall offer to continue
the current employment, as of Closing, of all employees
of the Business as required by local law, and the
employees of the Gendex Operating Units, except as set
forth in Schedule 4.12. To the extent required by the
any of the agreements identified in Schedule 4.8(b) or
(c) or local law, Buyer shall provide to Transferred
Employees substantively similar terms and conditions of
employment as provided to Transferred Employees prior
to Closing, excluding the benefits derived from the
DENTSPLY International Employee Stock Ownership Plan.
In the event of termination by Buyer of a Transferred
Employee within six (6) months of the Closing
("Terminated Employee"), such Terminated Employee(s)
shall receive a severance payment from Buyer in
accordance with applicable Sellers' severance plan in
effect as of September 30, 2003 or as required by law,
calculated with credit for service with Sellers.
ARTICLE III - CONDITIONS PRECEDENT
3.1 Conditions to Buyer Closing. Except as may be waived by
Buyer, the obligation of Buyer to close the transaction
described herein is subject to the fulfillment of the
following conditions: (i) the waiting period (and any
extension thereof) under Hart-Scott-Rodino or under any
other material applicable domestic or foreign Laws that
suspends the right to close the transactions
contemplated hereby shall have expired without any
action being filed by the government thereunder; (ii)
no temporary restraining order, preliminary or
permanent injunction or other order issued by any court
of competent jurisdiction or other legal or regulatory
restraint or provision challenging Buyer's proposed
acquisition of the Business or limiting or restricting
Buyer's operation of the Business following the Closing
shall be in effect, nor shall any proceeding brought by
an administrative agency or commission or other
Governmental Authority, seeking any of the foregoing be
pending, nor shall there be any action, suit, claim or
proceeding of any nature pending with respect to the
Business, that if decided adversely, would,
individually or in the aggregate, be likely to result
in a Material Adverse Effect; (iii) Sellers shall have
performed or complied in all material respects with all
obligations, agreements and covenants contained in this
Agreement (or in any of the other documents or
instruments to be delivered in connection herewith) to
be performed or complied with by Sellers prior to the
Closing; (iv) as of the date of this Agreement, to
Sellers' knowledge, the representations and warranties
of Sellers contained in this Agreement that are
qualified with respect to materiality or Material
Adverse Effect are true and correct in all respects,
and any such representations and warranties that are
not so qualified are true and correct in all material
respects; (v) since the date of the Base Financial
Statements, there shall not have been, individually or
in the aggregate, any Material Adverse Effect or
any change or event that would, within a reasonable
period of time, likely result in a Material Adverse
Effect; (vi) Buyer shall have received a certificate
signed by an executive officer of Dentsply dated as of
the Closing, to the effect that all of the conditions
to closing in Section 3.1 have been satisfied or waived
by Buyer; and (vii) Sellers shall have made all
deliveries required to be made at or prior to the
Closing pursuant to this Agreement, including those set
forth in Section 2.6(a). Payment of any portion of the
Purchase Price shall be Buyer's waiver of any condition
described in this paragraph.
3.2 Conditions to Sellers Closing. Except as may be waived by
Dentsply, the obligation of Sellers to close the
transaction described herein is subject to the
fulfillment of the following conditions: (i) the
waiting period (and any extension thereof) under
Hart-Scott-Rodino or under any material applicable
domestic or foreign Laws that suspends the right to
close the transactions contemplated hereby shall have
expired without any action being filed by the
government thereunder; (ii) no temporary restraining
order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or
other legal or regulatory restraint or provision
challenging Buyer's proposed acquisition of the
Business, shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or
other Governmental Authority, seeking any of the
foregoing be pending; (iii) Buyer shall have performed
or complied in all material respects with all
obligations, agreements and covenants contained in this
Agreement (or in any of the other documents or
instruments to be delivered in connection herewith) to
be performed or complied with by Buyer prior to the
Closing; (iv) Dentsply shall have received a
certificate signed by an executive officer of Buyer,
dated as of the Closing, to the effect that all of the
conditions to closing set forth in Section 3.2 have
been satisfied or waived by Dentsply; and (v) Buyer
shall have made all deliveries required to be made at
or prior to the Closing pursuant to this Agreement,
including those set forth in Section 2.6(b).
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth in this Agreement or the Schedules hereto,
including specifically Schedule 4, Exceptions, Sellers jointly
and severally represent and warrant to Buyer as of the date
(except as otherwise stated within any such representation) of
this Agreement and the Closing as follows:
4.1 Sellers Organization and Good Standing. Sellers are
corporate entities duly organized, validly existing and
in good standing under the laws of their state or
country of formation, and have all requisite corporate
power to execute, deliver and perform this Agreement
and carry on their business as is now being conducted.
Sellers are duly authorized and qualified to do
business under all applicable Laws to own, lease and
operate their properties and to carry on their business
in the places and in the manner as now being conducted,
except where the failure to be so authorized or
qualified does not and would not have, individually or
in the aggregate, a Material Adverse Effect. Sellers
are duly qualified to do business as a foreign
corporation and are in good standing in each
jurisdiction in which failure to be so qualified would
have, individually or in the aggregate, a Material
Adverse Effect.
4.2 Authority; Execution and Delivery. The execution, delivery
and performance of this Agreement by Sellers,
including, without limitation, the sale, assignment,
transfer and delivery contemplated hereby, have been
duly and effectively authorized by all requisite
corporate action by Sellers. No other corporate
proceedings on the part of Sellers are necessary to
authorize this Agreement and the transactions
contemplated hereby; and this Agreement has been duly
executed and delivered by Sellers and constitutes the
legal, valid and binding obligation of Sellers
enforceable against Sellers in accordance with its
terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other similar laws affecting
the enforcement of creditors' rights in general or
general principles of equity.
4.3 Consents; No Conflicts. Subject to the provisions of this
Agreement and satisfying the requirements of
Hart-Scott-Rodino and similar applicable foreign Laws,
the execution, delivery and performance by Sellers of
this Agreement and the consummation by Sellers of the
transactions contemplated hereby will not, with or
without the giving of notice or the passage of time,
(a) violate any Law, ordinance, rule or regulation, or
any judgment, writ injunction or order of any court,
arbitrator or Governmental Authority, applicable to
Sellers in any manner which would have, individually or
in the aggregate, a Material Adverse Effect,
(b) constitute a violation of or conflict with any
provision of the formation or governance documents of
Sellers or any applicable resolution of the Board of
Directors or stockholders of Dentsply, (c) require the
consent, approval, permission or other authorization of
or by or filing or qualification with any Governmental
Authority, the failure of which to obtain would have,
individually or in the aggregate, a Material Adverse
Effect, (d) result in the creation of any Encumbrance
upon the Assets under, or constitute a default or give
rise to a right of termination under, any Material
Contract, or (e) except as provided in clause (d),
result in the creation of any Encumbrance upon the
Assets under, or constitute a default or give rise to a
right of termination under, any material license,
franchise, Contract, lease, mortgage, agreement or
other instrument concerning the Business to which any
of the Sellers is a party or by which any of the Assets
is bound or from which it derives benefit, in any
manner which would have, individually or in the
aggregate, a Material Adverse Effect.
4.4 Legal Proceedings. There is no legal proceeding or other
legal action (including arbitrations, governmental
investigations or inquiries) pending or, to Sellers'
knowledge, threatened against Sellers that could
prevent the consummation of the transactions
contemplated by this Agreement or affect Sellers'
ability to perform their obligations under this
Agreement and no notice of any such legal proceeding or
other legal action has been received by Sellers.
4.5 Financial Information. Schedule 4.5, Financial Information,
reflects the pro forma Net Sales and Income From
Operations associated with the Business for the fiscal
years ending December 31, 2001 and 2002, and the nine
(9) months ending September 30, 2003, and the pro forma
condensed balance sheet of the Gendex Operating Units
as of September 30, 2003, as included in the
Consolidated Financial Statements of Dentsply which
Consolidated Financial Statements are prepared in
accordance with Dentsply's accounting procedures and
GAAP applied on a consistent basis, such Financial
Information being prepared as described in the
definitions of and notes reflected on Schedule 4.5.
The Deal Balance Sheet as reflected in Schedule 4.5
reflects the pro forma condensed balance sheet of the
Gendex Operating Units as described above and in Note 1
of the Financial Information as contained in Schedule
4.5, adjusted for assets and liabilities that are not
being transferred under this Agreement as described in
Note 2 to the Financial Information in Schedule 4.5.
4.6 Permits and Registrations. The Sellers or Sellers'
Affiliates hold all material permits, product import
and manufacturing and other licenses, franchises,
product registrations and other authorizations
("Permits") of any Governmental Authority necessary for
the conduct of the Business. All such Permits have
been duly obtained and are in full force and effect.
Sellers are in all material respects in compliance with
all such Permits, and no event has occurred and is
continuing which permits, or after notice or lapse of
time or both would permit, and to Sellers' knowledge no
Governmental Authority intends to modify, cancel,
terminate or not renew any material Permit. To
Sellers' knowledge, no Person other than Sellers, own
or has any proprietary interest (direct or indirect) in
any material Permit. Such Permits are assignable to
Buyer and will not be lost, modified or otherwise
unavailable to Buyer in a manner which would materially
affect Buyer's ability to conduct the Business as
heretofore conducted. There are no pending
applications for any material amendments or
modifications to any such Permits.
4.7 Absence of Certain Changes or Events. Since January 1,
2003, there has not been any: (a) change in the
Business' assets, liabilities or operations, except for
changes which have been in the ordinary course of
business consistent with past practice and which have
not, individually or in the aggregate, had a Material
Adverse Effect; (b) creation of any material
Encumbrances against any of the Assets, except the lien
of current real and personal property taxes and other
governmental charges incurred but not yet due and
payable, or other non-material Encumbrances incurred in
the ordinary course of business consistent with past
practice; (c) entering into, material modification,
cancellation or termination of any Contract material to
the Business, other than in the ordinary course of
business and in accordance with their respective terms;
(d) any increase in salary, bonuses or other
compensation of the hourly and salaried employees of
the Business, except in the ordinary course of business
consistent with past practice, nor any entering into,
amendment or termination in any material respect of any
Seller Benefit Plan, Seller Benefit Arrangement,
employment, severance, or other agreement relating to
compensation or fringe benefits covering employees of
the Business; (e) change in accounting methods or
practices (including any change in depreciation or
amortization policies or rates, or policies with
respect to reserves for uncollectible accounts
receivable or excess or obsolete inventory) or the
revaluation of any assets of the Business (including
the Assets); (f) material failure to operate the
Business in the ordinary course consistent with past
practice; or (g) negotiation or agreement by Sellers or
any officer or employee thereof to do any of the things
described in the preceding clauses (a) through (f)
(other than negotiations in connection with the
transactions of the type contemplated in this
Agreement).
4.8 Contracts.
(a) "Material Contract" shall mean any Contract (other
than purchase orders in the ordinary course of
business consistent with past practice) related to
the Business or any Asset: (i) that may give rise
to obligations or Liabilities exceeding $125,000
in any calendar year period (or the equivalent
value in the applicable currency); (ii) containing
any non-solicitation, non-competition,
confidentiality or similar obligations which
prohibits Sellers, in connection with the
Business, from freely providing services or
supplying products of the Business to any customer
or potential customer in any part of the world;
(iii) for cleanup, abatement or other actions in
connection with any Hazardous Material, the
remediation of any existing environmental
Liabilities or violation of any Environmental
Laws; or (iv) any license agreement relating to
material Business Intellectual Property.
(b) Schedule 4.8(b), Material Contracts, sets forth a
complete and accurate list of all Material
Contracts and constitutes all the Material
Contracts in connection with the Business as
conducted by Sellers. Each Material Contract, is
in full force and effect and is a legal, valid,
binding and enforceable obligation of or against
each of the parties thereto. Except for breaches
or defaults which have been cured and for which
the breaching party has no Liability, none of the
Sellers nor, to Sellers' knowledge, any other
party to any Material Contract, has breached or
defaulted in any material respect under, or has
improperly terminated, revoked or accelerated, any
Material Contract, and to Sellers' knowledge,
there exists no condition or event which, after
notice or lapse of time or both, would constitute
any such breach, default, termination, revocation
or acceleration.
(c) Schedule 4.8(c) lists all Contracts (other than
purchase orders in the ordinary course of business
consistent with past practice) involved in the
Business at the Gendex Operating Units which give
rise to obligations or liabilities in excess of
$50,000 in any calendar year period.
Collectively, the Material Contracts and the
Contracts listed on Schedule 4.8(c) are referred
to herein as the "Scheduled Contracts."
4.9 Assets. Schedule 4.9, Fixed Assets, reflects all material
items of machinery and equipment ("Fixed Assets") which
are Assets hereunder. Except as set forth on Schedule
4.9 as excluded assets, the Fixed Assets constitute all
machinery and equipment used in the Business as
currently conducted by Sellers. Sellers have good and
marketable title to, a valid leasehold in, or valid
license or right to use, all Fixed Assets to be
transferred to Buyer free and clear of all
Encumbrances, except (a) the lien of current real and
personal property taxes and other similar governmental
charges incurred but not yet due and payable, (b)
worker's, mechanic's, supplier's, carrier's,
warehouseman's or other similar liens arising in the
ordinary course of business consistent with past
practice, and (c) such imperfections of title and
Encumbrances, if any, as do not, individually or in the
aggregate, materially detract from the value, or
materially interfere with the present use, of the
Assets or otherwise materially impair the operations of
the Business (the liens described in clauses (a)-(c),
"Permitted Encumbrances"). Each item of tangible
personal property included in the Fixed Assets is in
operating condition for the Business as currently
conducted (ordinary wear and tear which are not such as
to materially adversely affect the operation of the
Business excepted). Except as set forth in the
Schedules , the Fixed Assets (together with the
Business Intellectual Property, the Real Property, the
Scheduled Contracts, the Inventory and the Contracts
assigned to Buyer pursuant to Section 1.3(c)),
constitute all of the material assets, rights and
properties used for the conduct of
the Business as currently conducted by the Sellers and
their Affiliates, other than at the Intercompany
Locations, and for such Locations, constitute all of
the material assets, rights and properties used
primarily for the conduct of the Business as currently
conducted.
4.10 Inventory. The values at which the Inventory of the
Business is carried and set forth on the Base Financial
Statements reflect the valuation policy of stating
Inventories at cost or market, whichever is lower, on a
first-in, first-out basis or average cost method, and
reflect adequate write-offs, write-downs and reserves
for damaged, defective, excess, slow-moving or obsolete
items, computed in accordance with GAAP consistent with
Sellers' past practices (except as reflected in the
Notes to Schedule 4.5). The Inventory of the Business
(net of all reserves for obsolete, excess, slow-moving
and defective Inventory reflected on the Base Financial
Statements), is usable or salable in the ordinary
course of business consistent with past practice,
conforms to the specifications established therefor,
and includes (except as reserved as noted above) no
damaged, defective, excess, slow-moving, or obsolete
items.
4.11 Intellectual Property.
(a) Definitions.
(i) "Copyrights" shall mean registered and
unregistered copyrights, copyright
registrations, renewals thereof, and
applications to register the same.
(ii) "Domain Names" shall mean Internet domain
names.
(iii)"Intellectual Property" shall mean
Trademarks, Patents, Copyrights, Software,
Domain Names, Internet Sites, Licenses-In,
Licenses-Out, Proprietary Rights and the
goodwill associated therewith.
(iv) "Internet Sites" shall mean URLs, and
Internet web-sites and the content thereof.
(v) "Licenses-In" shall mean licenses,
sublicenses and agreements pursuant to which
the Sellers have acquired rights in or to any
of the Trademarks, Patents, Copyrights,
Software, Domain Names or Proprietary Rights.
(vi) "Licenses-Out" shall mean licenses,
sublicenses and agreements pursuant to which
any of the Sellers have licensed or
transferred any rights to any of the
Trademarks, Patents, Copyrights, Software,
Domain Names or Proprietary Rights.
(vii)"Patents" shall mean issued foreign and
domestic patents, patent rights, patent
applications.
(viii) "Proprietary Rights" shall mean
categories of trade secrets, trade dress,
know-how, inventions, invention disclosures
(whether or not patentable and whether or not
reduced to practice), inventor rights,
reports, discoveries, developments, research
and test data, blueprints, technology, ideas,
compositions, quality records, engineering
notebooks, models, processes, procedures,
prototypes, patent records, manufacturing and
product procedures and techniques,
troubleshooting procedures, failure/defect
analysis data, drawings, specifications,
designs, ingredient or component lists,
formulae, plans, proposals, technical data,
copyrightable works, financial, marketing,
customer and business data, pricing and cost
information, business and marketing plans,
selling information, marketing information,
customer and supplier lists and information,
and all other confidential and proprietary
information.
(ix) "Software" shall mean software, computer
programs, computer systems, modules and
related data and databases and materials.
(x) "Trademarks" shall mean registered and
unregistered trademarks, trademark
registrations, trademark rights and renewals
thereof, trade names, trade name rights,
servicemarks, servicemark registrations and
renewals thereof, servicemark rights, and all
applications to register the same.
(xi) "Transferred Software" shall mean (i) in the
case of Software subject to standard,
off-the-shelf, non-exclusive shrinkwrap
software licenses granted to end-user
customers by third parties in the ordinary
course of such third parties' business, all
such Software used by Sellers exclusively in
the Business, and (ii) in the case of all
other Software, such Software used by Sellers
primarily in the Business.
(b) Schedules 4.11 A, B and C collectively set forth a
complete list, in each case, of (i) all United
States and foreign Trademarks and Patents owned
and/or used in connection with the Business as
conducted by Sellers, (ii) Domain Names, and
Internet Sites used by Sellers exclusively in the
Business, and (iii) Licenses-In and Licenses-Out
of Patents and Trademarks in connection with the
Business (collectively, the "Listed Intellectual
Property").
(c) Each item of Listed Intellectual Property is
subsisting, and all necessary registration,
maintenance and renewal fees currently due in
connection with such Listed Intellectual Property
have been paid and all appropriate documents and
certificates in connection with such Listed
Intellectual Property have been filed with the
relevant patent, copyright, trademark or other
authorities in the United States or foreign
jurisdictions, as the case may be, as necessary
for maintaining or prosecuting such Listed
Intellectual Property in the countries indicated
on the Schedule.
(d) Sellers own and have good and marketable title to,
or possess legally enforceable and transferable
rights to use under valid and subsisting written
license agreements (each of which is listed on
Schedule 4.8 and true and correct copies of which
have been provided to Buyer), each item of Listed
Intellectual Property, Transferred Software and
each other item of Intellectual Property primarily
used in the Business as currently conducted by
Sellers (such Transferred Software and other
Intellectual Property, together with the Listed
Intellectual Property, the "Business Intellectual
Property"), in each case free and clear of any
Encumbrances (excluding licenses and related
restrictions disclosed on any schedule hereto).
(e) The Business Intellectual Property and operations
of Sellers in conducting the Business (including
the performance of any Contract) as conducted in
the past and as now conducted have not and do not,
to Sellers' knowledge, (i) infringe on any
Intellectual Property of any third party, (ii)
constitute a misappropriation of any Intellectual
Property of any third party, (iii) entitle any
third party to any interest therein, or right to
compensation from any Seller or any of its
successors or assigns, by reason thereof
(excluding licenses), or (iv) violate any
applicable Law. Sellers have not received any
written complaint, threat, allegation, invitation
to license, or assertion of any claim, litigation,
or proceeding that the Business Intellectual
Property or operations of Sellers in conducting
the Business infringe upon or conflict with the
rights of any third party Intellectual Property.
4.12.Employee Matters.
(a) With respect to employees of the Business, the following
terms shall have the following meanings:
(i) "Benefit Arrangement" shall mean any benefit arrangement,
obligation, or practice, whether or not
legally enforceable, to provide benefits
(other than merely as salary or under a
Benefit Plan), as compensation for services
rendered, to present or former directors,
employees, agents, or independent
contractors, including, but not limited to,
employment or consulting agreements,
severance agreements or pay policies, stay or
retention bonuses or compensation, executive
or incentive compensation programs or
arrangements, sick leave, vacation pay, plant
closing benefits, salary continuation for
disability, workers' compensation,
retirement, deferred compensation, bonus,
stock option or purchase plans or programs,
patent award, tuition reimbursement or
scholarship programs, employee discount
programs, meals, travel, or vehicle
allowances, any plans subject to Code Section
125, and any plans providing benefits or
payments in the event of a change of control,
change in ownership or effective control or
sale of a substantial portion (including all
or substantially all) of the assets of any
business or portion thereof, in each case
with respect to any present or former
employees, directors, or agents.
(ii) "Benefit Plan" shall have the meaning given in ERISA
Section 3(3), together with plans or
arrangements that would be so defined if they
were not (A) otherwise exempt from ERISA by
that or another section, (B) maintained
outside the United States, or (C)
individually negotiated or applicable only to
one person.
(iii) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended, and all regulations
and rules issued thereunder, or any successor
law.
(iv) "ERISA Affiliate" shall mean any person or entity that,
together with the entity referenced, would be
or was at any time treated as a single
employer under Code Section 414 or ERISA
Section 4001 and any general partnership of
which the entity is or has been a general
partner.
(v) "Foreign Plan" shall mean any Benefit Plan or Benefit
Arrangement covering any employee of the
Business, which plan, program or arrangement
is subject to the laws of any jurisdiction
outside of the United States.
(vi) "Multiemployer Plan" shall mean any Benefit Plan described
in ERISA Section 3(37).
(vii) "Pension Plan" shall mean any Benefit Plan subject to Code
Section 412 or ERISA Section 302 or Title IV
(including any Multiemployer Plan) or any
comparable plan not covered by ERISA.
(viii)....."Seller Benefit Arrangement" shall mean any Benefit
Arrangement any Seller sponsors or maintains
or with respect to which any Seller has or
may have any current or future liability
(whether actual, contingent, with respect to
any of its assets or otherwise), in each case
with respect to any present or former
employees of the Business.
(ix) "Seller Benefit Plan" shall mean any Benefit Plan that any
Seller maintains or has previously maintained
or to which any Seller is obligated to make
payments or has or may have any liability, in
each case with respect to any present or
former employees of any Seller.
(b) Schedule 4.12, Employment Terms, describes the material
Benefit Plans and arrangements in connection with
the Business and the treatment of same in
connection with the transactions contemplated in
this Agreement.
(c) Dentsply has previously delivered to Buyer a list of
employees employed exclusively in connection with
the Business, including levels of compensation.
(d) No labor union or workers' council represents or has ever
represented the employees of the Business and no
collective bargaining agreement is or has been, to
the Sellers' knowledge, binding against Sellers in
connection with the Business. No grievance or
arbitration proceeding arising out of or under
collective bargaining agreements or employment
relationships is pending; and no claims therefore
exist or have, to the Sellers' knowledge, been
threatened; no labor strike, lock-out, slowdown,
or work stoppage is or has in the last five (5)
years been pending or, to the Sellers' knowledge,
threatened against the Business.
(e) Except as provided in Schedule 4.12, Employment Terms, or as
otherwise provided in Section 2.11, Buyer will
have no liability with respect to any Seller
Benefit Plan or Seller Benefit Arrangement.
(f) All group health plans of Dentsply and its ERISA Affiliates
comply and have complied with the requirements of
Part 6 of Title I of ERISA (COBRA).
(g) Each Foreign Plan (i) has been maintained in all material
respects in accordance with all applicable legal
requirements and with its terms; (ii) to the
extent it has qualified for special tax treatment,
meets all requirements for such treatment; and
(iii) if required to be registered, has been
registered with the appropriate authorities and
has been maintained in good standing with the
appropriate regulatory authorities.
(h) Sellers comply and have complied in all material respects
with all applicable domestic and foreign Laws
relating to employees of the Business respecting
employment and employment practices, terms and
conditions of employment and wages and hours, and
no claims, controversies, investigations, or suits
are pending or, to Sellers' knowledge, threatened
with respect to such Laws, either by private
individuals or by governmental agencies.
(i) With respect to the employees of the U.S. Business, no
Seller has effectuated in any way (i) a plant
closing as defined in the Worker Adjustment and
Retraining Notification Act of 1988, as amended
from time to time (the "WARN Act"), affecting any
site of employment or one or more operating units
within any site of employment of any Seller or
(ii) a mass layoff as defined in the WARN Act, nor
has any Seller been affected by any transaction or
engaged in layoffs or employment terminations
sufficient in number to trigger application of any
similar state or local Law. None of the employees
of the Business have suffered an employment loss
as defined in the WARN Act during the ninety-day
period prior to the Closing.
4.13 Litigation. Except as set forth on Schedule 4.13,
Litigation, there is no order, writ, injunction,
judgment or decree outstanding or claim, suit,
litigation or proceeding, pending or, so far as known
to Dentsply, threatened against, relating to or
affecting any Seller with respect to the Business or
the transactions contemplated by this Agreement, to the
extent any of the foregoing would, individually or in
the aggregate, be material to the Business. Except as
set forth on Schedule 4.13, no Product Liability Claims
involving amounts in excess of $100,000.00, if
adversely determined against the Business, have
occurred in the last three (3) years.
4.14 Compliance with Laws. The Business has been and is
currently conducted by Sellers without the violation of
any applicable Law in a manner which would,
individually or in the aggregate, materially affect the
Business and no claim has been alleged or, to Sellers'
knowledge, threatened, asserting Sellers' violation of,
Liability for, or potential responsibility in any
material respect, under any Law in connection with
Sellers operation of the Business. No Product has
experienced any safety or efficacy problems that would
materially change its approved indications as a result
of any adverse experience report received by Sellers,
and no material change in the labeling of any Product
has been required by any governmental or regulatory
body, or determined to be implemented by Sellers, as a
result of such an adverse experience report. There is
no pending, or to Sellers' knowledge, threatened notice
of non-compliance or impending regulatory action from
any USA or foreign Government Authority with respect to
the Assets, Products or the Business.
4.15 Product Warranties. The terms of Sellers' standard product
warranties and extended warranties sold by or on behalf
of Sellers relating to Products have been provided to
Buyer. Except as set forth therein or in Schedule
4.15, Sellers have made no express warranty with
respect to any Product. Schedule 4.15, Warranty,
reflects the warranty reserve maintained by Dentsply
for the Business as of the date reflected therein.
Such warranty reserve has been established in the
ordinary course of business and is consistent with the
historical warranty experience of the Business. To
Sellers' knowledge, (a) there are no statements,
citations or decisions by any Governmental Authority or
any product testing laboratory stating that any product
of the Business is unsafe or fails to meet any
applicable standards promulgated by such Governmental
Authority or testing laboratory, (b) there is no
material design, manufacturing or other defect in any
model of the Products, and (c) there is no pending or
threatened mandatory or voluntary product recalls with
respect to any Products and (d) there is no fact
relating to any Products that may impose a duty on
Sellers to recall any Product. Schedule 4.15 sets
forth a complete list of any product recalls relating
to the Products in the five (5) years prior to this
Agreement.
4.16 Receivables. The Third Party Receivables of the EU
Business ("EU Receivables") are valid and enforceable
claims against customers for goods or services
delivered or rendered in the ordinary course of
business consistent with past practice. No portion of
the EU Receivables is required or expected to be paid
to any Person other than a Seller. The EU Receivables
are current and collectible net of any reserves
specifically applicable thereto set forth on the Base
Financial Statement, determined in accordance with GAAP
consistently applied. There is no contest, claim, or
right of set-off, other than rebates and returns in the
ordinary course of business consistent with past
practice, under any Contract with any maker of an EU
Receivable relating to the amount or validity of such
EU Receivable.
4.17 Brokers. Except for UBS Securities LLC, Sellers have
not engaged the services of any person to represent
Sellers in the negotiation or conclusion of the
transactions contemplated hereby.
4.18 Complete Copies of Contracts. Dentsply made available
for inspection by Buyer true and complete copies of
each document referenced in the Schedules to this
Agreement, except for Excluded Assets.
4.19.Environmental Matters.
(a) "Environmental Laws" shall mean all federal,
state, local, and foreign Laws and common law
Liability, relating to pollution or protection of
human health or the environment, including, Laws
relating to indoor or outdoor releases or
threatened releases, importation, manufacture,
processing, use, treatment, storage, disposal,
transport, or handling of hazardous substances,
hazardous wastes, petroleum or petroleum
by-products, or pollutants or contaminants of any
kind.
............(b) Except as set forth on Schedule 4.19,
Environmental Matters, each Seller is and has been
in material compliance with all applicable
Environmental Laws with respect to the Business;
no Seller has received within the last three (3)
years and there are no pending communications
(written or oral) from a Governmental Authority
that alleges that Sellers are not in compliance
with Environmental Laws with respect to the
Business.
............(c) Except as set forth on Schedule 4.19, there is no
claim, action, cause of action, investigation, or
notice (written or oral) with respect to the
Business by any Governmental Authority or any
other person pending or, to Sellers' knowledge,
threatened, against Sellers or against any Person
whose Liability Sellers have retained or assumed
either contractually or by operation of law,
pursuant to any Environmental Law.
............(d) Except as set forth on Schedule 4.19, there is no
asbestos contained in or forming part of any
products of the Business currently or previously
manufactured, distributed or sold by Sellers.
............(e) Except as set forth on Schedule 4.19, to Sellers'
knowledge, there are no past or present actions,
activities, circumstances, conditions, events or
incidents with respect to the Business that
establish any Liability of any Seller or of any
Person whose Liability Sellers has retained or
assumed either contractually or by operation of
law, pursuant to any Environmental Law.
4.20.Real Property.
(a) Schedule 4.20, Real Property, lists: (i) a
description of each parcel of real property owned
by any of the Sellers which is used exclusively in
connection with the Business (the "Fee Real
Property"); (ii) each lease, whether oral or
written, of real property used exclusively in
connection with the Business under which any
Seller is a lessee, lessor, sublessee or
sublessor, as so designated therein (the "Leases"
and together with the Fee Real Property, the "Real
Property"); and (iii) all options to acquire, sell
or lease any real property interests exclusively
in connection with the Business to which any
Seller is a party ("Real Property Options").
(b) Except as set forth on Schedule 4.20, (i) all
Leases are valid, binding, in full force and
effect, free and clear of all Encumbrances, other
than non-monetary items which do not and will not
impair, in any material respect, the usefulness to
the Business; (ii) no written notice of default or
termination under the Leases has been received by
Sellers and no uncured default on the part of
Sellers exist thereunder; (iii) there are no
restrictions that prevent Sellers from their
continued use, occupancy and operation as used,
occupied and operated in connection with the
Business as currently conducted; (iv) Dentsply is
not a "foreign person" as that term is defined in
Section 1445 of the Code and any applicable
regulations promulgated thereunder; (v) Sellers
have not received notice from any municipal body
or other public authority requiring work to be
done or improvements to be made upon any of the
Real Property; (vi) there are no Persons other
than Sellers in possession of any Real Property
leased by Sellers or any portion thereof; (vii) no
condemnation or similar proceeding is pending or,
to Sellers' knowledge, threatened, that would
preclude or impair the use of any Real Property
leased by Sellers, or any portion thereof, for the
purposes for which it is currently used; (viii)
there is not under any Lease any default by
Sellers or, to Sellers' knowledge, any other party
to any Lease, or any condition, event or act which
would constitute such a default with the giving of
notice or the passage of time, or both.
4.21 Significant Customers and Suppliers.
(a) Schedule 4.21(a), Significant Customers and
Suppliers, sets forth (i) a true and correct
customer list showing the ten (10) largest third
party customers by gross purchases from the Gendex
Operating Units during the nine (9) month period
ended on the date of the Base Financial Statements
(individually, a "Significant Customer" and
collectively, the "Significant Customers"), and
(ii) a true and correct supplier list showing (A)
the ten (10) largest suppliers by gross sales to
the Gendex Operating Units during the nine (9)
month period ended on the date of the Base
Financial Statements and, (B) any sole source
Suppliers to the Business that are identified as a
Material Contract on Schedule 4.8(b) ("Significant
Supplier").
(b) Since January 1, 2003, no Significant Customer or
Significant Supplier has (whether as a result of
the transactions contemplated hereby or otherwise)
(i) stopped, or to Sellers' knowledge indicated an
intention to stop, trading with or supplying the
Business, (ii) notified Sellers that it is going
to materially reduce or discontinue business with
the Sellers, or (iii) materially changed or
notified Sellers that it is going to change the
basic terms on which it does or will do business
with Sellers in a manner which materially deviates
from the past course of conduct or dealings with
the Sellers.
4.22 Taxes.
(a) Definitions.
(i) "Tax" shall mean any tax or similar charge,
impost, or levy imposed by a Governmental
Authority, including, without limitation, any
federal, state, local, or foreign income,
gross receipts, license, payroll, employment,
excise, stamp, occupation, windfall profits,
customs duties, capital stock, franchise,
profits, withholding, social security (or
similar), unemployment, disability, real
property, personal property, sales, use,
registration, value added, alternative or
add-on minimum, estimated, or other tax of
any kind whatsoever, together with any
interest, penalties, fines, or additions
thereto, whether disputed or not.
(ii) "Tax Return" means any return (including
information return), report, statement,
schedule, notice, form, estimate or
declaration of estimated tax relating to or
required to be filed with any Governmental
Authority in connection with the
determination, assessment, collection or
payment of any Tax.
(b) Except as set forth on Schedule 4.22, Taxes:
(i) All Taxes owed by or with respect to the
Business due on or before the Closing Date
(whether or not shown on any Tax Return) have
been paid in full on a timely basis.
(ii) There are (and immediately following the
Closing there will be) no Encumbrances on the
Assets relating to or attributable to Taxes,
except for Taxes not yet due and payable.
Sellers have no knowledge of any basis for
the assertion of any Tax claims that, if
adversely determined, would result in a
material Encumbrance on the Assets or the
Business.
4.23 Bank Accounts; Powers of Attorney. Schedule 4.23 sets
forth a complete and accurate list of all bank
accounts, safe deposit boxes and lock boxes of any
Seller used primarily for the Business, including, with
respect to each such account and lock box, the names in
which such accounts or boxes are held. Schedule 4.23
also sets forth the name of each Person holding a
general or special power of attorney from any Seller
for use in connection with the Business and a
description of the terms of such power.
4.24 Backlog. All pending customer orders for the Business
were entered into in the ordinary course of business
consistent with past practice. No such customer orders
are at prices which, based on the past experience of
Sellers and current and anticipated costs, are or can
reasonably be expected to result in a material loss to
the Business.
4.25 Unlawful Payments. To Sellers' knowledge, neither
Sellers nor any director, officer, employee,
stockholder, agent or representative of (or any other
Person associated with or acting for or on behalf of)
Sellers, have directly or indirectly (i) made any
contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any Person,
private or public, regardless of what form, whether in
money, property, or services (A) to obtain favorable
treatment for the Business or to secure Contracts, (B)
to obtain special concessions or for special
concessions already obtained for the Business, or (C)
in violation of any legal requirement in connection
with the Business.
4.26 Absence of Claims; Business Relationships With Affiliates.
Except as set forth in Schedule 4.26, no Affiliate of
Dentsply as of Closing will have any claim or cause of
action against the Buyer or the Business and there are
no arrangements with any Affiliates related to the
Business the discontinuance of which would have,
individually or in the aggregate, a Material Adverse
Effect.
4.27 Books and Records. Sellers have made and kept business
records in the ordinary course of business (which might
include financial books and records, sales order files,
purchase order files, engineering order files, warranty
and repair files, supplier lists, customer lists,
dealer, representative and distributor lists, studies,
surveys, analyses, strategies, plans, forms, designs,
diagrams, drawings, specifications, technical data,
production and quality control records and
formulations) (collectively, "Books and Records") which
reflect the activities of the Business.
4.28 Trade Accounts Payable. The Trade Payables as shown in the
Base Financial Statements reflects the gross amount of
Third Party Payables due to non-affiliates for goods
and services provided, compiled in accordance with GAAP
as of the date of the Base Financial Statements.
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as of the date of this
Agreement and Closing as follows:
5.1 Buyer's Organization, Power, Execution. Buyer is a
corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and
authority to execute, deliver and perform this
Agreement and carry out the transactions contemplated
hereby. The execution and delivery of this Agreement,
and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary
corporate action on the part of Buyer, and this
Agreement has been duly executed and delivered by Buyer
and constitutes a valid and legally binding obligation
of Buyer in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy,
insolvency or other similar laws affecting the
enforcement of creditors' rights in general or general
principles of equity.
5.2 Non-Violation. Subject to satisfying the requirements of
Hart-Scott-Rodino and similar applicable foreign laws,
the execution, delivery and performance by Buyer of
this Agreement and the consummation by Buyer of the
transactions contemplated hereby will not, with or
without the giving of notice or the passage of time,
(a) violate any law, ordinance, rule or regulation, or
any judgment, writ injunction or order of any court,
arbitrator or governmental, administrative or
self-regulatory authority, applicable to Buyer in any
manner which would materially adversely affect the
rights of any Seller under this Agreement, (b)
constitute a violation of or conflict with any
provision of the certificate of incorporation or
by-laws of Buyer, or (c) require the consent, approval,
permission or other authorization of or by or filing or
qualification with any court, arbitrator or
governmental, administrative or self-regulatory
authority, the failure of which to obtain would
materially adversely affect the rights of any Seller
under this Agreement.
5.3 Legal Proceedings. There is no legal proceeding or other
legal action pending or, to Buyer's knowledge,
threatened against Buyer that could prevent the
consummation of the transactions contemplated by this
Agreement or materially affect Buyer's ability to
perform its obligations under this Agreement or the
Ancillary Agreements.
5.4 Brokers. Buyer has not engaged the services of any person
to represent Buyer in the negotiation or conclusion of
the transactions contemplated hereby.
5.5 Cash Resources. Buyer has an amount of cash or readily
available financing which is sufficient to pay the
Purchase Price at Closing, as well as all Buyer-related
fees and expenses associated with such transaction.
ARTICLE VI - COVENANTS OF SELLER
Sellers covenant and agree as follows:
6.1 Conduct of the Business. Except as otherwise permitted by
this Agreement or consented to by Buyer in writing,
Sellers shall conduct the Business in the ordinary
course consistent with past practice. Without limiting
the foregoing, Sellers shall maintain the Assets in the
condition existing at the time of this Agreement
(ordinary wear and tear excepted), keep in full force
and effect its present insurance policies or other
comparable insurance coverage with respect to the
Business, comply with, and perform in all material
respects obligations under, all Scheduled Contracts,
all applicable Laws and all Permits related to the
Business and use commercially reasonable efforts
(payment of additional costs or liabilities outside the
ordinary course of business shall not be considered
reasonable) to preserve intact its present business
organization, to keep available the services of its
present employees, and to preserve its relationships
with customers, suppliers and others having business
dealings with it.
6.2 Certain Changes. Except as otherwise permitted by this
Agreement, consented to by Buyer in writing or
disclosed in the Schedules hereto between the signing
of this Agreement and the Closing, Sellers shall not:
(a) subject any of the Assets to any material
Encumbrance; (b) dispose of any of the Assets, or any
interest therein except in the ordinary course of
business consistent with past practice; (c) grant any
material increase in compensation or benefits to any
employee who will transfer to Buyer with the Business;
(d) breach, terminate or allow the expiration of, waive
any right under, or materially modify or amend, any
Scheduled Contract or Material Permit, except in
accordance with its terms; (e) make any capital
expenditure in connection with the Business in excess
of $100,000; or (f) take or agree to take (in writing
or otherwise) any other action which will prevent the
consummation of the transactions contemplated hereby or
materially diminish the value of the Business.
6.3 Access to Information. Sellers shall afford to the officers
and authorized representatives of Buyer access to, in
the form in which it is kept by Sellers for the normal
operation of the Business (i) all of the Assets
(including the Real Property) and Books and Records
related to the Business and (ii) such additional
financial and operating data and other information
relating to the Business as Buyer may from time to time
reasonably request, including access upon reasonable
request to the Business's employees, customers,
vendors, suppliers and creditors. Sellers shall
reasonably cooperate with Buyer, its representatives,
auditors and counsel in the preparation of any
documents or other material which may be required in
connection with this Agreement.
6.4 Exclusivity. Sellers shall, and shall direct their
respective officers, directors, employees,
representatives, agents and Affiliates, to, discontinue
and cease any existing discussions or negotiations, if
any, with any parties with respect to any purchase or
acquisition of all or a material portion of the Assets
related to the Business (each, an "Acquisition
Transaction"). Each Seller agrees that prior to the
earlier of the Closing or the termination of this
Agreement, it shall not, and shall not authorize or
permit any of its officers, directors, employees,
representatives, agents and Affiliates, directly or
indirectly to solicit, initiate or encourage, or
furnish or disclose information in furtherance of, any
inquiries or the making of any proposal with respect to
any Acquisition Transaction or negotiate, explore or
otherwise engage in substantive discussions with any
Person with respect to any Acquisition Transaction or
enter into any agreement, arrangement or understanding
requiring it to abandon, terminate or fail to
consummate any of the transactions contemplated by this
Agreement.
6.5 VAT Refund. Sellers shall provide to Buyer the benefit of
that portion of the VAT refund due from the
Governmental Authority in Italy to Italia (the "VAT
Refund"), and which is solely attributable to the
business operations of the EU Business located in
Cusano Milanino, Italy, as reflected in, and as of the
date of, the Deal Balance Sheet. As of that date, the
VAT Refund is equal to 1,987,818 Euro (the "VAT Refund
Amount"). In the event that after good faith efforts,
Buyer is unable to obtain the full benefit of the VAT
Refund Amount from the Governmental Authority in Italy
within the six month anniversary date of Closing,
Sellers shall pay to Buyer that portion of the VAT
Refund Amount that Buyer does not obtain from the
Governmental Authority in Italy (the "VAT
Differential"), up to a total amount of $2,315,808, and
Buyer shall assign all of its rights to its claims
against the Governmental Authority for such amounts to
the Sellers. In the event Buyer obtains the benefit of
any portion of the VAT Refund after receiving payment
of the VAT Differential from Sellers, Buyer covenants
and agrees to return to Sellers that amount of the VAT
Refund of which it obtains the benefit within 30 days
of Buyer's receipt of each such refund.
ARTICLE VII - OTHER AGREEMENTS
7.1 Books and Records. For a period of not less than three (3)
years from the Closing (plus any additional time during
which a party has been advised that there is a tax
audit with respect to a period prior to the Closing),
Buyer and Sellers shall each, at the request of the
other party, make available to such other party from
time to time on a reasonable basis, records and other
documents relating to the Business as kept in the
ordinary course of business. Copies of such records and
other documents shall be delivered to the other party
upon such other party's request at any time and at such
other party's out-of-pocket expense; provided, however,
that (a) all such access and copying shall be done in a
manner so as not to interfere unreasonably with the
normal conduct of the operations of the party requested
to provide the records or documents, and (b) the party
requesting the documents and records shall treat such
documents and records as confidential and not disclose
such records or the contents thereof to any other
person or entity except as required by applicable law
or as authorized in writing by the disclosing party.
In addition, after the Closing, at Dentsply's request
and to the extent reasonably possible, Buyer shall make
employees of the Business or their replacements
available to Dentsply in connection with any matters
related to activities of the Business prior to the
Closing as reasonably requested by Sellers, provided
that, Sellers shall reimburse Buyer for any
out-of-pocket costs associated with making such
employees available.
7.2 Bulk Sales Laws. Subject to all other terms of this
Agreement, Dentsply and Buyer each waive compliance
with any bulk sales laws applicable to the sale of the
Assets or the transfer of the Business to Buyer;
provided, however, that Sellers shall pay and discharge
when due any and all claims of creditors in existence
prior to Closing, which were not disclosed in any
Schedule and which could be asserted against Buyer by
reason of such non-compliance.
7.3 Allocation of Purchase Price and Tax Matters.
(a) The Purchase Price plus any Assumed Obligations, each to the
extent properly taken into account under Section
1060 of the Internal Revenue Code of 1986
("Code"), as amended, will be allocated generally
as agreed by the parties. Dentsply and Buyer agree
that they will adopt and utilize the amounts
allocated to each asset or class of assets as
agreed for purposes of all Tax Returns and reports
(including without limitation IRS Form 8594) filed
by each of them, and that each of them will not
voluntarily take any position inconsistent
therewith upon examination of any such Tax Return,
in any refund claim, in any litigation or
otherwise with respect to such income tax returns.
The parties and their Affiliates shall timely
file all forms and Tax Returns required to be
filed in connection with the Allocation.
(b) Buyer shall prepare an allocation of the Purchase Price
among the acquired assets in accordance with Code
and any similar provisions of state, local, or
foreign law, as appropriate. Buyer shall deliver
such allocation to Sellers within 60 days after
the Closing date. Sellers shall 30 days after
receiving such allocation from Buyer to review and
agree the allocation or to make amendments to the
allocation. Once agreed, the Buyer and Sellers
shall report, act and file tax returns in all
respects consistent with such allocation so agreed.
(c) Sellers shall timely pay all Taxes that relate to the Assets
or the Business and that were incurred in or are
attributable to any Tax period (or portion
thereof) ending on or before the Closing Date.
Sellers shall prepare and file all necessary Tax
Returns for the Business for all periods ending on
or before the Closing Date. Such returns will be
prepared and filed in accordance with applicable
Law and in a manner consistent with past
practices. Buyer shall timely pay all Taxes that
relate to the Assets or the Business and that were
incurred in or are attributable to any Tax period
(or portion thereof) ending on or after the
Closing Date. Buyer shall prepare and file all
necessary Tax Returns for the Business for all
periods ending on or after the Closing Date. Such
returns will be prepared and filed in accordance
with applicable Law.
7.4 No Implied Representations. Buyer and Sellers acknowledge
that, except as expressly set forth in this Agreement,
the Schedules, or in the agreements referenced herein,
neither Buyer nor Dentsply has made or is making any
oral or written representation or warranty to the
other, implied or otherwise.
7.5 Currency Exchange. For purposes of the financial
information referenced in this Agreement, the
translation of currency was calculated as follows: (i)
for income statement items, currency translations were
done using the actual average rates for the period
covered by the statement; and (ii) for balance sheet
items, currency translations were done using the spot
rate as of the balance sheet date.
7.6 Intercompany Effects. Dentsply has historically operated
the Business through operating units, divisions and/or
product lines of Intercompany Locations with corporate
parent provision of certain services. Because of
Sellers' intercompany structure, the financial
information, assets, liabilities, revenues, and
expenses of the Business are not necessarily indicative
of what would have occurred had the Business operated
as a stand-alone entity or of the future financial
position or results or operations of the Business.
Dentsply has provided information regarding support and
financial relationships affecting the Business because
of or resulting from these intercompany relationships.
This Section 7.6 is not intended to modify the
representations and warranties of Sellers set forth in
Section 4.
7.7 Cause Conditions to be Satisfied. Sellers shall use
commercially reasonable efforts to cause each of the
conditions set forth in Section 3.1 hereof to be
satisfied at or prior to the Closing. Buyer shall use
commercially reasonable efforts to cause each of the
conditions set forth in Section 3.2 hereof to be
satisfied at or prior to the Closing. Each party
hereto shall cooperate in obtaining all consents and
approvals required by Section 2.6(a)(x) (the obtaining
of which shall nonetheless be the responsibility of
Sellers).
7.8 Notification of Certain Matters. Each party hereto shall
give prompt notice to the other of the occurrence or
non-occurrence of any event the occurrence or
non-occurrence of which results in (i) any
representation or warranty contained herein to be
untrue or inaccurate in any material respect at or
prior to the Closing, or which, individually or in the
aggregate, results in a Material Adverse Effect and
(ii) any material failure of such party to comply with
or satisfy in a timely manner any covenant, condition
or agreement to be complied with or satisfied by such
party hereunder. The delivery of any notice pursuant
to this Section 7.8 shall not, without the express
written consent of the other party hereto (which
consent may be withheld in their respective sole
discretion) be deemed to (A) modify the
representations, warranties, covenants or agreements
hereunder of the party delivering such notice, or any
of the Schedules (B) modify any of the conditions set
forth in Article III, (C) cure or prevent any such
inaccuracy or failure, or (D) limit or otherwise affect
the remedies available hereunder or otherwise to the
party receiving such notice.
7.9 Transitional Services Agreement. Contemporaneously with the
execution of this Agreement, the parties shall execute
a Transitional Services Agreement in the form attached
as Exhibit 7.9.
ARTICLE VIII - TERMINATION
8.1 General Termination. This Agreement may be terminated at
any time prior to the Closing: (i) by the mutual
consent of Dentsply and Buyer; (ii) by Dentsply or
Buyer if any Governmental Authority of competent
jurisdiction shall have issued any judgment,
injunction, order or decree prohibiting, enjoining,
restraining or otherwise materially conditioning the
transactions contemplated hereby and such judgment,
injunction, order or decree shall have become final and
nonappealable; provided, however, that either party may
only exercise its right to terminate this Agreement
pursuant to this Section 8.1(ii) if it has used
commercially reasonable efforts to prevent and remove
such judgment, injunction, order or decree and it has
not been removed within one hundred twenty (120) days
of the date of this Agreement; (iii) by Dentsply or
Buyer if any statute, rule, regulation or executive
order promulgated or enacted by any Governmental
Authority of competent jurisdiction after the date of
this Agreement which prohibits the consummation of the
transactions contemplated hereby shall be in effect;
(iv) by Dentsply or Buyer, after the date which is one
hundred twenty (120) days after the date of this
Agreement, if any of the conditions to Closing
hereunder have not been fulfilled; provided, however,
Buyer shall not have the right to terminate this
Agreement pursuant to this Section 8.1(iv) if the
misrepresentation, inaccuracy or breach of any
representation or warranty made by Buyer, or Buyer's
default or failure to
fulfill any covenant or obligation, pursuant to this
Agreement has been the primary cause of, or resulted
in, the failure of the Closing to occur prior to the
expiration of such period, and provided, further,
Dentsply shall not have the right to terminate this
Agreement pursuant to this Section 8.1(iv) if the
misrepresentation, inaccuracy or breach of any
representation or warranty made by Sellers, or Sellers'
default or failure to fulfill any covenant or
obligation, pursuant to this Agreement has been the
primary cause of, or resulted in, the failure of the
Closing to occur prior to the expiration of such period.
8.2 Termination by Buyer. This Agreement may be terminated by
Buyer at any time prior to the Closing if Sellers shall
have failed to comply in any material respect with its
agreements herein and such failure shall be continuing,
provided that, Buyer shall give Sellers a reasonable
opportunity to cure any default hereunder, by the
payment of compensation (if the matter is reasonably
capable of rectification by that means) or by the
rectification of the matter before the Closing.
8.3 Termination by Seller. This Agreement may be terminated by
Dentsply at any time prior to the Closing if Buyer
shall have failed to comply in any material respect
with its agreements herein and such failure shall be
continuing, provided that, Dentsply shall give Buyer a
reasonable opportunity to cure any default hereunder,
by the payment of compensation (if the matter is
reasonably capable of rectification by that means) or
by the rectification of the matter before the Closing.
8.4 Effect of Termination. In the event of any termination of
this Agreement pursuant to Section 8.1, 8.2 or 8.3
hereof, this Agreement forthwith shall become void and
of no further force or effect, and no party hereto (or
any of its Affiliates, directors, officers, employees,
agents or representatives) shall have any liability or
obligation hereunder, except in any such case, in
accordance with (i) the provisions of this Section 8.4,
the payment of expenses provisions of Section 12.2, the
specific performance and remedies provisions of Section
12.6, the governing law and forum provisions of Section
12.7 and the publicity provisions of Section 12.9, each
of which shall survive any such termination and (ii)
for Damages arising from any breach by a party prior to
such termination, of any of its covenants contained in
this Agreement.
ARTICLE IX - INDEMNITIES
9.1 Indemnity Claims. With respect to the indemnities contained
in this Article IX: (i) the indemnitor shall indemnify
and hold harmless the indemnitee against and in respect
to all Damages which the indemnitee may incur, suffer,
sustain, pay or with which it may be faced arising out
of, in connection with or resulting from, directly or
indirectly, the subject matter of the indemnity; (ii)
if indemnitee receives notice or otherwise obtains
knowledge of any matter with respect to which
indemnitor may become obligated to hold harmless or
indemnify indemnitee under this Article then indemnitee
shall promptly deliver to indemnitor a written notice
describing such matter, provided that failure to
promptly deliver such notice shall not affect the
indemnification obligation except to the extent the
indemnitor is prejudiced or injured thereby, but in any
event shall deliver such notice prior to last day of
the survival period for the representation, warranty,
covenant or agreement that is the subject of that
claim, and indemnitor shall deliver a written response
within twenty (20) days of such notice from indemnitee
stating its position with respect to such claim for
indemnification; (iii) if such matter involves a claim
against indemnitee by a third party, indemnitor shall
have the right, at its option and upon advice to the
indemnitee, to assume the defense of such matter at its
own expense and with its own counsel, provided that
such counsel does not have an actual or potential
conflict of interest as determined by an opinion of
counsel who is not involved in such representation and
such counsel is acceptable to indemnitee on a
reasonable basis; (iv) if indemnitor elects to and does
assume the defense of such matter, (a) indemnitor shall
not be required to indemnify indemnitee against any
attorneys' fees or any other expenses incurred by
indemnitee in connection with such matter following
such assumption by indemnitor except as otherwise
provided herein, (b) indemnitee shall reasonably
cooperate as requested by indemnitor in the defense or
settlement of such matter, (c) indemnitor shall keep
indemnitee reasonably informed of developments and
events relating to such matter, (d) indemnitee shall
have the right to participate, at its own expense, in
the defense of such matter, (e) indemnitor shall
prosecute such matter to a final conclusion or
settlement; provided, that, unless indemnitee otherwise
agrees in writing, indemnitor may not settle any matter
(in whole or in part) unless such settlement (1)
includes a complete and unconditional release of
indemnitee in respect of such matter and (2) excludes
any injunctive or non-monetary relief applicable to
indemnitee or any of its Affiliates; (f) so long as
indemnitor is in good faith defending indemnitee in
such matter, indemnitee shall not settle or compromise
such matter, except as otherwise provided herein; (g)
in the event that (1) indemnitor does not assume or
relinquishes the defense of such matter to indemnitee
or (2) indemnitee notifies indemnitor that, in the
opinion of counsel who would not be retained by
indemnitee in such representation, there is an actual
conflict of interest between indemnitor and indemnitee
(except that the fact that one party is an indemnitor
and one party is an indemnitee shall not in and of
itself constitute a conflict of interest), indemnitee
shall have the right (but not the obligation) to defend
itself, or to enter into any settlement of such matter
in the indemnitee's reasonable discretion and such
actions by indemnitee shall not, by itself, prejudice
indemnitee's right to seek full indemnification for all
Damages incurred by indemnitee with respect thereto;
and in accordance with and as provided for by this
Agreement, and provided that such settlement does not
impose any material prospective injunctive relief
against the indemnitor; and (h) if at any time, in the
reasonable opinion of indemnitee, any such matter seeks
material prospective relief which could have a material
adverse effect on the assets, liabilities, financial
condition, results of operations or business prospects
of indemnitee or any of its Affiliates in connection
with the Business, indemnitee shall have the right to
control or assume (as the case may be) the defense of
such matter and, provided such assumption of and
prosecution of defense does not materially prejudice a
meritorious defense to any such action or claim, the
amount of any judgment or settlement and the reasonable
costs and expenses of defense may be included as part
of any claim by Buyer for indemnification hereunder,
provided, that, if indemnitee should elect to exercise
such right, indemnitor shall have the right to
participate in, but not control, the defense of such
matter or demand at the sole cost and expense of
indemnitor.
9.2 Indemnification by Sellers. Sellers jointly and
severally covenant and agree to indemnify, defend,
protect and hold harmless Buyer and its officers,
directors, employees, stockholders, representatives,
assigns, successors and Affiliates (the "Buyer
Indemnified Parties") from, against and in respect of:
(a) all Damages of any Buyer Indemnified Party in
connection with, resulting from or arising out of,
directly or indirectly: (i) any misrepresentation,
breach or inaccuracy of any representation or
warranty of Sellers set forth in this Agreement,
any Ancillary Agreement, or any Schedule hereto;
(ii) any nonfulfillment or breach of any covenant
or agreement on the part of Sellers set forth in
this Agreement, any Ancillary Agreement or any
Schedule hereto; (iii) Liabilities retained by
Sellers, including any Excluded Obligation; (iv)
any Liability of any Seller imposed upon Buyer
solely by reason of Buyer's status as transferee
of the Business or the Acquired Assets (other than
an Assumed Liability); (v) any Product Liability
Claims in connection with any products or services
manufactured, distributed, sold or performed by
Sellers in connection with the Business on or
prior to the Closing Date; (vi) any property
damage or any personal injury or death suffered by
any employee, consultant or contractor of Sellers
or any other Person, to the extent arising from
the
operations of the Business by Sellers prior to
Closing; or (vii) any Liabilities for warranty
claims or recall of products manufactured or sold
by Sellers or their Affiliates prior to Closing to
the extent such Liabilities exceed the product of
1.15 times the Warranty Reserve, net of any amount
realized by Buyer from reclamation, rework or
claims against suppliers, subject to the following
terms and conditions: (w) any such warranty claim
or recall action is handled in substantially the
same manner and consistent with the historic
policies and practices of Sellers, (x) does not
result from the Buyer altering or modifying a
decision with respect to a matter previously
handled by Sellers (except as may be required by
applicable law or regulation or by a Governmental
Authority, or as would be necessary to conform to
Seller's past practices), (y) Buyer provides
relevant information and documentation, upon
Sellers' reasonable request, with respect to any
such warranty claims or recalls, and (z) with
respect to any potential recall of a product,
Buyer shall first consult with Sellers and allow
Sellers a reasonable opportunity to analyze and
provide input with respect to any such
consideration. and
............(b) any and all Damages incident to any of the
foregoing or to the enforcement of this Section
9.2.
9.3 Indemnification by Buyer. Buyer covenants and agrees
to indemnify, defend, protect and hold harmless Sellers
and their officers, directors, employees, stockholders,
representatives, assigns, successors and Affiliates
(the "Seller Indemnified Parties") from, against and in
respect of:
(a) all Damages of any Seller Indemnified Party in
connection with, resulting from or arising out of,
directly or indirectly: (i) any misrepresentation,
breach or inaccuracy of any representation or
warranty of Buyer set forth in this Agreement, any
Ancillary Agreement or any Schedule hereto;
(ii) any nonfulfillment or breach of any covenant
or agreement on the part of Buyer set forth in
this Agreement, any Ancillary Agreement or any
Schedule hereto; (iii) any Assumed Obligation;
(iv) any Liability of Buyer and/or its Affiliates
imposed upon any Seller solely by reason of
Buyer's failure to perform in accordance with
Obligations assumed in accordance with this
Agreement (v) any Product Liability claims in
connection with any products manufactured or
services performed in connection with the Business
on or after the Closing Date; or (vi) any property
damage or any personal injury or death suffered by
any employee, consultant or contractor of Buyer or
any other Person, to the extent arising from the
operations of the Business by Buyer after Closing;
and
............(b) any and all Damages incident to any of the
foregoing or to the enforcement of this Section
9.3.
ARTICLE X - SURVIVAL; CLAIMS
10.1 Survival.
(a) The representations and warranties of Sellers shall survive
the Closing and shall expire on the applicable
date specified in clause (i), (ii), (iii) or (iv)
of this Section 10.1(a): (i) except as to
representations and warranties specified in clause
(ii), (iii) or (iv) of this Section 10.1(a),
eighteen (18) months from the Closing Date; (ii)
with respect to Sections 4.2 (authority, execution
and delivery), 4.11 (intellectual property) and
4.15 (product warranties), the second anniversary
of the Closing Date; (iii) with respect to Section
4.9 (assets), but only the second sentence of
Section 4.9, and other provisions relating to
Sellers quality of title to the Assets, the tenth
(10th) anniversary of the Closing Date; and (iv)
with respect to representations and warranties
contained in Sections 4.12 (employment matters),
4.19 (environmental matters) and 4.22 (taxes) on
the date that is (A) 90 days after the expiration
of the applicable federal, state, local or foreign
statute of limitations (including extensions
thereof), or (B) if there is no applicable statute
of limitations, five (5) years after the Closing
Date.
(b) The representations and warranties of Buyer shall survive
the Closing and shall expire on the applicable
date specified in clause (i) and (ii) of this
Section 10.1(b): (i) except as to representations
and warranties specified in clause (ii) of this
Section 10.1(b), eighteen (18) months from the
Closing Date; and (ii) with respect to Sections
5.1 (authority, execution and delivery), the
second anniversary of the Closing Date.
(c) All covenants of the parties made herein that are
to be performed in whole or in part after Closing
(including the obligations set forth in Sections
9.2 and 9.3) shall survive the Closing, continue
in effect and expire in accordance with their
respective terms (or if by their terms they have
no expiration they shall continue in perpetuity);
provided, that, in any event, any claim with
respect to a breach of covenant shall be asserted
no later than three (3) years after the discovery
of such breach by the party asserting a claim.
(d) Notwithstanding anything to the contrary herein,
(i) an indemnitee may make a claim hereunder for a
claim even where the indemnitee has not yet
suffered Damages or where the full amount of any
Damages is not yet known, provided the claim
notice sets forth the specific basis for any such
claim to the extent then feasible, and (ii) any
claim alleging any misrepresentation, breach or
inaccuracy of any representation or warranty, or
any nonfulfillment or breach of any covenant or
agreement, set forth in this Agreement or any
Schedule hereto, made prior to the expiration
period with respect to the applicable
representation, warranty, covenant or agreement,
shall survive the expiration of such
representation, warranty, covenant or agreement
until final resolution of such claim.
10.2.Limitation of Indemnification Obligations.
(a) There shall be no liability for indemnification
under Section 9.2(a)(i) unless the aggregate
amount of Damages thereunder exceeds $1,025,000
(the "Seller Indemnification Threshold"), at which
time Sellers will be obligated to indemnify the
Buyer Indemnified Parties with respect to the
aggregate amount of all such Damages described in
Section 9.2(a)(i) in excess of such Threshold;
provided, however, that the Seller Indemnification
Threshold shall not apply to the
misrepresentation, breach or inaccuracy of any
representation or warranty which breach arose from
an occurrence between the date of this Agreement
and the Closing Date or made by any Seller in any
of the following sections: Section 4.2 (authority,
execution and delivery), the second sentence of
Section 4.9 and other provisions of the Agreement
as it relates to Sellers quality of title to the
Assets and 4.22 (taxes).
(b) The indemnification obligations of Sellers under
Section 9.2(a)(i) shall be limited to
US$30,000,000 (the "Cap"); provided, however, any
determination of whether the indemnification
obligations of Sellers have met or exceeded the
Cap shall exclude any indemnification obligations
of Sellers in connection with the
misrepresentation, breach or inaccuracy of any
representation or warranty made by any Seller in
any of the following sections: Section 4.2
(authority, execution and delivery), the second
sentence of Section 4.9 and other provisions of
the Agreement as it relates to Sellers title to
the Assets and 4.22 (taxes).
(c) The indemnification obligations of Buyer under
Section 9.3(a)(i) shall be limited to the Cap;
provided, however, any determination of whether
the indemnification obligations of Buyer have met
or exceeded the Cap shall exclude any
indemnification obligations of Buyer in connection
with the misrepresentation, breach or inaccuracy
of any representation or warranty made by Buyer in
Section 5.2 (authority, execution and delivery).
10.3 Determination of Damages.
(a) In any determination of whether Seller has breached
representations, warranties and/or agreements and
the amount of Damages for any breaches of
representations, warranties and/or agreements,
Buyer shall be charged with knowledge of the facts
disclosed to Buyer during its investigation of the
Assets and the Business to the extent apparent on
the face of the items set forth in Schedule 10.3
of this Agreement.
(b) Any Damages awarded in connection with this Agreement shall
be reduced to the extent such Damages result from
(i) a failure by the Person suffering such Damages
to mitigate its Damages and (ii) any change after
the Closing in any Law, including a retroactive
change in Tax rates.
(c) Indemnification of any indemnitee pursuant to Section 9.2 or
Section 9.3 hereof shall be (i) reduced by the
amount of any Tax benefit to the relevant
indemnitee, (ii) increased to take into account
any Tax cost incurred by the relevant indemnitee
(unless such indemnity payment is treated as an
adjustment to the Purchase Price for Tax purposes)
and (iii) limited to the amount of any Damages
that remain after deducting therefrom any
insurance or other proceeds actually recovered by
the relevant indemnitee or any of its Affiliates
from any third party with respect thereto. The
parties hereto shall treat all payments under
Article IX (as limited by this Article X) as an
adjustment to the Purchase Price hereunder, unless
a final determination (within the meaning of
Section 1313 of the Code) causes any such payment
not to be treated as an adjustment.
10.4 Exclusivity of Remedies. Except for any equitable
remedies to which the parties may be entitled, the
parties' remedies for breach of the representations,
warranties and agreements herein contained and all
other rights and remedies of the parties for breach of
this Agreement or in connection with any dispute
arising under this Agreement or the transactions
contemplated hereby or arising out of or relating to
the Assets or the Business as heretofore or hereafter
conducted or as existing at Closing shall be
exclusively governed by the terms of this Agreement;
provided, however, that no party hereto shall be deemed
to have waived any rights, claims, causes of action or
remedies if and to the extent such rights, claims,
causes of action or remedies may not be waived under
applicable law or if actual fraud or intentional
misrepresentation is proven on the part of a party by
another party hereto.
ARTICLE XI - CONFIDENTIALITY
11.1 Confidentiality. Sellers recognize that by reason of their
ownership of the Business and the Assets prior to the
Closing, it has Confidential Information with respect
to the Business, the use or disclosure of which after
Closing could cause Buyer or its Affiliates or
subsidiaries substantial loss and damages that could
not be readily calculated and for which no remedy at
law would be adequate. Accordingly, Sellers covenant
and agree with Buyer that for a period of five (5)
years after Closing they will not at any time, except
in performance of their obligations to Buyer, directly
or indirectly, use, disclose or publish, or permit
other Persons (including its Affiliates) to disclose or
publish, any Confidential Information, unless (i) such
information becomes known publicly through no fault of
Sellers, (ii) the disclosing party is advised in
writing by counsel that disclosure is required by Law
or the order of any Governmental Authority of competent
jurisdiction under color of Law, (iii) the disclosing
party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit
against the disclosing party; or (iv) is disclosed by
Buyer to a third party without a restriction of
confidentiality; provided, that prior to disclosing any
information pursuant to clause (ii) above, such Person
shall give prior written notice thereof to Buyer and
provide Buyer with the opportunity to contest such
disclosure and shall cooperate with efforts to prevent
such disclosure.
11.2 Reasonable Restraint. The parties agree that the foregoing
covenants in this Article XI impose a reasonable
restraint on Sellers in light of the activities and
operations of the Business and Buyer and its Affiliates
on the date of the execution of this Agreement.
11.3 Severability; Reformation. The covenants in this Article XI
are severable and separate, and the unenforceability of
any specific covenant shall not affect the provisions
of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that
the scope, time or territorial restrictions set forth
are unreasonable, then it is the intention of the
parties that such restrictions be enforced to the
fullest extent which the court deems reasonable, and
the Agreement shall thereby be reformed.
11.4 Materiality. The parties hereto hereby agree that the
covenants set forth in this Article XI are a material
and substantial part of the transactions contemplated
by this Agreement, supported by adequate consideration.
ARTICLE XII - MISCELLANEOUS
12.1 Cooperation. The parties recognize that in order for
control of the Business to pass from Sellers to Buyer
in an orderly manner at and after the Closing, it will
be necessary for the parties to cooperate before and
after the Closing on such matters as the transition of
Sellers personnel to Buyer, integration of sales force
activity, identification of the Assets, ordering of
inventory, product returns, transitional packaging,
collection of receivables, preservation of
relationships with customers, suppliers and
distributors and the transfer of intellectual property
rights. The parties shall render such cooperation to
one another with respect to such matters and with
respect to such other aspects of the transfer of the
Business as reason and commercial prudence dictate. In
particular, in the event that a claim is asserted prior
to or following the Closing against Buyer or Sellers or
any of their subsidiaries or Affiliates with respect to
the operation of the Business prior to the Closing or
any of the transactions contemplated pursuant to this
Agreement, the other party agrees to cooperate with the
party in the defense of such claim, at such party's
sole cost (except to the extent such expenses are
covered pursuant to Article IX); provided that the
party shall not be responsible for reimbursing the
other party or its officers, directors, employees and
agents, for their time spent in such cooperation. The
parties shall consult with each other regarding the
defense of any proceedings or litigation relating to
any of the transactions contemplated pursuant to this
Agreement.
12.2 Payment of Expenses. Except as specifically set forth
elsewhere in this Agreement, expenses related to this
Agreement and the transactions contemplated hereby,
including the fees of counsel, accountants, brokers,
finders and financial advisors shall be borne by the
party incurring such expenses.
12.3 Modifications; Waivers. This Agreement may be modified
and rights hereunder may be waived only by a writing
executed and delivered on behalf of the party against
whom such modification or waiver is asserted. No
failure or delay on the part of the parties hereto to
exercise any right, power or privilege hereunder or
under any instrument executed pursuant hereto shall
operate as a waiver; nor shall any single or partial
exercise of any right, power or privilege preclude any
other or further exercise thereof or the exercise of
any other right, power or privilege. All rights and
remedies granted herein shall be in addition to other
rights and remedies to which the parties may be
entitled at law or in equity except or otherwise
expressly provided herein.
12.4 Successor/Assignability. This Agreement and the rights
and obligations hereunder shall be binding upon and
inure to the benefit of the parties hereto and their
respective successors (including successors by
operation of law) and legal representatives. This
Agreement shall not be assignable, except that either
party may assign its rights and obligations hereunder
in whole or in part to an Affiliate of such party,
provided that such party and its Affiliate shall be
jointly and severally liable for the performance of
such party's obligations hereunder.
12.5 Dispute Resolution. The negotiations of the parties
have focused primarily in the USA and on the ordinary
meaning and legal effect of the provisions of this
Agreement in the USA and not on the meanings or legal
effects those provisions might have in other
countries. In order to minimize the possibility of an
unexpected reordering of agreed rights and obligations,
the parties have included herein the Sections Governing
Law and Arbitration. Consequently, except as
contemplated pursuant to Section 12.6, the parties
shall not permit their Affiliates to initiate or
participate in any legal proceedings in connection with
any controversy or claim arising out of or relating to
this Agreement or the transactions contemplated hereby;
rather, the parties shall settle all such controversies
or claims on behalf of their Affiliates as set forth in
the Sections captioned Governing Law and Arbitration.
The parties shall cause their Affiliates to comply with
any applicable award rendered in an arbitration
proceeding pursuant hereto.
12.6 Specific Performance; Remedies. The Sellers and Buyer
acknowledge that the other party will be irreparably
harmed and that there will be no adequate remedy at law
for any violation by any party of any of the covenants
or agreements contained in this Agreement, including
the noncompetition and confidentiality obligations set
forth in Article XI. It is accordingly agreed that, in
addition to any other remedies which may be available
upon the breach of any such covenants or agreements,
each party hereto shall have the right to injunctive
relief to restrain a breach or threatened breach of, or
otherwise to obtain specific performance of, the other
party's covenants and agreements contained in this
Agreement.
12.7 Governing Law. This Agreement and the transactions
contemplated hereby shall be governed by and construed
in accordance with the laws of the State of Delaware,
USA, applicable to agreements made and to be performed
entirely within such State, without regard to the
conflicts of laws principles of such State. In the
event that a dispute, claim or controversy relating to,
arising out of, or in connection with this Agreement is
not the subject of a claim for specific performance
pursuant to Section 12.6 or arbitrable pursuant to
Section 12.8 of this Agreement, such dispute, claim or
controversy shall be subject to the exclusive
jurisdiction of the Delaware courts and no others. The
parties hereby consent to the jurisdiction of the above
designated courts and to the service of process by
registered mail, return receipt requested, or by any
other manner provided by the laws of the State of
Delaware.
12.8 Arbitration. Except as set forth in Sections 2.3 and
12.6, any dispute or claim relating to this Agreement,
any Ancillary Agreement or document executed in
connection with this Agreement, or any amendment of any
of the foregoing, including, without limitation, as to
their existence, validity, enforceability,
interpretation, performance, breach or damages,
including claims in tort, whether arising before or
after the termination of this Agreement, shall be
settled only by binding arbitration pursuant to the
Commercial Arbitration Rules of the American
Arbitration Association ("Rules"); provided, however,
that: (a) the arbitration shall take place in
Wilmington, Delaware; (b) there shall be a panel of
three (3) arbitrators who shall be selected under the
normal procedures prescribed in the Rules; (c) subject
to legal privileges, each party shall be entitled to
discovery in accordance with the Federal Rules of Civil
Procedure; (d) at the arbitration hearing, each party
may make written and oral presentations to the
arbitrators, present testimony and written evidence and
examine witnesses; (e) the arbitrators shall be
authorized to award all or any portion of the legal
fees relating to the proceeding to the prevailing
party, provided the arbitrators shall not have the
power to award punitive damages; (f) the arbitrators
shall issue a written decision explaining the bases for
such decision; (g) such decision shall be final,
binding and enforceable in any court of competent
jurisdiction; (h) Buyer and Sellers shall share any
fees and expenses of the arbitrators and of the
American Arbitration Association as the arbitrators
determine to be appropriate under the circumstances;
and (i) Dentsply shall represent the interest of all
Sellers in any dispute and Sellers collectively shall
be considered one party to such arbitration. The
proceeding shall be confidential and the arbitrators
shall issue appropriate protective orders to safeguard
both parties' confidential information. Such
protective orders shall be enforceable by any court or
competent jurisdiction.
12.9 Publicity. Except for a press release approved by the
parties at, prior to or after the Closing, or as may be
required by Law or legal authorities, neither Sellers
nor Buyer or their Affiliates shall release, generate
or permit any publicity concerning this Agreement or
the transactions contemplated hereby without the prior
express consent of the other, which consent shall not
be unreasonably withheld or delayed. If disclosure is
required by Law or legal requirements, the other party
shall be advised prior to, and shall be provided a copy
or summary of, any such disclosure.
12.10Notices. Any notice, request, instruction or other
communication to be given by either party to the other
party in connection with this Agreement or the
transactions contemplated hereby shall be in writing
and delivered by hand delivery, recognized courier
service or confirmed telefax, to the address of such
party set forth below or as changed by such party by
notice given hereunder. Notice sent by telefax shall be
effective when sent and by other delivery methods upon
receipt.
Seller: DENTSPLY International Inc.
..... 570 W. College Avenue
..... York, PA 17404
..... Attention: Secretary
..... Fax: (717) 849-4753
Buyer: DAS Equipment Company
..... c/o Danaher Corporation
..... 2099 Pennsylvania Avenue, 12th Floor
..... Washington, D.C. 20006-1813
..... Attention: Paul Burgon, Director - Corporate
Development
..... Fax: (202) 419-7668
.....With a copy to:
..... Wilmer, Cutler & Pickering
..... 2445 M Street, N.W.
..... Washington, D.C. 20037
..... Attn: Mark Dewire and Eric Markus
..... Fax: (202) 663-6363
12.11Captions; Mutual Product. The Section captions, Table
of Contents and Index used in this Agreement are for
cross-reference purposes only and shall not affect in
any way the meaning or interpretation of this
Agreement. The parties acknowledge that this Agreement
is a product of consultation, negotiation and agreement
between sophisticated and knowledgeable parties, and it
shall not be construed for or against any party thereto.
12.12 Further Representations. Each party to this Agreement
acknowledges and represents that it has been
represented by its own legal counsel in connection with
the transactions contemplated by this Agreement, with
the opportunity to seek advice as to its legal rights
from such counsel. Each party further represents that
it is being independently advised as to the tax
consequences of the transactions contemplated by this
Agreement and is not relying on any representation or
statements made by any other party as to such tax
consequences.
12.13Counterparts. This Agreement may be executed in two
(2) or more counterparts, including telefax signatures,
each of which shall be deemed to be an original and all
of which shall be deemed to constitute the same
Agreement.
12.14No Third Party Beneficiaries. Except as specifically
provided in this Agreement and for the Buyer
Indemnified Parties and the Seller Indemnified Parties,
this Agreement is not intended to confer upon any
Person other than the parties hereto any rights or
remedies hereunder.
12.15 Right to Set Off. Each Buyer Indemnified Party shall have
the right, but not the obligation, to set off, in whole
or in part, against any obligation it owes to Sellers,
amounts owed to any Buyer Indemnified Party by Sellers
pursuant to this Agreement. Each Seller Indemnified
Party shall have the right, but not the obligation, to
set off, in whole or in part, against any obligation it
owes to Buyer, amounts owed to any Seller Indemnified
Party by Buyer pursuant to this Agreement.
12.16 Entire Agreement. Before signing this Agreement, the
parties had numerous conversations, including
preliminary discussions, formal negotiations and
informal conversations, and generated correspondence
and other writings in which the parties discussed the
transactions contemplated hereby and their aspirations
for success. In such conversations and writings,
individuals representing the parties may have expressed
their judgments and beliefs concerning the intentions,
capabilities and practices of the parties, and may have
forecasted future events. The parties recognize that
such conversations and writings often involve an effort
by both sides to be positive and optimistic about
future prospects. However, it is also recognized that
all business transactions contain an element of risk,
as do the transactions contemplated hereby, and that it
is normal business practice to limit the legal
obligations of contracting parties to only those
promises and representations which are essential to
their transactions so as to provide certainty as to
their respective future rights and remedies.
Accordingly, this Agreement and all other agreements
contemplated hereby are intended to define the full
extent of the legally enforceable undertaking of the
parties hereto, and no promise or representation,
written or oral, which is not set forth explicitly in
this Agreement,
is intended by either party to be legally binding. Both
parties acknowledge that in deciding to enter into this
Agreement and to consummate the transactions
contemplated hereby, neither has relied upon any
statements or representations, written or oral, other
than those explicitly set forth in this Agreement.
Each of the Schedule is incorporated herein by this
reference and expressly made a part hereof.
12.17 Usage. The defined terms herein shall apply equally to both
the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and
neuter forms. All references herein to "Articles",
"Sections" and "Schedules" shall be deemed to be
references to Articles and Sections of and Schedules
to, this Agreement unless the context shall otherwise
require. All Schedules attached hereto shall be deemed
incorporated herein as if set forth in full herein and,
unless otherwise defined therein, all terms used in any
Schedules shall have the meaning ascribed to such term
in this Agreement. The words "Sellers' knowledge,"
"knowledge of Sellers," "known to Sellers" or words or
similar import, mean the knowledge of any officer of
the Sellers, any Gendex Management Employees, Jean
Michel Blanchard or Gloria McFadden. The use of the
word Sellers shall be limited to and refer to the
specific Seller which is applicable to the context
used. Whenever any payment hereunder is to be paid in
"cash," payment shall be made in the legal tender of
the United States and the method for payment shall be
by wire transfer of immediately available funds. The
words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular
provision of this Agreement. The words "include,"
"includes" and "including" shall be deemed to be
followed by the phrase "without limitation." Unless
otherwise expressly provided herein, any agreement,
instrument or statute defined or referred to herein or
in any agreement or instrument that is referred to
herein means such agreement, instrument or statute as
from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by
waiver or consent and (in the case of statutes) by
succession of comparable successor statutes and
references to all attachments thereto and instruments
incorporated therein.
12.18 Guarantees.
(a) It is understood that it is the intention of the
Sellers that any of the assets owned by Dentsply,
Ceramco and DRDC are or will be owned by PDEX at
Closing and will be transferred to the Buyer from
PDEX. Notwithstanding anything in this Agreement
to the contrary, to the extent performance of any
Seller is required and such Seller fails in such
performance, Dentsply hereby unconditionally and
irrevocably guarantees to Buyer the due and
punctual performance of the obligations of any
Seller under this Agreement. This is an absolute
and continuing guaranty of payment by Dentsply of
all of Sellers' obligations hereunder, and not of
their collectibility only. Notwithstanding
anything to the contrary, the failure of any
Seller to perform any act required of it under
this Purchase Agreement when due shall entitle
Buyer to proceed directly against Dentsply without
proceeding further against such Seller or any
other person and without enforcing or applying any
security for such guaranteed obligation or
otherwise any right or remedy against such Seller.
(THIS SPACE INTENTIONALLY LEFT BLANK)
SIGNATURES ON FOLLOWING PAGE
SIGNATURE PAGE
IN WITNESS WHEREOF, Buyer and Sellers have each caused this
Agreement to be duly executed in its corporate name by a duly
authorized representative as of the date first above written.
DAS EQUIPMENT COMPANY DENTSPLY INTERNATIONAL INC.
By:__________________________
By:__________________________
Name:_______________________
Name:_______________________
Title:________________________
Title:________________________
DENTSPLY DETREY GmbH DENTSPLY ITALIA S.r.l.
By:__________________________
By:__________________________
Name:_______________________
Name:_______________________
Title:________________________
Title:________________________
DENTSPLY RESEARCH PDEX ACQUISITION CORP.
& DEVELOPMENT CORP.
By:__________________________
By:__________________________
Name:_______________________
Name:_______________________
Title:________________________
Title:________________________
CERAMCO INC. DENTSPLY FRANCE S.A.S.
By:__________________________
By:__________________________
Name:_______________________
Name:_______________________
Title:________________________
Title:________________________
EXHIBIT 21.1
Subsidiaries of the Company
I. Direct Subsidiaries of the Company
A. Dentsply Research & Development Corp. ("Dentsply R&D")
(Delaware)
B. Ceramco Inc. (Delaware)
a) Dentsply West (Nevada)
C. Ceramco Manufacturing Co. (Delaware)
D. CeraMed Dental, L.L.C. (Delaware)
E. GAC International Inc. (New York)
a) Old Country Road Sales Consultants, Inc.
b) Orthodental International, Inc.
c) Orthodental S.A. de C.V. (Mexico)
F. DENTSPLY Finance Co. (Delaware)
a) Dentsply International, Inc. (Chile) Limitada
(Chile)
G. ESP, LLC (Delaware)
H. DENTSPLY North America Inc. (Delaware)
I. PDEX Acquisition Corp. (Delaware)
J. Austenal Holdings Inc. (Nevada)
a) Austenal, Inc. (Illinois)
K. Dentsply Argentina S.A.C.e.I. (Argentina)
L. Dentsply Industria e Comercio Ltda. (Brazil)
M. DeTrey do Brasil Industria e Comercio Ltda. (Brazil)
N. Dentsply Mexico S.A. de C.V. (Mexico)
O. Dentsply India Pvt. Ltd. (India)
P. Dentsply (Philippines) Inc. (Philippines)
Q. Dentsply (Thailand) Ltd. (Thailand)
R. Dentsply Dental (Tianjin) Co. Ltd. (China)
S. Dentsply Tianjin International Trading Co. Ltd. (China)
T. Dentsply Korea Limited
U. Ceramco Europe Limited (Cayman Islands)
a) Ceramco UK Limited (Dormant)
II. Indirect Subsidiaries of the Company
A. Subsidiaries of Dentsply Research & Development Corp.
1. Ransom & Randolph Company (Delaware)
2. Tulsa Dental Products Inc. (Delaware)
a) Tulsa Finance Co. (Delaware)
b) Tulsa Manufacturing Inc. (Delaware)
c) RoyDent, Inc.(Michigan)
3. Dentsply Export Sales Corporation (Barbados)
4. Dentsply SE Limited (Gibraltar)
5. Dentsply EU Holding S.a.r.L (Luxembourg)
6. Dentsply Australia Pty. Ltd. (Australia (Victoria))
a) Dentsply (NZ) Limited (New Zealand)
7. Dentsply Canada Ltd. (Canada (Ontario))
8. PT Dentsply Indonesia (Indonesia)
9. The International Tooth Co. Limited (United
Kingdom)
10. Dentsply Espana SL (Spain)
11. DENTSPLY-Sankin K.K. (Japan)
a) Sankin Laboratories K.K. (Japan)
12. DeguDent Industria e Comercio Ltda. (Brazil)
a) DeguDent da Amazonia Industria e Comercio
Ltda. (Brazil)
b) Degpar Participacoes e Empreendimentos S.A.
(Brazil)
c) Probem Laboratorio de Produtos Farmaceuticos e
Odontonlogicos S.A. (Brazil)
B. Subsidiaries Dentsply EU Holding S.a.r.L.
1. Dentsply Capital II Ltd. (U.K.) (in liquidation)
2. Dentsply Capital Ltd. (U.K.) (dormant)
3. Dentsply Europe S.a.r.L. (Luxembourg)
C. Subsidiaries of Dentsply Europe S.a.r.L.
1. Dentsply Germany Holdings GmbH (Germany)
a) VDW GmbH (Germany)
c) Dentsply DeTrey GmbH (Germany)
d) Friadent GmbH (Germany)
i) Friadent Brasil Ltda. (Brazil)
e) DeguDent GmbH (Germany)
i) Ducera Dental Verwaltungs-ges.m.b.H.
(Germany)
f) Austenal GmbH (Germany)
g) Elephant Dental GmbH (Germany)
2. Elephant Dental B.V. (Netherlands)
a) Cicero Dental Systems B.V. (Netherlands)
b) DeguDent Benelux B.V. (Netherlands)
c) Elephant Danmark ApS (Denmark)
d) Dental Trust B.V. (Netherlands)
3. DeguDent Austria Hnadels GmbH (Austria)
4. Dentsply Limited (Cayman Islands)
a) Dentsply Holdings Unlimited (U.K.)
b) Dentsply Russia Limited (U.K.)
c) Amalco Holdings Ltd (U.K., Dormant)
d) Keith Wilson Limited (U.K., Dormant)
e) Oral Topics Limited (U.K., Dormant)
f) AD Engineering Limited (Dormant)
5. Dentsply Italia SrL (Italy)
6. Dentsply France S.A.S. (France)
a) Friadent France Sarl (France)
b) Laboratoires de Produits Dentaires Odoncia
S.A.S.(France)
7. Dentsply South Africa (Pty) Limited (South Africa)
8. Dentsply Benelux S.a.r.L. (Luxembourg)
9. Dentsply A.G. (Switzerland)
10. Friadent Schweiz AG (Switzerland)
11. Friadent N.V. (Belgium)
12. Friadent Scandinavia AB(Sweden)
13. Friadent Denmark ApS (Denmark)
14. Dentsply DeTrey Sarl (Switzerland)
15. Maillefer Instruments Holding S.A. (Switzerland)
a) Maillefer Instruments Trading Sarl
(Switzerland)
b) Maillefer Instruments Consulting Sarl
(Switzerland)
c) Maillefer Instruments Manufacturing Sarl
(Switzerland)
Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-71792, 33-89786, 333-56093, and 333-101548) and Registration Statement on Form S-3 (No. 333-76089) of DENTSPLY International Inc. of our report dated March 15, 2004, relating to the consolidated financial statements and financial statement schedule, which appears in this Form 10-K. PricewaterhouseCoopers LLP Philadelphia, PA March 15, 2004
Exhibit 31.1
Section 302 Certifications Statement
I, Gerald K. Kunkle, Jr., certify that:
1. I have reviewed this Form 10-K of DENTSPLY International
Inc;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation;
and
(c) Disclosed in this report any change in the
registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal
quarter that has materially affected, or is reasonably
likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
controls over financial reporting, to the registrant's
auditors and the audit committee of the registrant's board
of directors:
(a) All significant deficiencies and material weaknesses
in the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal control over financial
reporting.
Date: March 15, 2004
/s/ Gerald K. Kunkle, Jr.
----------------------------------
Vice Chairman and Chief Executive Officer
Exhibit 31.2
Section 302 Certifications Statement
I, Bret W. Wise, certify that:
1. I have reviewed this Form 10-K of DENTSPLY International
Inc;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation;
and
(c) Disclosed in this report any change in the
registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal
quarter that has materially affected, or is reasonably
likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
controls over financial reporting, to the registrant's
auditors and the audit committee of the registrant's board
of directors:
(a) All significant deficiencies and material weaknesses
in the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal control over financial
reporting.
Date: March 15, 2004
/s/ Bret W. Wise
Senior Vice President and Chief Financial Officer
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of DENTSPLY International
Inc. (the "Company") on Form 10-K for the year ending December
31, 2003 as filed with the Securities and Exchange Commission on
the date hereof (the "Report"), We, Gerald K. Kunkle, Jr., Chief
Executive Officer and Vice Chairman of the Board of Directors of
the Company and Bret W. Wise, Senior Vice President and Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of our knowledge and belief:
(1) The Report fully complies with the requirements of Sections
13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and
result of operations of the Company as of the date of
the Report.
/s/ Gerald K. Kunkle, Jr.
Gerald K. Kunkle, Jr.
Chief Executive Officer and
Vice Chairman of the Board of Directors
/s/ Bret W. Wise
Bret W. Wise
Senior Vice President and
Chief Financial Officer
March 15, 2004
DENTSPLY INTERNATIONAL INC.
CODE OF
BUSINESS CONDUCT AND ETHICS
CONTENTS
o GENERAL CODE OF CONDUCT
1. INTRODUCTION
2. GENERAL STANDARDS OF CONDUCT
3. REPORTING OF VIOLATIONS
4. GOVERNMENT INTERVIEWS OR INVESTIGATION
5. COMPLIANCE PROCEDURES
A. INTRODUCTION
B. MAINTAINING AWARENESS OF THE PROGRAM
C. COMPANY INVESTIGATIONS
D. ONGOING EVALUATION OF PROGRAM
6. INTERNATIONAL MATTERS
A. INTERNATIONAL OPERATIONS
B. SANCTIONS AND TRADE EMBARGOES
C. ANTIBOYCOTT
7. WAIVERS
o SPECIFIC POLICIES
o USE OF COMPANY FUNDS AND RESOURCES
o CONFLICT OF INTEREST
o PERSONAL RESPONSIBILITIES OF EMPLOYEES
o TRADING IN DENTSPLY INTERNATIONAL INC. AND OTHER RELATED
SECURITIES
o ACCURACY OF BOOKS, RECORDS POLICY AND PUBLIC STATEMENTS
o DISCRIMINATION AND HARASSMENT
o ANTITRUST LAW
Code of Business Conduct
Dear Fellow Employee:
DENTSPLY International Inc. has been in business since 1899,
and we are proud of the global reputation and trust we have
earned. This is a reputation that we are determined to protect
and enhance. Our Code of Business Conduct sets forth our guiding
principles for the conduct of our business that must be followed
by everyone who does business on behalf of DENTSPLY.
All employees, agents, consultants, independent contractors
and representatives of DENTSPLY have the responsibility to read,
understand, and abide by the principles and standards contained
in this Code. It is difficult to make a policy that applies to
every situation, and there will be times when the Code does not
address a particular question. Applying common sense, good
judgment, and integrity to every business issue will help to
ensure that your decisions are consistent with DENTSPLY values
and this Code. If you are an employee and you have questions,
please contact your supervisor, the relevant Senior Management,
or the General Counsel. If you are not an employee, please feel
free to ask your DENTSPLY contact, or the General Counsel's
office.
DENTSPLY's success depends upon each of us. Acting with
integrity and the highest ethical standards is not only good
policy, it is also good business. Every DENTSPLY employee and
shareowner relies upon you to do the right thing. We know that
our confidence in you is well placed.
/s/ John C. Miles II /s/ Gerald K. Kunkle, Jr
Chairman and President and Chief Operating Officer
Chief Executive Officer
GENERAL CODE OF CONDUCT
1. Introduction
DENTSPLY International Inc. (the "Company") has adopted this Code
of Business Conduct, consisting of the components described below
(the "Program"), to assist the Company and its personnel in
conducting business in an ethical manner and in full compliance
with the requirements of all applicable laws and regulations. It
is the policy of the Company to comply with all applicable laws,
including, without limitation, medical device and similar
requirements, employment, discrimination, health, safety,
antitrust, securities and environmental laws. No director,
officer, executive or manager of the Company has authority to
violate any law or to direct another employee or any other person
to violate any law on behalf of the Company. This Program
reflects the Company's intent to operate not only in a legal
manner, but in accordance with sound business ethics. The
Program applies to all Company business operations and
subsidiaries worldwide and to all employees, officers and
directors of the Company and its subsidiaries ("personnel"),
except for legal requirements which are specific to a
jurisdiction. Because the Program documents may not be
translated into the local language in every location where we do
business, it shall be the responsibility of management
responsible for those areas to communicate the general purpose
and requirements of the Program.
The Program consists of 1) a Code of Business Conduct ("Code")
setting forth general standards for the conduct of Company
business and operations, including procedures for reporting of
concerns about compliance with the Code and/or legal
requirements; 2) a set of more specific policies oriented toward
compliance with specific laws and requirements; and 3) procedures
to help ensure that the Program is effective in preventing,
detecting and taking appropriate action in regard to violations
of applicable laws and the Code, such as periodic monitoring and
auditing programs. All Company personnel must be aware of the
contents of the Program and perform their responsibilities in a
manner which is fully consistent with the Program. Because the
principles described in the Code are general, Company personnel
should review the specific applicable policies for specific
instructions and contact their supervisors, the relevant Senior
Management and/or the General Counsel's office regarding proper
conduct in a particular situation in which they have any
questions.
The Program will be overseen by a Corporate Compliance Committee
consisting of the Company's Chief Executive Officer, Chief
Operating Officer, the Chief Financial Officer and the General
Counsel. The Committee will meet as necessary to review the
Program, the Code and compliance activities within the Company.
The Code of Business Conduct reflects general principles to guide
employees in making ethical decisions and cannot and is not
intended to address every specific situation. As such, nothing
in this Code prohibits or restricts the Company from taking any
disciplinary action on any matters pertaining to employee
conduct, whether or not they are expressly discussed in this
document. The Program, including the Code, is not intended to
and shall not be deemed or construed to provide any rights,
contractual or otherwise, to any third parties or to any
personnel of the Company or its subsidiaries. The provisions of
the Program may be revised, changed or amended at any time as
determined appropriate by the Company.
2. General Standards of Conduct
A. One of the Company's strongest assets is a reputation for
integrity and honesty. A fundamental principle on
which the Company will operate its business is full
compliance with applicable laws. The Company will also
conduct its business in conformance with sound ethical
standards. Achieving business results by illegal acts
or unethical conduct is not acceptable.
All Company personnel shall act in compliance with the
requirements of applicable law and this Code and in a
sound ethical manner when conducting Company business
and operations.
B. Each Company supervisor and manager is responsible for
ensuring compliance by the personnel which he or she
supervises or manages with applicable law and the
Code. All personnel are responsible for acquiring
sufficient knowledge to recognize potential compliance
issues applicable to their duties and for appropriately
seeking advice regarding such issues.
C. This Code has been distributed to all applicable Company
personnel and sets forth general standards applicable
to the Company's business and operations. In addition,
there are a number of more detailed and specific
policies covering particular business units or subject
matters. The Company will communicate those specific
policies to personnel who are particularly affected by
them and they must be complied with in the course of
the Company's business. These policies may be changed
and/or additional policies may be issued from time to
time.
D. All of the Company's business transactions shall be carried
out in accordance with management's general or specific
directives.
E. Company personnel shall be honest in all dealings with
government agencies and representatives. No
misrepresentations shall be made, and no false bills or
requests for payment or other documents shall be
submitted to government agencies or representatives.
F. All of the Company books and records shall be kept in
accordance with U.S. generally accepted accounting
standards (U.S. GAAP) or other applicable local or
statutory principles with reconciliation to U.S. GAAP.
All transactions, payments, receipts, accounts and
assets shall be completely and accurately recorded on
the Company's books and records on a consistent basis.
No payment shall be approved or made with the intention
or understanding that it will be used for any purpose
other than that described in the supporting
documentation for the payment. All internal financial
and other control procedures shall be followed.
3. Reporting of Violations
A. Illegal acts or improper conduct may subject the Company
(and its employees) to severe civil and criminal
penalties, including large fines and being barred from
certain types of business. It is therefore very
important that any suspected illegal activity or
violations of the Code be promptly brought to the
Company's attention.
B. Any Company personnel who believes or becomes aware that any
violation of this Code, including violation of
applicable accounting, internal controls or auditing
matters, or any suspected illegal activity has been
engaged in by Company personnel or by non-employees
acting on the Company's behalf shall promptly report
the violation or activity in person, by phone or in
writing, to one of the following persons:
1. The personnel's immediate supervisor, business unit or
department head or another senior manager.
2. The General Counsel or another attorney in the Company's
Legal Department.
3. The Chief Financial Officer or Director of Internal Audit.
To the extent an employee is uncomfortable contacting
any of the above people, employees should contact the
Chief Executive Officer, the Chief Operating Officer or
a Senior Vice President.
C. Company personnel may report suspected illegal acts or a
violation of this Code anonymously. To the extent
practical and appropriate under the circumstances and
as permitted by law, the Company will take reasonable
precautions to maintain the confidentiality of those
individuals who report illegal activity or violations
of this Code and of those individuals involved in the
alleged improper activity, whether or not it turns out
that improper acts occurred. Anonymous reports may be
made by phone, web reporting or letter. Reports by
phone can be made to a third party hotline service at
866-838-0844, reports by letter should be directed to
the General Counsel's office, and web reporting can be
made at the following web address:
www.dentsply.com/report.
D. It shall be a violation of this Code if personnel fail to
report a known illegal activity or violation of the
Code. If you have a question about whether particular
acts or conduct may be illegal or violate the Code, you
should contact one of the persons listed above in
subsection B. It shall be a violation of this Code if
personnel to whom a suspected illegal act or violation
of the Code is reported fail to ensure that the act or
violation of the Code comes to the attention of the
General Counsel's office, the Director of Internal
Audit or a member of the Corporate Compliance Committee.
If the suspected illegal acts or conduct in violation
of the Code involve a person to whom such acts or
violations might otherwise be reported, the acts or
violation should be reported to another person to whom
reporting is appropriate.
E. It is Company policy to promptly and thoroughly investigate
reports of suspected illegal activity or violations of
this Code. Company personnel must cooperate with these
investigations. It shall be a violation of this Code
for personnel to prevent, hinder or delay discovery and
full investigation of suspected illegal acts or
violations of this Code.
F. No reprisals or disciplinary action will be taken or
permitted against personnel for good faith reporting
of, or cooperating in the investigation of, suspected
illegal acts or violations of this Code. It shall be a
violation of this Code for Company personnel to punish
or conduct reprisals against other personnel for making
a good faith report of, or cooperating in the
investigation of, suspected illegal acts or violations
of this Code.
G. Personnel who violate the Code or commit illegal acts are
subject to disciplinary action, up to and including
dismissal from the Company. Personnel who report their
own illegal acts or improper conduct, however, will
have such self-reporting taken into account in
determining the appropriate disciplinary action.
4. Government Interviews or Investigation
A. The Company and its personnel shall cooperate fully and
promptly with appropriate government investigations
into possible civil and criminal violations of the
law. It is important, however, that in this process,
the Company is able to protect the legal rights of the
Company and its personnel. To accomplish these
objectives, any governmental inquiries or requests for
information, documents or interviews, other than
routine operating inspections (e.g., OSHA, FDA, etc.),
should be promptly referred to the General Counsel's
office.
5. Compliance Procedures
A. Introduction. The Purpose of these procedures is to
increase awareness of the Program and Code, facilitate
internal reporting of any suspected violation of the
law or the Code and ensure that any reported violations
are fully investigated and that the Company responds
appropriately to any violations.
B. Maintaining Awareness of the Program
1. A copy of the Code, which includes a description of how to
report suspected violations of the law or the
Code, will be provided to employees of the Company.
2. New employees will be provided a copy of the Code upon their
employment.
3. Applicable employees will periodically be required to sign a
form stating their awareness of and compliance
with the Code and the Program.
4. A copy of the Code and a description of the
violation-reporting procedure will be available to
all Company employees.
5. The Internal Audit Department shall, as it determines
appropriate, include in its audits a review of
awareness of and compliance with the Code,
particularly in regard to management employees or
other employees who are in a position to engage in
conduct which may not be easily observed by other
employees, or in a position where there is
frequent involvement in activities which may carry
a significant risk of liability.
6. The General Counsel's office, in cooperation with other
relevant departments, shall create and distribute
policies and/or guides applicable to the Company's
business and shall periodically review compliance
of the Company and its business units with
applicable law.
C. Company Investigations
1. If a report of potential illegal acts or conduct in
violation of the Code is made, it shall promptly
be brought to the attention of the General Counsel.
2. The General Counsel shall oversee the investigation of any
report of suspected illegal acts or violation of
the Code, utilizing appropriate legal, internal
audit and other department personnel and shall
involve outside legal counsel or the Company's
independent auditors when appropriate.
3. Reports of suspected illegal acts or violations of the Code
shall be promptly investigated; such
investigations may include interviews of employees
and external parties and the review of relevant
documents or other materials. The investigation
will be conducted in a manner which, to the degree
reasonable, protects any applicable legal
privileges in regard to the investigation.
4. Once an investigation is completed, if determined
appropriate by the General Counsel, the Corporate
Compliance Committee and appropriate management of
the Company shall be apprised and evaluate the
results of the investigation and decide if any
corrective, disciplinary or other action is
warranted and shall direct and oversee
implementation of any such action.
5. The Audit Committee of the Board of Directors, Executive
Committee of the Board of Directors or the full
Board of Directors shall be informed, as
determined appropriate by the Corporate Compliance
Committee or as required by law, regarding
investigations and any actions taken or to be
taken as a result of investigations under the Code.
D. Ongoing Evaluation of Program
1. The Company will monitor and audit compliance with the Code
and applicable laws.
2. The Corporate Compliance Committee will review the
effectiveness and content of the Program on a
regular periodic basis. The Code and other
compliance policies will be updated as appropriate.
6. International Matters
A. International Operations. Laws and customs vary throughout
the world, but all employees must uphold the integrity
of the Company in other nations as diligently as they
would do so in the United States. When conducting
business in other countries, it is imperative that
employees be sensitive to foreign legal requirements
and United States laws that apply to foreign
operations, including the Foreign Corrupt Practices
Act. The Foreign Corrupt Practices Act generally makes
it unlawful to give anything of value to foreign
government officials, foreign political parties, party
officials, or candidates for public office for the
purposes of obtaining, or retaining, business for the
Company. Employees should contact the Internal Audit
or Legal Department if they have any questions
concerning a specific situation.
B. Sanctions and Trade Embargoes. The United States government
uses economic sanctions and trade embargoes to further
various foreign policy and national security
objectives. Employees must abide by all economic
sanctions or trade embargoes that the United States has
adopted, whether they apply to foreign countries,
political organizations or particular foreign
individuals and entities. Inquires regarding whether a
transaction on behalf of the Company complies with
applicable sanction and trade embargo programs should
be referred to the Legal Department.
C. Antiboycott. Certain countries have adopted boycott laws
which are designed to discourage companies from doing
business with Israel. Laws in the United States make
it illegal for companies to abide by or acknowledge
such boycotts.
7. Waivers
It is recognized that a rare circumstance might arise in which
the Code should not apply. No waivers of the provisions of this
Code to any Director or Executive Officer shall be made or
granted unless approved by the Board of Directors (or a
designated Committee of the Board) of the Company. Any such
waiver shall be promptly disclosed by the Company.
USE OF COMPANY FUNDS AND RESOURCES
One critical element of the Company's reputation for integrity is
its adherence to both legal and generally accepted ethical
standards governing the use of Company funds and resources. The
following directives provide specific standards of conduct to be
followed:
1. No funds shall be used for any purpose which would be in
violation of any applicable law; or to make payments to, or
for the benefit of, domestic or foreign government
employees; provided that gratuities in small amounts may be
paid to foreign government employees if such gratuities
merely enable the Company to receive services to which it
would otherwise be entitled.
2. Funds or assets shall not be used, directly or indirectly,
to make gifts to, provide entertainment for, or furnish
assistance in the form of transportation or other services
to, government employees or public officials, if such gifts,
entertainment, or assistance would be a violation of
governmental regulations or would adversely reflect on the
Company's or the officials' integrity or reputation.
3. All assets and liabilities must be recorded in the regular
books of the Company and its subsidiaries; no undisclosed or
unrecorded funds or assets shall be established for any
purpose; no false or artificial entries shall be made in the
books and records for any reason; and no payments shall be
approved or made with the intention or understanding that
any part of such payments are to be used for any purpose
other than that described by the material supporting the
disbursement.
4. No direct or indirect political contributions shall be made
with Company funds without the express approval of the Board
of Directors and subject to review by the Company's General
Counsel as to the legality of such contributions.
5. Any officer or employee who has information or knowledge of
any violation of these directives shall promptly report the
matter to the General Counsel or the appropriate corporate
or divisional officer.
6. All officers and managers are obligated to seek advice and
guidance from the Company's Legal Department in order to
insure compliance with all applicable laws, rules and
regulations.
7. All managers shall be responsible for the enforcement of,
and compliance with, all policies of the Company, including
distribution and communications to insure employee knowledge
thereof and compliance therewith.
CONFLICT OF INTEREST
Directors and employees of the Company are expected to avoid
involvements or situations which could interfere, or appear to
interfere, with the impartial discharge of their
responsibilities. Therefore, these persons shall NOT, for their
own account or for the account of any other person, directly or
indirectly:
1. Seek to profit from information about the business affairs,
financial position, or any transactions of the Company which
have not been publicly disseminated.
2. Divert to themselves or others any business or investment
opportunity in which the Company is or might be interested
if aware of the opportunity.
3. Become a director or officer of any firm or obtain any
financial interest (other than the acquisition of publicly
traded securities which do not exceed 3% of such enterprise
or of such person's net worth) in any firm supplying goods
or services to the Company or which purchases goods or
services from the Company, unless authorized by the Board of
Directors.
4. Have a proprietary interest in or participate in any
business enterprise involving the manufacture or sale of any
product which is competitive with or similar to products
produced by the Company, or involving the offering of any
type of services competitive with or similar to services
offered by the Company. In addition, any conduct which
might give rise to potential for misuse of the Company's
trade secrets or confidential business information is also
prohibited. However, this policy shall not preclude an
investment interest in publicly held corporations which
manufacture and sell such products or offer such services
within the limits described in Paragraph 3 above.
5. Give or accept personal gifts, payments, favors, special
considerations, discounts, etc. which are of more than a
normal value, unless approved by the employee's manager.
Common social amenities may be given or accepted without
manager approval only if they are of the type that are
normally associated with accepted business practice within
the industry or relative work discipline. Additional
management approval beyond the employee's manager should be
secured if any doubt exists with respect to a particular
item or situation.
6. Enter into personal transactions with suppliers of the
Company or with customers of the Company other than on terms
and conditions as are available to the public, except as
disclosed to the Audit Committee of the Board of Directors.
PERSONAL RESPONSIBLITIES OF EMPLOYEES
All employees are expected to maintain high ethical standards in
their actions and working relationships with customers, fellow
employees, competitors, representatives of government,
communication media and others. All employees of the Company are
expected to act in business matters with dual responsibility to
the public interest and the Company's interest, above their own.
In addition to being in compliance with all Company policies, all
employees must also be in compliance with the following:
o Any employee who has information or knowledge of any
violation of any Company Policies or any violation of a legal
obligation or requirement shall promptly report the matter to
their manager/supervisor, to any corporate or divisional
officer, or to the General Counsel.
o All confidential information about the Company, including
inventions, discoveries, formulas, trade secrets, customer
lists, employee data, etc., as well as confidential information
acquired by the Company from another company, individual or
entity subject to a secrecy and proprietary rights agreement,
shall be kept confidential during and subsequent to the period
of employment with the Company.
o Information gathered on competitors, customers, suppliers,
etc., must be acquired legally and in a manner consistent with
the Company's high level of ethics and proper business
conduct. Employees on the receiving end of another company's
confidential information should alert their supervisor of the
situation, who in turn should seek guidance from the Legal
Department.
It is recognized that in many situations and issues involving
ethical or moral judgment, it may be difficult to determine the
right course of action with certainty. In such instances,
employees shall not rely solely on their own judgment, but shall
discuss the matter in full with their respective
manager/supervisor. In such instances, full disclosure of the
facts in a timely fashion and to the proper management level will
serve to meet the employees' responsibilities with respect to
this Policy.
TRADING IN DENTSPLY INTERNATIONAL INC.
AND OTHER RELATED SECURITIES
Federal laws and regulations prohibit purchases and sales of the
Company's stock and other related securities by directors,
officers and employees on the basis of material information which
is not generally available to the public. The passing of such
inside information - "tipping" - to outsiders who may then trade
on it is also prohibited. To assure compliance with these laws,
the following rules apply to directors, officers and employees of
the Company.
1. They shall not purchase or sell or otherwise trade in
securities of the Company or derivative securities, such as
listed stock options, while in possession of material,
non-public information about the Company.
2. For purposes of this policy, the term "material information"
means that information as to which there is a substantial
likelihood that the information would be viewed by a
reasonable investor as significantly altering the "total
mix" of information available in making investment decisions.
3. "Non-public information" is that information which has not
become generally available to the investing public, through
such channels as the Company's publications, e.g., press
releases, Annual and Interim Reports to Stockholders, Proxy
Statements and SEC filings; as well as news articles, stock
analysts' reports and like writings about the Company and
subjects relating to its businesses.
4. They shall not divulge confidential - and possibly material
- information about the Company, either to other employees
or to outsiders, except on a "need-to-know" basis.
5. They shall not buy or sell securities of any other company
about which material non-public information has been
obtained through the performance of their position
responsibilities at DENTSPLY International Inc.
Should there be any questions concerning the above with regard to
any particular transaction involving DENTSPLY International Inc.
securities or other related securities, please consult with the
Legal Department prior to taking any action.
ACCURACY OF BOOKS, RECORDS POLICY AND PUBLIC STATEMENTS
The Company's financial records should accurately reflect the
nature and purpose of all transactions.
All of the Company's books, records, accounts and financial
statements must be maintained in reasonable detail, must
appropriately reflect the Company's transactions and must conform
both to applicable legal requirements and to the Company's system
of internal controls. Unrecorded or "off the books" funds or
assets should not be maintained unless permitted by applicable
law or regulation.
Business records and communications often become public, and we
should avoid exaggeration, derogatory remarks, or inappropriate
characterizations of people and companies that can be
misunderstood. This applies equally to e-mail, internal memos,
and formal reports. Records should always be retained or
destroyed according to the Company's record retention policies.
In accordance with those policies, in the event of litigation or
governmental investigation, you must consult the Legal Department
before taking any action with respect to any such records.
The Company's public statements, including press releases and
public filings, shall not contain any material incorrect
information and shall not omit any information necessary to make
the statements contained therein not misleading. Required
filings with the Securities and Exchange Commission ("SEC") shall
be complete, timely and in compliance with the requirements of
the SEC.
DISCRIMINATION AND HARASSMENT
The Company provides equal employment opportunities to all
employees and applicants for employment without regard to race,
color, religion, sex, national origin, age, non-job related
disability, or status as a Vietnam-era or special disabled
veteran in accordance with all applicable federal, state and
local news, including executive orders as appropriate for any
federal contracts. This policy applies to all terms and
conditions of employment, including, but not limited to, hiring,
placement, promotion, termination, layoff, recall, transfer,
leaves of absence, compensation and training.
The Company expressly prohibits any form of employee harassment.
This policy extends not only to the Company's employees, but also
to all persons with whom the Company's employees deal, such as
suppliers and customers.
Sexual harassment is defined as unwelcome sexual advances,
requests for sexual favors, and all other verbal or physical
conduct of a sexual or otherwise offensive nature, and is
prohibited especially where (a) submission to such conduct is
made either explicitly or implicitly a term or condition of
employment; (b) submission to or rejection of such conduct is
used as the basis for decisions affecting an individual's
employment; or (c) such conduct has the purpose or effect of
creating an intimidating, hostile, or offensive working
environment. Furthermore, offensive comments, jokes, innuendoes,
pictures, cartoons and other sexually oriented documents and
statements are prohibited.
Each member of management is responsible for creating an
atmosphere free of discrimination and harassment, sexual or
otherwise. Further, employees are responsible for respecting the
rights of their co-workers and expected to conduct themselves in
a business-like manner at all times.
If an employee experiences any improper job-related harassment or
believes they have been treated in an unlawful, discriminatory
manner, they should first attempt to resolve the problem with the
individual exhibiting the conduct toward them. If attempting to
resolve the issue themselves is inappropriate or not successful,
they should promptly report the occurrence to their supervisor, a
member of management, or to a representative of the Human
Resources Department. The Human Resources Department will
investigate all matters related to discrimination and/or
harassment and take proper action.
If the Company determines that an employee has engaged in
harassment or other prohibited conduct, appropriate disciplinary
action will be taken, up to and including termination of
employment.
The Company prohibits any form of retaliation against any
employee for filing a legitimate complaint under this policy or
for assisting in a complaint investigation.
ANTITRUST LAW
The antitrust laws generally are intended to promote the free
enterprise system by eliminating artificial restraints on
competition. Violations of the antitrust laws can subject
violators to criminal penalties and civil damages, and
individuals to criminal penalties, imprisonment or both. These
laws are often complex and not easily understood. Nevertheless,
it has always been the uncompromising policy of the Company that
its employees will comply strictly with such laws. Certain
activities are legally deemed to be inherently anti-competitive
and no defense of any kind will be permitted to justify or excuse
the conduct. Other activities will constitute violations if they
are anti-competitive and cannot otherwise be justified. It is
difficult to provide specific directives governing employee
conduct involved in such "rule of reason" activities because of
the fact specific nature of antitrust analysis. However, based
on well-established court decisions, no director, officer or
employee should engage in any of the following conduct without
first discussing the circumstances with the General Counsel.
1. Discuss with competitors past, present or future prices of
or marketing plans for, any of the Company's products; or
past, present or future prices paid or to be paid for
products or materials purchased by the Company, or other
business information affecting such prices ("price" includes
all terms of sale, including discounts, allowances,
promotional programs, credit terms and the like).
2. Discuss with competitors the division or allocation of
markets, territories or customers, or discuss with customers
the division or allocation among customers of their markets,
territories or customers.
3. Discuss with competitors or customers the boycotting of
third parties.
4. Reach an agreement or understanding with a customer on the
specific price at which the customer will resell the
Company's products.
Whenever an employee becomes involved in any activity in which a
competitive restraint may be present or that could lead to a
problem under the antitrust laws, he or she should consult with a
member of the Legal Department before taking any action.
CERTIFICATION
Please indicate that you have received, read and understood the
DENTSPLY Code of Business Conduct and Ethics by signing your name
and dating the attached Acknowledgement and returning it promptly
to your local Human Resources Department.
ACKNOWLEDGEMENT
I certify that I have received, read and understood the DENTSPLY
Code of Business Conduct and Ethics.
- --------------------------------
(signature)
- --------------------------------
(print your name)
Division:________________________
Date:_______________________