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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
---------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File Number 0-16211
DENTSPLY International Inc.
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 39-1434669
- -----------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
570 West College Avenue, P. O. Box 872, York, PA 17405-0872
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(717) 845-7511
----------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
( X ) Yes ( ) No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: At
May 5, 1998 the Company had 54,220,041 shares of Common Stock
outstanding, with a par value of $.01 per share.
Page 1 of 18
----
Exhibit Index at Page 17
----
DENTSPLY INTERNATIONAL INC.
FORM 10-Q
For Quarter Ended March 31, 1998
----------------
INDEX
-----
Page No.
--------
PART I - FINANCIAL INFORMATION (unaudited)
Item 1 - Financial Statements
Consolidated Condensed Balance Sheets............ 3
Consolidated Condensed Statements of Income...... 4
Consolidated Condensed Statements of Cash Flows.. 5
Consolidated Condensed Statement of
Stockholders' Equity........................... 7
Notes to Unaudited Consolidated Condensed
Financial Statements........................... 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.... 12
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk................................ 14
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings........................... 15
Item 6 - Exhibits and Reports on Form 8-K............ 15
Signatures........................................... 16
2
PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DENTSPLY INTERNATIONAL INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
March 31, December 31,
1998 1997
ASSETS ------------ ------------
Current assets: (in thousands)
Cash and cash equivalents $ 5,420 $ 9,848
Accounts and notes receivable-trade, net 120,535 114,366
Inventories 130,639 124,748
Prepaid expenses and other current assets 33,430 28,065
--------- ---------
Total Current Assets 290,024 277,027
Property, plant and equipment, net 147,336 147,130
Other noncurrent assets, net 19,263 13,314
Identifiable intangible assets, net 104,200 103,513
Costs in excess of fair value of net
assets acquired, net 242,364 233,392
--------- ---------
Total Assets $ 803,187 $ 774,376
LIABILITIES AND STOCKHOLDERS' EQUITY ========= =========
Current liabilities:
Accounts payable $ 35,927 $ 38,942
Accrued liabilities 68,185 71,563
Income taxes payable 39,353 34,839
Notes payable and current portion
of long-term debt 25,898 24,005
--------- ---------
Total Current Liabilities 169,363 169,349
Long-term debt 118,981 105,505
Deferred income taxes 26,658 27,647
Other liabilities 43,726 43,954
--------- ---------
Total Liabilities 358,728 346,455
--------- ---------
Minority interests in consolidated subsidiaries 3,881 3,988
Stockholders' equity: --------- ---------
Preferred stock, $.01 par value; .25 million
shares authorized; no shares issued - -
Common stock, $.01 par value; 100 million
shares authorized; 54.2 million shares
issued at March 31, 1998 and
December 31, 1997 542 542
Capital in excess of par value 152,046 150,738
Retained earnings 317,277 301,058
Accumulated other comprehensive income (20,170) (16,720)
Employee stock ownership plan reserve (9,117) (9,497)
Treasury stock, at cost, .1 million shares
at December 31, 1997 - (2,188)
--------- ---------
Total Stockholders' Equity 440,578 423,933
--------- ---------
Total Liabilities and Stockholders' Equity $ 803,187 $ 774,376
========= =========
See accompanying notes to unaudited consolidated condensed financial
statements.
3
DENTSPLY INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(unaudited)
Three Months Ended
March 31,
--------------------
1998 1997
-------- --------
(in thousands, except per share amounts)
Net sales $180,706 $172,359
Cost of products sold 85,369 84,309
-------- --------
Gross profit 95,337 88,050
Selling, general and administrative
expenses 63,785 59,995
-------- --------
Operating income 31,552 28,055
Interest expense 2,966 2,751
Interest income (218) (425)
Other (income) expense, net (1,472) (2,085)
-------- --------
Income before income taxes 30,276 27,814
Provision for income taxes 11,279 10,890
-------- --------
Net income $ 18,997 $ 16,924
======== ========
Earnings per common share:
Basic $.35 $.31
Diluted $.35 $.31
Cash dividends declared per common
share $.05125 $.04625
Weighted average common shares
outstanding:
Basic 54,124 53,847
Diluted 54,474 54,134
See accompanying notes to unaudited consolidated condensed financial
statements.
4
DENTSPLY INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31,
-------------------
1998 1997
-------- --------
(in thousands)
Cash flows from operating activities:
Net income $ 18,997 $ 16,924
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 4,436 4,163
Amortization 4,660 3,777
All other, net (25,591) (15,248)
-------- --------
Net cash provided by operating activities 2,502 9,616
-------- --------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (13,839) (59,253)
Additional consideration for prior purchased
business (3,522) -
Property, plant and equipment additions (7,044) (6,128)
Other, net (527) 71
-------- --------
Net cash used in investing activities (24,932) (65,310)
-------- --------
Cash flows from financing activities:
Debt repayment (14,439) (18,865)
Proceeds from long-term debt 27,886 66,878
Increase in bank overdrafts and other
short-term borrowings 2,205 11,896
Other, net 1,106 (341)
-------- --------
Net cash provided by financing activities 16,758 59,568
-------- --------
Effect of exchange rate changes on cash
and cash equivalents 1,244 (2,124)
-------- --------
Net increase (decrease) in cash and cash equivalents (4,428) 1,750
Cash and cash equivalents at beginning of period 9,848 5,619
-------- --------
Cash and cash equivalents at end of period $ 5,420 $ 7,369
======== ========
See accompanying notes to unaudited consolidated condensed financial
statements.
5
DENTSPLY INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS, CONTINUED
(unaudited)
March 31,
-------------------
1998 1997
-------- --------
(in thousands)
Supplemental disclosures of cash flow information:
Interest paid $ 2,128 $ 1,454
Income taxes paid 7,888 7,889
Supplemental disclosures of non-cash transactions:
Liabilities assumed from acquisitions 2,511 28,962
Assumption of debt in connection with
acquisitions - 2,900
In January 1998, the Company purchased the assets of Blendax Professional
Dental Business ("Blendax"). In March 1998, the Company purchased the
assets of InfoSoft, Inc. ("InfoSoft"). In conjunction with the
acquisitions, liabilities were assumed as follows:
Blendax InfoSoft
-------- --------
Fair value of assets acquired $ 6,711 $ 10,530
Cash paid for assets or capital
stock (6,112) (8,618)
-------- --------
Liabilities assumed $ 599 $ 1,912
======== ========
In January 1997, the Company purchased the assets of DW Industries, Inc.
("DW") for $16.3 million and all of the capital stock of Laboratoire SPAD,
S.A. ("SPAD") for $34.5 million. In March 1997, the Company purchased
approximately 90% of the capital stock of New Image Industries, Inc. ("New
Image") for $9.9 million. In conjunction with the acquisitions,
liabilities were assumed as follows:
DW SPAD New Image
-------- -------- ---------
Fair value of assets acquired $ 16,315 $ 41,778 $ 31,526
Cash paid for assets (16,253) (34,499) (9,905)
-------- -------- --------
Liabilities assumed $ 62 $ 7,279 $ 21,621
======== ======== ========
See accompanying notes to unaudited consolidated condensed financial
statements.
6
DENTSPLY INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
Accumulated
Capital in Other Total
Common Excess of Retained Comprehensive Treasury Stockholders'
Stock Par Value Earnings Income ESOP Reserve Stock Equity
(in thousands) ------ ----------- -------- ------------- ------------ --------- ------------
Balance at December 31, 1997 $ 542 $150,738 $301,058 $(16,720) $ (9,497) $ (2,188) $423,933
Exercise of stock options and
warrants - 719 - - - 2,188 2,907
Tax benefit related to stock
options and warrants exercised - 589 - - - - 589
Cash dividends declared, $.05125
per share - - (2,778) - - - (2,778)
Foreign currency translation
adjustments - - - (3,450) - - (3,450)
Net change in ESOP reserve - - - - 380 - 380
Net income - - 18,997 - - - 18,997
------ -------- -------- -------- -------- -------- --------
Balance at March 31, 1998 $ 542 $152,046 $317,277 $(20,170) $ (9,117) $ - $440,578
====== ======== ======== ======= ======== ======== ========
See accompanying notes to unaudited consolidated condensed financial statements.
7
DENTSPLY INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
--------------------------------------------------------------
MARCH 31, 1998
--------------
The accompanying interim consolidated condensed financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
which in the opinion of management are necessary for a fair presentation of
financial position, results of operations and cash flows for the interim
periods. These interim financial statements conform with the requirements
for interim financial statements and consequently do not include all the
disclosures normally required by generally accepted accounting principles.
Disclosures are updated where appropriate.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
Principles of Consolidation
- ---------------------------
The consolidated condensed financial statements include the accounts
of DENTSPLY International Inc. (the "Company") and its subsidiaries.
Minority interests in net income of consolidated subsidiaries is not
material and is included in other (income) expense, net.
Inventories
- -----------
Inventories are stated at the lower of cost or market. At March 31,
1998 and December 31, 1997, the cost of $17.3 million or 13% and $14.9
million or 12%, 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 method.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost, net of accumulated
depreciation. Except for leasehold improvements, depreciation for
financial reporting purposes is computed by the straight-line method over
the following estimated useful lives: buildings - generally 40 years; and
machinery and equipment - 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. For income tax purposes, depreciation is computed
using various methods.
Derivatives
- -----------
The Company's only involvement with derivative financial instruments
is forward contracts to hedge certain assets and liabilities denominated in
foreign currencies.
8
NOTE 2 - EARNINGS PER COMMON SHARE
- ----------------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share
("SFAS 128"). This Statement simplifies the standards for computing
earnings per share ("EPS") and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation
of basic EPS and requires dual presentation of basic and diluted EPS on the
face of the income statement of all entities with complex capital
structures. SFAS 128 also requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator
of the diluted EPS computation. As required, the Company adopted SFAS 128
in the fourth quarter of 1997; accordingly, all per share amounts have been
restated to reflect basic and diluted EPS. All shares held by the DENTSPLY
Employee Stock Ownership Plan are considered outstanding and are included
in the earnings per common share computation.
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
(in thousands, except per share amounts)
For the period ended March 31, 1998
Basic EPS $ 18,997 54,124 $.35
Incremental shares from assumed
exercise of dilutive options
and warrants - 350 -
-------- ------ ----
Diluted EPS $ 18,997 54,474 $.35
======== ====== ====
For the period ended March 31, 1997
Basic EPS $ 16,924 53,847 $.31
Incremental shares from assumed
exercise of dilutive options
and warrants - 287 -
-------- ------ ----
Diluted EPS $ 16,924 54,134 $.31
======== ====== ====
NOTE 3 - BUSINESS ACQUISITIONS
- ------------------------------
In January 1998, the Company purchased the assets of Blendax
Professional Dental Business ("Blendax") from Procter & Gamble in a cash
transaction valued at approximately DM13 million or $7 million. Blendax is
a distributor doing business principally in Germany, Austria and the United
Kingdom. The Blendax product line consists of rotary cutting instruments,
impression materials, composite filling material and fluoride rinses and
gels.
In March 1998, the Company purchased the assets of InfoSoft Inc.
("InfoSoft") in a cash transaction valued at approximately $8.5 million.
Located in White Marsh, Maryland, the primary business of InfoSoft is the
development and sale of full-featured, practice management software.
InfoSoft is also the number one processor of electronic dental insurance
claims in America.
9
In April 1998, the Company purchased a 60% majority interest in GAC
International Inc. ("GAC") for approximately $19.5 million. Located in
Islip, New York, GAC provides a full line of high quality orthodontic
products.
NOTE 4 - INVENTORIES
- --------------------
Inventories consist of the following:
March 31, December 31,
1998 1997
------------ ------------
(in thousands)
Finished goods $ 66,717 $ 63,987
Work-in-process 28,177 24,844
Raw materials and supplies 35,745 35,917
-------- --------
$130,639 $124,748
======== ========
Pre-tax income was $.1 million lower in the three months ended March
31, 1998 and 1997 as a result of using the LIFO method compared to the
first-in, first-out (FIFO) method. If the FIFO method had been used to
determine the cost of the LIFO inventories, the amounts at which net
inventory is stated would be lower than reported at March 31, 1998 and
December 31, 1997 by $1.2 million and $1.3 million, respectively.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------
Property, plant and equipment consist of the following:
March 31, December 31,
1998 1997
------------ ------------
Assets, at cost: (in thousands)
Land $ 14,843 $ 15,045
Buildings and improvements 65,340 68,009
Machinery and equipment 121,532 117,243
Construction in progress 14,406 11,856
-------- --------
216,121 212,153
Less: Accumulated depreciation 68,785 65,023
-------- --------
$147,336 $147,130
======== ========
NOTE 6 - NOTES PAYABLE AND LONG-TERM DEBT
- -----------------------------------------
The increases from December 31, 1997 in notes payable and current
portion of long-term debt ($1.9 million) and long-term debt ($13.5 million)
were primarily due to utilization of the Company's credit facilities for
the acquisition of Blendax, and InfoSoft (see Note 2).
10
NOTE 7 - COMPREHENSIVE INCOME
- -----------------------------
As of January 1, 1998 the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("Statement
130"). Statement 130 establishes new rules for the reporting and display
of comprehensive income and its components; however, the adoption of this
Statement had no impact on the Company's net income or stockholders'
equity. Statement 130 requires the Company's currency translation
adjustments, which prior to adoption were reported separately in
stockholders' equity, to be included in other comprehensive income.
Total comprehensive income amounted to $22,447 and $22,926 for the
periods ending March 31, 1998 and 1997, respectively. The following are
the components of comprehensive income:
Three Months Ended
March 31,
1998 1997
(in thousands)
Net income $ 18,997 $ 16,924
Foreign currency translation adjustments 3,450 6,002
-------- --------
Comprehensive income $ 22,447 $ 22,926
======== ========
The component of accumulated other comprehensive income is represented
by foreign currency translation adjustments as follows:
Accumulated Other
Comprehensive Income
March 31, December 31,
1998 1997
(in thousands)
Foreign currency translation adjustments $ 20,170 $ 10,280
======== ========
11
DENTSPLY INTERNATIONAL INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Any statements released by the Company that are forward-looking, including
without limitation, statements containing the words "plans", "anticipates",
"believes", "expects", or words of similar import constitute forward-looking
statements which 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
affect the Company's business and prospects, including economic,
competitive, governmental, technological and other factors discussed in the
Company's filings with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Quarter Ended March 31, 1998 Compared to Quarter Ended March 31, 1997
For the quarter ended March 31, 1998, net sales increased $8.3 million, or
4.8%, to $180.7 million, up from $172.4 million in the same period of 1997.
The increase resulted from strong sales growth in the United States both
from base businesses and from acquisitions. The growth in the United
States was partially offset by the decline in implant sales due to the
termination of the Implant Distribution Agreement between Core-Vent
Corporation and DENTSPLY at the end of the first quarter of 1997. European
sales increased due to strong growth in base businesses plus incremental
sales from the acquisitions of Blendax and SIMFRA SA. European sales were
adversely impacted by the translation effect of the strong U.S. dollar.
Sales growth in the Pacific Rim and Latin America was adversely impacted by
the Asian economy and the termination of distributors in Taiwan, Korea,
Colombia and Chile which will be replaced by newly established local
DENTSPLY subsidiaries later in 1998.
Gross profit increased $7.3 million, or 8.3%, to $95.3 million from $88.0
million in the first quarter of 1997 primarily as a result of higher net
sales. As a percentage of sales, gross profit increased from 51.1% in the
first quarter of 1997 to 52.8% in the same period of 1998. The primary
reason is a more favorable mix of sales in the U.S. and Europe in 1998
where the average gross profit margin exceeds the average margins in other
territories. In addition, the gross profit percentage in 1997 was
adversely impacted by lower margin implant products.
Selling, general and administrative expenses increased $3.8 million, or
6.3%. As a percentage of sales, expenses increased from 34.8% in the first
quarter of 1997 to 35.3% for the same period of 1998. A large part of the
percentage increase was from businesses acquired in 1997 and 1998 and from
higher expenses in the first quarter of 1998 to upgrade information systems
in the United States and Europe which will be year 2000 compliant.
Income before income taxes increased $2.5 million, or 8.9%, while the
provision for income taxes increased $.4 million or 3.6%. The effective
tax rate was lowered to 37.3% in the first quarter of 1998 reflecting
improvements from tax planning activities initiated in late 1997. Net
income increased $2.1 million, or 12.2%, from the first quarter of 1997 due
to higher income before income taxes and lower provision for income taxes
in the first quarter of 1998. Basic and diluted earnings per common share
increased from $.31 in 1997 to $.35 in 1998, or 12.9%.
12
LIQUIDITY AND CAPITAL RESOURCES
In January 1998, the Company acquired the assets of Blendax for $6.1
million. In March 1998, the Company purchased the assets of InfoSoft for
$8.6 million. In April 1998, the Company purchased a 60% majority interest
in GAC for $19.5 million. These transactions were funded from the
Company's existing $175.0 million Bank Revolving Loan Facility and short-
term bank borrowings.
Investing activities for the three months ended March 31, 1998 include
capital expenditures of $7.0 million.
The Company's current ratio was 1.7 with working capital of $123.2 million
at March 31, 1998. This compares with a current ratio of 1.6 and working
capital of $107.7 million at December 31, 1997.
The Company expects to be able to finance cash requirements, including
capital expenditures, stock repurchases, debt service, and possible future
acquisitions, from the funds generated from operations and amounts
available under the existing Bank Revolving Loan Facility.
For the three months ended March 31, 1998, cash flows from operating
activities were $2.5 million compared to $9.6 million for the three months
ended March 31, 1997. The decrease of $7.1 million results primarily from
increases in accounts receivable, inventories and prepaid and other current
assets.
IMPACT OF INFLATION
The Company has generally offset the impact of inflation on wages and the
cost of purchased materials by improving operating efficiencies and
increasing selling prices to the extent permitted by market conditions.
YEAR 2000
The Company has conducted a comprehensive review of its computer systems to
identify the systems that are affected by the "Year 2000" issue. In 1995,
the Company commenced a year 2000 conversion project for all of its
locations to address necessary software upgrades, training, data
conversion, testing and implementation. The Company will incur internal
staff costs as well as consulting and other expenses to complete the
project by the anticipated date of mid-1999. The Company does not expect
the amounts required to be expensed during the project to have a material
effect on its financial position or results of operations.
13
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Not required.
14
PART II
OTHER INFORMATION
Item 1 - Legal Proceedings
DENTSPLY and its subsidiaries are from time to time parties to
lawsuits arising out of their respective operations. The Company believes
that pending litigation to which DENTSPLY is a party will not have a
material adverse effect upon its consolidated financial position or results
of operations.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed herewith:
---------
Number Description
------ -----------
27 Financial Data Schedule
(pursuant to Item 601(c)(1)(iv) of
Regulation S-K, this exhibit shall
not be deemed filed for purposes
of Section 18 of the Securities
Exchange Act of 1934, as amended)
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 1998.
15
Signatures
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DENTSPLY INTERNATIONAL INC.
May 14, 1998 /s/ John C. Miles II
- -------------------- -----------------------------------
Date John C. Miles II
Vice Chairman and
Chief Executive Officer
May 14, 1998 /s/ William R. Jellison
- -------------------- -----------------------------------
Date William R. Jellison
Senior Vice President and
Chief Financial Officer
16
EXHIBIT INDEX
-------------
Number Description Sequential Page No.
------ ----------- -------------------
27 Financial Data Schedule
(pursuant to Item 601(c)(1)(iv) of
Regulation S-K, this exhibit shall
not be deemed filed for purposes
of Section 18 of the Securities
Exchange Act of 1934, as amended) 18
17
DENTSPLY INTERNATIONAL INC.
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
Earnings per common share:
- --------------------------
Three Months Ended
March 31,
------------------
1998 1997
-------- --------
(in thousands, except per share data)
Weighted average common shares
outstanding
Basic 54,124 53,847
Diluted 54,474 54,135
Net income $18,998 $16,924
Earnings per common share
Basic $.35 $.31
Diluted $.35 $.31
18