PRESENTATION OF DENTSPLY PRO FORMA FINANCIAL INFORMATION
The pro forma financial information for the year ended 31st December,
2000 and as at, and for the six months ended 30th June 2001, relating to
DENTSPLY and included on pages F-72 to
F-80 of this document (the "DENTSPLY Pro Forma Financial Information") has
been prepared on the basis that the acquisition of Friadent, the AZ
Acquisition and the Degussa Dental Acquisition had been completed on 1st
January, 2000 and taking into account a sale/leaseback of precious metals
owned by Degussa Dental. These acquisitions are respectively described
under "Description of DENTSPLY - History and Overview" and "The Degussa
Dental Acquisition". There are certain limitations relating to the
DENTSPLY Pro Forma Financial Information which are described in more
detail in the DENTSPLY Pro Forma Financial Information and which include,
in particular, the fact that complete stand-alone historical financial
information was not available for the business acquired in the AZ
Acquisition since that business had not previously been separately
identified as an operating unit by AstraZeneca PLC.
27
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
These pro forma historical unaudited combined balance sheets and
statements of income of DENTSPLY are provided for illustrative purposes
only and, because of their nature, may not give a true picture of
DENTSPLY's financial position or results.
The pro forma unaudited combined balance sheets and statements of
income and other selected financial and statistical information of
DENTSPLY do not necessarily reflect the results of operations or financial
results of DENTSPLY that would have actually resulted had the acquisitions
referred to below been consummated as of the dates indicated and are not
intended to project DENTSPLY'S financial condition or results for any
future period.
For the purposes of preparing the pro forma unaudited combined financial
statements euro amounts appearing in the combined historical financial
statements of Degussa Dental have been translated into U.S. dollars using an
exchange rate of U.S.$1.00 = (euro)0.89 for the statement of income for the six
months ended 30th June, 2001, U.S.$1.00 = (euro)0.85 for the balance sheet as of
30th June, 2001, and U.S.$1.00 = (euro)0.93 for the statement of income for the
year ended 31st December, 2000.
The following unaudited pro forma combined financial statements have
been derived from the application of pro forma adjustments to the combined
historical financial statements of DENTSPLY and Degussa Dental which are
included in this document. The unaudited pro forma combined statement of
income for the year ended 31st December, 2000 also reflects the
application of pro forma adjustments to a sale/leaseback of precious
metals owned by Degussa Dental and to the historical financial information
of two additional DENTSPLY acquisitions completed in 2001: Friadent GmbH
("Friadent"), a major global dental implant manufacturer, and AstraZeneca's
dental injectible anesthesia business ("AZ"). The Friadent historical
financial information was derived from Friadent's various operating units'
audited statutory financial statements prepared in conformity with their
respective country's generally accepted accounting principles ("GAAP") and
was consolidated by DENTSPLY Management. Complete stand-alone historical
financial information was not available for AZ since the business
purchased was a carve-out of the AstraZeneca business and was not
separately identified as an operating unit. As a result, the AZ historical
financial information was derived from data presented in AZ's sale
information memorandum and estimates made by Management.
The unaudited pro forma combined financial statements as at and for the six
months ended 30th June, 2001 and for the year ended 31st December, 2000 reflect
the purchase in October 2001 of Degussa Dental for an expected final purchase
price of (euro)576 million or US$530 million using the exchange rate at closing
of 0.92 US$/euro, as if it had occurred on 1st January, 2000 and 30th June, 2001
for pro forma income statement and balance sheet purposes, respectively. In
addition, the pro forma combined income statement for the year ended 31st
December, 2000 reflects the 12th January, 2001 purchase of Friadent for DM 220
million or US$106 million and the 1st March, 2001 purchase of AZ for US$96.5
million, as if they occurred on 1st January, 2000.
Based on the unaudited pro forma combined financial information
presented, the combined companies would have had assets of U.S.$1.7
billion, long-term debt of U.S.$825.1 million and stockholders' equity of
U.S.$562.7 at 30th June, 2001. The combined companies would have also had
sales of U.S.$720.4 million, net income of U.S.$66.3 million and diluted
earnings per share of U.S.$1.26 during the six months ended 30th June,
2001 and sales, net income and diluted earnings per share of U.S.$1.5
billion, U.S.$91.8 million and U.S.$1.75, respectively, for the year ended
31st December, 2000. Additionally, based on the unaudited pro forma
combined financial information and estimates made by DENTSPLY's Management
regarding the historical depreciation and amortisation of the acquired
companies, the combined companies would have had earnings before interest,
taxes, depreciation and amortization, excluding unusual items, (EBITDA) of
approximately U.S.$125 million and U.S.$253 million for the six months
ended 30th June, 2001 and the year ended 31st December, 2000,
respectively. The pro forma adjustments are described in the accompanying
notes to the unaudited pro forma combined financial statements. The
unaudited pro forma combined financial information does not purport to
represent the financial position or results of operations for the combined
companies at any future date or for any future periods.
28
The unaudited pro forma combined financial information, including the
notes to the unaudited pro forma combined financial statements, should be
read in conjunction with the historical consolidated financial statements
and consolidated condensed financial statements of DENTSPLY and the
combined financial statements of Degussa Dental, including the notes to
these statements, included in this document. See the financial information
on pages F-3 to F-69.
The Friadent and AZ acquisitions have been accounted for, and the
Degussa Dental acquisition will be accounted for, using the purchase
method of accounting. The purchase price of Friadent and AZ, including
actual fees and expenses related to the acquisitions, has been allocated
to the tangible and identifiable intangible assets and liabilities of
Friadent and AZ based upon DENTSPLY's estimate of the fair value of the
assets acquired and the liabilities assumed. The remaining purchase price
has been allocated to goodwill, which is the excess of cost over the fair
value of the net assets acquired, and included in "Costs in excess of fair
value of net assets acquired, net" in the unaudited pro forma combined
balance sheet. The purchase price for Degussa Dental, including estimated
fees and expenses, has been preliminarily allocated to inventory (to
record acquired precious metals and other inventories at fair market
value), identifiable intangible assets and goodwill, pending the
completion of valuations of acquired tangible and intangible assets and
liabilities. Goodwill is included in "Cost in excess of businesses
acquired, less amortization" in the unaudited pro forma combined balance
sheet. The pro forma adjustments directly attributable to the acquisition
relate primarily to the allocation of purchase price to the fair value of
the net assets acquired and the depreciation and amortization of the fair
value adjustments over their estimated useful lives.
The allocation of purchase price for Degussa Dental may be revised
when additional information concerning valuations of various tangible and
intangible assets and liabilities becomes available. Accordingly, the
final purchase price allocation for Degussa Dental could be different from
the amounts reflected in the unaudited pro forma combined financial
information. In addition, the unaudited pro forma combined financial
information gives effect only to the adjustments set forth in the
accompanying notes and does not reflect all restructuring costs, nor any
potential cost savings or other synergies that DENTSPLY management expects
to realize as a result of the acquisitions. Plans are being currently
developed to integrate the operations of the companies, which may involve
various costs including employee severance expenses and asset write-offs.
Some of these costs may be accounted for as accrued liabilities and
included in the allocation of the purchase price consideration at the date
of the combination. However, the plans are not yet sufficiently advanced
to determine the total amount of those costs which would be accounted for
as accrued liabilities on the effective date of the combination. To the
extent that these costs are not accounted for as accrued liabilities at
the date of the combination, a charge may be recorded, which may be
material. The total amount of the charge cannot be quantified at this
time, but it is expected to be recognized in the period in which the
restructuring occurs.
29
DENTSPLY PRO FORMA FINANCIAL INFORMATION
DENTSPLY INTERNATIONAL INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED 30th JUNE, 2001
Degussa Combined
Dental Pro DENTSPLY
Degussa Forma and Degussa
DENTSPLY Dental Adjustments Note (1) Dental
(in thousands, except per share amounts)
Net sales $ 500,304 $ 220,080 $ -- i) $720,384
Cost of products sold 236,763 138,914 -- i) 375,677
Gross profit 263,541 81,166 -- 344,707
Selling, general and
administrative expenses 178,784 54,665 1,667 e) 235,116
Other operating expense, net -- 6,560 (3,623) g) 4,337
-- -- 1,400 c)
Restructuring and other costs
(income) 5,500 -- -- 5,500
Operating income 79,257 19,941 556 99,754
Other income and expenses:
Interest expense 7,877 2,188 11,640 f) 19,517
(2,188) b)
Interest income (484) (600) 600 b) (484)
Other expense (income), net (23,720) 81 -- (23,639)
Income before income taxes 95,584 18,272 (9,496) 104,360
Provision for income taxes 33,854 7,549 (3,324) h) 38,079
Net income $ 61,730 $ 10,723 $ (6,172) $66,281
Earnings per common share:
Basic $ 1.19 $ 1.28
Diluted 1.18 1.26
Weighted average common shares
outstanding:
Basic 51,695 51,695
Diluted 52,471 52,471
30
DENTSPLY PRO FORMA FINANCIAL INFORMATION
DENTSPLY INTERNATIONAL INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF 30th JUNE, 2001
Degussa Combined
Dental Pro DENTSPLY
Degussa Forma and Degussa
DENTSPLY Dental Adjustments Note (1) Dental
(in thousands, except per share amounts)
Assets
Current assets:
Cash and cash equivalents $16,960 $ 2,526 $ (2,526) b) $16,960
Accounts and notes 136,452 56,836 -- 193,288
receivable-trade, net
Accounts receivable from -- 1,442 -- 1,442
affiliated companies
Inventories, net 154,672 87,721 30,000 c) 202,393
(70,000) c)
Prepaid expenses and other 41,871 7,077 -- 48,948
current assets
Total current assets 349,955 155,602 (42,526) 463,031
Property, plant and equipment, 185,515 48,888 -- d) 234,403
net
Identifiable intangible assets, 165,094 29,556 50,000 e) 244,650
net
Costs in excess of fair value of 410,432 85,574 328,520 g) 738,952
net assets acquired, net
-- -- (85,574) g)
Other noncurrent assets 51,827 6,261 -- 58,088
Total assets $ 1,162,823 $ 325,881 $ 250,420 $ 1,739,124
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 45,063 $ 11,526 $-- $56,589
Accounts payable due to
affiliated companies -- 4,119 -- 4,119
Accrued liabilities 101,220 15,869 -- 117,089
Income taxes payable 36,015 28,426 (16,006) b) 48,435
Other current liabilities -- 7,328 -- 7,328
Notes payable and current
portion of long-term debt 1,480 20,950 (20,950) b) 1,480
Total current liabilities 183,778 88,218 (36,956) 235,040
Long-term debt 340,116 5,706 485,000 f) 825,116
(5,706) b)
Deferred income taxes 25,257 12,533 -- 37,790
Other noncurrent liabilities 46,642 26,802 -- 73,444
Total liabilities 595,793 133,259 442,338 1,171,390
Minority interests in consolidated
subsidiaries 4,355 704 -- 5,059
Commitments and contingencies
Stockholders' equity 562,675 191,918 (191,918) 562,675
Total liabilities and stockholders'
equity $ 1,162,823 $ 325,881 $ 250,420 $ 1,739,124
31
DENTSPLY PRO FORMA FINANCIAL INFORMATION
DENTSPLY INTERNATIONAL INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED 31st DECEMBER 2000
Combined
Combined DENTSPLY,
Degussa DENTSPLY Combined AZ Degussa
Dental and Combined and Friadent Dental,
Degussa Pro Forma Note Degussa AZ and Pro Forma Note AZ and
DENTSPLY Dental Adjustments (1) Dental Friadent Adjustments (2) Friadent
(in thousands, except per share amounts)
Net sales $ 889,796 $ 453,880 $-- i) $1,343,676 $ 111,613 $-- $1,455,289
Cost of products sold 426,202 318,267 -- 744,469 54,931 -- 799,400
Gross profit 463,594 135,613 -- 599,207 56,682 -- 655,889
Selling, general and
administrative expenses 299,734 114,722 -- 417,789 42,153 1,700 c) 464,656
3,333 e) 3,014 b)
Other operating expense, net -- 5,618 (7,639) g) 779 -- -- 779
-- -- 2,800 c)
Restructuring and other costs
(income) (56) -- -- (56) -- -- (56)
Operating income 163,916 15,273 1,506 180,695 14,529 (4,714) 190,510
Other income and expenses:
Interest expense 10,153 4,298 23,280 f) 33,433 629 8,602 d) 42,664
(4,298) b)
Interest income (862) (2,519) 2,519 b) (862) (384) -- (1,246)
Other expense (income), net 2,829 284 -- 3,113 (607) -- 2,506
Income before income taxes 151,796 13,210 (19,995) 145,011 14,891 (13,316) 146,586
Provision for income taxes 50,780 779 972 h) 52,531 6,342 (4,065) e) 54,808
Net income $ 101,016 $ 12,431 $ (20,967) $ 92,480 $ 8,549 $ (9,251) $ 91,778
Earnings per common share:
Basic $ 1.95 $ 1.78 $ 1.77
Diluted 1.93 1.77 1.75
Weighted average common shares
outstanding:
Basic 51,856 51,856 51,856
Diluted 52,373 52,373 52,373
32
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Acquisition of Degussa Dental
(1) The process of determining the adjustments necessary to record the
assets and liabilities of Degussa Dental at fair value and allocating the
excess purchase consideration over fair value of net assets acquired is
being carried out. The allocation of the total expected consideration of
(euro)576 million, or US$530 million based on the exchange rate at the
closing date of 0.92 US$/euro, to the assets and liabilities of Degussa
Dental will be made on management's best estimates of fair value pending the
completion of valuations of acquired tangible and intangible assets and
liabilities. In the unaudited pro forma combined financial statements,
preliminary fair value adjustments have been recorded related to inventory
and identifiable intangible assets for assets acquired from Degussa Dental,
pending the completion of valuations. The estimates made in the unaudited
pro forma combined balance sheet at 30th June, 2001 to record the
acquisition of Degussa Dental are described below:
(in thousands)
Purchase consideration $530,000
Costs and fees of the transaction 25,000
Total purchase consideration 555,000 (a)
Less:
Net book value of Degussa Dental's net assets,
adjusted for assets and liabilities not assumed and
net debt 146,480 (b)
Fair value of Degussa Dental's inventory 30,000 (c)
Fair value of Degussa Dental's identifiable intangible
assets 50,000 (e)
Goodwill $ 328,520 (g)
(a) The unaudited pro forma combined financial information does not give
effect to all restructuring costs, nor any potential cost savings,
revenue enhancements, or other synergies that could result from the
acquisition of Degussa Dental. Plans are being currently developed to
integrate the operations of the combining companies, which may involve
some costs including employee severance expenses and asset write-offs.
Some of these costs may be accounted for as accrued liabilities and
included in the allocation of the purchase price consideration at the
date of the combination. To the extent that these costs are not
accounted for as accrued liabilities at the date of the combination,
an income statement charge may result, which may be material. The
total amount of the charge cannot be quantified at this time, but if
made it is expected to be recognized in the period in which the
restructuring occurs. Management's plans are not yet sufficiently
advanced to determine the total amount of those costs which would be
accounted for as accrued liabilities on the effective date of the
acquisition. To the extent that these costs are accounted for as
accrued liabilities and included in the allocation of the purchase
price consideration, the amount allocated to goodwill in the unaudited
pro forma combined balance sheet would increase.
(b) In certain instances, the historical financial statements for DENTSPLY
present captions in a more summarized form than Degussa Dental's
presentation. In order to have a consistent presentation, these
captions were categorised in conformity with DENTSPLY's presentation.
The historical financial statements for Degussa Dental include an
income tax liability of $16.0 million, which will not be assumed by
DENTSPLY. In addition, the historical financial statements include net
third party debt of $24.1 million (net of cash). The purchase price is
based on a debt-free transaction. Any debt existing at closing was
assumed by DENTSPLY and will reduce the purchase consideration. As the
income tax liability will not be acquired in connection with the
acquisition of Degussa Dental and since the net debt effectively will
not be acquired, they have been eliminated as pro forma adjustments to
the unaudited pro forma combined balance sheet at 30th June, 2001. The
net interest expense related to these balances
33
has also been eliminated as a pro forma adjustment to the unaudited pro
forma combined income statement for the six months ended 30th June, 2001 and
for the year ended 31st December, 2000.
(c) Management believes a portion of the excess of fair value over book
value of Degussa Dental's net assets is related to inventory and has
estimated the excess of fair value over book value of Degussa Dental's
reported inventory as of the closing date, including the fair value
inventory "step-up" in the unaudited pro forma combined balance sheet.
A significant portion of the acquired inventory are precious metals
composed primarily of gold, silver, platinum and palladium sold to
dental laboratories for the construction of crown and bridge work. The
precious metals inventory has been adjusted from its historical cost
of approximately $45 million as of 30th June, 2001 to its fair value
of approximately $70 million using the London fixing of prices
established by the London Bullion Market Association (LBMA) of 1st
October, 2001. An adjustment of approximately $5 million was made to
non-precious metals inventory to estimate the step-up to fair value.
No adjustment to cost of sales is reflected in the unaudited pro forma
combined statements of income for the six months ended 30th June, 2001
and for the year ended 31st December, 2000 with respect to any fair
value adjustments to Degussa Dental's inventory as any adjustment is
considered to be a non-recurring charge directly related to the
transaction. However, DENTSPLY will incur approximately $2.8 million
and $1.4 million in operating lease expenses for the periods ended
31st December, 2000 and 30th June, 2001, respectively, for the leasing
of precious metals. These amounts have been included in the pro forma
adjustments.
Following the closing of the acquisition of Degussa Dental, Management
anticipates selling the precious metals inventory acquired in the
Degussa Dental transaction to a third party. As part of the
contemplated transaction, DENTSPLY will receive an up-front cash
payment of approximately $70 million in exchange for the precious
metals inventory. This up-front cash payment is based on the fair
value as of 1st October, 2001. DENTSPLY will use the proceeds from the
sale of the precious metals to repay a portion of its outstanding
debt. Fluctuations in the market price of the precious metals may
materially increase or decrease the fair value of the inventory on the
date of closing and may impact the proceeds received from the third
party.
(d) Management expects that a portion of the excess of fair value over
book value of Degussa Dental's net assets will be related to fixed
assets. The process of valuing and allocating the excess of fair value
over book value of Degussa Dental's reported net fixed assets is being
carried out and, therefore, the fair value fixed asset "step-up" has
not been reflected in the unaudited pro forma combined balance sheet
at 30th June, 2001 and the unaudited pro forma combined statements of
income for the six months ended 30th June, 2001 and for the year ended
31st December, 2000.
(e) DENTSPLY has estimated the fair value of Degussa Dental's identifiable
intangible assets which include patents, trademarks and licensing
agreements and have reflected an estimated fair value "step-up" of the
identifiable intangible assets in the unaudited pro forma combined
balance sheet at 30th June, 2001, pending the completion of
valuations. DENTSPLY amortizes its identifiable intangible assets on a
straight-line basis over their estimated useful lives, ranging from 5
to 40 years. The cost of acquired intangible assets will be reduced
proportionally when a portion of the asset is disposed of or the asset
becomes impaired. Amortization of $1.7 million and $3.3 million
related to these fair value adjustments has been included in the
unaudited pro forma combined statements of income for the six months
ended 30th June, 2001 and for the year ended 31st December, 2000,
respectively, based on a weighted average expected useful life of 15
years.
(f) Long-term debt has been increased by $485.0 million to reflect the
total purchase consideration of the acquisition of Degussa Dental and
the costs associated with the acquisition less the anticipated
proceeds from the sale of the precious metals inventory. Interest
expense of approximately $11.6 million for the six months ended 30th
June, 2001 and $23.3 million for the year ended 31st December, 2000
has been recorded in the unaudited pro forma combined statements of
income as a result of the Degussa Dental acquisition.
34
DENTSPLY funded the acquisition of Degussa Dental primarily through a
long-term eurobond debt offering, supplemented by drawings under its
revolving credit facility and a private placement of notes. Interest on the
long-term debt has been calculated at an assumed interest rate of 4.80 per
cent., which reflects the weighted average interest rate that DENTSPLY
expects to pay on the eurobond debt and its existing credit facilities. An
increase of 0.125 per cent. in the interest rate assumption would increase
annual expense by approximately $0.6 million.
(g) Since preliminary valuations of the fixed and intangible assets
acquired from Degussa Dental are still in process as of the date of
this document, the entire excess of purchase price over the net assets
of Degussa Dental, except for that related to inventory and
identifiable intangible assets, has been allocated to goodwill for
purposes of the unaudited combined pro forma financial information.
The preliminary allocation will change upon completion of the
necessary valuations and will change the amortization included in the
unaudited pro forma combined statement of income.
In June 2001, the Financial Accounting Standards Board (FASB) in the
United States changed the model used to account for purchased business
combinations. As a result of this change, goodwill related to
acquisitions prior to 30th June, 2001 will continue to be amortised
until 1st January, 2002 when amortization will cease and goodwill will
be tested for impairment on a periodic basis. Goodwill related to
acquisitions occurring subsequent to 30th June, 2001, will not be
amortized at all. Therefore, amortization on the goodwill created by
the Degussa Dental acquisition has not been recognized in the pro
forma combined statements of income for the six months ended 30th
June, 2001 and the year ended 31st December, 2000 and the goodwill
amortization recognized in Degussa Dental's historical financial
statements for these periods have been eliminated as pro forma
adjustments.
(h) Income tax expense reflects the tax effects of pro forma adjustments
at the federal statutory rate of 35 per cent., excluding amortization
of non-tax deductible goodwill. As the transaction, in part, was
structured as an asset acquisition the basis in certain deferred tax
assets and liabilities were not assumed by DENTSPLY. The unaudited pro
forma combined statements of income have been adjusted to exclude
changes in deferred tax expense recorded by Degussa Dental for the
year ended 31st December, 2000 and the six months ended 30th June,
2001.
(i) A significant proportion of Degussa Dental's net sales comprises sales
of precious metals. As the value of these sales is dependent on the
price of the precious metals which can fluctuate significantly,
DENTSPLY intends in future presentations of its financial results to
identify separately the precious metals component of its net sales.
Net sales excluding precious metals on a pro forma basis would have
been approximately U.S.$127 million and U.S.$255 million lower than
shown for the six months ended 30th June, 2001 and for the year ended
31st December, 2000, respectively. Degussa Dental used the LIFO method
of accounting for its inventories of precious metals. During the six
months ending June 30, 2001, cost of products sold was decreased by
approximately U.S.$13.4 million as a result of LIFO inventory
liquidation.
35
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Acquisition of the AstraZeneca Injectible Anaesthesia Business ("AZ") and
Friadent GmbH (" Friadent")
(2) DENTSPLY has made preliminary adjustments to record the assets and
liabilities of AZ and Friadent at fair value and has allocated the
excess purchase consideration over fair value of net assets acquired.
The total consideration has been allocated to the assets and
liabilities of AZ and Friadent based on management's best estimates of
fair value.
(a) The related unaudited pro forma combined statement of income does
not give effect to any potential cost savings, revenue
enhancements, or other synergies that could result from the
acquisition of AZ and Friadent. Plans are currently in place to
integrate the operations of the combining companies.
(b) A total of $105.3 million of the excess fair value over the book
value of Friadent's and AZ's net assets is related to identifiable
intangible net assets. The excess fair value attributable to
identifiable intangible assets relates to Management's
determination of the value of Friadent and AZ's patents, trademarks
and licensing agreements.
The determination of the fair value of Friadent's identifiable
intangible assets is based on a risk-adjusted discounted net future
cash flow analysis of its current product portfolio which was
performed by an independent valuation firm. For AZ, the vast
majority of purchase price is related to a permanent, exclusive and
royalty-free license agreement for the AZ dental injectible
anaesthetic products and tradenames. Accordingly, substantially all
of the AZ purchase price was allocated to identifiable intangible
assets. The license has an indefinite life; however, it will be
amortized over 40 years for pro forma presentation.
Amortization of $3.0 million related to the fair value adjustments
in the unaudited pro forma combined statement of income for the
year ended 31st December, 2000 has been included.
DENTSPLY amortizes its identifiable intangible assets on a
straight-line basis over their estimated useful lives, ranging from
5 to 40 years. The cost of acquired intangible assets will be
reduced proportionally when a portion of the asset is disposed of
or the asset becomes impaired.
(c) A total of $68.0 million of the excess fair value over book value
of Friadent's and AZ's net assets has been allocated to goodwill.
This goodwill is amortized over 40 years. Amortization of $1.7
million for the year ended 31st December, 2000 is included in the
unaudited pro forma combined statements of income.
In June 2001, the Financial Accounting Standards Board (FASB) in
the United States changed the model used to account for purchased
business combinations. As a result of this change, goodwill related
to acquisitions prior to 30th June, 2001 will continue to be
amortized until 1st January, 2002 when amortization will cease and
goodwill will be tested for impairment on a periodic basis.
(d) Long-term debt has been increased by $205.2 million to reflect the
consideration paid in the acquisitions of AZ and Friadent, and the
costs associated with these acquisitions. Interest expense of
approximately $8.6 million for the year ended 31st December, 2000
has been reflected in the unaudited pro forma combined statement of
income as a result of the AZ and Friadent acquisitions. DENTSPLY
funded the acquisitions of AZ and Friadent through the issuance of
private placement debt and the use of its existing credit
facilities. Interest on the debt is calculated at an assumed
weighted average interest rate of 4.20 per cent., which reflects
the interest rate that DENTSPLY expects to pay on the private
placement debt and use of its existing credit facilities. This rate
does not differ materially from the historic weighted average
interest rates during the period presented. The interest rates on
these debt facilities are contractually fixed or are effectively
fixed through the use of interest rate swaps.
(e) Income tax expense reflects the tax effects of pro forma
adjustments at the federal statutory rate of 35 per cent.,
excluding amortization of non-tax deductible goodwill.
36