UNITED STATES
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 [FEE REQUIRED] For the fiscal year ended December
31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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, 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. [X]
As of March 1, 1996, the aggregate market value of voting common stock held
by non-affiliates of the registrant, based upon the last reported sale price for
the registrant's Common Stock on the Nasdaq National Market on such date, as
reported in The Wall Street Journal, was $1,003,713,275 (calculated by excluding
shares owned beneficially by directors and executive officers as a group from
total outstanding shares solely for the purpose of this response).
The number of shares of the registrant's common stock outstanding as of the
close of business on March 1, 1996 was 26,953,269.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the definitive Proxy Statement of DENTSPLY
International Inc. to be used in connection with the 1996 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 to be
deemed filed as part of this Annual Report on Form 10-K.
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PART I
Item 1. Business
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General
DENTSPLY International Inc. ("DENTSPLY" or the "Company"), a Delaware
corporation, designs, develops, manufactures and markets products in two
principal categories: dental consumable and laboratory products, and dental
equipment. Dental consumable and laboratory products include artificial teeth,
endodontic instruments and materials, impression materials, restorative
materials, crown and bridge materials, prophylaxis paste, dental sealants and
dental implants. Dental equipment includes dental x-ray systems, handpieces,
cutting instruments, and ultrasonic scalers and polishers.
The Company is the surviving corporation of the merger (the "Merger") of a
company formerly known as "Dentsply International Inc." ("Old Dentsply") with
and into the Company effective June 11, 1993. In connection with the Merger, the
Company changed its name to "DENTSPLY International Inc." Prior to the Merger,
the Company's name was GENDEX Corporation ("Gendex").
On October 13, 1994, the Company announced its strategic decision to
discontinue the operations comprising its medical business. The divestiture was
part of the Company's strategy to focus its resources on the expansion of its
core dental business. The medical operations include the Eureka X-Ray Tube
("Eureka"), GENDEX Medical and CMW business units which manufacture medical
x-ray tubes, medical x-ray systems and orthopedic bone cement, respectively. The
net assets of CMW were sold on November 22, 1994, and substantially all of the
net assets of Eureka were sold in two transactions on November 23 and December
16, 1994. Substantially all of the net assets of GENDEX Medical were sold on
March 6, 1996.
On January 10, 1996, the Company completed the acquisition of the dental
manufacturing and distribution operations of Tulsa Dental Products LLC
("Tulsa"). Tulsa manufactures and distributes endodontic instruments and
materials. The operations of Tulsa are included in the discussion of the
Company, its business, properties and employees.
Market Overview
Professional Dental Products
General. The worldwide professional dental industry
encompasses the diagnosis, treatment and prevention of disease
and ailments of the teeth, gums and supporting bone. DENTSPLY
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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 three stages of development
described below.
The United States, Canada, Western Europe, the United Kingdom and Japan are
highly developed markets that demand the most advanced dental procedures and
products and have the highest level of expenditure 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, including periodontia (the treatment of the structure supporting the
teeth), endodontia (the revitalization of teeth that would otherwise require
extraction), orthodontia (the movement and realignment of teeth for improved
function and aesthetics), gnathology (the treatment of temporomandibular joint
(TMJ) dysfunction and occlusive modification), implantology (the insertion of
prosthetic devices to provide support for partial or full dentures) and cosmetic
dentistry. These markets require varied and complex dental products, such as
advanced cleaning and scaling equipment and related solutions, light-cured
bonding and restorative compounds, precision-molded and customized crowns,
bridges, implants and other prosthodontic devices, materials and instruments
used in endodontic procedures, and aesthetically accurate stains and tints.
These markets also 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 Commonwealth
of Independent States, 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, and anchoring devices such as posts.
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
develops, demand for more technically advanced products will increase. The
Company also believes that
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its recognized brand names, high quality and innovative products, technical
support services and strong international distribution capabilities position it
well to take advantage of continued growth in all of the markets that it serves.
United States. The market for professional dental products in the United
States has experienced significant growth in recent years. Statistics published
by the U.S. Department of Health and Human Services indicate that annual United
States spending on dental products and services increased from $25.3 billion to
$40.0 billion from 1987 to 1994, or 6.8% per annum.
The Company believes that the United States market will continue to be
influenced by favorable demographic trends, increasing coverage of dental care
by private insurance and government programs, and an intensifying focus on
preventive dental care. The percentage of the United States population over age
65 is expected to nearly double by the year 2030, to 22%, and this segment of
the population commands a relatively high level of discretionary income. The
Company believes that as the number of older, more affluent Americans increases,
the demand for restorative and cosmetic dental procedures will increase as these
individuals seek to retain their natural teeth and improve their appearance.
The Company also believes that the United States market will increasingly
demand products which reduce the risks of infection and patient
cross-contamination. This growing demand reflects increasing government
regulation, professional practice guidelines and public attention focused on
preventing the transmission in the dental office of infectious diseases such as
hepatitis-B and the virus that causes acquired immune deficiency syndrome. The
Company offers products to address the growing market for infection control
products, such as sterilizable dental handpieces and cutting instruments,
single-use prophylaxis pastes, disposable prophy angles and infection control
barriers, and intends to continue to develop and acquire products to address
this market.
DENTSPLY expects insurance coverage of dental care to play an important
role in the United States market. According to the National Center for Health
Statistics, approximately 45% of the United States population is covered by some
form of dental insurance, up from 35% in 1980. While insurance coverage has been
increasing, the Health Care Finance Review indicates that, in 1993,
approximately 50% of dental expenditures were paid for directly by the consumer.
Products
DENTSPLY's two principal dental product lines are consumable
and laboratory products, and equipment. These products are
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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 tradenames in the industry, including ASH(Registered Trademark),
CAULK(Registered Trademark), CAVITRON(Registered Trademark),
CERAMCO(Registered Trademark), DENTSPLY(Registered Trademark),
DETREY(Trademark), GENDEX(Registered Trademark), MIDWEST(Registered Trademark),
R&R(Registered Trademark), RINN(Registered Trademark),
TRUBYTE(Registered Trademark), MAILLEFER(Trademark),
PROFILE(Registered Trademark) and THERMAFIL(Registered Trademark).
Sales of the Company's professional dental products from continuing operations
accounted for approximately 95%, 96% and 97% of DENTSPLY's consolidated sales
for 1995, 1994 and 1993, respectively.
Consumable and Laboratory Products. Consumable and laboratory products
consist of dental sundries used in dental offices in the treatment of patients
and in dental laboratories in the preparation of dental appliances, such as
crowns and bridges. The Company manufactures approximately 1,200 different
consumable and laboratory products marketed under more than 70 brand names.
Consumable and laboratory products include:
Resin-Based and Porcelain Artificial Teeth: Artificial teeth replace
natural teeth lost through deterioration, disease or injury. The Company's
artificial teeth are marketed under the TRUBYTE(Registered Trademark) and
PORTRAIT(Trademark) IPN(Registered Trademark) trade names, among others,
and are produced by the Company in York, Pennsylvania, Brazil and Germany
in some 15,000 combinations of shapes, sizes and shades.
Impression Materials: Impression materials are used to make molds of
teeth for fitting crowns, bridges and dentures. DENTSPLY's
JELTRATE(Registered Trademark), BLUEPRINT(Trademark),
REPROSIL(Registered Trademark) and AQUASIL(Trademark) impression materials
are designed to increase the rate of successful impressions without retakes
and to set quickly to minimize patient discomfort.
Restorative Materials: Restorative materials are used in sealing,
lining and filling excavated tooth cavities and repairing broken or damaged
teeth, and include amalgams, bonding agents, light-cured composites and
glass ionomer filling materials for more aesthetic restorations. The
Company's DYRACT(Trademark) product is a revolutionary, patented, single
component restorative material featuring simplicity in delivery combined
with excellence in restorative results. The Company's PRISMA(Trademark)
AP.H(Registered Trademark), PRISMA(Trademark) TP.H(Trademark) and
TP.H(Trademark) SPECTRUM(Trademark) universal composite materials
permit restorations to be performed on either the anterior or posterior
teeth using the same material, and are rapidly replacing older,
single-purpose composite materials. The Company's recently introduced
ADVANCE(Trademark) Hybrid Ionomer Cement is a resin modified,
fluoride-releasing glass ionomer cement with superior adhesion to metal for
crown and bridge work while helping to prevent secondary caries and
extending the life of a restoration. PRIME & BOND(Trademark) 2.0 is a
unique, one-bottle dental adhesive system which combines the functions of a
6
primer and an adhesive in a simple-to-use single component formula. PRIME &
BOND(Trademark) 2.0's proprietary resin formulation has significantly
improved the mechanical properties of the cured primer/adhesive, thus
greatly enhancing the long-term marginal integrity of stress-bearing
restorations at both dentin and enamel margins. DENTSPLY also markets the
DISPERSALLOY(Registered Trademark), UNISON(Registered Trademark) and
MEGALLOY(Trademark) lines of restorative amalgams;
DELTON(Registered Trademark) and DENTON(Registered Trademark) PLUS
(with fluoride release) brand dental sealants; and
ADAPTIC(Registered Trademark) self-cured composite.
Crown and Bridge Porcelains and Ceramics: These porcelain and ceramic
products are used by dental laboratories in making crowns, bridges, inlays
and onlays for restorative dental procedures, where aesthetics are
particularly important, and to provide functional biting and chewing
surfaces that appear and feel natural. The Company produces specialty crown
and bridge porcelain materials and fully automatic programmable porcelain
furnaces, as well as castable ceramic materials, used by dental
laboratories. Product offerings include the CERAMCO(Registered Trademark)
line, and in Europe, the DETREY(Trademark) CARAT(Trademark) line of
specialty crown and bridge porcelain products for use as fixed prosthetics.
Endodontic Instruments and Materials: These products are used in root
canal treatment of severely damaged or decayed teeth. With the recent
acquisition of Maillefer Instruments S.A. ("Maillefer") and Tulsa, the
Company has an extensive endodontic product offering including broaches,
files, and other endodontic materials and instruments. The
SUREFLEX(Trademark) NICKEL TITANIUM FILE features superior flexibility
and shape memory which allows the instrument to follow the path of the root
canal. The Company's PROFILE(Registered Trademark)
SERIES 29(Registered Trademark) line of endodontic files offer a standard
29 percent increase between the tip diameters of each size instrument for a
smooth, progressive enlargement from one file to the next.
PROFILE(Registered Trademark) .04 TAPERS(Registered Trademark) feature
non-standard tapers constructed from super-flexible nickel titanium for use
in a controlled, slow-speed, high-torque rotary dental handpiece. The
THERMAFIL(Registered Trademark) product line offers a method of root
canal obturation (filling) that provides a three-dimensional seal allowing
ease of placement and precise apical control.
Dental Implant Systems: Under the CORE-VENT(Trademark) brand name,
DENTSPLY offers a line of endosseous root form dental implants and
abutments which are designed to accommodate each of the four anatomical
zones found in human jaws. These products include
Screw-Vent(Registered Trademark) (threaded screw),
Core-Vent(Registered Trademark) (hollow basket),
Bio-Vent(Registered Trademark) (press-fit cylinders) and
Micro-Vent(Registered Trademark) (press-fit threaded), that are retained in
the bone of the oral cavity and provide fixation points for dental
restorations. Under an agreement with Core-Vent(Registered Trademark)
7
Corporation, DENTSPLY holds exclusive worldwide marketing and distribution
rights to these dental implants for up to 10 years.
Protective Supplies: These products are designed to ameliorate
possible sources of patient cross-contamination of infectious disease, and
include RITE-ANGLE(Registered Trademark) and NUPRO(Registered Trademark)
Disposable Prophy Angles (disposable mechanical devices used by dentists
and hygienists to clean and polish teeth), hand cleansers, disposable
barriers, enzymatic cleansers and needle stick prevention devices.
Other Consumable and Laboratory Products: Other products produced by
the Company for use in dental offices and laboratories include
NUPRO(Registered Trademark) prophylaxis paste that is used in cleaning and
polishing teeth and the VERTEX(Registered Trademark) disposable articulator
used in dental laboratories to simulate the dynamic movement of teeth
against one another.
Dental Equipment. DENTSPLY's dental equipment product lines include high
and low speed handpieces, intraoral lighting systems, dental cutting
instruments, ultrasonic scalers and polishers, and x-ray systems and
related support equipment and accessories.
Handpieces: Under the MIDWEST(Trademark) brand name, DENTSPLY
manufactures and distributes a line of high-speed and low-speed air-driven
handpieces and intraoral lighting systems and distributes carbide and
specialty burs. High-speed handpieces are the primary instruments utilized
by dentists for restorative, prosthodontic and aesthetic procedures.
Low-speed handpieces may also be used in these procedures and in procedures
which require more control and higher torque, such as removal of soft
decay, tooth cleaning and polishing, and chairside adjustment of dentures.
Handpiece intraoral lighting systems supply light to the fiber optic
bundles in the handpieces through tubes that also provide air and water to
the handpiece.
Dental Cutting Instruments: The Company distributes MIDWEST(Trademark)
carbide and specialty burs. Regular carbide burs are the most commonly used
dental cutting instruments in the North American market. Carbide burs
mounted in handpieces are used as milling tools. While these burs are
primarily used for cavity excavation, the variety of available shapes
allows for alternative uses such as limited trimming and finishing
techniques. Specialty burs are designed to cut and remove metal alloy
dental restorations, to produce smooth surfaces on composite materials,
amalgams, gold, enamel and dentin, and for gross reduction of tooth anatomy
in preparation for fitting crowns and normal cavity excavations.
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Ultrasonic Scalers and Polishers: DENTSPLY manufactures and
distributes the CAVITRON(Registered Trademark) ultrasonic scaler (which
uses ultrasonic waves to remove hardened tooth calculus which results from
the interaction of plaque, saliva and food particles), the
PROPHY-JET(Registered Trademark) 30 Air Polishing Prophylaxis Unit (which
cleans, polishes and buffs the tooth surface after scaling is completed)
and the CAVITRON(Trademark) JET (which combines both ultrasonic scaling and
air polishing prophylaxis in one multi-function unit). The Company also
produces the CAVITRON(Trademark) MED (which delivers medicaments directly
to pockets below the gum surface in periodontic treatments). DENTSPLY
manufactures a variety of inserts for use with its ultrasonic prophylaxis
units. The FOCUSED SPRAY(Trademark) INSERT brings water directly to the
instrument tip and focuses water where it is most needed. The
SLIMLINE(Trademark) Ultrasonic Insert is 40 percent thinner than standard
ultrasonic inserts and allows subgingival ultrasonic instrumentation at
depths up to 7 mm.
Dental X-Ray Systems: The Company offers a full line of dental x-ray
equipment for intraoral, panoramic and cephalometric procedures, all
marketed under the GENDEX(Registered Trademark) brand name. Intraoral films
provide a view of a particular area of tooth and jaw structure. Panoramic
x-rays utilize a moving x-ray tube and provide an image of the entire oral
cavity, an image that is particularly valuable to oral surgeons and
orthodontists. Cephalometric systems permit precise, repeatable
positioning of the patient's skull so that images taken at different times
can be compared.
The Company markets VISUALIX(Trademark), a real time, digital video
x-ray system. Through its solid state, intraoral x-ray sensor and
associated computer, the VISUALIX(Trademark) system allows the dentist to
produce radiographic images without using film. X-rays generated by a
standard system strike the sensor. The image is then displayed on a
computer screen, where it can be enlarged, enhanced and manipulated. The
image may also be stored for future retrieval. The extremely sensitive
sensor provides excellent image quality with a significantly lower x-ray
dosage compared to film.
X-Ray Support Equipment: Under the RINN(Trademark) brand name,
DENTSPLY manufactures and distributes x-ray film mounts, film holders and
related equipment and accessories. X-ray film mounts are used as
organizing, storage and retrieval holders for dental x-ray films. Film
holders are film positioning devices used in taking dental x-ray films
which ensure the alignment of the x-ray beam to the intraoral film.
Equipment and accessories include film viewers, film duplicators,
chair-side darkrooms, patient aprons, developing chemicals and x-ray
collimating devices.
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The GXP(Trademark) Processor, which develops intraoral, panoramic, and
cephalometric x-ray film, features a closed chemical recirculation system
so that potentially environmentally hazardous solutions may be disposed of
properly. Film enters and exits in the front of the processor, thereby
allowing placement of the unit flush against a wall to conserve space.
DENTSPLY also supplies specialty chemical binders, refractory particles,
investment mold materials and related products to the precision investment
casting industry, which produces metal parts of complex geometry and "near net"
shapes requiring little or no subsequent machining or finishing.
Marketing, Sales and Distribution
The market for DENTSPLY's dental products is primarily comprised of
dentists, dental hygienists, dental assistants, dental laboratories and dental
schools. DENTSPLY focuses its marketing efforts on both the dental professionals
who are the end users of its products and the dealers who distribute certain of
those products. DENTSPLY employs highly trained, product- specific sales and
technical staffs to provide comprehensive marketing and service tailored to the
particular sales and technical support requirements of its customers. DENTSPLY's
marketing efforts seek to capitalize on the strength of the Company's brand
names and international infrastructure to expand sales of new and existing
products throughout the world, including emerging dental markets in the Pacific
Rim, Central and South America and Eastern Europe.
DENTSPLY's product-specific sales force is divided into domestic and
foreign field selling organizations, each of which is responsible for
maintaining contact with both dealers and dental professionals. The dental sales
force includes approximately 300 domestic representatives, approximately 325
international representatives and approximately 30 telemarketers who support the
domestic representatives. This sales force is further divided into product-based
teams. Each specialized sales force tailors its sales strategy to the particular
sales and technical support requirements of its customers. Sales personnel
attend over 100 dental trade shows each year where the Company's products are
exhibited to dental professionals and dealers. Sales personnel also routinely
participate with dealers to disseminate product information and conduct product
demonstrations, seminars, study groups and lectures for dental professionals. In
addition, DENTSPLY invests significant amounts in advertising in national and
international dental publications.
DENTSPLY distributes its dental products primarily through approximately
350 domestic and over 800 foreign dealers and importers. While the overwhelming
majority of DENTSPLY's
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products are distributed through dental dealers, certain highly technical
products such as the Company's CERAMCO(Registered Trademark) line of crown and
bridge procelain products and dental implants are sold directly to the dental
laboratory or dentist.
DENTSPLY also maintains seven educational facilities. The Company's
facilities in York, Pennsylvania; Burlington, New Jersey; Dreieich, Germany; and
Weybridge, England are used for training, product demonstrations and seminars
and to promote interest in and understanding of the use of DENTSPLY's dental
laboratory products. The DENTSPLY Educational Center in York provides
personalized training in both fixed and removable prosthodontic specialties.
Additional teaching facilities are maintained in Milford, Delaware; Konstanz,
Germany; and Hong Kong for training dental professionals in the use of
consumable dental products. The Company also offers many seminars throughout the
world in such areas as endodontics, crown and bridge porcelain and ceramics,
restoratives and dental implant systems.
Product Development
During 1995, 1994 and 1993, approximately $12.3 million, $10.9 million and
$10.3 million, respectively, was invested by the Company in connection with the
development of new products and in the improvement of existing products.
DENTSPLY employs approximately 175 scientists, engineers and technicians
dedicated to product development. The Company believes that its product
development programs are critical in meeting market demands and achieving future
growth. The Company also sponsors independent clinical research projects aimed
at developing, adapting and testing new technologies for use in DENTSPLY
products. From time to time, the Company contracts with independent consultants
and engineers to augment efforts to develop new products.
Manufacturing and Technical Expertise
DENTSPLY believes that its manufacturing capabilities are critical to its
success. The Company continues to automate its global manufacturing operations
in order to remain a low cost producer.
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 manufacture of artificial teeth and dental composites involves
expertise in polymer chemistry. A polymer is a compound of high molecular weight
derived through the combination of many smaller molecules or by the condensation
of many smaller molecules through the elimination of water or alcohol. DENTSPLY
manufactures certain lines of artificial teeth by a process that
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disperses the polymeric molecules found within cross-linked polymers, thereby
improving the tooth's resistance to blushing, whitening, crazing and
disintegration. Another line of artificial teeth utilizes an ultra-high
viscosity polypropylene that significantly increases wear resistance.
Visible light-cured composites utilize a single paste that immediately
polymerizes when exposed to a light source. DENTSPLY's PRISMA(Trademark)
TP.H(Trademark)light-cured composites contain non- radiopaque fillers of
approximately .02-.08 microns in size. The small size of this filler increases
the bonding power of the composite. It also permits the material to be polished
in order to more accurately replicate the color of a natural tooth. Basic,
self-cured (self-hardened) composites are formed by combining two pastes that
trigger polymerization when reacted.
The Company manufactures extremely high quality endodontic instruments
using production equipment designed and manufactured in-house. In general, the
equipment used is not available on the external market.
Dental handpiece manufacturing technology requires precision machining of
component parts to extremely tight tolerances in order to accommodate the
operating speed of the air-driven turbine, which exceeds 350,000 r.p.m. in high
speed handpieces, and the wide range of applications for which the unit is used.
These tolerances require dimensional machining to as little as 15 millionths of
an inch to produce the delicate balance necessary for a quiet, smooth-running
turbine with minimal vibration. The Company utilizes "computer numerically
controlled" (CNC) machines and computer-assisted design software in its
handpiece manufacturing processes.
Production of the Company's x-ray products involves a variety of
manufacturing disciplines. For example, the manufacture of x-ray tubes requires
expertise in high-temperature metallurgy, sophisticated glass blowing
techniques, and the ability to evacuate molecular impurities from the x-ray tube
through degasification. The Company also designs and fabricates printed circuit
boards, assembles electrical harnesses, fabricates sheet metal, and engages in
precision machining, painting and high-tension coil winding in connection with
the manufacturing of its x-ray products.
Foreign Operations
The Company conducts its business in over 100 foreign countries,
principally through its foreign subsidiaries which operate 35 foreign facilities
(including thirteen manufacturing operations). DENTSPLY has a long-established
presence in Canada and in the European market, particularly in Germany,
Switzerland and England. The Company also has a significant market presence
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in Central and South America, Australia, Hong Kong, Thailand, India, Philippines
and Japan. DENTSPLY has established joint ventures and marketing activities in
the People's Republic of China and the Commonwealth of Independent States. In
1996, a 100 percent-owned subsidiary, including a manufacturing facility, will
be established in the People's Republic of China. Manufacturing operations in
India will also commence in 1996.
For 1995, 1994 and 1993, the Company's sales outside the United States,
including export sales, accounted for approximately 48%, 45% and 42%,
respectively, of consolidated net sales from continuing operations. As a result
of the Company's significant international presence, DENTSPLY is subject to
fluctuations in exchange rates of various foreign currencies and other risks
associated with foreign trade. The Company actively manages its currency risk
exposures. Fluctuations in exchange rates have not had a material adverse impact
upon the Company's financial position.
Competition
The Company conducts its operations, both domestic and foreign, under
highly competitive market conditions. Competition in the dental materials and
equipment industries 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 which 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.
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 requirements. 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.
Dental devices of the types sold by the Company are
13
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. The Company believes that it is in compliance with FDA
regulations applicable to its products and manufacturing operations.
All dental amalgam filling materials, including those manufactured and sold
by the Company, 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 to them. If the FDA were to reclassify dental mercury and
amalgam filling materials as classes of products requiring FDA premarket
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.
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. Some of these regulatory
requirements are more stringent than those applicable in the United States.
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.
Trademarks and Patents
The Company's trademark properties are important and contribute to the
Company's marketing position. To safeguard these properties, the Company
maintains trademark registrations in the United States and in significant
international markets for its products, and carefully monitors trademark use
worldwide. DENTSPLY also owns and maintains several hundred foreign and domestic
patents. Although the protection afforded to the Company by these patents is
advantageous to its business, the
14
Company does not consider that its business is materially dependent on its
patents.
Employees
As of March 15, 1996, the Company and its subsidiaries had approximately
5,070 employees, of whom approximately 3,070 were engaged in manufacturing
operations, approximately 1,335 were engaged in sales and distribution,
approximately 490 were engaged in finance and administration, and approximately
175 were engaged in research and product development activities. 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, 2000; hourly workers at the Company's Cavitron
Products facility in Long Island City, New York are represented by Local No. 431
of the International Union of Electronic, Electrical, Technical, Salaried and
Machine Workers, AFL-CIO, under a collective bargaining agreement that expires
on November 3, 1998; and hourly workers at the Company's Midwest Dental Products
facility in Des Plaines, Illinois are represented by Tool & Die Makers Local 113
of the International Association of Machinists and Aerospace Workers under a
collective bargaining agreement that expires on May 31, 1997. The Company
believes that its relationship with its employees is good.
15
Item 2. Properties
- -------------------
As of March 15, 1996, DENTSPLY maintains manufacturing facilities at the
following locations:
Leased
Location Function or Owned
- -------- -------- --------
York, Pennsylvania Manufacture and distribution of Owned
artificial teeth and other dental
laboratory products; export of
dental products; marketing and
sales of dental equipment;
manufacture and distribution of
preventive dental products;
corporate headquarters
Des Plaines, Illinois Manufacture and assembly of dental Leased
handpieces and components and
dental x-ray equipment
Milford, Delaware Manufacture and distribution of Owned
consumable dental products
Long Island City, Manufacture and distribution of Leased
New York dental equipment
Las Piedras, Manufacture of crown and bridge Owned
Puerto Rico materials
Chicago, Illinois Manufacture of dental x-ray Owned
equipment
Elgin, Illinois Manufacture of dental x-ray film Owned
holders, film mounts and
accessories
Maumee, Ohio Manufacture and distribution of Owned
investment casting products
Commerce, California Manufacture and distribution of Leased
investment casting products
Johnson City, Manufacture and distribution of Leased
Tennessee endodontic instruments and
materials
Petropolis, Brazil Manufacture and distribution of Owned
artificial teeth and consumable
dental products
Paraiba Do Sol, Manufacture and distribution of Leased
Brazil gutta percha
16
Dreieich, Germany Manufacture and distribution of Owned
artificial teeth and other dental
laboratory products
Konstanz, Germany Manufacture and distribution of Owned
consumable dental products;
distribution of dental equipment
Milan, Italy Manufacture and distribution of Leased
dental x-ray equipment
Mexico City, Mexico Manufacture and distribution of Owned
dental products
Weybridge, England Manufacture and distribution of Owned
dental products
Plymouth, England Manufacture and distribution of Leased
dental hand instruments
Ballaigues, Manufacture and distribution of Owned
Switzerland endodontic instruments
Ballaigues, Manufacture and distribution of Owned
Switzerland plastic components and packaging
material
Le Creux, Manufacture and distribution of Owned
Switzerland endodontic instruments
Moscow, Russia Manufacture and distributon of Leased
consumable dental products
New Dehli, India Manufacture and distribution of Leased
dental products
In addition, the Company maintains sales and distribution offices at
certain of its foreign and domestic manufacturing facilities, as well as at
three other United States locations and at 13 international locations in nine
foreign countries. Of the 16 United States and international sites used
exclusively for sales and distribution, one is owned by the Company and the
remaining 15 are leased. The Company also maintains sales offices in various
countries throughout the world.
DENTSPLY believes that its properties and facilities are well maintained
and are generally suitable and adequate for the purposes for which they are
used.
17
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 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.
In May 1994, Core-Vent Corporation and Dr. Gerald Niznick filed an equity
action against DENTSPLY in Common Pleas Court in York County, Pennsylvania,
arising out of the terms of an April 1991 Exclusive Distribution Agreement
("Agreement"). The action sought to enjoin DENTSPLY from publishing certain
marketing materials for dental implant products. DENTSPLY countersued alleging
that the Agreement, or in the alternative an amendment to the Agreement, should
be terminated because of the misconduct of Dr. Niznick. The case has been
referred to arbitration pursuant to the terms of the Agreement and both parties
have amended their pleadings to allege monetary damages. Core-Vent and Dr.
Niznick are alleging damages of up to $25,478,000 for loss of market share.
DENTSPLY is vigorously contesting these claims in the arbitration hearing and
believes these claims to be without merit.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not applicable.
18
Executive Officers of the Registrant
The following table sets forth certain information regarding the executive
officers of the Company as of March 15, 1996.
Name Age Position
---- --- --------
Burton C. Borgelt 63 Chairman of the Board
John C. Miles, II 54 President and Chief Executive
Officer
W. William Weston 48 Senior Vice President, European Group
Michael R. Crane 55 Senior Vice President, North
American Group
Edward D. Yates 52 Senior Vice President and Chief
Financial Officer
Thomas L. Whiting 53 Senior Vice President, Pacific Rim,
Latin America, Gendex, and Tulsa Dental
J. Patrick Clark 54 Vice President, Secretary and
General Counsel
Burton C. Borgelt assumed the position of Chairman of the Board effective
January 1, 1996. Prior to that Mr. Borgelt was named Chairman of the Board and
Chief Executive Officer of the Company upon the resignation of John J. McDonough
as Chief Executive Officer on February 8, 1995. Prior to Mr. McDonough's
resignation, Mr. Borgelt served as Chairman of the Board and a director of the
Company following the Merger. Prior thereto, Mr. Borgelt served as Chairman of
the Board and Chief Executive Officer of Old Dentsply commencing in March 1989
and as the Chief Executive Officer and a director of Old Dentsply commencing in
February 1981.
John C. Miles was named President and Chief Executive Officer effective
Janury 1, 1996. Prior to that he was President and Chief Operating Officer and a
director of the Company since the Merger. Prior to that time he served as
President and Chief Operating Officer and a Director of Old Dentsply commencing
in January 1990. From January 1988 until December 1989, Mr. Miles served as
Senior Vice President/International Operations of Old Dentsply. He was Director
of European Operations of Old Dentsply from May 1986 to December 1987, and from
June 1985 to April 1986 he was General Manager of Old Dentsply's York Laboratory
Products Division (presently known as the Trubyte Division). From 1978 to June
1985, Mr. Miles was employed in various capacities with Rhone-Poulenc, most
recently as Senior Vice President--General Manager of its Systems Division.
Michael R. Crane was named Senior Vice President, North
American Group effective January 1, 1996. Prior to that he
19
was Senior Vice President, Europe, Mideast, Africa and Commonwealth of
Independent States of the Company effective in early 1995 and prior thereto he
served as Senior Vice President, International Operations of the Company since
the Merger, and in a similar capacity with Old Dentsply commencing in November
1989. Prior to that time, he served as Vice President Sales/Marketing for
Whaledent International, a division of IPCO Corporation.
W. William Weston was named Senior Vice President, European Group of the
Company effective January 1, 1996. Prior to that Mr. Weston served as the Vice
President and General Manager of DENTSPLY's DeDent Operations in Europe from
October 1, 1990 to January 1, 1996. Prior to that time he was Pharmaceutical
Director for Pfizer in Germany.
Edward D. Yates has been Senior Vice President and Chief Financial Officer
of the Company since the Merger and prior thereto served in a similar capacity
with Old Dentsply commencing in March 1991. From January 1990 until March 1991,
he served as Old Dentsply's Controller. Prior to that time, he was the Treasurer
of Old Dentsply. Mr. Yates is a Certified Public Accountant.
Thomas L. Whiting was named Senior Vice President, Pacific Rim, Latin
America, Gendex, and Tulsa Dental of the Company in July 1994, to be effective
in early 1995. Prior to this appointment, Mr. Whiting was Vice President and
General Manager of the Company's L.D. Caulk Division since the Merger, and prior
thereto served in the same capacity with Old Dentsply since joining Old Dentsply
in 1987. Prior to that time, Mr. Whiting held management positions with Deseret
Medical and the Parker-Davis Company.
J. Patrick Clark has been Vice President, Secretary and General Counsel of
the Company since the Merger and prior thereto served as General Counsel and
Secretary of Old Dentsply since 1986.
20
PART II
Item 5. Market for Registrant's Common Equity and Related
- ----------------------------------------------------------
Stockholder Matters
- -------------------
The information set forth under the caption "Supplemental Stock
Information" in Part IV of this Annual Report on Form 10-K is incorporated
herein by reference in response to this Item 5.
Item 6. Selected Financial Data
- --------------------------------
The information set forth under the caption "Selected Financial Data" in
Part IV of this Annual Report on Form 10-K is incorporated herein by reference
in response to this Item 6.
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" in Part IV of this
Annual Report on Form 10-K is incorporated herein by reference in response to
this Item 7.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The information set forth under the captions "Consolidated Statements of
Income," "Consolidated Balance Sheets," "Consolidated Statements of
Stockholders' Equity," "Consolidated Statements of Cash Flows," "Notes to
Consolidated Financial Statements," "Management's Financial Responsibility" and
"Independent Auditors' Report" of KPMG Peat Marwick LLP in Part IV of this
Annual Report on Form 10-K is incorporated herein by reference in response to
this Item 8.
Item 9. Changes in and Disagreements with Accountants on
- ---------------------------------------------------------
Accounting and Financial Disclosure
- -----------------------------------
Not applicable.
21
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The information set forth under the caption "Executive Officers of the
Registrant" in Part I of this Annual Report on Form 10-K and the information set
forth under the captions "Election of Directors" and "Other Matters" in the
Proxy Statement is incorporated herein by reference in response to this Item 10.
Item 11. Executive Compensation
- --------------------------------
The information set forth under the caption "Executive Compensation" in the
Proxy Statement is incorporated herein by reference in response to this Item 11.
Item 12. Security Ownership of Certain Beneficial Owners and
- -------------------------------------------------------------
Management
- ----------
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement is incorporated herein
by reference in response to this Item 12.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information set forth under the subcaption "Executive
Compensation--Compensation Committee Interlocks and Insider Participation" in
the Proxy Statement is incorporated herein by
reference to this Item 13.
22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
- ----------------------------------------------------------------
Form 8-K
- --------
Sequential
(a) Documents filed as part of this Report Page No.
-------------------------------------- ----------
1. Supplemental Stock Information 33
2. Selected Financial Data 34
3. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 36
4. Financial Statements and Supplementary
Data
--------------------------------------
The following consolidated financial statements of the Company are
filed as part of this Annual Report on Form 10-K:
Management's Financial Responsibility 40
Independent Auditors' Report of
KPMG Peat Marwick LLP 41
Consolidated Statements of Income
for the years ended December 31,
1995, 1994 and 1993 42
Consolidated Balance Sheets as of
December 31, 1995 and 1994 44
Consolidated Statements of
Stockholders' Equity for the years
ended December 31, 1995, 1994 and
1993 45
Consolidated Statements of Cash
Flows for the years ended
December 31, 1995, 1994 and 1993 47
Notes to Consolidated Financial
Statements 51
23
Sequential
5. Financial Statement Schedules Page No.
----------------------------- ----------
The following financial statement schedule is filed as part of
this Annual Report on Form 10-K:
Schedule II - Valuation and qualifying 74
accounts
Financial statement schedules not listed above have been
omitted because they are inapplicable, are not required under
applicable provisions of Regulation S-X, or the information that
would otherwise be included in such schedules is contained in the
registrant's consolidated financial statements or accompanying
notes.
24
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 Certificate of Incorporation (1)
3.2 By-Laws, as amended (1)
4.1 Stock Purchase Agreement dated
March 27, 1991 by and among the
Company, John J. McDonough and
Robert Fleming Nominees (2)*
4.2 Form of Stock Purchase Agreement dated as of
September 30, 1991 and effective as of March 27,
1991 by and between the Company and [Strong Stock
Funds] (3)
4.3 Stock Purchase Agreement dated as
of September 30, 1991 and effective
as of March 27, 1991 by and between
the Company and Harbor Investments
Ltd. (3)
4.4 (a) Competitive Advance, Revolving
Credit and Guaranty Agreement,
dated as of November 15, 1993,
among the Company, the guarantors
named therein, the banks named
therein, and Chemical Bank, as
agent (Note: All attachments have
been omitted. Copies of such
attachments will be furnished
supplementally to the Securities
and Exchange Commission upon
request.) (11)
(b) First Amendment, dated as of
December 23, 1994, to Competitive
Advance, Revolving Credit and
Guaranty Agreement (12)
10.1 (a) 1987 Employee Stock Option Plan
(4)*
(b) Amendment No. 1 to the Company's
1987 Employee Stock Option Plan
(5)*
10.2 (a) Investment Agreement, dated as of
August 8, 1987, by and among the
Company, John J. McDonough, the
John J. McDonough Children's Trust
and M&I Ventures Corporation (4)*
(b) Amendment to Investment Agreement, dated as of
October 26, 1989, by and among the Company, John
25
J. McDonough, the John J. McDonough
Children's trust and M&I Ventures
Corporation (4)*
10.3 Amended and Restated to Split Dollar Insurance
Agreement between The McDonough Insurance Trust
and the Company dated as of October 25, 1995.
10.4 Guaranty Agreement dated May 3,
1989 among Edwin J. McDonough,
Allison McDonough, John J.
McDonough, Jr., Joseph F.
McDonough, and Dana L. McDonough
and the Company (6)*
10.5 Guarantee and Collateral Pledge
Agreement dated May 3, 1989 by and
among Edwin J. McDonough, Allison
McDonough, John J. McDonough, Jr.,
Joseph F. McDonough and Dana L.
McDonough and the Company (6)*
10.6 (a) Letter Agreement dated June 29, 1990 by and
between Cravey, Green & Wahlen Incorporated and
the Company (3)*
(b) Stock Purchase Warrant dated August 28, 1990
issued to Cravey, Green & Wahlen Incorporated by
the Company (2)*
(c) Stock Purchase Warrant Plan adopted
February 25, 1993 (7)
10.7 1992 Stock Option Plan adopted May
26, 1992 (8)*
10.8 Employee Stock Ownership Plan as
amended effective as of December 1,
1982, restated as of January 1,
1991 (12)*
10.9 (a) Retainer Agreement dated December
29, 1992 between the Company and
State Street Bank and Trust Company
("State Street") (9)
(b) Trust Agreement between the Company
and State Street Bank and Trust
Company dated as of August 11, 1993
(11)
(c) Amendment to Trust Agreement
between the Company and State
Street Bank and Trust Company
effective August 11, 1993 (11)
10.10 DENTSPLY Stock Option Conversion
Plan approved June 23, 1993 (9)*
10.11 Employment Agreement dated January
1, 1996 between the Company and
26
Burton C. Borgelt *
10.12 (a) Employment Agreement dated as of
December 31, 1987 between the
Company and John C. Miles, II (9)*
(b) Amendment to Employment Agreement
between the Company and John C.
Miles, II dated February 16, 1996,
effective January 1, 1996 *
10.13 Employment Agreement dated as of
December 31, 1987, as amended as of
February 8, 1990, between the
Company and Leslie A. Jones (9)*
10.14 Employment Agreement dated as of
December 10, 1992 between the
Company and Michael R. Crane (9)*
10.15 Employment Agreement dated as of
December 10, 1992 between the
Company and Edward D. Yates (9)*
10.16 Employment Agreement dated as of
December 10, 1992 between the
Company and J. Patrick Clark (9)*
10.17 Employment Agreement dated January
1, 1996 between the Company and W.
William Weston *
10.18 Employment Agreement dated January
1, 1996 between the Company and
Thomas L. Whiting *
10.19 (a) Merger Agreement and Schedules
thereto (the "Kestrel Merger
Agreement") dated August 9, 1990 by
and among the Company, Kestrel
Merging Corp. ("Merging Corp."),
Kestrel Dental Corporation
("Kestrel"), Midwest, Rinn
Corporation ("Rinn") and the
holders (the "Kestrel
Shareholders") of all of the issued
and outstanding capital stock of
Kestrel (10)
(b) Amendment to the Kestrel Merger
Agreement and Settlement Agreement
dated March 6, 1991 by and among
the Company, Merging Corp.,
Kestrel, Midwest, Rinn and the
Kestrel Shareholders (2)
10.20 (a) Amended and Restated Real Estate
Sale and Leaseback Agreement dated
August 1, 1991, between Midwest and
McDonough Partners I, relating to
the sale and leaseback of 901 West
Oakton Street, Des Plaines,
Illinois (3)*
27
(b) Lease dated September 4, 1991 by
and between the Company and
McDonough Partners I (3)*
10.21 Environmental Indemnity Agreement dated September
4, 1991 by and among the Company, McDonough
Partners I and The Penn Insurance Annuity Company
(3)*
10.22 Subordination, Non Disturbance and
Attornment Agreement, dated September 4, 1991 by
and among the Company, McDonough Partners I and
The Penn Insurance and Annuity
Company (3)*
10.23 Purchase of Assets Agreement dated
as of April 27, 1992, as amended
through September 28, 1992, between
the Company and Johnson & Johnson.
(Note: All attachments except the
Toll Manufacturing Agreements have
been omitted. Copies of such
attachments will be furnished to
the Securities and Exchange
Commission supplementally upon
request.) (9)
10.24 (a) Exclusive Distribution Agreement
dated April 19, 1991, between
Core-Vent Corporation ("Core-
Vent"), Dr. Gerald Niznick and the
Company (9)
(b) First Amendment to Exclusive
Distribution Agreement dated April
30, 1991 (9)
(c) Second Amendment to Exclusive
Distribution Agreement dated April
21, 1993 (Note: Exhibits 2.3.1B
(Notice of New Products), 2.3.1A
(Price List) and 16 (Mutual
Release) have been omitted. Copies
of such exhibits will be furnished
to the Securities and Exchange
Commission supplementally upon
request.) (9)
10.25 1993 Stock Option Plan (1)*
10.26 Revolving Credit Agreement among
DENTSPLY International Inc., each of the
guarantors named therein, and ABN AMRO Bank N.V.,
dated as of September 9, 1994 (12)
10.27 DENTSPLY International Inc. 401(k)
Savings Plan Summary Plan
Description, as amended effective
28
January 1, 1994 (12)*
10.28 Midwest Dental Products Corporation
Pension Plan. as amended and re-
stated effective January 1, 1989
(12)*
10.29 Revised Ransom & Randolph Pension Plan, as amended
effective as of September 1, 1985, restated as of
January 1, 1989 (12)*
10.30 DENTSPLY International Inc.
Directors' Deferred Compensation
Plan (12)*
10.31 (a) Letter Agreement, dated February 8,
1995, between the Company and John
J. McDonough (12)*
(b) Amendment to Letter Agreement
between the Company and John J.
McDonough dated July 6, 1995
10.32 Letter Agreement, dated October 13,
1994, between Dentsply Limited and
DePuy International Limited (12)
10.33 Sales-Purchase Agreement, dated May
30, 1995, between certain stock-
holders of Maillefer Instruments,
S.A., Dentsply Ltd., and DENTSPLY
International Inc. as guarantor
(13)
10.34 Asset Purchase and Sale Agreement,
dated January 10, 1996, between
Tulsa Dental Products, L.L.C. and
DENTSPLY International Inc. (14)
10.35 Multi-Currency Term Loan Agreement
among Dentsply Ltd., the banks
named therein, and ABN AMRO Bank
N.V., dated as of May 12, 1995
(Note: All attachments have been
omitted. Copies of such attach-
ments will be furnished supplement-
ally to the Securities and Exchange
Commission upon request.)
11 Computation of earnings per share
21.1 Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
- -------------------
* Management contract or compensatory plan.
29
(1) Incorporated by reference to exhibit included in the
Company's Registration Statement on Form S-8 (No. 33-71792).
(2) Incorporated by reference to exhibit included in the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1991, File No. 0-16211.
(3) Incorporated by reference to exhibit included in the
Company's Registration Statement on Form S-2 filed on
October 7, 1991 (No. 33-43079).
(4) Incorporated by reference to exhibit included in the
Company's Registration Statement on Form S-18 (No. 33-
15355C).
(5) Incorporated by reference to exhibit included in the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1992, 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 March 31, 1989, File No. 0-16211.
(7) Incorporated by reference to exhibit included in the
Company's Registration Statement on Form S-8 (No. 33-61780).
(8) Incorporated by reference to exhibit included in the
Company's Registration Statement on Form S-8 (No. 33-52616).
(9) 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.
(10) Incorporated by reference to exhibit included in the
Company's Current Report on Form 8-K dated August 28, 1990,
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, 1993, 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
December 31, 1994, File No. 0-16211.
(13) Incorporated by reference to exhibit included in the
Company's Current Report on Form 8-K dated June 30, 1995,
File No. 0-16211.
30
(14) Incorporated by reference to exhibit included in the
Company's Current Report on Form 8-K dated January 10,
1996, 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 Note dated September 18, 1990 executed in favor of Chemical Bank in
connection with a line of credit up to $2,000,000 between the Company and
Chemical Bank.
(2) Agreement dated December 27, 1991 between National Westminster Bank PLC and
Dentsply Limited for (pound)2,500,000.
(3) Promissory Note dated May 1, 1992 in the principal amount of $3,000,000 of
the Company in favor of Philadelphia National Bank.
(4) Credit Agreement dated September 14, 1990 between Dentsply
Canada Limited ("DCL") and Mellon Bank Canada.
(5) Promissory Note dated April 17, 1995 in connection with a line of credit up
to $15,000,000 between the Company and Mellon Bank.
(6) Loan Agreement between Chemical Bank AG and Dentsply GmbH dated March 14,
1983.
(7) Guaranty of the Company dated March 14, 1983.
(8) Form of "comfort letters" to various foreign commercial lending
institutions having a lending relationship with one or more of the
Company's international subsidiaries.
(9) Unsecured Note dated July 8, 1993 between the Company and Harris Trust and
Savings Bank in the principal amount of $1,750,000.
31
(b) Reports on Form 8-K
-------------------
The Company did not file any Reports on Form 8-K during the
quarter ended December 31, 1995.
* * * * * *
32
DENTSPLY International Inc. and Subsidiaries
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 low and high sale prices
of the Company's common stock for the periods indicated as reported on the
NASDAQ National Market:
Market Range of Common Stock Cash
---------------------------- Dividend
1995 High Low Declared
- ---- -------- -------- --------
First Quarter $36-1/4 $31 $.075
Second Quarter 36-7/8 34-1/4 .075
Third Quarter 40-1/4 32-3/4 .075
Fourth Quarter 40-1/4 33-7/8 .0825
1994
- ----
First Quarter $47 $36 $ ---
Second Quarter 39-1/2 34 ---
Third Quarter 37-3/4 31-1/4 .075
Fourth Quarter 35-3/4 28-1/4 .075
1993
- ----
First Quarter $55 $37 ---
Second Quarter 44-1/2 31-1/2 ---
Third Quarter 42 32-3/4 ---
Fourth Quarter 45-1/4 36 ---
The Company estimates there are approximately 12,200 holders of common
stock, including 602 holders of record.
33
DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
Year Ended December 31,
-----------------------------------------------------------------------------
1995 1994 1993 1992 1991(2)
------------ ------------ ------------ ------------ ------------
Statement of Income Data: (In thousands, except per share amounts)
Net sales $ 572,028 $ 524,758 $ 503,820 $ 476,335 $ 387,439
Cost of products sold 291,176 267,034 257,707 246,126 205,798
------------ ------------ ------------ ------------ ------------
Gross profit 280,852 257,724 246,113 230,209 181,641
Selling, general and administrative expenses 180,117 160,324 172,147 148,264 121,226
------------ ------------ ------------ ------------ ------------
Operating income from continuing operations
before discretionary ESOP contributions 100,735 97,400 73,966 81,945 60,415
Discretionary ESOP contributions --- --- 4,361 6,568 5,241
Interest expense 9,144 7,999 20,752 22,099 25,425
Interest income (1,265) (1,527) (370) (628) (641)
Other (income) expense, net 2,839 (734) (2,119) (1,797) 1,800
------------ ------------ ------------ ------------ ------------
Income from continuing operations
before income taxes 90,017 91,662 51,342 55,703 28,590
Provision for income taxes 36,054 37,518 26,197 24,416 13,658
------------ ------------ ------------ ------------ ------------
Income from continuing operations 53,963 54,144 25,145 31,287 14,932
------------ ------------ ------------ ------------ ------------
Discontinued operations:
Income from the operation of discontinued
Medical business (net of income taxes of
$.6 million in 1994; $1.6 million in
1993; $1.7 million in 1992; and $1.8
million in 1991) --- 1,311 2,925 2,988 3,300
Gain on disposal of Medical business,
including provision of $.5 million for
operating losses during phase-out period
(net of income taxes of $5.5 million) --- 6,543 --- --- ---
------------ ------------ ------------ ------------ ------------
Income from discontinued operations --- 7,854 2,925 2,988 3,300
------------ ------------ ------------ ------------ ------------
Income before extraordinary item 53,963(1) 61,998 28,070(1) 34,275 18,232
Extraordinary loss related to early
extinguishment of debt (net of
income tax benefit of $6.3 million) --- --- 14,018 --- ---
------------ ------------ ------------ ------------ ------------
Net income $ 53,963(1) $ 61,998 $ 14,052(1) $ 34,275 $ 18,232
============ ============ ============ ============ ============
<FN>
</FN>
34
Year Ended December 31,
-----------------------------------------------------------------------------
1995 1994 1993 1992 1991(2)
------------ ------------ ------------ ------------ ------------
Earnings per Common Share: (In thousands, except per share amounts)
Income from continuing operations $ 2.00 $ 1.95 $ 1.02 $ 1.29 $ .65
Income from the operation of
discontinued Medical business --- .05 .12 .13 .14
Gain on disposal of Medical business --- .23 --- --- ---
------------ ------------ ------------ ------------ ------------
Income before extraordinary item 2.00 2.23 1.14 1.42 .79
Extraordinary item --- --- (.57) --- ---
------------ ------------ ------------ ------------ ------------
Net income $ 2.00 $ 2.23 $ .57 $ 1.42 $ .79
============ ============ ============ ============ ============
Dividends per Common Share $ .3075 $ .15 $ --- $ --- $ ---
Weighted average common shares outstanding 27,012 27,776 24,598 24,220 23,099
Balance Sheet Data (at end of period):
Working capital (3) $ 122,706 $ 92,206 $ 82,779 $ 38,185 $ 46,256
Total assets (3) 591,855 466,930 466,787 450,641 374,434
Total long-term debt 68,675 12,789 95,356 192,082 162,364
Stockholders' equity 315,922 299,337 236,397 100,285 72,894
Other Data:
Depreciation and amortization (4) 21,488 18,133 17,951 15,333 14,145
Capital expenditures (4) 17,421 12,504 9,212 14,626 5,881
<FN>
(1) Includes certain unusual or non-recurring charges of approximately $3.1
million (approximately $1.8 million after tax) in 1995 and $21.8 million
(approximately $16.5 million after tax) in 1993. The effect of these unusual or
non-recurring charges on operating income from continuing operations before
discretionary ESOP contributions was approximately $17.9 million during the year
ended December 31, 1993. See Note 15 of the Notes to Consolidated Financial
Statements.
(2) The results of operations for the year ended December 31, 1991 include the
results of operations of GENDEX for the year ended March 31, 1992.
(3) Excludes net assets of discontinued operations.
(4) Excludes discontinued operations.
</FN>
35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
On October 13, 1994, the Company announced its strategic decision to
discontinue the operations comprising its medical business which includes the
Eureka X-Ray Tube Corp. ("Eureka"), GENDEX Medical and CMW business units.
Accordingly, the Company's financial statements have been restated to reflect
the accounting treatment for discontinued operations. Management's discussion
for the results of operations covers continuing operations and discontinued
operations, separately.
Results of Operations, 1995 Compared to 1994
- --------------------------------------------
Net sales increased $47.3 million, or 9.0%, from $524.8 million in 1994 to
$572.0 million in 1995. The increase was primarily in Europe, with a significant
portion of the increase coming from the acquisition of Maillefer Instruments
S.A. ("Maillefer"). The sales increase in the United States was adversely
impacted by discontinuing certain dealer incentives in the third quarter of 1995
which previously had the effect of encouraging dealers to place large stocking
orders.
Gross profit increased $23.1 million, or 9.0%, due primarily to higher net
sales. Gross profit as a percentage of net sales was 49.1%, equal to 1994.
Improvements in the gross profit percentage in 1995 were offset by the adverse
impact of acquisition accounting for Maillefer.
Selling, general and administrative expenses increased $19.8 million, or
12.3%. As a percentage of net sales, expenses increased from 30.6% in 1994 to
31.5% in 1995. This increase was mainly due to incremental expenses incurred in
1995 to establish and operate new offices in the Pacific Rim, expenses
associated with the implementation of management information systems in Europe,
and severance payments due to cost cutting and realignment in the United States
and Europe.
The $1.4 million increase in net interest expense was primarily due to
acquisition debt and the repurchase of common shares under the share repurchase
program. Other expense of $2.8 million in 1995 compares to $.7 million of other
income in 1994 due to the one-time charge of $3.1 million to cover the costs of
closing the Company's executive offices in Illinois and consolidating its
executive offices in York, Pennsylvania.
Income from continuing operations before income taxes decreased $1.7
million, from $91.7 million in 1994 to $90.0 million in 1995. Without the
one-time charge of $3.1 million to cover the costs of closing the Company's
executive offices in Illinois, income from continuing operations before income
taxes increased $1.4 million, or 1.5%.
Income from continuing operations was $54.0 million in 1995 compared to
$54.1 million in 1994. Without the one-time after-tax charge of $1.8 million to
cover the costs of closing the Company's executive offices in Illinois, income
from continuing operations was $55.8 million, an increase of 3.1% over 1994.
During 1995, the Company repurchased 1.3 million common shares under its
share repurchase program. These repurchases are reflected in the reduction of
weighted average common shares outstanding from 27.8 million common shares in
1994 to 27.0 million common shares in 1995.
Earnings per common share from continuing operations of $2.00 for 1995
36
increased $.05, or 2.6%, from $1.95 in 1994. Without the one-time after-tax
charge of $1.8 million to cover the costs of closing the Company's executive
offices in Illinois, earnings per common share from continuing operations were
$2.07, a 6.2% increase over 1994.
The net assets of CMW and Eureka were sold during November and December
1994. The sale of the GENDEX Medical business, the last remaining unit of the
discontinued medical segment, occurred in the first quarter of 1996. Net sales
of this business were $18.9 million in 1995.
Results of Operations, 1994 Compared to 1993
- --------------------------------------------
Net sales increased $21.0 million, or 4.2%, from $503.8 million in 1993 to
$524.8 million in 1994. The increase was primarily in Europe and certain other
international markets. Sales in the United States were flat mainly due to lower
shipments of dental handpieces than in 1993 when shipments reflected the
reduction of extraordinarily large backorders. Sales in 1994 were also adversely
affected by the disposition of the Valiant(Registered Trademark) product line,
removal of certain products which were distributed but not manufactured by the
Company and currency translation adjustments on foreign subsidiary sales in
Brazil.
Gross profit increased $11.6 million, or 4.7%, due primarily to higher net
sales. For the year, gross profit as a percentage of net sales increased
slightly from 48.8% in 1993 to 49.1% in 1994.
Selling, general and administrative expenses decreased $11.8 million, or
6.9%, (from 34.2% to 30.6% of net sales) largely due to the 1993 expenses
related to the Merger, the write-off of uncollectible receivables from Healthco
International, a major dental supply dealer which filed for protection from
creditors under Chapter 11 of the Federal Bankruptcy laws in June 1993, costs
associated with certain litigation and severance costs incurred for 94
supervisory and administrative personnel (the "unusual or non-recurring
charges"). As a percentage of net sales, selling, general and administrative
expenses (excluding the unusual or non-recurring charges) remained at 30.6%.
Discretionary ESOP contributions were $4.4 million for 1993. The Company
has not made discretionary ESOP contributions since May 31, 1993 and has no
plans to make such contributions in the future.
The decrease in net interest expense of $13.9 million was primarily due to
the prepayment in January 1994 of the Company's Secured Notes with principal
amount of $85.0 million from the proceeds of a public offering of the Company's
common stock completed in December 1993. Other income of $.7 million in 1994
compares to $2.1 million of other income in 1993 primarily due to the gain on
the sale of the Valiant(Registered Trademark) product line in 1993 partially
offset by significantly reduced exchange losses during 1994 in Brazil.
Income from continuing operations before income taxes increased $40.3
million, or 78.4%, to $91.7 million in 1994. Excluding the 1993 unusual or
non-recurring charges and final discretionary contributions to the ESOP, income
from continuing operations before income taxes increased $18.5 million, or
25.3%, primarily due to increased sales and lower interest expense.
The Company's effective tax rate on income from continuing operations
before income taxes decreased from 50.1% in 1993 to 40.9% in 1994 due mainly to
non-deductible 1993 Merger expenses and higher taxes, net of U.S.
37
tax credits, on foreign earnings repatriated in 1993.
For 1994, income from continuing operations increased $29.0 million. If the
unusual or non-recurring charges and final discretionary contributions to the
ESOP are excluded, income from continuing operations increased $12.5 million, or
30.0%. Earnings per common share from continuing operations increased $.93 from
1993. If the unusual or non-recurring charges and final discretionary
contributions to the ESOP are excluded, earnings per common share from
continuing operations increased $.26, or 15.4%.
In 1994, the Company recorded a gain of $6.5 million (net of income taxes
of $5.5 million), or $.23 per common share, for the disposal of the medical
business. Net sales from the discontinued medical business for 1994 were $48.6
million, a decrease of $.2 million, or .4%, from net sales of $48.8 million in
1993. Income from the operation of the discontinued medical business was $1.3
million for 1994, a decrease of $1.6 million from 1993. The decrease was
primarily due to an unfavorable sales mix of medical x-ray tubes and less than a
full year's sales and income in 1994 for the businesses sold. Earnings per
common share from operation of the discontinued medical business was $.05 for
1994 compared to $.12 for 1993.
In 1993, the Company recorded an extraordinary loss of $14.0 million ($20.3
million before income tax benefit of $6.3 million), or $.57 per common share,
related to the early retirement of high interest rate debt.
Earnings per common share increased $1.66 from $.57 in 1993 to $2.23 in
1994 as a result of the items discussed previously. Weighted average common
shares outstanding increased by 3.2 million, or 13.0%, from 24.6 million in 1993
to 27.8 million in 1994 mainly due to a public offering of the Company's common
stock completed in December 1993.
Foreign Currency
- ----------------
Since approximately 44% of the Company's revenues have been 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 offset to a significant extent by sales in the U.S. of products
sourced from plants and third party suppliers located overseas, principally in
Germany and Switzerland. The Company carefully considers the impact of currency
fluctuations in its business decisions.
Liquidity and Capital Resources
- -------------------------------
In March 1995, the Company purchased the outstanding capital stock of KV33
Corporation ("KV33") in a cash transaction for $11.5 million. KV33 designs,
develops, manufactures, and markets disposable articulators for the dental
laboratory market, and is the leading manufacturer and distributor of disposable
articulators in the United States.
In June 1995, the Company acquired approximately 96% of the outstanding
capital stock of Maillefer in a cash transaction for $65.8 million. Maillefer is
the world's leading manufacturer and distributor of endodontic instruments.
Based in Ballaigues, Switzerland, Maillefer's product offerings include
endodontic broaches, files, burs, pins and post
38
systems, and a variety of other instruments and accessory products. Maillefer
products have achieved a world class reputation for high quality through
continuous new, innovative research and development and state-of- the-art
manufacturing processes.
The Company obtained the funds for these acquisitions from a new $60.0
million term loan (which has the same maturity date, interest rate structure,
and covenants as the Company's existing $175.0 million Bank Revolving Loan
Facility), short-term bank borrowings, and cash on hand.
Under its Bank Revolving Loan Facility, the Company is able to borrow up to
$175.0 million on an unsecured basis through December 23, 1999. The Revolving
Credit Agreement contains various financial and other covenants. Under its Bank
Multicurrency Revolving Credit Facility, the Company is able to borrow up to
$25.0 million for foreign working capital purposes on an unsecured basis through
August 31, 1997. In addition, the Company had unused lines of credit for
short-term financing of $63.0 million at December 31, 1995.
Investment activities for 1995 included capital expenditures of $17.6
million.
During 1995, the Company repurchased 1.3 million shares of its common stock
for $42.7 million, in accordance with the share repurchase program authorized by
the Board of Directors in December 1994. This authorization to repurchase shares
expired on December 31, 1995. In December 1995, the Board of Directors
authorized the repurchase of up to 2.8 million additional shares of common stock
on the open market or in negotiated transactions. The timing and amounts of any
additional purchases will depend upon many factors, including market conditions
and the Company's business and financial condition.
Excluding the net assets of discontinued operations, at December 31, 1995,
the Company's current ratio was 2.0 with working capital of $122.7 million. This
compares with a current ratio of 2.0 and working capital of $92.2 million at
December 31, 1994.
The Company expects to be able to finance its cash requirements, including
capital expenditures, stock repurchases, debt service and the acquisition of the
dental manufacturing and distribution operations of Tulsa Dental Instruments
L.L.C., from funds generated from operations and amounts available under its
Bank Revolving Loan Facility.
Cash flows from operating activities were $67.5 million for 1995 compared
to $63.8 million for 1994.
Impact of Inflation
- -------------------
The Company has generally offset the impact of inflation on wages and the
cost of purchased materials by reducing operating costs and increasing selling
prices to the extent permitted by market conditions.
39
Management's Financial Responsibility
- -------------------------------------
The management of DENTSPLY International Inc. is responsible for the
contents of the consolidated financial statements. The consolidated financial
statements were prepared in conformity with generally accepted accounting
principles applied on a consistent basis and were based in part on reasonable
estimates, giving due consideration to materiality. Financial information
appearing elsewhere in this Annual Report is consistent with that in the
consolidated financial statements.
The Company maintains a system of internal accounting controls which, in
the opinion of management, provides reasonable assurance as to the integrity and
reliability of the financial records and the protection of assets. The internal
accounting control system is supported by written policies and procedures and
its effectiveness is monitored. Management operates the Company in compliance
with its written Code of Business Conduct.
The Audit Committee of the Board of Directors is composed entirely of
outside directors who meet periodically with management and our independent
auditors, KPMG Peat Marwick LLP. The Audit Committee reviews the financial
controls and reporting practices and generally monitors the accounting affairs
of the Company. Also, the Audit Committee recommends to the stockholders the
appointment of the independent auditors.
John C. Miles II Edward D. Yates
President and Chief Senior Vice President and
Executive Officer Chief Financial Officer
40
Independent Auditors' Report
The Board of Directors and Stockholders
DENTSPLY International Inc.
We have audited the consolidated financial statements of DENTSPLY International
Inc. and subsidiaries as listed in the accompanying index on page 23. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index on page 24. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of DENTSPLY
International Inc. and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
January 26, 1996
41
DENTSPLY International Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
--------------------------------
1995 1994 1993
--------------------------------
(in thousands, except per share amounts)
Net sales $572,028 $524,758 $503,820
Cost of products sold 291,176 267,034 257,707
-------- -------- --------
Gross profit 280,852 257,724 246,113
Selling, general and administrative
expenses 180,117 160,324 172,147
-------- -------- --------
Operating income from continuing operations
before discretionary ESOP contributions 100,735 97,400 73,966
Other costs and expenses:
Discretionary ESOP contributions --- --- 4,361
Interest expense 9,144 7,999 20,752
Interest income (1,265) (1,527) (370)
Other (income) expense, net 2,839 (734) (2,119)
-------- -------- --------
Income from continuing operations
before income taxes 90,017 91,662 51,342
Provision for income taxes 36,054 37,518 26,197
-------- -------- --------
Income from continuing operations 53,963 54,144 25,145
-------- -------- --------
Discontinued operations:
Income from the operation of
discontinued Medical business (net of
income taxes of $.6 million in 1994
and $1.6 million in 1993) --- 1,311 2,925
Gain on disposal of Medical business,
including provision of $.5 million for
operating losses during phase-out period
(net of income taxes of $5.5 million) --- 6,543 ---
-------- -------- --------
Income from discontinued operations --- 7,854 2,925
-------- -------- --------
Income before extraordinary item 53,963 61,998 28,070
Extraordinary loss related to early
extinguishment of debt (net of income
tax benefit of $6.3 million) --- --- 14,018
-------- -------- --------
Net income $ 53,963 $ 61,998 $ 14,052
======== ======== ========
The accompanying Notes are an integral part of these Financial Statements.
42
DENTSPLY International Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
--------------------------------
1995 1994 1993
--------------------------------
(in thousands, except per share amounts)
Earnings per common share:
Income from continuing operations $ 2.00 $ 1.95 $ 1.02
Income from the operation of
discontinued Medical business -- .05 .12
Gain on disposal of Medical business -- .23 --
-------- -------- --------
Income before extraordinary item 2.00 2.23 1.14
Extraordinary item -- -- (.57)
-------- -------- --------
Net income $ 2.00 $ 2.23 $ .57
======== ======== ========
Dividends per common share $ .3075 $ .15 $ ---
Weighted average common shares outstanding 27,012 27,776 24,598
The accompanying Notes are an integral part of these Financial Statements.
43
DENTSPLY International Inc.
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------
1995 1994
Assets -------------------
Current assets: (in thousands)
Cash and cash equivalents $ 3,974 $ 7,278
Accounts and notes receivable - trade, net 93,315 78,771
Inventories 125,704 88,899
Deferred income taxes 12,836 5,710
Prepaid expenses and other current assets 10,527 8,410
Net assets of discontinued operations 5,870 7,632
-------- --------
Total Current Assets 252,226 196,700
Property, plant and equipment, net 140,101 91,140
Other noncurrent assets, net 16,989 10,214
Identifiable intangible assets, net 39,282 35,532
Costs in excess of fair value of net assets
acquired, net 149,127 140,976
-------- --------
Total Assets $597,725 $474,562
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current portion of long-term debt $ 7,616 $ 9,150
Accounts payable 31,785 25,488
Accrued liabilities 46,571 34,647
Income taxes payable 26,477 27,482
Current portion of deferred income taxes 11,201 95
-------- --------
Total Current Liabilities 123,650 96,862
Long-term debt 68,675 12,789
Other liabilities 47,104 40,854
Deferred income taxes 38,942 24,720
-------- --------
Total Liabilities 278,371 175,225
-------- --------
Minority interests in consolidated subsidiary 3,432 ---
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; .25 million
shares authorized; no shares issued --- ---
Common stock, $.01 par value; 100 million shares
authorized; 27.1 million and 27.8 million shares
issued at December 31, 1995 and 1994, respectively 271 278
Capital in excess of par value 149,999 182,087
Retained earnings 179,231 133,531
Cumulative translation adjustment 3,234 198
Employee stock ownership plan reserve (12,536) (14,055)
Treasury stock, at cost, .1 million shares at
December 31, 1995 and 1994 (4,277) (2,702)
-------- --------
Total Stockholders' Equity 315,922 299,337
-------- --------
Total Liabilities and Stockholders' Equity $597,725 $474,562
======== ========
The accompanying Notes are an integral part of these Financial Statements.
44
DENTSPLY International Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Capital in Cumulative Total
Common Excess of Retained Translation Treasury Stockholders'
Stock Par Value Earnings Adjustment ESOP Reserve Stock Equity
---------- ------------ ----------- ----------- ------------ ---------- -------------
(in thousands)
Balance at December 31, 1992 $ 245 $ 58,226 $ 61,650 $ (399) $(19,414) $ (23) $100,285
Issuance of 3.1 million shares
of common stock, net of
issuance costs 31 115,030 --- --- --- --- 115,061
Stock held in escrow for a
former employee --- 2,840 --- --- --- --- 2,840
Cash paid for fractional shares --- (3) --- --- --- --- (3)
Transactions of pooled company
prior to merger (A) --- (713) --- --- --- --- (713)
Exercise of stock options 1 1,896 --- --- --- --- 1,897
Tax benefit related to stock
options exercised --- 1,732 --- --- --- --- 1,732
Amortization of compensatory
stock options --- 394 --- --- --- --- 394
Translation adjustment --- --- --- (2,839) --- --- (2,839)
Net change in ESOP reserve --- --- --- --- 3,691 --- 3,691
Net income --- --- 14,052 --- --- --- 14,052
------- -------- -------- ------- -------- -------- --------
Balance at December 31, 1993 277 179,402 75,702 (3,238) (15,723) (23) 236,397
Exercise of stock options 1 749 --- --- --- --- 750
Tax benefit related to stock
options exercised --- 1,858 --- --- --- --- 1,858
Repurchase of .1 million shares
of common stock --- --- --- --- --- (2,679) (2,679)
Cash dividends declared, $.15 per
common share --- --- (4,169) --- --- --- (4,169)
Compensatory stock options granted --- 78 --- --- --- --- 78
Translation adjustment --- --- --- 3,436 --- --- 3,436
Net change in ESOP reserve --- --- --- --- 1,668 --- 1,668
Net income --- --- 61,998 --- --- --- 61,998
------- -------- -------- ------- -------- -------- --------
Balance at December 31, 1994 278 182,087 133,531 198 (14,055) (2,702) 299,337
<FN>
The accompanying Notes are an integral part of these Financial Statements.
</FN>
45
DENTSPLY International Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Capital in Cumulative Total
Common Excess of Retained Translation Treasury Stockholders'
Stock Par Value Earnings Adjustment ESOP Reserve Stock Equity
---------- ------------ ----------- ----------- ------------ ---------- -------------
(in thousands)
Balance at December 31, 1994 278 182,087 133,531 198 (14,055) (2,702) 299,337
Exercise of stock options and
warrants 2 (4,850) --- --- --- 9,100 4,252
Tax benefit related to stock
options and warrants exercised --- 4,781 --- --- --- --- 4,781
Repurchase of 1.3 million
shares of common stock --- --- --- --- --- (42,703) (42,703)
Cash dividends declared, $.3075
per common share --- --- (8,263) --- --- --- (8,263)
Cancellation of .9 million
shares of treasury stock (9) (32,019) --- --- --- 32,028 ---
Translation adjustment --- --- --- 3,036 --- --- 3,036
Net change in ESOP reserve --- --- --- --- 1,519 --- 1,519
Net income --- --- 53,963 --- --- --- 53,963
------- -------- -------- ------- -------- -------- --------
Balance at December 31, 1995 $ 271 $149,999 $179,231 $ 3,234 $(12,536) $ (4,277) $315,922
======= ======== ======== ======= ======== ======== ========
Transactions of pooled company (A)
prior to merger: 1993
-------
Proceeds from sale of common
stock $ 591
Repurchases of common stock (1,271)
Compensatory stock options
cancelled (33)
-------
$ (713)
=======
<FN>
The accompanying Notes are an integral part of these Financial Statements.
</FN>
46
DENTSPLY International Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------------
1995 1994 1993
-------- -------- --------
Cash flows from operating activities: (in thousands)
Net income $ 53,963 $ 61,998 $ 14,052
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on disposal of Medical business, before income taxes --- (12,061) ---
Extraordinary loss related to early extinguishment of
debt, before income tax benefit --- --- 20,347
Depreciation and amortization 21,488 20,027 19,753
Deferred income taxes associated with continuing operations (1,211) 9,404 (3,821)
Deferred income taxes associated with discontinued
operations (481) (5,181) ---
Other non-cash transactions 668 (27) 2,037
Gain on sale of product line --- --- (2,953)
Loss on disposal of property, plant and equipment 1,027 23 297
Changes in operating assets and liabilities, net of
effects from acquisitions and divestitures of
businesses and effects of exchange:
Accounts and notes receivable-trade, net (1,893) (13,308) (2,856)
Inventories (8,233) (7,020) (232)
Prepaid expenses and other current assets (775) 4,555 (433)
Other noncurrent assets 225 (580) (741)
Accounts payable 2,372 (4,514) (8,222)
Accrued liabilities (51) 638 (3,909)
Income taxes payable (2,971) 8,971 (2,911)
Other liabilities 3,388 882 (1,439)
-------- -------- --------
Net cash provided by operating activities 67,516 63,807 28,969
-------- -------- --------
<FN>
The accompanying Notes are an integral part of these Financial Statements.
</FN>
47
DENTSPLY International Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------------
1995 1994 1993
-------- -------- --------
Cash flows from investing activities: (in thousands)
Proceeds from disposal of Medical business 3,260 44,244 ---
Proceeds from sale of product line, net --- --- 3,104
Proceeds from sale of property, plant and equipment, net 2,443 192 46
Capital expenditures (17,633) (13,766) (10,844)
Expenditures for identifiable intangible assets (60) (20) (3,751)
Acquisitions of businesses (73,407) --- (1,350)
Other direct costs of acquisition and divestiture activities (512) (561) (41)
Deferred start-up costs --- (81) (859)
-------- -------- --------
Net cash provided by (used in) investing activities (85,909) 30,008 (13,695)
-------- -------- --------
<FN>
The accompanying Notes are an integral part of these Financial Statements.
</FN>
48
DENTSPLY International Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------------
1995 1994 1993
-------- -------- --------
Cash flows from financing activities: (in thousands)
Proceeds from sale of common stock, including tax benefit
of stock options exercised 9,034 2,608 119,282
Cash paid for treasury stock (42,703) (2,679) (1,274)
Dividends paid (8,123) (2,085) ---
Increase (decrease) in bank overdrafts 1,580 (1,738) 3,270
Proceeds from long-term borrowings, net of deferred
financing costs 123,635 89,272 25,543
Payments on long-term borrowings (70,915) (195,568) (144,587)
Increase (decrease) in short-term borrowings (28) 5,456 (4,660)
Decrease in employee stock ownership plan reserve, excluding
accrued contributions 1,519 1,668 3,692
-------- -------- --------
Net cash provided by (used in) financing activities 13,999 (103,066) 1,266
-------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents 1,090 (1,455) (2,077)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (3,304) (10,706) 14,463
Cash and cash equivalents at beginning of period 7,278 17,984 3,521
-------- -------- --------
Cash and cash equivalents at end of period $ 3,974 $ 7,278 $ 17,984
======== ======== ========
<FN>
The accompanying Notes are an integral part of these Financial Statements.
</FN>
49
DENTSPLY International Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------------
1995 1994 1993
-------- -------- --------
Supplemental disclosures of cash flow information: (in thousands)
Interest paid $ 6,243 $ 6,766 $ 18,807
Income taxes paid 35,573 26,136 28,255
Non-cash transaction:
Accrued prepayment penalty --- --- 18,456
<FN>
In March 1995, the Company purchased all of the capital stock of KV33
Corporation ("KV33") for $11.5 million. In June 1995, the Company purchased
approximately 96% of the capital stock of Maillefer Instruments, S.A.
("Maillefer") for $65.8 million. In August 1995, the Company purchased the
assets of Dunvale Corporation ("Dunvale") for $1.8 million. In conjunction
with the acquisitions, liabilities were assumed as follows:
</FN>
KV33 Maillefer Dunvale
-------- --------- -------
(in thousands)
Fair value of assets acquired $ 14,329 $ 97,188 $ 1,982
Cash paid for assets or capital stock (11,450) (65,798) (1,839)
-------- --------- -------
Liabilities assumed $ 2,879 $ 31,390 $ 143
======== ========= =======
<FN>
The accompanying Notes are an integral part of these Financial Statements.
</FN>
50
DENTSPLY International Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
Description of Business
- -----------------------
DENTSPLY (the "Company") 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 artificial teeth, endodontic
instruments and materials, impression materials, prophylaxis paste, dental
sealants, ultrasonic scalers, and crown and bridge materials; the leading United
States manufacturer and distributor of dental x-ray equipment, dental
handpieces, dental x-ray film holders and film mounts, and a leading United
States distributor of dental cutting instruments and dental implants. The
Company distributes its dental products in over 100 countries under some of the
most well-established brand names in the industry and is committed to the
development of innovative, high quality, cost-effective new products for the
dental market.
Basis of Presentation
- ---------------------
During 1994, the Company adopted a formal plan to dispose of its Medical
segment. Accordingly, the results of discontinued operations and the gain on
disposal thereof have been reported separately from the continuing operations of
the Company (See Note 3 - Discontinued Operations).
On June 11, 1993, Dentsply International Inc. ("Old Dentsply") merged (the
"Merger") with and into GENDEX Corporation ("GENDEX"), which was the surviving
corporation in the Merger, pursuant to an Agreement and Plan of Merger dated
February 8, 1993, by and between Old Dentsply and GENDEX (See Note 4 - Merger).
The transaction was accounted for as a pooling-of-interests for financial
reporting purposes. Upon effectiveness of the Merger, GENDEX changed its name to
DENTSPLY International Inc.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company
and all significant subsidiaries. Intercompany accounts and transactions are
eliminated. Minority interests in net income of a consolidated subsidiary is not
material and is included in other (income) expense, net.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
51
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 dental equipment and supplies primarily through a
worldwide network of distributors, although certain product lines are sold
directly to the end user. Revenue is recognized when products are shipped. For
customers on credit terms, the Company performs ongoing credit evaluation of
those customers' financial condition and generally does not require collateral
from them. Accounts and notes receivable-trade are stated net of an allowance
for doubtful accounts of $2.3 million and $1.7 million at December 31, 1995 and
1994, respectively.
Inventories
- -----------
Inventories are stated at the lower of cost or market. At December 31, 1995
and 1994, the cost of $10.6 million, or 8%, and $10.2 million, or 11%,
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 - 8 to 15 years. The cost of leasehold improvements is amortized over
the shorter of the estimated useful life or the term of the lease. For income
tax purposes, depreciation is computed using various methods.
Identifiable Intangible Assets
- ------------------------------
Identifiable intangible assets include patents, trademarks and non-compete
covenants, licensing agreements, distributor networks and product manufacturing
rights which are amortized on a straight-line basis over their estimated useful
lives, ranging from 5 to 40 years. Identifiable intangible assets are stated net
of accumulated amortization of $22.5 million and $17.8 million at December 31,
1995 and 1994, respectively. Identifiable intangible 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
determined by using identifiable undiscounted cash flows.
Costs in Excess of Fair Value of Net Assets Acquired
- ----------------------------------------------------
The excess of costs of acquired companies and product lines over the fair
value of net assets acquired (goodwill) is being amortized on a straight-line
basis over 25 to 40 years. Costs in excess of the fair value of net assets
acquired are stated net of accumulated amortization of $20.0 million and $15.3
52
million at December 31, 1995 and 1994, respectively. Costs in excess of fair
value of net assets acquired 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 determined by using identifiable
undiscounted cash flows.
Accounting for Long-Lived Assets
- --------------------------------
In June 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets for Long-Lived Assets to Be Disposed Of
("Statement 121"), which requires companies to review long-lived assets and
certain identifiable intangibles to be held, used or disposed of for impairment
whenever events or changes in circumstances indicated that the carrying amount
of an asset may not be recoverable. The Company is required to adopt Statement
121 for 1996. The Company believes the adoption of Statement 121 will not have a
significant effect on its financial statements.
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 fair
values of financial instruments approximate their recorded values.
Derivatives
- -----------
The Company's only involvement with derivative financial instruments is
forward contracts to hedge assets and liabilities denominated in foreign
currencies.
Foreign Exchange Risk Management
- --------------------------------
The Company routinely 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. As of December 31, 1995, the Company
had contracts outstanding for the purchase of approximately $4.4 million of
Swiss francs. At December 31, 1994, the Company had contracts outstanding for
the purchase of approximately $8.1 million of pounds sterling. These foreign
exchange contracts generally have maturities of less than six months and
counterparties to the transactions are typically large international financial
institutions.
Foreign Currency Translation
- ----------------------------
The functional currency for foreign operations, except for those in highly
inflationary economies, has been determined to be the local currency.
53
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 a separate component of stockholders' equity.
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 $.2 million in 1995, and losses of $.5 million in 1994
and $1.6 million in 1993 are included in other (income) expense, net. The
exchange losses in 1994 and 1993 resulted primarily from currency translation
adjustments in Brazil.
Research and Development Costs
- ------------------------------
Research and development costs are charged to expense as incurred and are
included in selling, general and administrative expenses. Research and
development costs amounted to approximately $12.3 million, $10.9 million and
$10.3 million for 1995, 1994 and 1993, respectively.
Stock Based Compensation
- ------------------------
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("Statement 123").
Statement 123 presents companies with the alternative of retaining the current
accounting for stock based compensation or adopting a new accounting method
based on the estimated fair value of equity instruments granted during the year.
Companies that do not adopt the fair value based method of accounting will be
required to adopt the disclosure provisions of Statement 123 for the year ending
December 31, 1996. The Company expects to continue applying its current
accounting principles and in 1996 will present the required footnote
disclosures.
Earnings per Common Share
- -------------------------
Earnings per common share are based on the weighted average number of
common shares outstanding. Common stock equivalents (options and warrants) had
no material effect on the earnings per common share computation. All shares held
by the DENTSPLY Employee Stock Ownership Plan are considered outstanding and are
included in the earnings per common share computation.
In December 1993, the Company issued common stock in a public offering, the
proceeds of which were used to retire debt. If the transaction had taken place
on January 1, 1993, earnings per common share would have been as follows:
54
Income Before
Extraordinary Extraordinary Net
Item Item Income
------------- ------------- -----------
(in thousands, except per share amounts)
Income as reported $ 28,070 $ (14,018) $ 14,052
Pro forma interest savings 6,885 --- 6,885
Amortization of deferred financing 439 (439) ---
Increase in prepayment penalty --- (3,849) (3,849)
-------- --------- --------
Pro forma net income $ 35,394 $ (18,306) $ 17,088
======== ========= ========
Pro forma average common shares
outstanding 27,607 27,607 27,607
Earnings per common share $1.28 $(.66) $.62
NOTE 2 - BUSINESS ACQUISITIONS AND DIVESTITURES
- -----------------------------------------------
In March 1995, the Company purchased all of the outstanding capital stock
of KV33 Corporation ("KV33") in a cash transaction valued at $11.5 million. The
acquisition was accounted for under the purchase method of accounting and the
results of KV33's operations have been included in the accompanying financial
statements since the date of acquisition. The excess ($10.2 million) of
acquisition cost over the fair value of net assets acquired is being amortized
over 25 years. Pro forma information has been omitted due to immateriality.
In June 1995, the Company purchased approximately 96% of the outstanding
capital stock of Maillefer Instruments S.A. ("Maillefer") from Maillefer
stockholders for SFR11,000 per share in a cash transaction valued at
approximately $65.8 million. Based in Switzerland, Maillefer is a manufacturer
and distributor of principally endodontic instruments.
The acquisition was accounted for under the purchase method of accounting
and the results of Maillefer's operations have been included in the accompanying
financial statements since the date of acquisition. The aggregate purchase price
of $65.8 million plus direct acquisition costs has been allocated on the basis
of estimates of the fair values of assets acquired and liabilities assumed,
which will be finalized in 1996. Since the estimated fair value of net assets
acquired exceeded the purchase price by approximately $19.7 million, the values
otherwise assignable to noncurrent assets acquired have been reduced by a
proportionate part of the excess.
The following unaudited pro forma consolidated results of operations assume
that the acquisition of Maillefer occurred on January 1, 1994 (in thousands,
except per share amounts):
55
Year Ended December 31,
-----------------------
1995 1994
-------- --------
Net sales $590,051 $559,188
Income from continuing operations 57,106 56,447
Earnings per common share from
continuing operations 2.11 2.03
The pro forma information does not purport to be indicative of the results
that actually would have been obtained had the operations been combined during
the periods presented. The difference of $.11 per common share between actual
and pro forma results in 1995 is primarily due to the inclusion in the pro forma
results of Maillefer operations prior to the June acquisition and differences in
the period in which the effects of purchase price accounting are recognized.
In August 1995, the Company purchased the assets of Dunvale Corporation
("Dunvale") in a cash transaction valued at $1.8 million. The acquisition was
accounted for under the purchase method of accounting and the results of
Dunvale's operations have been included in the accompanying financial statements
since the date of acquisition. The excess ($1.5 million) of acquisition cost
over the fair value of net assets acquired is being amortized over 25 years.
Proforma information has been omitted due to immateriality.
In September 1995, the Company announced the signing of a Letter of Intent
to purchase the dental manufacturing and distribution operations of Tulsa Dental
Instruments LLC for $75 million in cash and an earn-out provision based on the
operating performance of the acquired business. The transaction was consummated
in January 1996.
In December 1993, the Company sold the rights to the VALIANT[registered
trademark] trademark in the United States and Canada along with certain
production assets for $3.1 million. Sales for the VALIANT[registered trademark]
product line in the United States and Canada for 1993 were $4.4 million.
NOTE 3 - DISCONTINUED OPERATIONS
- --------------------------------
In October 1994, the Company announced its strategic decision to
discontinue the operations comprising its medical business. The medical
operations included the Eureka X-Ray Tube Corp. (Eureka), GENDEX Medical and CMW
business units which manufacture medical x-ray tubes, medical x-ray systems and
orthopedic bone cement, respectively. The net assets of CMW were sold in
November 1994 and substantially all of the net assets of Eureka were sold in two
transactions in November and December 1994, for a total of $44.5 million. The
$12.0 million gain on disposal, before applicable income taxes, included a
provision of $.5 million for estimated operating losses to be incurred during
the phase-out period of the GENDEX Medical business unit.
56
Sales from these operations were $18.9 million, $48.6 million and $48.8
million for 1995, 1994 and 1993, respectively. Certain expenses have been
allocated to discontinued operations, including interest expense, which was
allocated based on the ratio of net assets discontinued to the total net assets
of the consolidated entity.
The components of net assets of discontinued operations included in the
Consolidated Balance Sheets at December 31, 1995 and 1994 were:
December 31,
---------------------
1995 1994
-------- --------
(in thousands)
Accounts and notes receivable-trade, net $ 2,105 $ 4,650
Inventories 6,550 6,312
Deferred income taxes 4,611 4,130
Prepaid expenses and other current assets 174 1,848
Property, plant and equipment, net 2,644 3,899
Other noncurrent assets, net 2,331 1,298
Costs in excess of fair value of net
assets acquired, net 3,348 3,448
Accounts payable (1,106) (2,649)
Accrued liabilities (9,043) (8,623)
Other liabilities (5,744) (6,681)
-------- --------
$ 5,870 $ 7,632
======== ========
The sale of the remaining operations comprising the medical business was
completed in the first quarter of 1996.
NOTE 4 - MERGER
- ---------------
On June 11, 1993, Old Dentsply merged with and into GENDEX, which was the
surviving corporation in the Merger, pursuant to an Agreement and Plan of Merger
dated February 8, 1993 by and between Old Dentsply and GENDEX. Upon
effectiveness of the Merger, GENDEX changed its name to DENTSPLY International
Inc. and changed its fiscal year end to December 31 from March 31. In the
Merger, the stockholders of Old Dentsply received 14.4 million shares of GENDEX
common stock in exchange for all the outstanding shares of Old Dentsply common
stock. The transaction was accounted for as a pooling-of-interests for financial
reporting purposes.
In connection with the Merger, the Company recorded after-tax charges of
$7.9 million during 1993. The Merger costs included expenses incurred to
consummate the transactions such as investment banking, legal fees and
accounting fees.
57
NOTE 5 - INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
- ----------------------------------------------------
The Company's continuing operations are conducted primarily in one industry
segment as a designer, manufacturer and distributor of dental equipment and
supplies.
The Company's operations are structured to achieve consolidated objectives.
As a result, significant interdependencies exist among the Company's operations
in different geographic areas. Intercompany sales of manufacturing materials
between areas are at prices which, in general, provide a reasonable profit after
coverage of all manufacturing costs. Intercompany sales of finished goods are at
prices intended to provide a reasonable profit for purchasing locations after
coverage of marketing and general and administrative costs.
Operating income (loss) from continuing operations before discretionary
ESOP contributions consists of net sales less related costs, direct operating
expenses and intercompany royalties allocated from Corporate for use of patents
and trademarks owned by the Company. In 1993, operating income (loss) from
continuing operations before discretionary ESOP contributions for Corporate
included $8.2 million of costs associated with the Merger. Assets by geographic
area are those used in the operations in the geographic area.
58
The following table sets forth information about the Company's continuing
operations in different geographic areas for 1995, 1994 and 1993:
United Adjustments/
States Europe Other Corporate Eliminations Total
-------- -------- -------- --------- ------------ --------
1995 (in thousands)
- ----
Net sales:
Customers $322,929 $174,139 $ 74,960 $ --- $ --- $572,028
Intercompany 46,613 13,680 4,822 --- (65,115) ---
-------- -------- -------- -------- -------- --------
Total net sales 369,542 187,819 79,782 --- (65,115) 572,028
Operating income (loss)
from continuing operations
before discretionary
ESOP contributions 86,315 26,015 434 (10,703) (1,326) 100,735
Assets 319,429 258,723 43,631 128,823 (158,751) 591,855
1994
- ----
Net sales:
Customers $317,492 $136,505 $ 70,761 $ --- $ --- $524,758
Intercompany 41,653 7,085 4,130 --- (52,868) ---
-------- -------- -------- -------- -------- --------
Total net sales 359,145 143,590 74,891 --- (52,868) 524,758
Operating income (loss)
from continuing operations
before discretionary
ESOP contributions 88,204 15,200 3,133 (9,948) 811 97,400
Assets 287,364 162,365 39,400 110,802 (133,001) 466,930
<FN>
</FN>
59
United Adjustments/
States Europe Other Corporate Eliminations Total
-------- -------- -------- --------- ------------ --------
1993 (in thousands)
- ----
Net sales:
Customers $317,940 $118,680 $ 67,200 $ --- $ --- $503,820
Intercompany 42,007 5,899 2,895 --- (50,801) ---
-------- -------- -------- -------- -------- --------
Total net sales 359,947 124,579 70,095 --- (50,801) 503,820
Operating income (loss)
from continuing operations
before discretionary
ESOP contributions 77,575 11,044 6,052 (20,227) (478) 73,966
Assets 289,889 142,014 35,305 152,749 (153,170) 466,787
<FN>
Third party export sales from the United States are less than ten percent
of total sales. In 1995, no customer accounted for 10% or more of net sales. One
customer accounted for approximately 11% and 10% of net sales in 1994 and 1993,
respectively.
</FN>
60
NOTE 6 - INVENTORIES
- --------------------
Inventories consist of the following:
December 31,
--------------------
1995 1994
-------- --------
(in thousands)
Finished goods $ 70,677 $ 46,765
Work-in-process 26,440 19,238
Raw materials and supplies 28,587 22,896
-------- --------
$125,704 $ 88,899
======== ========
Pre-tax income was $.2 million lower in 1995, $1.2 million lower in 1994
and $.6 million higher in 1993 as a result of using the LIFO method as compared
to using the FIFO method. If the FIFO method had been used to determine the cost
of LIFO inventories, the amounts at which net inventories are stated would be
lower than reported at December 31, 1995 and 1994 by $2.0 million and $2.2
million, respectively.
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------
Property, plant and equipment consist of the following:
December 31,
--------------------
1995 1994
-------- --------
Assets, at cost: (in thousands)
Land $ 17,395 $ 16,130
Buildings and improvements 67,903 41,420
Machinery and equipment 88,417 61,103
Construction in progress 9,039 5,244
-------- --------
182,754 123,897
Less: Accumulated depreciation 42,653 32,757
-------- --------
$140,101 $ 91,140
======== ========
NOTE 8 - ACCRUED LIABILITIES
- ----------------------------
Accrued liabilities consist of the following:
December 31,
--------------------
1995 1994
-------- --------
Payroll, commissions, bonuses (in thousands)
and other cash compensation $ 10,441 $ 10,042
Employee benefits 6,947 6,931
Other 29,183 17,674
-------- --------
$ 46,571 $ 34,647
======== ========
61
NOTE 9 - FINANCING ARRANGEMENTS
- -------------------------------
Short-Term Borrowings
- ---------------------
Short-term bank borrowings amounted to $7.6 million and $9.1 million at
December 31, 1995 and 1994, respectively. Unused lines of credit for short-term
financing at December 31, 1995 and 1994 were $63.0 million and $59.4 million,
respectively. Substantially all unused lines of credit have no major
restrictions and are renewable annually. Interest is charged on borrowings under
these lines of credit at various rates, generally under prime or equivalent
money rates.
Long-Term Borrowings
- --------------------
December 31,
--------------------
1995 1994
-------- --------
(in thousands)
$175.0 million bank revolving loan facility
maturing December 23, 1999 $ --- $ 10,000
$60.0 million bank term loan maturing
December 23, 1999, Swiss Francs 45.9 million
and Pounds Sterling 12.5 million outstanding
at December 31, 1995, bearing interest at a
weighted average of 2.4% for Swiss Franc
borrowings and 6.9% for Pounds Sterling
borrowings 59,172 ---
$25.0 million bank multicurrency revolving credit
facility maturing August 31, 1997, various
currencies outstanding at December 31, 1995,
bearing interest at a weighted average of 9.1% 9,496 2,771
Other borrowings, various currencies and rates 7 71
-------- --------
68,675 12,842
Less: Current portion (included in notes
payable and current portion of
long-term debt) --- 53
-------- --------
$ 68,675 $ 12,789
======== ========
The bank revolving credit agreement contains 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 .10 percent annually on the entire
amount of the commitment. Interest rates on amounts borrowed under the facility
will depend on the maturity of the borrowing, the interest rate option selected,
and, in the event of a LIBOR borrowing, the ratio of interest expense to
operating income.
62
The bank term loan and the bank multicurrency revolving credit facility
contain affirmative and negative covenants as to the operations and financial
condition of the Company, which are substantially equivalent to those in the
bank revolving credit agreement. The Company pays a facility fee of .10 percent
annually on the entire amount of the bank multicurrency revolving credit
facility commitment.
In 1993 the Company recorded an extraordinary loss of $14.0 million ($20.3
million before income tax benefit) or $.57 per common share for the early
retirement of debt. The extraordinary loss consisted primarily of a prepayment
premium on $85.0 million of Secured Notes.
NOTE 10 - OTHER LIABILITIES
- ---------------------------
Other liabilities consist of the following:
December 31,
--------------------
1995 1994
-------- --------
(in thousands)
Pension $ 30,635 $ 26,479
Medical and other postretirement
benefits 10,729 10,009
Other 5,740 4,366
-------- --------
$ 47,104 $ 40,854
======== ========
NOTE 11 - STOCKHOLDERS' EQUITY
- ------------------------------
In December 1994, the Board of Directors authorized the repurchase of up to
2.8 million shares of common stock on the open market or in negotiated
transactions. This authorization to repurchase shares expired on December 31,
1995. In December 1995, the Board of Directors authorized the repurchase of up
to 2.8 million additional shares of common stock on the open market or in
negotiated transactions. This authorization to repurchase shares expires on
December 31, 1996. The Company repurchased 1.3 million shares for $42.7 million
and .1 million shares for $2.7 million in 1995 and 1994, respectively.
In January 1994, the Company granted options to purchase 15,000 shares to
the Chairman of the Board at an exercise price of $44.50, which was equal to the
market price on the date of grant. The options were immediately exercisable and
expire ten years from date of grant.
In December 1993, the Company issued 3.1 million shares of its common stock
in a public offering resulting in net proceeds of $115.1 million.
63
In connection with the Merger, the number of authorized shares of common
stock was increased from 25 million to 100 million shares and the par value of
all shares was changed from $1.00 to $.01 per share. Common stock and capital in
excess of par value and all transactions involving common stock have been
restated to reflect the revised par value.
The Company has four stock option plans (1987 Plan, 1992 Plan, 1993 Stock
Option Conversion Plan and 1993 Plan). Under the 1987 and 1992 Plans, a
committee appointed by the Board of Directors may grant to key employees and
directors of the Company up to one million option 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 expire ten years and one
month or ten years and one day after date of grant under the 1987 Plan and 1992
Plan, respectively.
The 1993 Stock Option Conversion Plan provides for the conversion of all
options to acquire shares of common stock of Old Dentsply outstanding at the
time of the Merger into options to acquire shares of the common stock of the
Company. Options to acquire shares of Old Dentsply were converted into options
to acquire 28,000 shares of common stock of the Company at exercise prices
ranging from $5.89 to $8.95 per share. Outstanding options under the 1993 Stock
Option Conversion Plan expire on various dates but not later than April 9, 1996.
No further options can be granted under this plan.
The 1993 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 stock options which do not
constitute ISOs ("NSOs") to key employees and non-employee directors of the
Company. Each non-employee director receives automatic and non-discretionary
NSOs to purchase 3,000 shares of common stock on the date he or she becomes a
non-employee director and an additional 3,000 shares on the third anniversary of
the date the non-employee director was last granted an option. Grants of options
to key employees are solely discretionary. 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. The
committee may shorten or lengthen the exercise schedule for any or all options
granted to key employees. The exercise price of ISOs and NSOs is generally equal
to the fair market value on the date of grant. ISOs granted to an individual who
possesses more than 10% of the combined voting power of all classes of stock of
the Company have an exercise price of 110% of fair market value and expire five
years from the date of grant. The number of shares available for options under
the 1993 Plan is adjusted annually to equal 5% of the outstanding common shares
of the Company on each January 1.
Options granted under any of the four Plans may be exercised only while the
grantee is employed by the Company or is a member of the Board of Directors or
within defined periods after termination.
64
Transactions involving the Plans are summarized as follows:
Option
Price Available
per Share Outstanding Exercisable for Grant
------------ ----------- ----------- ---------
Balance at December 31, 1992 $2.66-$46.25 620,213 497,586 2,249,832
Authorized --- --- 1,000,000
Granted $37.00-$39.75 54,000 --- (54,000)
Became exercisable --- 114,146 ---
Exercised $2.66-$25.44 (192,521) (192,521) ---
Expired/Canceled (14,342) (5,861) (1,905,832)
-------- -------- ---------
Balance at December 31, 1993 $3.13-$46.25 467,350 413,350 1,290,000
Authorized --- --- 388,299
Granted $8.95-$44.50 387,385 --- (387,385)
Became exercisable --- 18,885 ---
Exercised $3.13-$ 8.95 (146,493) (146,493) ---
Expired/Canceled (33,600) --- 33,600
-------- -------- ---------
Balance at December 31, 1994 $4.56-$46.25 674,642 285,742 1,324,514
Authorized --- --- 2,975
Granted $31.00-$37.75 447,300 --- (447,300)
Became exercisable --- 132,834 ---
Exercised $4.56-$23.81 (188,881) (188,881) ---
Expired/Canceled (67,000) (33,132) 67,000
-------- -------- ---------
Balance at December 31, 1995 $5.25-$44.50 866,061 196,563 947,189
======== ======== =========
The Company issued 180,000 stock purchase warrants in August 1990 in
connection with an acquisition to the principals of an investment banking firm,
one of whom is a director of the Company. The warrants are exercisable at any
time through August 28, 2000, at an exercise price of $6.125 per share (market
price at date issued). During 1995, 140,000 of the warrants were exercised and
40,000 remain outstanding at December 31, 1995.
NOTE 12 - INCOME TAXES
- ----------------------
The components of income from continuing operations before income taxes are
as follows:
Year Ended December 31,
--------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
United States $ 66,403 $ 74,479 $ 36,602
Foreign 23,614 17,183 14,740
-------- -------- --------
$ 90,017 $ 91,662 $ 51,342
======== ======== ========
65
The components of the provision for income taxes are as follows:
Year Ended December 31,
--------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
Current:
U.S. federal $ 21,526 $ 17,774 $ 21,375
U.S. state 4,112 3,403 2,445
Foreign 11,627 6,937 6,198
-------- -------- --------
Total 37,265 28,114 30,018
-------- -------- --------
Deferred:
U.S. federal (994) 6,863 (3,450)
U.S. state (170) 1,584 (646)
Foreign (47) 957 275
-------- -------- --------
Total (1,211) 9,404 (3,821)
-------- -------- --------
$ 36,054 $ 37,518 $ 26,197
======== ======== ========
The provision for income taxes is reconciled to income from continuing
operations before income taxes as follows:
Year Ended December 31,
--------------------------------
1995 1994 1993
-------- -------- --------
Statutory federal income
tax rate 35.0% 35.0% 35.0%
Effect of:
State income taxes, net of
federal benefit 3.0 3.5 2.3
Nondeductible amortization
of goodwill 1.5 1.0 1.9
Nondeductible merger and
acquisition costs - - 4.9
Foreign losses with no tax
benefit 1.4 1.2 2.1
Tax on foreign earnings
repatriated - - 2.3
Other (0.8) 0.2 2.5
-------- -------- --------
40.1% 40.9% 51.0%
======== ======== ========
66
The tax effect of temporary differences giving rise to deferred tax
liabilities and assets are as follows:
December 31, 1995 December 31, 1994
----------------------- -----------------------
Current Noncurrent Current Noncurrent
Asset Asset Asset Asset
(Liability) (Liability) (Liability) (Liability)
----------- ----------- ----------- -----------
(in thousands)
Employee benefit accruals $ 972 $ 4,968 $ 2,201 $ 2,851
Product warranty accruals 929 --- 789 ---
Differences in financial
reporting and tax basis
for:
Inventory (3,845) --- (185) ---
Property, plant and
equipment --- (28,852) --- (19,728)
Identified intangible assets --- (9,943) --- (7,053)
Accrued costs associated with
discontinued operations 4,611 --- 4,130 ---
Insurance premium accruals 1,884 --- 1,360 ---
Other 1,695 (1,087) 1,450 (587)
Foreign tax credit
carryforwards --- 1,070 --- 950
Tax loss carryforwards in
foreign jurisdictions --- 4,882 --- 2,936
Valuation allowance for
foreign tax credit and
tax loss carryforwards --- (5,952) --- (3,886)
-------- -------- -------- --------
$ 6,246 $(34,914) $ 9,745 $(24,517)
======== ======== ======== ========
Current and non-current deferred tax assets and liabilities are included in
the following balance sheet captions:
December 31,
--------------------
1995 1994
-------- --------
(in thousands)
Deferred income taxes $ 12,836 $ 5,710
Net assets of discontinued operations 4,611 4,130
Current portion of deferred income taxes (11,201) (95)
Other noncurrent assets, net 4,028 203
Deferred income taxes (38,942) (24,720)
The provision for income taxes was reduced due to utilization of tax loss
carryforwards by $47,000 in 1994 and $.4 million in 1993. Certain foreign
subsidiaries of the Company have tax loss carryforwards of $11.8 million at
December 31, 1995, of which $9.7 million expire through 2000 and $2.1 million
may be carried forward indefinitely. The tax benefit of these tax loss
carryforwards has been offset by a valuation allowance.
67
At December 31, 1995, the Company had foreign tax credits available for
carryforward of $1.1 million, which expire in 1997. The tax benefit of these tax
credit carryforwards has been offset by a valuation allowance.
Income taxes have not been provided on $28.4 million of undistributed
earnings of foreign subsidiaries, which will continue to be reinvested. If
remitted as dividends, these earnings could become subject to additional tax. It
is not practicable to estimate the amount of additional tax that might be
payable; however, the Company believes that U.S. foreign tax credits would
largely eliminate any U.S. tax payable.
NOTE 13 - BENEFIT PLANS
- -----------------------
Substantially all of the employees of the Company and its subsidiaries are
covered by government or Company-sponsored pension plans. Total pension costs
for Company-sponsored defined benefit, defined contribution and employee stock
ownership plans amounted to $7.5 million in 1995, $6.0 million for 1994 and $9.8
million for 1993. The Company maintains an Employee Stock Ownership Plan (the
"ESOP") covering substantially all the U.S. non-union employees of DENTSPLY.
Contributions to the ESOP for 1995, 1994 and 1993 were $1.7 million, $1.9
million and $5.7 million, respectively. In addition, interest expense incurred
on ESOP loans and participant notes approximated $.2 million for 1995, $.5
million for 1994 and $.6 million for 1993.
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 will also make additional cash
contributions of at least $3.6 million over the next eight years. Dividends
received by the ESOP on allocated shares are passed through to Plan
participants. 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, 1995, the ESOP held 6.7 million shares, of which 5.8 million
shares were allocated to Plan participants and .9 million shares were
unallocated and pledged as collateral for ESOP debt. Unallocated shares held by
the ESOP were acquired prior to December 31, 1992 and are accounted for in
accordance with Statement of Position 76-3.
The Employee Stock Ownership Plan reserve consists of a loan receivable
from the Employee Stock Ownership Plan bearing interest at 3.06%, payable in
equal quarterly installments through March 31, 2004.
The Company maintains pension plans for its employees in Germany and for
employees of Maillefer in Switzerland. These plans provide benefits based upon
age, years of service and remuneration. The German plans are unfunded book
reserve plans. The pension provision for the German and Swiss plans included the
following components:
68
Year Ended December 31,
--------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
Service cost $ 1,935 $ 1,021 $ 798
Interest cost on projected benefit
obligations 2,839 2,009 1,749
Net investment return on plan assets (251) --- ---
Net amortization and deferral 296 87 (19)
-------- -------- --------
$ 4,819 $ 3,117 $ 2,528
======== ======== ========
The funded status and amounts recognized in the consolidated balance sheets for
these retirement plans were as follows:
December 31, 1995 December 31, 1994
------------------------ ------------------------
Assets Accumulated Assets Accumulated
Exceeded Benefits Exceeded Benefits
Accumulated Exceeded Accumulated Exceeded
Benefits Assets Benefits Assets
----------- ----------- ----------- -----------
Actuarial present value of: (in thousands)
Vested benefit
obligations $ 18,936 $ 25,660 $ --- $ 21,922
======== ======== ======== ========
Accumulated benefit
obligations $ 18,936 $ 27,756 $ --- $ 24,184
======== ======== ======== ========
Actuarial present value
of projected benefit
obligations $ 20,443 $ 32,382 $ --- $ 28,191
Plan assets at fair value 25,526 --- --- ---
-------- -------- -------- --------
Plan assets less (greater)
than projected benefit
obligations (5,083) 32,382 --- 28,191
Unrecognized obligation --- (1,870) --- (1,838)
Unrecognized net gain 630 905 --- 686
-------- -------- -------- --------
(Prepaid pension expense)
pension liability $ (4,453) $ 31,417 $ --- $ 27,039
======== ======== ======== ========
The projected benefit obligations for these plans were determined using
discount rates of 7.5 percent as of December 31, 1995 and 1994 in Germany and
4.5 percent as of December 31, 1995 in Switzerland. The assumed long-term rate
of return on Swiss plan assets for 1995 was 5.0 percent. The weighted average
rate of increase used for future compensation levels was 5.0 percent for 1995,
1994 and 1993 in Germany and 3.0 percent for 1995 in Switzerland.
69
The Company sponsors an unfunded defined benefit postretirement medical
plan that covers certain U.S. based non-union employees. This postretirement
healthcare plan is contributory, with retiree contributions adjusted annually to
limit the Company's contribution to $21 per month per retiree for most
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 following table sets forth the combined status of the plans:
December 31,
--------------------
1995 1994
-------- --------
Accumulated postretirement benefit (in thousands)
obligation:
Retirees $ 8,317 $ 6,698
Fully eligible active plan
participants 468 608
Other active plan participants 1,498 1,362
-------- --------
Accumulated postretirement benefit
obligation at end of period 10,283 8,668
Unrecognized gain 446 1,341
-------- --------
Net postretirement benefit
liability $ 10,729 $ 10,009
======== ========
Year Ended December 31,
--------------------------------
1995 1994 1993
-------- -------- --------
Net periodic postretirement benefit (in thousands)
cost for the period included the
following components:
Service cost - benefits attributed
to service during the period $ 188 $ 178 $ 197
Interest cost on accumulated
postretirement benefit obligation 804 679 627
-------- -------- --------
Net periodic postretirement
benefit cost $ 992 $ 857 $ 824
======== ======== ========
For measurement purposes, the annual rate of increase in the per capita
cost of covered healthcare benefits assumed for 1995 and thereafter was 10% in
1995 and 1994 and 9.5% in 1993. The healthcare cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing the
assumed healthcare cost trend rates by one percentage point in each year would
70
increase the accumulated postretirement benefit obligation at December 31, 1995
by $.8 million and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost by $.1 million for the year then ended.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8% for 1995 and 1994.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
The Company leases automobiles and certain office, warehouse, machinery and
equipment and manufacturing facilities under noncancellable operating leases.
These leases generally require the Company to pay insurance, property taxes and
other expenses related to the leased property. Total rental expense for all
operating leases was $8.8 million for 1995, $8.1 million for 1994 and $7.4
million for 1993.
Rental commitments, principally for real estate (exclusive of taxes,
insurance and maintenance), automobiles and office equipment amount to: $7.3
million for 1996, $5.3 million for 1997, $3.6 million for 1998, $2.3 million for
1999, $1.5 million for 2000 and $11.5 million thereafter (net of sublease
rentals of $.3 million in 1996, $.2 million in 1997, $.1 million in 1998, $.1
million in 1999, $.1 million in 2000, and $.9 million thereafter).
The Company has sold certain receivables with recourse liability and
entered into third party guarantees approximating $1.0 million at December 31,
1995 and $2.0 million at December 31, 1994.
At December 31, 1995, the Company had a contractual commitment to purchase
implant, prosthetic and laboratory products from Core-Vent Corporation. This
commitment is estimated at $175.4 million at December 31, 1995, for years
through 2003 as follows:
(in thousands)
1996 $ 18,897
1997 21,057
1998 22,321
1999 23,660
2000 25,079
Later years 64,337
--------
$175,351
========
Purchases under the contract were $19.4 million in 1995, $19.1 million in
1994 and $15.6 million in 1993.
The Company has certain noncancellable purchase commitments for dental burs
and x-ray units and parts amounting to $3.9 million in 1996, $.2 million in 1997
and zero thereafter.
The Company has employment agreements with its executive officers and
certain other management employees. 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) the Company's liability would be
approximately $4.4 million at December 31, 1995.
71
The Company is from time to time a party to lawsuits arising out of its
operations. The Company believes that pending litigation to which it is a party
will not have a material adverse effect upon its consolidated financial position
or results of operations.
NOTE 15 - UNUSUAL OR NON-RECURRING ITEMS
- ----------------------------------------
During 1995 and 1993, the Company recorded certain unusual or non-recurring
charges which impacted the comparison with other periods. These unusual or
non-recurring charges, on an after tax basis, included the following:
Year Ended December 31,
-----------------------
1995 1993
-------- --------
(in thousands)
Costs associated with consolidation of
all executive functions in York, PA $ 1,452 $ ---
Loss on sale of corporate aircraft 369 ---
Merger transaction costs --- 7,863
Write-off of accounts receivable from
Healthco International, a major distributor
which filed for Chapter 11 bankruptcy
protection in June 1993 --- 4,310
Additional reserves and accruals for certain
litigation --- 1,110
Final discretionary contributions to the ESOP
related to Old Dentsply and severance costs
for 94 supervisory and administrative
personnel --- 3,173
-------- --------
$ 1,821 $ 16,456
======== ========
The impact of these expenses on earnings per common share was $.07 in 1995
and $.67 in 1993.
NOTE 16 - RELATED PARTY TRANSACTIONS
- ------------------------------------
The Company leases its Des Plaines, Illinois office and manufacturing
facility from a partnership whose partners include a director and former
directors of the Company. Under terms of the noncancellable operating lease, the
Company currently pays $.7 million per year with provisions for an annual
increase, as defined, of up to 3% per annum. The Company is responsible for
paying property taxes, utilities, insurance, maintenance and repair costs with
respect to the facility. The lease expires in August 2011 and provides the
Company with an option to extend the term of the lease for an additional
five-year period.
The Company purchased 800,000 shares from the McDonough family interests
for an aggregate purchase price of $27.6 million pursuant to an agreement
entered into on February 8, 1995, in connection with John J. McDonough's
resignation as Chief Executive Officer of the Company.
72
NOTE 17 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- -----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
1995: (in thousands except per share amounts)
- -----
Net sales $133,105 $139,878 $137,330 $161,715
Gross profit 66,435 70,163 62,919 81,335
Operating income from continuing
operations before discretionary
ESOP contributions 22,911 26,912 17,342 33,570
Net income 12,972 13,237 9,479 18,275
Earnings per common share .48 .49 .35 .68
Dividends per common share .075 .075 .075 .0825
1994:
- -----
Net sales $126,848 $127,967 $129,930 $140,012
Gross profit 61,120 64,082 65,615 66,906
Operating income from continuing
operations before discretionary
ESOP contributions 21,873 24,605 24,583 26,339
Income from continuing
operations 11,588 13,566 13,781 15,209
Income from the operation
of discontinued Medical
business 767 468 75 ---
Gain on disposal of
Medical business --- --- --- 6,543
-------- -------- -------- --------
Net income $ 12,355 $ 14,034 $ 13,856 $ 21,752
======== ======== ======== ========
Earnings per common share:
Income from continuing
operations $ .42 $ .49 $ .50 $ .55
Income from the operation
of discontinued Medical
business .03 .02 --- ---
Gain on disposal of
Medical business --- --- --- .23
----- ----- ----- -----
Net income $ .45 $ .51 $ .50 $ .78
===== ===== ===== =====
Dividends per common share --- --- $.075 $.075
73
Schedule II DENTSPLY INTERNATIONAL INC.
VALUATION AND QUALIFYING ACCOUNTS(a)
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
Additions
---------
Balance at Charged to Charged to Write-offs Balance
Beginning Costs and Other Net of Translation at End
Description of Period Expenses Accounts Recoveries Adjustment of Period
----------- ---------- ---------- ---------- ----------- ---------
(in thousands)
Allowance for doubtful accounts:
For Year Ended December 31,
1993 $1,751 $7,602 $ - $(7,625) $ 14 $ 1,742
1994 1,742 163 - (287) 59 1,677
1995 1,677 515 209 (b) (213) 66 2,254
Allowance for trade discounts:
For Year Ended December 31,
1993 447 2,180 - (2,310) (2) 315
1994 315 2,662 - (2,466) (5) 506
1995 506 2,446 - (2,220) 5 737
Inventory valuation reserves:
For Year Ended December 31,
1993 8,295 1,462 (813) (3,518) (52) 5,374
1994 5,374 1,886 2 (1,765) 125 5,622
1995 5,622 908 15,608 (c) (1,869) 459 20,728
<FN>
- ------------------
(a) Excludes discontinued operations.
(b) Includes Maillefer acquisition $209.
(c) Includes Maillefer acquisition $15,531.
</FN>
74
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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.
April 1, 1996 By:/s/ Burton C. Borgelt
-----------------------
Burton C. Borgelt
Chairman of the Board
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/ Burton C. Borgelt
- ------------------------- Chairman of the Board April 1, 1996
Burton C. Borgelt and a Director
(Principal Executive Officer)
/s/ John C. Miles, II
- ------------------------- President and Chief April 1, 1996
John C. Miles, II Executive Officer and
a Director
/s/ Edward D. Yates
- ------------------------- Senior Vice President April 1, 1996
Edward D. Yates and Chief Financial
Officer (Principal
Financial and Accounting
Officer)
/s/ Douglas K. Chapman
- ------------------------- Director April 1, 1996
Douglas K. Chapman
/s/ Michael J. Coleman April 1, 1996
- ------------------------- Director
Michael J. Coleman
/s/ Arthur A. Dugoni April 1, 1996
- ------------------------- Director
Arthur A. Dugoni, D.D.S., M.S.D.
/s/ C. Frederick Fetterolf
- -------------------------- Director April 1, 1996
C. Frederick Fetterolf
75
/s/ William S. Green Director April 1, 1996
- -------------------------
William S. Green
/s/ Arthur L. Herbst Director April 1, 1996
- -------------------------
Arthur L. Herbst, M.D.
/s/ Leslie A. Jones Director April 1, 1996
- -------------------------
Leslie A. Jones
/s/ W. Keith Smith Director April 1, 1996
- -------------------------
W. Keith Smith
76
EXHIBIT INDEX
Sequential
Exhibit No. Description Page No.
- ----------- ----------- ----------
10.3 Amended and Restated Split Dollar 78
Insurance Agreement between The
McDonough Insurance Trust and the
Company dated October 25, 1995
10.11 Employment Agreement dated January 1, 83
1996 between the Company and Burton C.
Borgelt
10.12 (b) Amendment to Employment Agreement 88
between the Company and John C.
Miles, II dated February 16, 1996,
effective January 1, 1996
10.17 Employment Agreement dated January 1, 89
1996 between the Company and W.
William Weston
10.18 Employment Agreement dated January 1, 96
1996 between the Company and Thomas L.
Whiting
10.31 (b) Amendment to Letter Agreement between 103
the Company and John J. McDonough dated
July 6, 1995
10.35 Multi-Currency Term Loan Agreement among 105
Dentsply Ltd., the banks named therein,
and ABN AMRO Bank N.V., dated as of May 12,
1995 (Note: All attachments have been
omitted. Copies of such attachments
will be furnished supplementally to the
Securities and Exchange Commission upon
request.)
11 Computation of earnings per share 153
21.1 Subsidiaries of the Company 154
23.1 Consent of KPMG Peat Marwick LLP 156
27 Financial Data Schedule 157
77