SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
-----------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File Number 0-16211
DENTSPLY International Inc.
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(Exact name of registrant as specified in its charter)
Delaware 39-1434669
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
570 West College Avenue, P. O. Box 872, York, PA 17405-0872
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(Address of principal executive offices) (Zip Code)
(717) 845-7511
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
( X ) Yes ( ) No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: At
May 14,1996 the Company had 26,956,269 shares of Common Stock
outstanding, with a par value of $.01 per share.
Page 1 of 18
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Exhibit Index at Page 16
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DENTSPLY INTERNATIONAL INC.
FORM 10-Q
For Quarter Ended March 31, 1996
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INDEX
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Page No.
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PART I - FINANCIAL INFORMATION (unaudited)
Item 1 - Financial Statements
Consolidated Condensed Balance Sheets............ 3
Consolidated Condensed Statements of Income...... 4
Consolidated Condensed Statements of Cash Flows.. 5
Consolidated Condensed Statement of
Stockholders' Equity........................... 7
Notes to Unaudited Consolidated Condensed
Financial Statements........................... 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.... 12
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings............................ 14
Item 6 - Exhibits and Reports on Form 8-K............. 14
Signatures........................................... 15
2
PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DENTSPLY INTERNATIONAL INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
December 31, March 31,
1995 1996
ASSETS ------------ ------------
Current assets: (in thousands)
Cash and cash equivalents $ 3,974 $ 3,023
Accounts and notes receivable-trade, net 93,315 92,003
Inventories 125,704 129,317
Prepaid expenses and other current assets 16,906 17,757
Net assets of discontinued operations 5,870 -
--------- ---------
Total Current Assets 245,769 242,100
Property, plant and equipment, net 140,101 139,959
Other noncurrent assets, net 13,974 15,329
Identifiable intangible assets, net 39,282 56,645
Cost in excess of fair value of net
assets acquired, net 149,127 200,774
--------- ---------
Total Assets $ 588,253 $ 654,807
LIABILITIES AND STOCKHOLDERS' EQUITY ========= =========
Current liabilities:
Accounts payable and accrued liabilities $ 78,356 $ 73,281
Income taxes payable 31,221 34,246
Notes payable and current portion
of long-term debt 7,616 10,321
Net liabilities of discontinued operations - 2,157
--------- ---------
Total Current Liabilities 117,193 120,005
Long-term debt 68,675 121,089
Deferred income taxes 35,927 34,916
Other liabilities 47,104 47,781
--------- ---------
Total Liabilities 268,899 323,791
--------- ---------
Minority interests in consolidated subsidiary 3,432 3,489
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 shares
issued at December 31, 1995 and
March 31, 1996 271 271
Capital in excess of par value 149,999 149,980
Retained earnings 179,231 191,994
Cumulative translation adjustment 3,234 1,662
Employee stock ownership plan reserve (12,536) (12,156)
Treasury stock, at cost, .1 million
shares at December 31, 1995 and
March 31,1996 (4,277) (4,224)
--------- ---------
Total Stockholders' Equity 315,922 327,527
--------- ---------
Total Liabilities and Stockholders' Equity $ 588,253 $ 654,807
========= =========
See accompanying notes to unaudited consolidated condensed financial
statements. 3
DENTSPLY INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(unaudited)
Three Months Ended
March 31,
--------------------
1995 1996
-------- --------
(in thousands, except per share data)
Net sales $133,105 $155,910
Cost of products sold 66,670 78,982
-------- --------
66,435 76,928
Selling, general and administrative
expenses 43,524 50,027
-------- --------
Operating income 22,911 26,901
Interest expense 1,606 3,095
Interest income (255) (217)
Other (income) expense, net 48 (1,066)
-------- --------
Income before income taxes 21,512 25,089
Provision for income taxes 8,540 10,102
-------- --------
Net income $ 12,972 $ 14,987
======== ========
Earnings per common share $.48 $.56
Dividends per common share $.075 $.0825
Weighted average common shares
outstanding 27,225 26,953
See accompanying notes to unaudited consolidated condensed financial statements.
4
DENTSPLY INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31,
-------------------
1995 1996
-------- --------
(in thousands)
Cash flows from operating activities:
Net income $ 12,972 $ 14,987
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,768 7,005
Other, net (10,251) (3,807)
-------- --------
Net cash provided by operating activities 7,489 18,185
-------- --------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (10,950) (75,200)
Property, plant and equipment additions (2,716) (4,289)
Proceeds from disposal of Medical business - 5,700
Other, net 797 (161)
-------- --------
Net cash used in investing activities (12,869) (73,950)
-------- --------
Cash flows from financing activities:
Debt repayment (11,589) (11,138)
Proceeds from long-term debt 30,019 66,249
Cash paid for treasury stock (38,400) -
Increase in bank overdrafts and other
short term debt 20,888 942
Other, net 485 (1,811)
-------- --------
Net cash provided by financing activities 1,403 54,242
-------- --------
Effect of exchange rate changes on cash
and cash equivalents 129 572
-------- --------
Net decrease in cash and cash equivalents (3,848) (951)
Cash and cash equivalents at beginning of period 7,278 3,974
-------- --------
Cash and cash equivalents at end of period $ 3,430 $ 3,023
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 1,006 $ 1,222
Income taxes paid 12,509 5,925
Non-cash transaction: note receivable for
proceeds from disposal of Medical business - 1,800
See accompanying notes to unaudited consolidated condensed financial statements.
5
DENTSPLY INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
Supplemental disclosures of noncash transactions (in thousands):
In March 1995, the Company purchased all of the capital stock of KV33
Corporation for $11.5 million. In conjunction with the acquisition, liabilities
were assumed as follows:
Fair value of assets acquired $ 14,329
Cash paid for capital stock (11,450)
--------
Liabilities assumed $ 2,879
========
In January 1996, the Company purchased certain net assets of Tulsa Dental
Products LLC for $75 million. In conjunction with the acquisition, liabilities
were assumed as follows:
Fair value of assets acquired $ 78,451
Cash paid for assets 75,000
--------
Liabilities assumed $ 3,451
========
See accompanying notes to unaudited consolidated condensed financial statements.
6
DENTSPLY INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
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, 1995 $ 271 $149,999 $179,231 $ 3,234 $(12,536) $ (4,277) $315,922
Exercise of stock options and
warrants --- (38) --- --- --- 53 15
Tax benefit related to stock
options and warrants exercised --- 19 --- --- --- --- 19
Cash dividends declared, $.0825
per share --- --- (2,224) --- --- --- (2,224)
Translation adjustment --- --- --- (1,572) --- --- (1,572)
Net change in ESOP reserve --- --- --- --- 380 --- 380
Net income --- --- 14,987 --- --- --- 14,987
------ -------- -------- ------- -------- -------- --------
Balance at March 31, 1996 $ 271 $149,980 $191,994 $ 1,662 $(12,156) $ (4,224) $327,527
====== ======== ======== ======= ======== ======== ========
<FN>
See accompanying notes to unaudited consolidated condensed financial statements.
</FN>
7
DENTSPLY INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
--------------------------------------------------------------
MARCH 31, 1996
--------------
The accompanying interim consolidated condensed financial statements
reflect all adjustments (consisting only of normal recurring adjustments) which
in the opinion of management are necessary for a fair presentation of financial
position, results of operations and cash flows for the interim periods. These
interim financial statements conform with the requirements for interim financial
statements and consequently do not include all the disclosures normally required
by generally accepted accounting principles. Disclosures are updated where
appropriate.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
Principles of Consolidation
- ---------------------------
The consolidated condensed financial statements include the accounts of
DENTSPLY International Inc. (the "Company") and its subsidiaries. Minority
interests in net income of consolidated subsidiary is not material and is
included in other (income) expense, net. Certain items in the prior year have
been reclassified to conform to the 1996 presentation.
Inventories
- -----------
Inventories are stated at the lower of cost or market. At December 31, 1995
and March 31, 1996, the cost of $10.6 million or 8% and $11.2 million or 8%,
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
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.
8
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.
NOTE 2 - BUSINESS ACQUISITIONS
- ------------------------------
In January 1996, the Company purchased certain assets of Tulsa Dental
Products L.L.C. ("Tulsa") in a cash transaction valued at $75 million. Based in
Tulsa, Oklahoma, Tulsa is a manufacturer and distributor of principally
endodontic instruments and materials.
The acquisition was accounted for under the purchase method of accounting
and the results of Tulsa's operations have been included in the accompanying
financial statements since the date of acquisition. The aggregate purchase price
of $75 million plus direct acquisition costs has been allocated on the basis of
preliminary estimates of the fair values of assets acquired and liabilities
assumed. The excess ($54.7 million) of acquisition cost over net assets acquired
is being amortized over 25 years.
The following unaudited pro forma consolidated results of operations assume
that the acquisition of Tulsa occurred on January 1, 1995:
Three Months Ended March 31,
1995 1996
-------- --------
(in thousands, except per share amounts)
Net sales $137,459 $155,910
Net income 12,367 15,139
Earnings per common share .45 .56
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.
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 net assets acquired is being amortized over 25 years. Pro
forma information has been omitted due to immateriality.
9
NOTE 3 - INVENTORIES
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Inventories consist of the following:
December 31, March 31,
1995 1996
------------ ------------
(in thousands)
Finished goods $ 70,677 $ 72,857
Work-in-process 26,440 27,806
Raw materials and supplies 28,587 28,654
-------- --------
$125,704 $129,317
======== ========
Pre-tax income was $.3 million and .1 million lower in the three months
ended March 31, 1995 and 1996, respectively, as a result of using the LIFO
method compared to the first-in, first-out (FIFO) method. If the FIFO method had
been used to determine the cost of the LIFO inventories, the amounts at which
net inventory is stated would be lower than reported at December 31, 1995 and
March 31, 1996 by $2.0 million and $1.9 million, respectively.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------
Property, plant and equipment consist of the following:
December 31, March 31,
1995 1996
------------ ------------
Assets, at cost: (in thousands)
Land $ 17,395 $ 17,004
Buildings and improvements 67,903 67,475
Machinery and equipment 88,417 90,982
Construction in progress 9,039 10,442
-------- --------
182,754 185,903
Less: Accumulated depreciation 42,653 45,944
-------- --------
$140,101 $139,959
======== ========
10
NOTE 5- DISCONTINUED OPERATIONS
- --------------------------------
On October 13, 1994, the Company announced its strategic decision to
discontinue the operations comprising its medical business. The medical
operations include 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 and substantially
all of the net assets of Eureka were sold in the fourth quarter of 1994.
Substantially all of the remaining assets comprising the medical business were
sold in the first quarter of 1996 for $5.7 million in cash and a note receivable
for $1.8 million.
Sales from these operations were $5.2 million and $2.7 million for the
three months ended March 31, 1995 and 1996, respectively.
The components of net assets (liabilities) of discontinued operations
included in the Consolidated Condensed Balance Sheets are as follows:
December 31, March 31,
1995 1996
------------ ------------
(in thousands)
Accounts and notes receivable-trade, net $ 2,105 $ 1,070
Inventories 6,550 821
Deferred income taxes 4,611 3,565
Prepaid expenses and other current assets 174 -
Property, plant and equipment, net 2,644 1,974
Other noncurrent assets, net 2,331 -
Cost in excess of fair value of net assets
acquired, net 3,348 -
Accounts payable and accrued liabilities (10,149) (7,304)
Other liabilities (5,744) (2,283)
-------- --------
$ 5,870 $ (2,157)
======== ========
NOTE 6- NOTES PAYABLE AND LONG-TERM DEBT
- -----------------------------------------
The increases from December 31, 1995 in Notes payable and current portion
of long-term debt ($2.7 million) and Long-term debt ($52.4 million) were
primarily due to utilization of the Company's credit facilities for the purchase
of certain assets of Tulsa Dental Products LLC for $75 million.
11
DENTSPLY INTERNATIONAL INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Quarter Ended March 31, 1996 Compared to Quarter Ended March 31, 1995
In the quarter ended March 31, 1996, net sales increased $22.8 million, or
17.1%, to $155.9 million from $133.1 in the same period of 1995. The increase
primarily came from acquisitions and very strong sales growth in the Pacific Rim
and Latin America.
Gross profit increased $10.5 million, or 15.8%, to $76.9 million from $66.4
million in the first quarter of 1995 as a result of higher net sales. As a
percentage of sales, gross profit decreased from 49.9% in the first quarter of
1995 to 49.3% in the same period of 1996. Improvements in the gross profit
percentage in the first quarter of 1996 were more than offset by the adverse
impact of acquisition accounting for Maillefer and Tulsa.
Selling, general and administrative expenses increased $6.5 million, or 14.9%.
As a percentage of sales, expenses decreased from 32.7% in the first quarter of
1995 to 32.1% for the same period in 1996 due to lower spending levels compared
to sales in the United States and Europe. The percentage of sales improvement
was offset somewhat by spending for expansion in Asia and the Pacific Rim,
including establishing operating facilities in India and the Philippines.
The $1.5 million increase in net interest expense is primarily due to
acquistion debt. The $1.1 million increase in other income is primarily due to
a legal settlement in the Company's favor.
Income before income taxes increased $3.6 million, or 16.6%, while net income
increased $2.0 million, or 15.5%, from the first quarter of 1995. The Company's
effective tax rate on income before income taxes increased from 39.7% in the
three months ended March 31, 1995 to 40.3% for the three months ended March 31,
1996. Earnings per common share increased from $.48 in 1995 to $.56 in 1996, or
16.7%. The weighted average number of common shares outstanding decreased one
percent from the prior period due to the buyback of stock during 1995.
LIQUIDITY AND CAPITAL RESOURCES
In January 1996, the Company acquired the dental manufacturing and distribution
operations of Tulsa for $75.0 million in cash and an earn-out based on the
operating performance of the acquired business. The transaction was funded from
the Company's existing $175.0 million Bank Revolving Loan Facility and
short-term bank borrowings.
Investing activities for the three months ended March 31, 1996 include capital
expenditures of $4.3 million.
Excluding the net assets of discontinued operations, the Company's current ratio
was 2.1 with working capital of $124.2 million at March 31, 1996. This compares
with a current ratio of 2.0 and working capital of $122.7 million at December
31, 1995.
12
The Company expects to be able to finance cash requirements, including capital
expenditures, stock repurchases and debt service from the funds generated from
operations and amounts available under the existing Revolving Loan Facility.
For the three months ended March 31, 1996, cash flows from operating activities
were $18.2 million compared to $7.5 million for the three months ended March 31,
1995. The increase of $10.7 million results from higher sales and gross margins
in 1996, while cash flows in 1995 were adversely impacted by income tax payments
on the gain from disposal of the medical business.
IMPACT OF INFLATION
The Company has generally offset the impact of inflation on wages and the cost
of purchased materials by improving operating efficiencies and increasing
selling prices to the extent permitted by market conditions.
13
PART II
OTHER INFORMATION
Item 1 - Legal Proceedings
The Company 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 it is a party will not have a material adverse effect upon
its consolidated financial position or results of operations.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed herewith:
---------
Number Description
------ -----------
11 Statement regarding computation
of earnings per share.
27 Financial Data Schedule (pursuant to Item 601(c)(1)(iv) of
Regulation S-K, this exhibit shall not be deemed filed for
purposes of Section 18 of the Securities Exchange Act of 1934,
as amended)
(b) Reports on Form 8-K
-------------------
On January 25, 1996 the Company filed a Form 8-K (Items 2 and 7)
reporting the acquisition of Tulsa Dental Products, LLC.
Amendment No. 1 to this Form 8-K was filed on Form 8-K/A on
March 25, 1996. Financial statements filed with Form 8-K/A
were as follows:
(1) Financial statements of Tulsa Dental Products LLC for the
year ended December 31, 1995
(a) Balance Sheet
(b) Statement of Income
(c) Statement of Cash Flows
(d) Notes to the Financial Statements
(2) Pro Forma Financial Information
(a) Pro Forma Condensed Consolidated Balance Sheet as of
December 31, 1995
(b) Pro Forma Condensed Consolidated Statement of Income for the
year ended December 31, 1995.
(c) Notes to Unaudited Pro Forma Condensed Consolidated
Financial Information
14
Signatures
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DENTSPLY INTERNATIONAL INC.
May 15, 1996 /s/ John C. Miles II
- -------------------- -----------------------------------
Date John C. Miles II
President and
Chief Executive Officer
May 15, 1996 /s/ Edward D. Yates
- -------------------- -----------------------------------
Date Edward D. Yates
Senior Vice President and
Chief Financial Officer
15
EXHIBIT INDEX
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Number Description Sequential Page No.
------ ----------- -------------------
11 Statement regarding computation 17
of earnings per share.
27 Financial Data Schedule 18
(pursuant to Item 601(c)(1)(iv) of
Regulation S-K, this exhibit shall
not be deemed filed for purposes
of Section 18 of the Securities
Exchange Act of 1934, as amended)
16