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, 1997
---------------------
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 9, 1997 the Company had
26,937,376 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, 1997
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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
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk................................ 13
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)
March 31, December 31,
1997 1996
ASSETS ------------ ------------
Current assets: (in thousands)
Cash and cash equivalents $ 7,369 $ 5,619
Accounts and notes receivable-trade, net 102,520 101,977
Inventories 129,736 125,398
Prepaid expenses and other current assets 24,710 23,752
--------- ---------
Total Current Assets 264,335 256,746
Property, plant and equipment, net 140,120 141,458
Other noncurrent assets, net 12,750 13,259
Identifiable intangible assets, net 57,944 59,787
Costs in excess of fair value of net
assets acquired, net 268,584 196,412
--------- ---------
Total Assets $ 743,733 $ 667,662
LIABILITIES AND STOCKHOLDERS' EQUITY ========= =========
Current liabilities:
Accounts payable and accrued liabilities $ 93,581 $ 86,224
Income taxes payable 33,349 30,264
Notes payable and current portion
of long-term debt 31,077 26,711
--------- ---------
Total Current Liabilities 158,007 143,199
Long-term debt 131,154 75,109
Deferred income taxes 28,283 30,000
Other liabilities 45,945 49,467
--------- ---------
Total Liabilities 363,389 297,775
--------- ---------
Minority interests in consolidated subsidiaries 4,181 4,297
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 March 31, 1997 and
December 31,1996 271 271
Capital in excess of par value 150,088 150,031
Retained earnings 251,732 237,300
Cumulative translation adjustment (10,280) (4,278)
Employee stock ownership plan reserve (10,636) (11,016)
Treasury stock, at cost, .1 million
shares at March 31, 1997 and .2 million
shares at December 31, 1996 (5,012) (6,718)
--------- ---------
Total Stockholders' Equity 376,163 365,590
--------- ---------
Total Liabilities and Stockholders' Equity $ 743,733 $ 667,662
========= =========
See accompanying notes to unaudited consolidated condensed financial statements.
3
DENTSPLY INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(unaudited)
Three Months Ended
March 31,
--------------------
1997 1996
-------- --------
(in thousands, except per share amounts)
Net sales $172,359 $155,910
Cost of products sold 84,309 78,982
-------- --------
Gross profit 88,050 76,928
Selling, general and administrative
expenses 59,995 50,027
-------- --------
Operating income 28,055 26,901
Interest expense 2,751 3,095
Interest income (425) (217)
Other (income) expense, net (2,085) (1,066)
-------- --------
Income before income taxes 27,814 25,089
Provision for income taxes 10,890 10,102
-------- --------
Net income $ 16,924 $ 14,987
======== ========
Earnings per common share $.63 $.56
Dividends per common share $.0925 $.0825
Weighted average common shares
outstanding 26,923 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,
-------------------
1997 1996
-------- --------
(in thousands)
Cash flows from operating activities:
Net income $ 16,924 $ 14,987
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 4,163 3,701
Amortization 3,777 3,304
Other, net (15,248) (3,807)
-------- --------
Net cash provided by operating activities 9,616 18,185
-------- --------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (59,253) (75,200)
Property, plant and equipment additions (6,128) (4,289)
Proceeds from disposal of Medical business - 5,700
Other, net 71 (161)
-------- --------
Net cash used in investing activities (65,310) (73,950)
-------- --------
Cash flows from financing activities:
Debt repayment (18,865) (11,138)
Proceeds from long-term debt 66,878 66,249
Increase in bank overdrafts and other
short term debt 11,896 942
Other, net (341) (1,811)
-------- --------
Net cash provided by financing activities 59,568 54,242
-------- --------
Effect of exchange rate changes on cash
and cash equivalents (2,124) 572
-------- --------
Net increase (decrease) in cash and cash equivalents 1,750 (951)
Cash and cash equivalents at beginning of period 5,619 3,974
-------- --------
Cash and cash equivalents at end of period $ 7,369 $ 3,023
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 1,454 $ 1,222
Income taxes paid 7,889 5,925
Non-cash transactions:
Note receivable for proceeds from
disposal of Medical business - 1,800
Cancellation of loan receivable from
acquired subsidiary 2,900 -
Liabilities assumed from acquisitions 28,962 3,451
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 January 1997, the Company purchased the assets of DW Industries, Inc. ("DW
Industries") for $16.3 million and all of the capital stock of Laboratoire SPAD,
S.A. ("SPAD") for $34.5 million. In March 1997, the Company purchased
approximately 90% of the capital stock of New Image Industries, Inc. ("New
Image") for $9.9 million. In conjunction with the acquisitions, liabilities were
assumed as follows:
DW Industries SPAD New Image
------------- -------- ---------
Fair value of assets acquired $ 16,315 $ 41,778 $ 31,526
Cash paid for assets or capital
stock (16,253) (34,499) (9,905)
-------- -------- --------
Liabilities assumed $ 62 $ 7,279 $ 21,621
======== ======== ========
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, 1996 $ 271 $150,031 $237,300 $ (4,278) $(11,016) $ (6,718) $365,590
Exercise of stock options and
warrants - (237) - - - 1,706 1,469
Tax benefit related to stock
options and warrants exercised - 294 - - - - 294
Cash dividends declared, $.0925
per share - - (2,492) - - - (2,492)
Translation adjustment - - - (6,002) - - (6,002)
Net change in ESOP reserve - - - - 380 - 380
Net income - - 16,924 - - - 16,924
------ -------- -------- -------- -------- -------- --------
Balance at March 31, 1997 $ 271 $150,088 $251,732 $(10,280) $(10,636) $ (5,012) $376,163
====== ======== ======== ======= ======== ======== ========
<FN>
See accompanying notes to unaudited consolidated condensed financial statements.
</FN>
7
DENTSPLY INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
--------------------------------------------------------------
MARCH 31, 1997
--------------
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
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Principles of Consolidation
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The consolidated condensed financial statements include the accounts of
DENTSPLY International Inc. (the "Company") and its subsidiaries. Minority
interests in net income of consolidated subsidiaries is not material and is
included in other (income) expense, net.
Inventories
- -----------
Inventories are stated at the lower of cost or market. At March 31, 1997
and December 31, 1996, the cost of $11.5 million or 9% and $10.0 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
(FIFO) or average cost method.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost, net of accumulated
depreciation. Except for leasehold improvements, depreciation for financial
reporting purposes is computed by the straight-line method over the following
estimated useful lives: buildings - generally 40 years; and machinery and
equipment - 4 to 15 years. The cost of leasehold improvements is amortized over
the shorter of the estimated useful life or the term of the lease. For income
tax purposes, depreciation is computed using various methods.
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 1997, the Company purchased the assets of DW Industries in a
cash transaction valued at approximately $16.3 million and an earn-out based on
the sales growth of the business. Headquartered in Las Vegas, Nevada, DW
Industries is the leading manufacturer of disposable air-water syringe tips for
use in clinical dental office procedures.
Also in January 1997, the Company purchased all of the outstanding capital
stock of Laboratoire SPAD for FF198 million in a cash transaction valued at
approximately $34.5 million. SPAD, a division of GROUP MONOT, S.A. , is a
leading French manufacturer and distributor of dental anesthetic and other
dental products.
In March 1997, the Company purchased approximately 90% of the capital stock
of New Image for $2.00 per share or approximately $9.9 million pursuant to a
tender offer. Total funds required to purchase all outstanding New Image shares
and pay related costs and expenses will be approximately $12 million. New Image,
which designs, develops, manufactures, and distributes intraoral cameras and
computer imaging systems and related software exclusively for the dental market,
is located in Carlsbad, California.
The DW Industries, SPAD, and New Image acquisitions were accounted for
under the purchase method of accounting. Accordingly, the results of operations
of DW Industries, SPAD and New Image are included in the accompanying financial
statements since the respective dates of the acquisitions. The purchase prices
plus direct acquisition costs have been allocated on the basis of preliminary
estimates of the fair values of assets acquired and liabilities assumed.
Procedures to determine the actual fair values of assets acquired and
liabilities assumed are ongoing and may result in changes to the estimated
acquisition balances. Until such values are finally determined, all unidentified
costs, including such assets as patents, trademarks, and other intangibles, have
been included in costs in excess of fair value of net assets acquired. The
excess of acquisition cost over net assets acquired of $13.0 million for DW
Industries, $36.2 million for SPAD, and $26.4 million for New Image is being
amortized over 25 years. These acquisitions, individually and in the aggregate,
are not expected to have a material impact on the Company's 1997 results;
accordingly, pro forma information has been omitted.
9
NOTE 3 - INVENTORIES
- --------------------
Inventories consist of the following:
March 31, December 31,
1997 1996
------------ ------------
(in thousands)
Finished goods $ 73,496 $ 73,650
Work-in-process 24,291 23,936
Raw materials and supplies 31,949 27,812
-------- --------
$129,736 $125,398
======== ========
Pre-tax income was $.1 million lower in the three months ended March 31,
1997 and 1996 as a result of using the LIFO method compared to the first-in,
first-out (FIFO) method. If the FIFO method had been used to determine the cost
of the LIFO inventories, the amounts at which net inventory is stated would be
lower than reported at March 31, 1997 and December 31, 1996 by $1.6 million and
$1.7 million, respectively.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------
Property, plant and equipment consist of the following:
March 31, December 31,
1997 1996
------------ ------------
Assets, at cost: (in thousands)
Land $ 16,379 $ 17,222
Buildings and improvements 66,939 68,185
Machinery and equipment 104,374 103,887
Construction in progress 10,794 8,505
-------- --------
198,486 197,799
Less: Accumulated depreciation 58,366 56,341
-------- --------
$140,120 $141,458
======== ========
NOTE 5 - NOTES PAYABLE AND LONG-TERM DEBT
- -----------------------------------------
The increases from December 31, 1996 in Notes payable and current portion
of long-term debt ($4.4 million) and Long-term debt ($56.0 million) were
primarily due to utilization of the Company's credit facilities for the
acquisition of DW, SPAD, and New Image (see Note 2).
10
NOTE 6 - IMPLANT BUSINESS
- -------------------------
In March 1997, the American Arbitration Association's Commercial
Arbitration Tribunal ordered a judgment in favor of the Company terminating,
effective March 19, 1997, the Implant Distribution Agreement between Core-Vent
Corporation and DENTSPLY's Implant Division. The sales, distribution and
administrative functions acquired by the Company under the Implant Distribution
Agreement, along with certain assets of the implant business, have been
transferred back to Core-Vent Corporation. The noncancellable purchase
commitment related to the Implant Distribution Agreement, described in footnote
13 in the Company's consolidated financial statements included in the 1996 Form
10-K, has been terminated.
Sales for the Company's implant business were approximately $28 million in
1996. The implant business did not contribute to the profitability of the
Company in 1996.
The financial impact on 1997 earnings from transferring the implant
business back to Core-Vent Corporation as a result of the judgment cannot be
reasonably estimated at this time.
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, 1997 Compared to Quarter Ended March 31, 1996
For the quarter ended March 31, 1997, net sales increased $16.5 million, or
10.6%, to $172.4 million, up from $155.9 million in the same period of 1996. The
increase came primarily from acquisitions and strong sales growth in the United
States, Pacific Rim, Latin America, and Middle East/Africa. Sales in Europe were
also strong, but the strong U.S. dollar compared to 1996 had a significant
negative translation impact on reported sales for the first quarter of 1997.
Gross profit increased $11.1 million, or 14.5%, to $88.0 million from $76.9
million in the first quarter of 1996 as a result of higher net sales. As a
percentage of sales, gross profit increased from 49.3% in the first quarter of
1996 to 51.1% in the same period of 1997. The primary reason is a more favorable
mix of higher margin consumable products compared to 1996.
Selling, general and administrative expenses increased $10.0 million, or 19.9%.
As a percentage of sales, expenses increased from 32.1% in the first quarter of
1996 to 34.8% for the same period of 1997. The primary reasons were increased
selling expense in the United States, including expansion of the endodontic
sales force and start-up expenses for the group practices business unit,
continued emphasis on upgrading information systems in the United States and
Europe, increased spending in the Pacific Rim, including start-up expenses for
the new China location, increased research and development expenses as a percent
of sales, and significant costs associated with the Tycom Corporation legal
proceedings.
Income before income taxes increased $2.7 million, or 10.9%, while net income
increased $1.9 million, or 12.9%, from the first quarter of 1996. Earnings per
common share increased from $.56 in 1996 to $.63 in 1997, or 12.5%.
LIQUIDITY AND CAPITAL RESOURCES
In January 1997, the Company acquired the assets of DW Industries for $16.3
million in cash and all of the outstanding shares of SPAD for $34.5 million in
cash. In March 1997, the Company acquired approximately 90% of the outstanding
shares of New Image for $9.9 million. These transactions were funded from the
Company's existing $175.0 million Bank Revolving Loan Facility and short-term
bank borrowings.
Investing activities for the three months ended March 31, 1997 include capital
expenditures of $6.1 million.
The Company's current ratio was 1.7 with working capital of $106.3 million at
March 31, 1997. This compares with a current ratio of 1.8 and working capital of
$113.5 million at December 31, 1996.
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 Bank Revolving Loan
Facility.
For the three months ended March 31, 1997, cash flows from operating activities
were $9.6 million compared to $18.2 million for the three months ended March 31,
1996. The decrease of $8.6 million results primarily from higher income tax
payments and increases in accounts receivable from increased sales and prepaid
and other current assets in 1997.
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.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128"). This
Statement simplifies the standards for computing earnings per share ("EPS") and
makes them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS and requires dual
presentation of basic and diluted EPS on the face of the income statement of all
entities with complex capital structures. SFAS 128 also requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation.
Since the Company's stock options do not dilute EPS by more than three percent,
they have been excluded from the denominator of earnings per common share as
reported in the accompanying financial statements; thus, earnings per common
share is equal to basic EPS as computed under SFAS 128. Had SFAS 128 been
adopted in the first quarter of 1997, diluted EPS would have been computed as
follows (in thousands, except per share amounts):
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS $ 16,924 26,923 $.63
Incremental shares from
assumed exercise of
dilutive options and
warrants - 143 -
-------- ------ ----
Diluted EPS $ 16,924 27,066 $.63
======== ====== ====
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Not required.
13
PART II
OTHER INFORMATION
Item 1 - Legal Proceedings
DENTSPLY and its subsidiaries are from time to time parties to lawsuits
arising out of their respective operations. The Company believes that pending
litigation to which DENTSPLY is a party will not have a material adverse effect
upon its consolidated financial position or results of operations.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed herewith:
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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
-------------------
No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1997.
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 14, 1997 /s/ John C. Miles II
- -------------------- -----------------------------------
Date John C. Miles II
Vice Chairman and
Chief Executive Officer
May 14, 1997 /s/ Edward D. Yates
- -------------------- -----------------------------------
Date Edward D. Yates
Senior Vice President and
Chief Financial Officer
15
EXHIBIT INDEX
-------------
Number Description Sequential Page No.
------ ----------- -------------------
11 Statement regarding computation
of earnings per share. 17
27 Financial Data Schedule
(pursuant to Item 601(c)(1)(iv) of
Regulation S-K, this exhibit shall
not be deemed filed for purposes
of Section 18 of the Securities
Exchange Act of 1934, as amended) 18
16