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
For the fiscal year ended December 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.
(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,
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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 February 20, 1998, 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 $1,671,549,289
(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 February 20, 1998 was
54,135,416.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the definitive Proxy Statement of
DENTSPLY International Inc. to be used in connection with the
1998 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 dental prosthetics, endodontic
instruments and materials, impression materials, restorative
materials, crown and bridge materials, prophylaxis paste, dental
sealants, dental needles and dental anesthetics. Dental
equipment includes dental x-ray systems, intraoral cameras,
computer imaging systems and related software, handpieces,
cutting instruments, ultrasonic scalers and polishers, and air
abrasion systems. The Company also develops and markets practice
management software for managing the dental office and software
for maintaining a data base of information generated in the
dental operatory's clinical environment.
In January 1997, DENTSPLY purchased the assets of DW
Industries, Inc., the leading manufacturer of disposable air-
water syringe tips.
Also in January 1997, the Company purchased 100 percent of
the outstanding capital stock of Laboratoire SPAD, S.A. ("SPAD"),
a leading French manufacturer and distributor of dental
anesthetics and other dental products. SPAD gave DENTSPLY entry
to the dental anesthetic market in addition to expanding
DENTSPLY's existing business in France.
In March 1997, DENTSPLY purchased all of the capital stock
of New Image Industries, Inc. ("New Image"), a designer,
developer, manufacturer and distributor of intraoral cameras and
computer imaging systems and related software exclusively for the
dental market.
In July 1997, the Company purchased the dental assets of
EFOS Corporation ("EFOS"), the developer and manufacturer of
DENTSPLY's dental curing lights and amalgamators. Additionally,
EFOS serves the dental market with protective eyewear products,
replacement parts and curing light repair and service.
Also in July 1997, the Company purchased the outstanding
capital stock of SIMFRA S.A. ("SIMFRA"), the exclusive importer
of Maillefer Instruments, S.A. ("Maillefer") in France.
In November 1997, DENTSPLY purchased certain assets of MPL
Technologies, Inc. ("MPL"), a leading manufacturer and
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distributor of needles and needle-related products, primarily for
the dental profession.
In January 1998, the Company purchased from Procter & Gamble
its Blendax Professional Dental Business ("Blendax"), a
distributor doing business principally in Germany, Austria and
the United Kingdom. The Blendax product line consists of rotary
cutting instruments, impression materials, composite filling
material and fluoride rinses and gels.
In March 1998, DENTSPLY acquired the assets of InfoSoft,
Inc. ("InfoSoft"), a developer and marketer of full-featured,
practice management software for managing the dental office as
well as maintaining a data base of information generated in the
operatory's clinical environment. InfoSoft is also the number
one processor of electronic dental insurance claims in the United
States.
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
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, Japan, and Australia 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, bone grafting materials, implants and other
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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 countries of the former Soviet Union, 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
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 steady 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 $39.1 billion to $47.6 billion from
1993 to 1996, 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.
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The Company also believes that the United States market will
continue to demand products which reduce the risks of infection
and patient cross-contamination. This 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 air-water syringe tips, 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. It is generally
believed that approximately 40% of the United States population
is covered by some form of dental insurance, up from 35% in 1980.
While insurance coverage may have increased, the Health Care
Finance Review indicates that, in 1996, 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
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 trademarks in the industry,
including ASH(R), CAULK(R), CAVITRON(R), CERAMCO(R), DENTSPLY(R), DETREY(R),
GENDEX(R), MIDWEST(R), R&R(R), RINN(R), TRUBYTE(R), MAILLEFER(R), PROFILE(R),
THERMAFIL(R), ACUCAM(R) and SANI-TIP(R). Sales of the Company's
professional dental products accounted for approximately 95% of
DENTSPLY's consolidated sales for 1997, 1996 and 1995,
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(R) and PORTRAIT(R) IPN(R) trade names,
among others, and are produced by the Company in York,
Pennsylvania, Brazil, Germany and China in some 15,000
combinations of shapes, sizes and shades.
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Impression Materials: Impression materials are used to
make molds of teeth for fitting crowns, bridges and
dentures. DENTSPLY's JELTRATE(R), BLUEPRINT(TM), REPROSIL(R) and
AQUASIL LV Smart Wetting Impression Material 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.
DENTSPLY'S new SUREFIL(TM) High Density Composite Restorative
represents the birth of an entirely new category of dental
materials. It is condensable, just like amalgam and offers
true amalgam-like packability with the aesthetics of a
composite or tooth-colored filling material. In addition,
its wear rates are equal to or less than an amalgam
restoration. The Company's new DYRACT(R) AP is the improved
second generation of a revolutionary, patented, single
component restorative material featuring simplicity in
delivery combined with excellence in restorative results.
Laboratory wear studies indicate a wear rate one half that
of original DYRACT(R). Also, formulated with an improved
resin matrix, it delivers the compressive strength of a
hybrid composite. Due to its improved wear resistance and
strength, DYRACT(R) AP is the first compomer indicated for all
classes of cavities. The Company's PRISMA(R) AP.H(R), PRISMA(R)
TPH(R) and TPH SPECTRUM(TM) 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 ADVANCE(R) 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(R) 2.1 is the latest
generation of a single bottle, multi-purpose dental adhesive
and bonding agent which combines the functions of a primer
and an adhesive in a simple-to-use single component formula.
Its proprietary resin formulation enhances the long-term
marginal integrity of stress-bearing restorations at both
dentin and enamel margins. DENTSPLY also markets the
DISPERSALLOY(R), UNISON(R) and MEGALLOY(TM) lines of restorative
amalgams; and DELTON(R) and DELTON(R) PLUS (with fluoride
release) brand dental sealants.
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
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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(R) line, and in Europe,
the DETREY(R) CARAT(R) line of specialty crown and bridge
porcelain products for use as fixed prosthetics. FINESSE(TM)
Porcelain from Ceramco, features superb shade matching and
permits the dental laboratory to fire restorations with
extraordinary aesthetics. FINESSE(R) Porcelain restorations
also allow dentists to adjust and repolish at chairside
without reglazing.
Endodontic Instruments and Materials: These products
are used in root canal treatment of severely damaged or
decayed teeth. Through its Maillefer and Tulsa Dental
Products Inc. ("Tulsa Dental") subsidiaries, the Company has
an extensive endodontic product offering including broaches,
files, and other endodontic materials and instruments. The
SUREFLEX(R) 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(R)
SERIES 29(R) 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(R) .04 TAPERS(R) feature non-standard
tapers constructed from super-flexible nickel titanium for
use in a controlled, slow-speed, high-torque rotary dental
handpiece. The latest endodontic technology was
incorporated into the newly developed THERMASYSTEM(R) PLUS
which includes THERMASEAL(R) PLUS, a patented root canal
filling material which is fast, effective and more tissue-
friendly and the THERMAPREP(R) PLUS Oven which cuts required
heating time for plastic THERMAFIL(R) PLUS Obturators from up
to seven minutes to as little as seventeen seconds. The
THERMASYSTEM(R) PLUS provides a three dimensional root canal
fill in a fraction of the time it takes for traditional
lateral condensation procedures.
Protective Supplies: These products are designed to
ameliorate possible sources of patient cross-contamination
of infectious disease, and include RITE-ANGLE(R) and NUPRO(R)
Disposable Prophy Angles (disposable mechanical devices used
by dentists and hygienists to clean and polish teeth), hand
cleansers, disposable barriers, enzymatic cleansers, needle
stick prevention devices and disposable air-water syringe
tips. The SANI-TIP(R) Disposable Air-Water Syringe Tip
features a central water channel encircled by six separate
air channels. This innovative design, when coupled with a
SANI-TIP(R) adaptor, produces precise separation or
atomization of air and water while its clear cellulose-
based plastic does not obstruct the practioner's vision and
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allows office staff to determine if a tip was previously
used.
Tooth Whitener: DENTSPLY also offers a tooth whitening
system. The NUPRO(R) Gold Tooth Whitening System is a
complete, professionally administered program. Patients
receive a tooth whitening system in a convenient, easy-to-
use take home kit. Clinical studies for this innovative
product showed that teeth averaged eight shades whiter which
far exceeds the American Dental Association recommendation
which states that whiteners must change teeth by a least two
shades.
Other Consumable and Laboratory Products: Other
products produced by the Company for use in dental offices
and laboratories include NUPRO(R) prophylaxis paste that is
used in cleaning and polishing teeth; the VERTEX(R)
disposable articulator used in dental laboratories to
simulate the dynamic movement of teeth against one another;
MICROBASE(TM), a methyl methacrylate free, high-pressure
injection system for denture resin which eliminates
potential problems for those sensitive to residual leaching
of monomer and features a quicker, microwave cure cycle
resulting in excellent fitting dentures; and pre-sterilized
dental needles in a variety of gauges and lengths.
Dental Equipment. DENTSPLY's dental equipment product lines
include high and low speed handpieces, intraoral lighting
systems, dental cutting instruments, ultrasonic scalers and
polishers, x-ray systems and related support equipment and
accessories, and air abrasion systems.
Handpieces: Under the MIDWEST(R) 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. Midwest's
RDH(R) Hygienist Handpiece is a more comfortable,
ergonomically sound and lightweight handpiece for the dental
hygienist. Its one piece "twist and click" connection
avoids cumbersome sterilization protocols and provides
faster handpiece changes.
Dental Cutting Instruments: The Company distributes
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MIDWEST(R) 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.
Air Abrasion Unit: The AIRTOUCH(TM) Cavity Preparation
System is an air-abrasion unit that delivers aluminum oxide
particles with pressurized air to cut tooth structure. This
unit features directed spray control, a significantly
improved evacuation system to safely remove the powder from
the oral cavity and an ergonomically designed handpiece.
The new system is monitored by a highly sophisticated
software program which provides dentists with simple
instructions for basic use and maintenance. The need for
anesthetic is absent from many procedures when using the
AIRTOUCH(TM) Cavity Preparation System and there is a lower
level of vibration, pressure and noise when compared with
traditional cavity preparation methods.
Ultrasonic Scalers and Polishers: DENTSPLY
manufactures and distributes the CAVITRON(R) SPS(TM) Ultrasonic
Scaler (which uses ultrasonic waves to remove hardened tooth
calculus which results from the interaction of plaque,
saliva and food particles). SPS(TM) stands for Sustained
Performance System, a patent-pending technology which acts
much like an automobile's cruise control that measures tip
motion and compensates for reduction in tip motion once the
insert tip contacts the tooth surface. By doing this, SPS(TM)
provides more power for improved scaling efficiency and
permits the dentist to set the power control at a lower
level, providing a more comfortable scaling procedure for
the patient. Additional product offers include the
CAVITRON(R) JET with SPS(TM) Technology (which combines both
ultrasonic scaling and air polishing prophylaxis in one
multi-function unit) and the PROPHY-JET(R) 30 Air Polishing
Prophylaxis Unit (which cleans, polishes and buffs the tooth
surface after scaling is completed). DENTSPLY manufactures
a variety of inserts for use with its ultrasonic prophylaxis
units. The FOCUSED SPRAY(TM) Insert brings water directly to
the instrument tip and focuses water where it is most
needed. The SLIMLINE(R) Ultrasonic Insert is 40 percent
thinner than standard ultrasonic inserts and allows
subgingival ultrasonic instrumentation at depths up to 7 mm.
The FSI(TM) SLIMLINE(R) combines the best features of the
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FOCUSED SPRAY(TM) Insert and the SLIMLINE(R) Ultrasonic Insert.
Dental X-Ray Systems: The Company offers a full line
of dental x-ray equipment for intraoral, panoramic and
cephalometric procedures. 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. The new ORTHORALIX(TM)
9000 panoramic x-ray system comes with a mechanical drive
and advanced microprocessor control which minimizes spinal
shadow for sharp detail throughout the x-ray film. A
scientifically derived, software controlled motion path
ensures proper density, contrast and sharpness on any size
patient. Cephalometric systems permit precise, repeatable
positioning of the patient's skull so that images taken at
different times can be compared. The Company markets two
real time, digital video x-ray systems, VISUALIX(TM) and the
NI-DX(TM) Digital Radiography System. These systems use a
solid state, intraoral x-ray sensor and associated computer
which 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. The DENOPTIX(TM) Digital Imaging
System is a new, patented, digital x-ray imaging product
compatible with the installed base of both intraoral and
panoramic units. This system uses storage phosphor imaging
technology to create digital x-ray images on imaging plates.
These imaging plates are thin and flexible and are available
in every intraoral and panoramic size. They are reusable,
do not require chemical processing like conventional film,
and allow the dentist to reduce the amount of radiation to
the patient by as much as 90%. When placed in a laser
scanner, the information on the imaging plate is converted
to a digital image via a computer. Imaging software is then
used to enhance the image through magnification, sharpening,
inverting, reversing, adding color or embossing for
simulated three-dimensional depth.
X-Ray Support Equipment: Under the RINN(R) 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,
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developing chemicals and x-ray collimating devices.
The GXP(R) 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.
The Company offers SOFTDENT(R) practice management software
through its InfoSoft division. This fully integrated software is
used in managing both the dental "front" office as well as in
maintaining a data base of information generated in the
operatory's clinical environment. SOFTDENT(R) is used in more than
10,000 dental offices throughout the United States. The InfoSoft
division is also the number one processor of electronic dental
insurance claims in the United States. A new service offered by
InfoSoft is statement preparation and mailing at a substantial
savings over what dentists can do on their own.
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
primary marketing efforts on the dental professionals who are the
end users of its 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 450
international representatives and approximately 50 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
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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
products are distributed through dental dealers, certain highly
technical products such as the Company's CERAMCO(R) line of crown
and bridge porcelain products and Tulsa Dental's endodontic
instruments and materials are sold directly to the dental
laboratory or dentist.
DENTSPLY also maintains nine 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; Ballaigues,
Switzerland; Hong Kong; and Mexico City, Mexico 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 and restoratives.
Product Development
During 1997, 1996 and 1995, approximately $16.8 million,
$14.7 million and $12.3 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 200 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
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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
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(R) TPH(R) 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
14
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 39 foreign facilities (including 13 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
in Central and South America, Australia, Hong Kong, Thailand,
India, Philippines and Japan. DENTSPLY has established a joint
venture and marketing activities in Moscow, Russia to serve the
countries of the former Soviet Union. In 1996, a wholly-owned
subsidiary, including a manufacturing facility, was established
in the People's Republic of China. Manufacturing operations in
India also commenced in 1996.
For 1997, 1996 and 1995, the Company's sales outside the
United States, including export sales, accounted for
approximately 48%, 49% and 48%, respectively, of consolidated net
sales from continuing operations. For information about the
Company's continuing operations in different geographic areas for
1997, 1996 and 1995, see Note 4 of the Notes to the Company's
Consolidated Financial Statements. 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.
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
15
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 regulations. 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
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.
16
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 owns and maintains several hundred domestic and foreign
patents. The Company believes its patents are important to its
business, although no aspect of its business is materially
dependent on any particular patent.
Employees
As of March 15, 1998, the Company and its subsidiaries had
approximately 5,300 employees, of whom approximately 2,900 were
engaged in manufacturing operations, approximately 1,675 were
engaged in sales and distribution, approximately 525 were engaged
in finance and administration, and approximately 200 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; 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, 2000. The Company believes
that its relationship with its employees is good.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The factors described below are important risk factors. The
occurrence of any of these risks could have a material adverse
effect on the Company's business or operating results, causing
actual results to differ materially from those expressed in
forward-looking statements made by the Company or its
representatives in this report or in any other written or oral
reports or presentations. These factors are intended to serve as
meaningful cautionary statements within the meaning of the
Private Securities Litigation Reform Act of 1995.
17
Rate of Growth
- --------------
The Company's ability to continue to increase revenues
depends on a number of factors, including the rate of growth in
the market for dental supplies and equipment, the ability of the
Company to continue to develop innovative and cost-effective new
products, and the acceptance by dental professionals of new
products and technologies. The demand for dental services can be
adversely affected by economic conditions, healthcare reform or
more stringent limits in expenditures by dental insurance
providers. There is also a risk that dental professionals may
resist new products or technologies or may not be able to obtain
reimbursement from dental insurance providers for the use of new
procedures or equipment.
Acquisitions
- ------------
The Company's growth in recent years has depended to a
significant extent on acquisitions. The Company completed eleven
acquisitions in 1995, 1996 and 1997, the largest of which were
Maillefer Instruments S.A. in 1995 and Tulsa Dental Products LLC
in 1996. There can be no assurance that the Company will be able
to continue to identify and complete acquisitions which will add
materially to the Company's revenues. Among the risks that could
affect the Company's ability to complete such acquisitions are
competition for appropriate acquisition candidates and the
relatively small size of many such candidates. Moreover, there
can be no assurance that the Company will successfully integrate
into its operations the businesses that it acquires or that any
such integration will not take longer and cost more than
anticipated.
Fluctuating Operating Results
- -----------------------------
The Company's business is subject to quarterly variations in
operating results caused by seasonality and by business and
industry conditions, making operating results more difficult to
predict. The timing of acquisitions, the impact of purchase
accounting adjustments and consolidations among distributors of
the Company's products may also affect the Company's operating
results in any particular period.
Currency Translation and International Business Risks
- -----------------------------------------------------
Because approximately 40% of the Company's revenues have
been generated in currencies other than the U.S. dollar, the
18
value of the U.S. dollar in relation to those currencies affects
the Company's operating results. In 1997, the strength of the
U.S. dollar relative to foreign currencies had a negative effect
on the Company's revenues and operating results. If the U.S.
dollar continues to strengthen in relation to other currencies,
the Company's revenues and operating results will continue to be
adversely affected. In addition, approximately 50% of the
Company's revenues result from sales in markets outside of the
U.S. Europe has been an important market for the Company, and
although Asia has not historically been the source of significant
revenues, the Company has made investments in Asian markets
because it believes that long-term future growth prospects in
Asia are good. Weakness in economic conditions in Europe could
have a material adverse effect on the Company's sales and
operating results, and continued economic turmoil in Asia could
have a material adverse effect on the Company's future rate of
growth.
Margin Improvements
- -------------------
The Company strives to increase its margins by controlling
its costs and improving manufacturing efficiencies. However,
there can be no assurance that the Company's efforts will
continue to be successful. Margins can be adversely affected by
many factors, including competition, product mix and the effect
of acquisitions.
Ability to Attract and Retain Personnel
- ---------------------------------------
The Company's success is dependent upon its management and
employees. The loss of senior management employees or any
failure to recruit and train needed managerial, sales and
technical personnel could have a material adverse effect on the
Company.
Year 2000
- ---------
Although the Company does not believe that the amounts it
expects to expend to complete its Year 2000 conversion project
will have a material effect on its financial position or results
of operations, there can be no assurance that all necessary
software upgrades, training, data conversion, testing and
implementation will be completed by the anticipated date of
June 30, 1999. In addition, the Company cannot be certain that
its suppliers or customers will complete Year 2000 conversions so
as not to interrupt the Company's operations, cause unanticipated
costs or reduce sales.
19
Competition
- ------------
The worldwide market for dental supplies and equipment is
highly competitive. There can be no assurance that the Company
will successfully identify new product opportunities and develop
and market new products successfully, or that new products and
technologies introduced by competitors will not render the
Company's products obsolete or noncompetitive.
Antitakeover Provisions
- -----------------------
Certain provisions of the Company's Certificate of
Incorporation and By-Laws and of Delaware law could have the
effect of making it difficult for a third party to acquire
control of the Company. Such provisions include the division of
the Board of Directors of the Company into three classes, with
the three-year term of each class expiring each year, a provision
allowing the Board of Directors to issue preferred stock having
rights senior to those of the Common Stock and certain procedural
requirements which make it difficult for stockholders to amend
the Company's by-laws and which preclude stockholders from
calling special meetings of stockholders. In addition, members
of the Company's management and participants in the Company's
Employee Stock Ownership Plan collectively own approximately 18%
of the outstanding Common Stock of the Company, which may
discourage a third party from attempting to acquire control of
the Company in a transaction that is opposed by the Company's
management and employees.
Item 2. Properties
- -------------------
As of March 15, 1998, 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; corporate
headquarters
York, Pennsylvania Manufacture and distribution of Owned
dental equipment and preventive
dental products
Des Plaines, Illinois Manufacture and assembly of dental Leased
handpieces and components and
dental x-ray equipment
20
Franklin Park, Manufacture and distribution of Owned
Illinois needles and needle-related
products, primarily for the dental
profession
Milford, Delaware Manufacture and distribution of Owned
consumable dental products
Las Piedras, Manufacture of crown and bridge Owned
Puerto Rico materials
Elgin, Illinois Manufacture of dental x-ray film Owned
holders, film mounts and
accessories
Maumee, Ohio Manufacture and distribution of Owned
investment casting products
Lakewood, Colorado Manufacture and distribution of Leased
bone grafting materials and
Hydroxylapatite plasma-feed
coating materials
Commerce, California Manufacture and distribution of Leased
investment casting products
Carlsbad, California Manufacture and distribution of Leased
intraoral cameras and computer
imaging systems
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
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
21
Mexico City, Mexico Manufacture and distribution of Owned
dental products
Plymouth, England Manufacture and distribution of Leased
dental hand instruments
Blackpool, England Manufacture and distribution of Leased
dental materials
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 distribution of Leased
consumable dental products
New Delhi, India Manufacture and distribution of Leased
dental products
Tianjin, China 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 20 international locations in 15 foreign countries. Of the 23
United States and international sites used exclusively for sales
and distribution, one is owned by the Company and the remaining
22 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.
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 1996, DENTSPLY and its subsidiary, Tulsa Dental
22
Products Inc. ("Tulsa") filed a complaint against Tycom
Corporation et al "(Defendants") alleging patent infringement by
Tycom of certain patents owned by Tulsa covering endodontic
instruments. Tycom filed an answer and counterclaim denying
patent infringement and alleging that DENTSPLY and Tulsa (i)
engaged in conduct which violates Section 2 of the Sherman
Antitrust Act; (ii) tortiously interfered with Defendants'
business relations; and (iii) were guilty of unfair competition.
On October 1, 1997 a settlement was reached in which Tycom
acknowledged the validity of DENTSPLY's patent and DENTSPLY
granted a license to Tycom under the patents at issue in the
litigation.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not applicable.
Executive Officers of the Registrant
The following table sets forth certain information regarding
the executive officers of the Company as of March 15, 1998.
Name Age Position
---- --- --------
Leslie A. Jones 58 Chairman of the Board
John C. Miles II 56 Vice Chairman of the Board and
Chief Executive Officer
Gerald K. Kunkle Jr. 51 President and Chief Operating
Officer
W. William Weston 50 Senior Vice President
Michael R. Crane 57 Senior Vice President
Thomas L. Whiting 55 Senior Vice President
Edward D. Yates 54 Senior Vice President and Chief
Financial Officer
Brian M. Addison 44 Vice President, Secretary and
General Counsel
Leslie A. Jones was appointed Chairman of the Board in May
1996. Mr. Jones has served as a director since the June 11, 1993
merger (the "Merger") of Dentsply International Inc. ("Old
Dentsply") and GENDEX Corporation ("Gendex"), of which the Company
is the surviving corporation. Prior to the Merger he served as a
director of Old Dentsply. Mr. Jones has been Chairman and a
director of OBOS Inc., a manufacturer of communication devices,
since August 1993. From 1992 until August 1993 he was a private
investor. From January 1991 to January 1992, he was a Senior
Vice President and Special Assistant to the President of Old
Dentsply.
23
John C. Miles II was named Vice Chairman of the Board
effective January 1, 1997. He was named Chief Executive Officer
of the Company upon the resignation of Burton C. Borgelt from
that position on January 1, 1996. Prior to that he was President
and Chief Operating Officer and a director of the Company since
the Merger and of Old Dentsply commencing in January 1990.
Gerald K. Kunkle Jr. was named President and Chief Operating
Officer effective January 1, 1997. Prior thereto, Mr. Kunkle
served as President of Johnson and Johnson's Vistakon Division, a
manufacturer and marketer of contact lenses, from January 1994
and, from early 1992 until January 1994, was President of Johnson
and Johnson Orthopaedics, Inc., a manufacturer of orthopaedic
implants, fracture management products and trauma devices.
Effective February 1, 1998, DENTSPLY implemented a new
organizational structure for its profit center locations. The
new structure is designed to put key worldwide franchises that
have multiple locations under common senior management.
Effective February 1, 1998, W. William Weston was named
Senior Vice President of the following profit centers: DeDent,
Dentsply France, Dentsply Italy, Dentsply United Kingdom, L.D.
Caulk, SIMFRA, SPAD and StomaDent. From January 1, 1996 until
February 1, 1998 Mr. Weston was Senior Vice President, European
Group. 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.
Effective February 1, 1998, Michael R. Crane was named
Senior Vice President of the following profit centers: Ceramco,
CeraMed, Dentsply Argentina, Dentsply Brazil, Dentsply Canada,
Dentsply Mexico, DeTech, Latin American Export, MPL, North
American Group Marketing, Preventive Care, Ransom & Randolph and
Trubyte. From January 1, 1996 until February 1, 1998, Mr. Crane
was Senior Vice President, North American Group. Prior to that
he was Senior Vice President, Europe, Mideast, Africa and
Commonwealth of Independent States of the Company effective in
early 1995. 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.
Effective February 1, 1998, Thomas L. Whiting was named
Senior Vice President of the following profit centers: Dentsply
Asia, Dentsply Australia, Dentsply Japan, Gendex, Maillefer,
Midwest, New Image, Tulsa Dental, Gendex Germany, and Gendex
Italy. From early 1995 until February 1, 1998 Mr. Whiting was
Senior Vice President, Pacific Rim, Latin America and Gendex; his
responsibilities and title were expanded to encompass Tulsa
24
Dental and New Image upon the Company's acquisitions of those
businesses. 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.
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.
Brian M. Addison has been Vice President, Secretary and
General Counsel of the Company since January 1, 1998. Prior to
that he was Assistant Secretary and Corporate Counsel since
December 1994. From August 1994 to December 1994 he was a
Partner at the Harrisburg, Pennsylvania law firm of McNees,
Wallace & Nurick. Prior to that he was Senior Counsel at Hershey
Foods Corporation.
25
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 7A. Quantitative and Qualitative Disclosure About Market
- --------------------------------------------------------------
Risk
- ----
Not applicable.
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.
26
Item 9. Changes in and Disagreements with Accountants on
- ---------------------------------------------------------
Accounting and Financial Disclosure
- -----------------------------------
Not applicable.
27
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", "Section 16(a) Beneficial Ownership
Reporting compliance" 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.
28
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 36
2. Selected Financial Data 37
3. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 39
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 45
Independent Auditors' Report of
KPMG Peat Marwick LLP 46
Consolidated Statements of Income
for the years ended December 31,
1997, 1996 and 1995 47
Consolidated Balance Sheets as of
December 31, 1997 and 1996 48
Consolidated Statements of
Stockholders' Equity for the years
ended December 31, 1997, 1996 and
1995 49
Consolidated Statements of Cash
Flows for the years ended
December 31, 1997, 1996 and 1995 51
Notes to Consolidated Financial
Statements 55
29
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 75
accounts
Financial statement schedules not
listed above have been omitted because
they are inapplicable, are not re-
quired 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.
30
6. 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)
4.1 364-Day and 5-Year Competitive
Advance, Revolving Credit and
Guaranty Agreements dated as of
October 23, 1997 among the Company,
the guarantors named therein, the
banks named therein, the Chase
Manhattan Bank as Administrative
Agent, and ABN Amro Bank, N.V. as
Documentation Agent. (Note: All
attachments have been omitted.
Copies of such attachments will be
furnished supplementally to the
Securities and Exchange Commission
upon request.)
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) 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 (6)
10.3 1992 Stock Option Plan adopted May
26, 1992 (7)*
10.4 (a) Employee Stock Ownership Plan as
amended effective as of December 1,
1982, restated as of January 1,
1991 (10)*
(b) Second Amendment to the DENTSPLY
Employee Stock Ownership Plan (13)
10.5 (a) Retainer Agreement dated December
29, 1992 between the Company and
State Street Bank and Trust Company
("State Street") (8)
(b) Trust Agreement between the Company
and State Street Bank and Trust
31
Company dated as of August 11, 1993
(9)
(c) Amendment to Trust Agreement
between the Company and State
Street Bank and Trust Company
effective August 11, 1993 (9)
10.6 DENTSPLY Stock Option Conversion
Plan approved June 23, 1993 (8)*
10.7 Employment Agreement dated January
1, 1996 between the Company and
Burton C. Borgelt (12)*
10.8 (a) Employment Agreement dated as of
December 31, 1987 between the
Company and John C. Miles II (8)*
(b) Amendment to Employment Agreement
between the Company and John C.
Miles II dated February 16, 1996,
effective January 1, 1996 (12)*
10.9 Employment Agreement dated as of
December 31, 1987, as amended as of
February 8, 1990, between the
Company and Leslie A. Jones (8)*
10.10 Employment Agreement dated as of
December 10, 1992 between the
Company and Michael R. Crane (8)*
10.11 Employment Agreement dated as of
December 10, 1992 between the
Company and Edward D. Yates (8)*
10.12 Employment Agreement dated as of
December 10, 1992 between the
Company and J. Patrick Clark (8)*
10.13 Employment Agreement dated January
1, 1996 between the Company and W.
William Weston (12)*
10.14 Employment Agreement dated January
1, 1996 between the Company and
Thomas L. Whiting (12)*
10.15 Employment Agreement dated October
11, 1996 between the Company and
Gerald K. Kunkle Jr. (13)*
10.16 1993 Stock Option Plan (1)*
10.17 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 (10)
10.18 (a) DENTSPLY International Inc. 401(k)
Savings Plan Summary Plan
Description, as amended effective
January 1, 1994 (10)*
(b) Fourth Amendment to the DENTSPLY
International 401(k) Savings Plan
32
effective January 1, 1996 (13)*
10.19 Midwest Dental Products Corporation
Pension Plan as amended and re-
stated effective January 1, 1989
(10)*
10.20 Revised Ransom & Randolph Pension
Plan, as amended effective as of
September 1, 1985, restated as of
January 1, 1989 (10)*
10.21 DENTSPLY International Inc.
Directors' Deferred Compensation
Plan effective January 1, 1997
(13)*
10.22 Asset Purchase and Sale Agreement,
dated January 10, 1996, between
Tulsa Dental Products, L.L.C. and
DENTSPLY International Inc. (11)
21.1 Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
- -------------------
* Management contract or compensatory plan.
(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 (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 Registration Statement on Form S-8 (No. 33-61780).
(7) Incorporated by reference to exhibit included in the
Company's Registration Statement on Form S-8 (No. 33-52616).
(8) 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.
33
(9) 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.
(10) 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.
(11) Incorporated by reference to exhibit included in the
Company's Current Report on Form 8-K dated January 10,
1996, 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
ended December 31, 1995, File No. 0-16211.
(13) Incorporated by reference to exhibit included in the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 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 Grid Note dated November 4, 1996 executed in favor of
The Chase Manhattan Bank in connection with a line of credit
up to $20,000,000 between the Company and The Chase
Manhattan Bank.
(2) Agreement dated November 4, 1996 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 CoreStates Bank.
(4) Credit Agreement dated August 15, 1996 between Dentsply
Canada Limited ("DCL") and Mellon Bank Canada.
(5) Promissory Note dated December 1, 1995 in connection with a
line of credit up to $20,000,000 between the Company and
Mellon Bank.
(6) Form of "comfort letters" to various foreign commercial
lending institutions having a lending relationship with one
or more of the Company's international subsidiaries.
34
(7) Unsecured Note dated July 8, 1993 between the Company and
Harris Trust and Savings Bank in the principal amount of
$1,750,000.
(b) Reports on Form 8-K
-------------------
The Company did not file any Reports on Form 8-K
during the quarter ended December 31, 1997.
* * * * * *
35
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 high and low sale prices of the Company's common stock
for the periods indicated as reported on the Nasdaq National
Market (after giving effect to the two-for-one stock split
effective on October 29, 1997):
Market Range of Common Stock Cash
---------------------------- Dividend
1997 High Low Declared
- ---- -------- -------- --------
First Quarter $27-1/2 $23-3/8 $.04625
Second Quarter 26-3/16 22-5/16 .04625
Third Quarter 28-15/16 24-5/16 .05125
Fourth Quarter 31-3/4 26-1/8 .05125
1996
- ----
First Quarter $20-3/8 $18-3/4 $.04125
Second Quarter 22-3/8 20 .04125
Third Quarter 22-1/4 18-5/8 .04125
Fourth Quarter 24-1/2 20-7/8 .04625
1995
- ----
First Quarter $18-1/8 $15-1/2 $.03750
Second Quarter 18-7/16 17-1/8 .03750
Third Quarter 20-1/8 16-3/8 .03750
Fourth Quarter 20-1/8 16-15/16 .04125
The Company estimates, based on information supplied by its
transfer agent, that there are approximately 15,725 holders of
common stock, including 498 holders of record.
36
DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
Year Ended December 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
Statement of Income Data: (in thousands, except per share amounts)
Net sales $ 720,760 $ 656,557 $ 572,028 $ 524,758 $ 503,820
Cost of products sold 352,034 331,887 291,176 267,034 257,707
------------ ------------ ------------ ------------ ------------
Gross profit 368,726 324,670 280,852 257,724 246,113
Selling, general and administrative expenses 236,270 205,206 180,117 160,324 172,147
------------ ------------ ------------ ------------ ------------
Operating income from continuing operations
before discretionary ESOP contributions 132,456 119,464 100,735 97,400 73,966
Discretionary ESOP contributions --- --- --- --- 4,361
Interest expense 12,660 11,095 9,144 7,999 20,752
Interest income (1,654) (1,024) (1,265) (1,527) (370)
Other (income) expense, net (556) (1,567) 2,839 (734) (2,119)
------------ ------------ ------------ ------------ ------------
Income from continuing operations
before income taxes 122,006 110,960 90,017 91,662 51,342
Provision for income taxes 47,452 43,738 36,054 37,518 26,197
------------ ------------ ------------ ------------ ------------
Income from continuing operations 74,554 67,222 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 74,554 67,222 53,963(1) 61,998 28,070(1)
Extraordinary loss related to early
extinguishment of debt (net of
income tax benefit of $6.3 million) --- --- --- --- 14,018
------------ ------------ ------------ ------------ ------------
Net income $ 74,554 $ 67,222 $ 53,963(1) $ 61,998 $ 14,052(1)
============ ============ ============ ============ ============
<FN>
</FN>
37
Year Ended December 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
Basic Earnings per Common Share: ------------ ------------ ------------ ------------ ------------
- -------------------------------- (in thousands, except per share amounts)
Income from continuing operations $ 1.38 $ 1.25 $ 1.00 $ .98 $ .51
Income from the operation of
discontinued Medical business --- --- --- .02 .06
Gain on disposal of Medical business --- --- --- .12 ---
------------ ------------ ------------ ------------ ------------
Income before extraordinary item 1.38 1.25 1.00 1.12 .57
Extraordinary item --- --- --- (.28)
------------ ------------ ------------ ------------ ------------
Net income $ 1.38 $ 1.25 $ 1.00 $ 1.12 $ .29
============ ============ ============ ============ ============
Diluted Earnings per Common Share:
- ----------------------------------
Income from continuing operations $ 1.37 $ 1.25 $ .99 $ .97 $ .50
Income from the operation of
discontinued Medical business --- --- --- .02 .06
Gain on disposal of Medical business --- --- --- .12 ---
------------ ------------ ------------ ------------ ------------
Income before extraordinary item 1.37 1.25 .99 1.11 .56
Extraordinary item --- --- --- --- (.28)
------------ ------------ ------------ ------------ ------------
Net income $ 1.37 $ 1.25 $ .99 $ 1.11 $ .28
============ ============ ============ ============ ============
Cash Dividends Declared per Common Share $ .195 $ .17 $ .1538 $ .075 $ ---
Weighted average common shares outstanding:
Basic 53,937 53,840 54,024 55,552 49,196
Diluted 54,229 53,994 54,255 56,094 49,796
Balance Sheet Data (at end of period):
Working capital $ 107,678 $ 113,547 $ 122,706(2) $ 92,206(2) $ 82,779(2)
Total assets 774,376 667,662 582,383(2) 466,930(2) 466,787(2)
Total long-term debt 105,505 75,109 68,675 12,789 95,356
Stockholders' equity 423,933 365,590 315,922 299,337 236,397
Other Data:
Depreciation and amortization $ 32,405 $ 28,108 $ 21,488 $ 18,133(3) $ 17,951(3)
Capital expenditures 27,660 20,801(3) 17,421(3) 12,504(3) 9,212(3)
<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.
(2) Excludes net assets of discontinued operations.
(3) Excludes discontinued operations.
</FN>
38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Any statements released by the Company that are forward-looking,
including without limitation, statements containing the words "plans",
"anticipates", "believes", "expects", or words of similar import
constitute forward-looking statements which are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. Investors are cautioned that forward-looking statements
involve risks and uncertainties which may affect the Company's business
and prospects, including economic, competitive, governmental,
technological and other factors discussed in the Company's filings with
the Securities and Exchange Commission.
Results of Operations, 1997 Compared to 1996
- --------------------------------------------
Net sales increased $64.2 million, or 9.8% from $656.6 million in
1996 to $720.8 million in 1997. About one half of this increase was
due to strong growth in the United States from a moderate increase in
base business and incremental sales from the acquisition of New Image
Industries, Inc. ("New Image") and the dental assets of DW Industries,
Inc. ("DW"), EFOS Corporation ("EFOS") and MPL Technologies, Inc ("MPL").
The growth in the United States was partially offset by the adverse
impact of the termination of the Implant Distribution Agreement between
Core-Vent Corporation and DENTSPLY in the first quarter of 1997. In
Europe, strong growth in base business plus incremental sales from the
acquisition of Laboratoire SPAD, S.A. ("SPAD") and SIMFRA S.A.
("SIMFRA") was adversely impacted by the translation effect of the
strong U.S dollar. Sales growth in the Pacific Rim and Latin America
remained strong.
Gross profit increased $44.1 million, or 13.6% due primarily to
higher net sales. As a percentage of net sales, gross profit increased
from 49.5% in 1996 to 51.2% in 1997. The percentage improved in 1997
due to better operating performance in manufacturing facilities in both
the United States and Europe and a favorable mix of higher margin
products in each major geographic region. In 1996, purchase price
accounting for the acquisitions of Maillefer Instruments S.A.
("Maillefer"), Tulsa Dental Products LLC ("Tulsa Dental") and CeraMed
Dental, LLC ("CeraMed") had an adverse impact on the gross profit
percentage.
Selling, general and administrative ("SG&A") expenses increased
$31.1 million, or 15.1%. As a percentage of net sales, expenses
increased from 31.3% in 1996 to 32.8% in 1997. This increase was
mainly due to the high ratio of expenses to sales for certain direct
selling businesses acquired in 1997 which typically have a high ratio
of SG&A expenses to sales; increased amortization from 1997
acquisitions; expansion of the endodontic sales force and start-up of
the group practices business unit in the United States; continued
emphasis on upgrading the information systems in the United States and
Europe; increased spending for the new China subsidiary in the Pacific
Rim; increased research and development expenses; and costs associated
39
with certain legal proceedings.
The increase in interest expense of $1.6 million was due to
acquisition debt, largely offset by cash generated from operations.
Other income was $.6 million in 1997 compared to $1.6 million in 1996.
The variance was primarily due to a legal settlement of $1.2 million in
the Company's favor in 1996.
Income before income taxes increased $11.0 million or 10.0% from
$111.0 million in 1996 to $122.0 million in 1997. Net income in 1997
was $74.6 million, compared with $67.2 million reported in 1996, an
increase of 10.9%.
Basic earnings per common share (after giving effect to the two-
for-one stock split effective on October 29, 1997) of $1.38 for 1997
increased $.13 or 10.4% from $1.25 in 1996. Diluted earnings per
common share of $1.37 for 1997 increased $.12, or 9.6% from $1.25 in
1996.
Results of Operations, 1996 Compared to 1995
- --------------------------------------------
Net sales increased $84.6 million, or 14.8% from $572.0 million in
1995 to $656.6 million in 1996. About one half of this increase was
due to the inclusion of a full year of the operations of Maillefer in
1996 versus a partial year in 1995, when Maillefer was acquired, and
the 1996 acquisitions of the dental operations of Tulsa Dental and
CeraMed. The remainder was due to strong growth in the Pacific Rim and
Latin America and modest growth in both the United States and Europe.
Gross profit increased $43.8 million, or 15.6% due primarily to
higher net sales. Gross profit as a percentage of net sales was 49.5%
in 1996 compared to 49.1% in 1995. The improvement in the gross
margin percentage was due to a combination of high margin products from
acquisitions, cost reductions, and increased margin obtained from
replacing distributors with DENTSPLY affiliates in certain foreign
locations. Improvements in the gross profit percentage were partially
offset by the adverse impact of acquisition accounting for Maillefer,
Tulsa Dental, and CeraMed.
SG&A expenses increased $25.1 million, or 13.9%. As a percentage
of net sales, expenses decreased from 31.5% in 1995 to 31.3% in 1996.
This decrease was primarily due to lower spending levels compared to
sales in Europe, Pacific Rim, and Latin America. The percentage to
net sales improvement was partially offset by increased amortization
from 1996 acquisitions, expenses associated with upgrading management
information systems in the United States and Europe, continued emphasis
on end user pull through marketing strategy, and research and
development.
The $2.2 million increase in net interest expense was primarily
due to acquisition debt, partially offset by cash generated from
operations. Other income was $1.6 million in 1996, compared to other
40
expense of $2.8 million in 1995. Other income in 1996 was primarily
due to a legal settlement of $1.2 million in the Company's favor in the
first quarter, while the Company took a one-time charge of $3.1 million
the second quarter of 1995 to cover the costs of closing down its
executive offices in Illinois and consolidating its executive
operations in York, Pennsylvania.
Income before income taxes increased $21.0 million, or 23.3% from
$90.0 million in 1995 to $111.0 million in 1996. Without the one-time
charge of $3.1 million in 1995 to cover the costs of closing the
Company's executive offices in Illinois, income before income taxes
increased $17.9 million, or 19.2%.
Net income increased $13.2 million to $67.2 million in 1996 from
$54.0 million in 1995, an increase of 24.6%. Without the one-time
after-tax charge of $1.8 million in 1995 to cover the costs of closing
the Company's executive offices in Illinois, net income increased $11.4
million, or 20.4%.
Basic earnings per common share of $1.25 for 1996 increased $.25,
or 25.0% from $1.00 in 1995. Without the one-time after-tax charge of
$1.8 million in 1995 to cover the costs of closing the Company's
executive offices in Illinois, basic earnings per common share
increased $.22, or 21.4% over 1995. Diluted earnings per common share
of $1.25 for 1996 increased $.26, or 26.3% from $.99 in 1995. Without
the one-time after-tax charge, diluted earnings per common share
increased $.22, or 21.4% over 1995.
Foreign Currency
- ----------------
Since approximately 40% 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
partially offset 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 January 1997, the Company purchased the assets of DW for $16.3
million and all of the capital stock of SPAD for approximately $36.0
million in cash and a deferred payment of $3.5 million, which was paid
in January 1998. In March 1997 the Company purchased all of the
capital stock of New Image for approximately $11.0 million. In July
1997 the Company purchased the dental assets of EFOS for approximately
$15.0 million and all of the capital stock of SIMFRA for about $5.5
million. In November 1997, the Company purchased certain assets of MPL
for approximately $4.4 million in cash and a deferred payment of $.4
41
million. These cash transactions were funded from the Company's $175
million Bank Revolving Loan Facility and short-term bank borrowings.
In October 1997, the Company entered into new revolving credit
agreements (the "Revolving Credit Agreements") for a $175 million five
year facility and a $125 million 364-day facility. The Revolving
Credit Agreements replaced the 1993 $175 million Bank Revolving Loan
Facility and the $60 million bank term loan. The five year facility
matures in October 2002 but may be extended, subject to certain
conditions, until October 2004. The 364-day facility terminates in
October 1998 but contains a one year term-out provision and may be
extended, subject to certain conditions, for additional periods of 364
days. The Revolving Credit Agreements are unsecured and contain
various financial and other covenants.
Under the Bank Multicurrency Revolving Credit Facility, the
Company is able to borrow up to $25 million for foreign working capital
purposes on an unsecured basis through December 23, 1999. In addition,
the Company has unused lines of credit for short-term financing of
$54.0 million at December 31, 1997.
Investment activities for 1997 included capital expenditures of
$27.7 million.
During 1997 the Company repurchased forty thousand shares of its
common stock for $.9 million, in accordance with the share repurchase
program authorized by the Board of Directors in December 1996. This
authorization to repurchase shares expired on December 31, 1997. In
December 1997, the Board of Directors authorized the repurchase of up
to .5 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.
At December 31, 1997, the Company's current ratio was 1.6 with
working capital of $107.7 million. This compares with a current ratio
of 1.8 and working capital of $113.5 million at December 31, 1996.
The Company expects to be able to finance its cash requirements,
including capital expenditures, stock repurchases, debt service and
acquisitions from funds generated from operations and amounts available
under the Revolving Credit Agreements.
Cash flows from operating activities increased to $94.3 million in
1997 from $83.2 million in 1996 primarily due to higher net income.
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 in 1991 under the Implant Distribution
42
Agreement, along with certain assets of the implant business, have been
transferred back to Core-Vent Corporation. The noncancelable purchase
commitment related to the Implant Distribution Agreement has been
terminated. Net sales and a loss before income taxes for the implant
business were $11.2 million and $3.8 million, respectively, in 1997
compared to net sales of $27.9 million and a loss before income taxes
of $3.0 million in 1996.
Comprehensive Income
- --------------------
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
Reporting Comprehensive Income. SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in a
full set of general purpose financial statements. It does not require
a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income
for the period in that financial statement.
SFAS 130 is effective for both interim and annual periods
beginning after December 15, 1997. Comparative financial statements
provided for earlier periods are required to be reclassified to reflect
the provisions of this Statement. It is anticipated that the
translation adjustment currently reported in Stockholder's Equity will
be presented as a component of comprehensive income. Losses of $12.4
million in 1997 and $7.5 million in 1996 and gains of $3.0 million in
1995 from translation of foreign operations to U.S. dollars have been
included in Stockholder's Equity and recorded as cumulative translation
adjustments.
Segment Reporting
- -----------------
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
Disclosures about Segments of an Enterprise and Related Information.
SFAS 131 establishes standards for the way public business enterprises
are to report information about operating segments in annual financial
statements and requires those enterprises to report selected
information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers.
SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated, unless it
is impracticable to do so. SFAS 131 need not be applied to interim
financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of
application shall be reported in financial statements for interim
periods in the second year of application. Since DENTSPLY operates in
a single segment, it is anticipated that SFAS 131 will not require any
additional segment disclosures to be presented by the Company.
43
Year 2000
- ---------
The Company has conducted a comprehensive review of its computer
systems to identify the systems that are affected by the "Year 2000"
issue. In 1995, the Company commenced a year 2000 conversion project
for all of its locations to address necessary software upgrades,
training, data conversion, testing and implementation. The Company
will incur internal staff costs as well as consulting and other
expenses to complete the project by the anticipated date. The Company
does not expect the amounts required to be expensed during the project
to have a material effect on its financial position or results of
operations.
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.
44
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 our independent auditors,
KPMG Peat Marwick LLP to review the scope and results of their audit
effort. The Audit Committee reviews with management and the
independent auditors the financial controls and reporting practices and
generally monitors the accounting affairs of the Company. Also, the
Audit Committee recommends to the Board of Directors and management the
appointment of the independent auditors.
John C. Miles II Gerald K. Kunkle Edward D. Yates
Vice Chairman and President and Chief Senior Vice President and
Chief Executive Officer Operating Officer Chief Financial Officer
45
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 29. In
connectin with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index on page 30. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, 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 22, 1998
46
DENTSPLY International Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
--------------------------------
1997 1996 1995
--------------------------------
(in thousands, except per share amounts)
Net sales $720,760 $656,557 $572,028
Cost of products sold 352,034 331,887 291,176
-------- -------- --------
Gross profit 368,726 324,670 280,852
Selling, general and administrative
expenses 236,270 205,206 180,117
-------- -------- --------
Operating income 132,456 119,464 100,735
Other income and expenses:
Interest expense 12,660 11,095 9,144
Interest income (1,654) (1,024) (1,265)
Other (income) expense, net (556) (1,567) 2,839
-------- -------- --------
Income before income taxes 122,006 110,960 90,017
Provision for income taxes 47,452 43,738 36,054
-------- -------- --------
Net income $ 74,554 $ 67,222 $ 53,963
======== ======== ========
Earnings per common share-basic $ 1.38 $ 1.25 $ 1.00
-diluted $ 1.37 $ 1.25 $ .99
Cash dividends declared per common share $ .195 $ .17 $ .1538
Weighted average common shares
outstanding-basic 53,937 53,840 54,024
-diluted 54,229 53,994 54,255
The accompanying Notes are an integral part of these Financial Statements.
47
DENTSPLY International Inc.
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------
1997 1996
Assets -------------------
Current assets: (in thousands)
Cash and cash equivalents $ 9,848 $ 5,619
Accounts and notes receivable - trade, net 114,366 101,977
Inventories 124,748 125,398
Prepaid expenses and other current assets 28,065 23,752
-------- --------
Total Current Assets 277,027 256,746
Property, plant and equipment, net 147,130 141,458
Other noncurrent assets, net 13,314 13,259
Identifiable intangible assets, net 103,513 59,787
Costs in excess of fair value of net assets
acquired, net 233,392 196,412
-------- --------
Total Assets $774,376 $667,662
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current portion of long-term debt $ 24,005 $ 26,711
Accounts payable 38,942 33,720
Accrued liabilities 71,563 52,504
Income taxes payable 34,839 30,264
-------- --------
Total Current Liabilities 169,349 143,199
Long-term debt 105,505 75,109
Other liabilities 43,954 49,467
Deferred income taxes 27,647 30,000
-------- --------
Total Liabilities 346,455 297,775
-------- --------
Minority interests in consolidated subsidiaries 3,988 4,297
-------- --------
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; 54.2 million shares and 27.1 million
pre-split shares issued at December 31, 1997 and 1996,
respectively 542 271
Capital in excess of par value 150,738 150,031
Retained earnings 301,058 237,300
Cumulative translation adjustment (16,720) (4,278)
Employee stock ownership plan reserve (9,497) (11,016)
Treasury stock, at cost, .1 million and .4 million
shares at December 31, 1997 and 1996, respectively (2,188) (6,718)
-------- --------
Total Stockholders' Equity 423,933 365,590
-------- --------
Total Liabilities and Stockholders' Equity $774,376 $667,662
======== ========
The accompanying Notes are an integral part of these Financial Statements.
48
DENTSPLY International Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Capital in Cumulative Employee Stock Total
Common Excess of Retained Translation Ownership Treasury Stockholders'
Stock Par Value Earnings Adjustment Plan 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 2.7 million
shares of common stock - - - - - (42,703) (42,703)
Cash dividends declared, $.1538
per common share - - (8,263) - - - (8,263)
Cancellation of 1.8 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
Exercise of stock options and
warrants - (146) - - - 1,384 1,238
Tax benefit related to stock
options and warrants exercised - 218 - - - - 218
Compensatory stock options
lapsed - (40) - - - - (40)
Repurchase of .2 million
shares of common stock - - - - - (3,825) (3,825)
Cash dividends declared, $.17
per common share - - (9,153) - - - (9,153)
Translation adjustment - - - (7,512) - - (7,512)
Net change in ESOP reserve - - - - 1,520 - 1,520
Net income - - 67,222 - - - 67,222
------- -------- -------- ------- -------- -------- --------
Balance at December 31, 1996 $ 271 $150,031 $237,300 $(4,278) $(11,016) $ (6,718) $365,590
<FN>
The accompanying Notes are an integral part of these Financial Statements.
</FN>
49
DENTSPLY International Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Capital in Cumulative Employee Stock Total
Common Excess of Retained Translation Ownership Treasury Stockholders'
Stock Par Value Earnings Adjustment Plan 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 - (133) - - - 5,458 5,325
Tax benefit related to stock
options and warrants exercised - 840 - - - - 840
Repurchase of forty thousand
shares of common stock - - - - - (928) (928)
Cash dividends declared, $.195
per common share - - (10,525) - - - (10,525)
Two-for-one stock split effected
in the form of a stock dividend 271 - (271) - - - -
Translation adjustment - - - (12,442) - - (12,442)
Net change in ESOP reserve - - - - 1,519 - 1,519
Net income - - 74,554 - - - 74,554
------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1997 $ 542 $150,738 $301,058 $(16,720) $ (9,497) $ (2,188) $423,933
======= ======== ======== ======== ======== ======== ========
<FN>
The accompanying Notes are an integral part of these Financial Statements.
</FN>
50
DENTSPLY International Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------------
1997 1996 1995
-------- -------- --------
Cash flows from operating activities: (in thousands)
Net income $ 74,554 $ 67,222 $ 53,963
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 15,341 14,799 12,130
Amortization 17,064 13,309 9,358
Deferred income taxes (1,828) (3,008) (1,692)
Other non-cash transactions 263 289 668
Loss on disposal of property, plant and equipment 559 367 1,027
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 (13,080) (6,777) (1,893)
Inventories 1,694 256 (8,233)
Prepaid expenses and other current assets (305) (4,574) (775)
Other noncurrent assets, net (82) 497 225
Accounts payable (1,795) 472 2,372
Accrued liabilities (483) 945 (51)
Income taxes payable 4,250 1,467 (2,971)
Other liabilities (1,864) (2,075) 3,388
-------- -------- --------
Net cash provided by operating activities 94,288 83,189 67,516
-------- -------- --------
<FN>
The accompanying Notes are an integral part of these Financial Statements.
</FN>
51
DENTSPLY International Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------------
1997 1996 1995
-------- -------- --------
Cash flows from investing activities: (in thousands)
Proceeds from disposal of Medical business --- 7,500 3,260
Proceeds from sale of property, plant and equipment, net 1,257 351 2,443
Capital expenditures (27,660) (20,804) (17,633)
Expenditures for identifiable intangible assets (3,382) (3,000) (60)
Acquisitions of businesses, net of cash acquired (78,822) (82,181) (73,407)
Other direct costs of acquisition and divestiture activities (2,395) (259) (512)
Other, net (155) (355) ---
-------- -------- --------
Net cash used in investing activities (111,157) (98,748) (85,909)
-------- -------- --------
<FN>
The accompanying Notes are an integral part of these Financial Statements.
</FN>
52
DENTSPLY International Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------------
1997 1996 1995
-------- -------- --------
Cash flows from financing activities: (in thousands)
Proceeds from sale of common stock, including tax benefit
of stock options exercised 6,165 1,456 9,034
Cash paid for treasury stock (928) (3,825) (42,703)
Cash dividends paid (10,238) (8,893) (8,123)
Increase (decrease) in bank overdrafts 886 (2,357) 1,580
Proceeds from long-term borrowings, net of deferred
financing costs 218,449 87,499 123,635
Payments on long-term borrowings (184,524) (67,490) (70,915)
Increase (decrease) in short-term borrowings (7,605) 11,382 (28)
Decrease in employee stock ownership plan reserve 1,519 1,520 1,519
-------- -------- --------
Net cash provided by financing activities 23,724 19,292 13,999
-------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents (2,626) (2,088) 1,090
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 4,229 1,645 (3,304)
Cash and cash equivalents at beginning of period 5,619 3,974 7,278
-------- -------- --------
Cash and cash equivalents at end of period $ 9,848 $ 5,619 $ 3,974
======== ======== ========
<FN>
The accompanying Notes are an integral part of these Financial Statements.
</FN>
53
DENTSPLY International Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------------
1997 1996 1995
Supplemental disclosures of cash flow -------- -------- --------
information: (in thousands)
Interest paid $ 9,024 $ 7,484 $ 6,243
Income taxes paid 43,840 43,879 35,573
Supplemental disclosures of non-cash
transactions:
Note receivable for fixed assets
associated with arbitration ruling
terminating the Implant Distribution
Agreement 389 --- ---
Assumption of debt in connection with
acquisitions 4,310 --- ---
<FN>
The Company assumed liabilities in conjunction with the following acquisitions:
</FN>
Fair Value Cash Paid for
of Assets Assets or Liabilities
Date Acquired Acquired Capital Stock Assumed
------------- ---------- ------------- -----------
(in thousands)
MPL Technologies, Inc. November 1997 $ 5,452 $ 4,425 $ 1,027
EFOS Corporation July 1997 15,032 14,988 44
SIMFRA S.A. July 1997 8,431 5,464 2,967
New Image Industries Inc. March 1997 35,643 10,957 24,686
DW Industries, Inc. January 1997 18,956 16,253 2,703
Laboratoire SPAD, S.A. January 1997 47,054 35,992 11,062
CeraMed Dental, LLC August 1996 5,000 5,000 0
Tulsa Dental Products LLC January 1996 78,662 75,114 3,548
Dunvale Corporation August 1995 1,982 1,839 143
Maillefer Instruments, S.A. June 1995 97,188 65,798 31,390
KV33 Corporation March 1995 14,329 11,450 2,879
<FN>
The accompanying Notes are an integral part of these Financial Statements.
</FN>
54
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 dental prosthetics,
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, intraoral cameras, dental operatory software systems, dental
x-ray film holders, film mounts and bone substitute/grafting materials; and a
leading United States distributor of dental cutting instruments. The Company
distributes its dental products in over 100 countries under some of the most
well-established brand names in the industry. DENTSPLY is committed to the
development of innovative, high quality, cost-effective new products for the
dental market.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company
and all majority-owned subsidiaries. Intercompany accounts and transactions
are eliminated. Minority interests in net income of consolidated subsidiaries
are not material and are 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.
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 $4.6 million and $2.5 million at December
31, 1997 and 1996, respectively.
55
Inventories
- -----------
Inventories are stated at the lower of cost or market. At December 31,
1997 and 1996, the cost of $14.9 million, or 12% 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.
Identifiable Intangible Assets
- ------------------------------
Identifiable intangible assets include patents, trademarks, non-compete
covenants, licensing agreements 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 $36.9 million and $28.9 million at December 31,
1997 and 1996, 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 $34.0 million and $26.1
million at December 31, 1997 and 1996, 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.
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 certain assets and liabilities denominated in
foreign currencies.
56
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, 1997, the
Company had contracts outstanding for the purchase of 29.7 million Swiss francs
(approximately $20.7 million) and 13.7 million French francs (approximately
$2.3 million), and the sale of $1.4 million Australian dollars (approximately
$.9 million). As of December 31, 1996, the Company had contracts outstanding
for the purchase of 21.4 million Swiss francs (approximately $16.2 million).
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.
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 $.3 million in 1997 and $.2 million in
1995 and losses of $.3 million in 1996 are included in other (income) expense,
net.
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 $16.8 million, $14.7 million and
$12.3 million for 1997, 1996 and 1995, respectively.
Stock Based Compensation
- ------------------------
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). SFAS 123 presents companies with the alternative of
retaining the current accounting for stock based compensation under APB Opinion
No. 25 ("APB 25") or adopting a new accounting method based on the estimated
fair value of equity instruments granted during the year. The Company applies
APB 25 in accounting for its stock options (see Note 10 - Stockholders'
Equity).
57
NOTE 2 - EARNINGS PER COMMON SHARE
- ----------------------------------
On September 18, 1997 the Company's Board of Directors authorized a two-
for-one stock split effected in the form of a 100% stock dividend distributed
on October 29, 1997 to shareholders of record on October 14, 1997. All share
and per share data included in the accompanying financial statements, except as
noted, have been restated to reflect the stock split.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS
128"). This Statement simplifies the standards for computing earnings per
share ("EPS") and makes them comparable to international EPS standards. It
replaces the presentation of primary EPS with a presentation of basic EPS and
requires dual presentation of basic and diluted EPS on the face of the income
statement of all entities with complex capital structures. SFAS 128 also
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
As required, the Company adopted SFAS 128 in the fourth quarter of 1997;
accordingly, all per share amounts have been restated to reflect basic and
diluted EPS.
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
(in thousands, except per share amounts)
Year Ended December 31, 1997
Basic EPS $ 74,554 53,937 $1.38
Incremental shares from assumed
exercise of dilutive options
and warrants - 292
-------- ------
Diluted EPS $ 74,554 54,229 $1.37
======== ======
Year Ended December 31, 1996
Basic EPS $ 67,222 53,840 $1.25
Incremental shares from assumed
exercise of dilutive options
and warrants - 154
-------- ------
Diluted EPS $ 67,222 53,994 $1.25
======== ======
Year Ended December 31, 1995
Basic EPS $ 53,963 54,024 $1.00
Incremental shares from assumed
exercise of dilutive options
and warrants - 231
-------- ------
Diluted EPS $ 53,963 54,255 $.99
======== ======
58
NOTE 3 - BUSINESS ACQUISITIONS
- ------------------------------
In November 1997, the Company purchased certain assets of MPL
Technologies, Inc. ("MPL"), a wholly-owned subsidiary of SoloPak
Pharmaceuticals, for $4.4 million in cash and a deferred payment of $.4
million. Located in Franklin Park, Illinois, MPL is a leading manufacturer and
distributor of needles and needle-related products, primarily for the dental
profession.
In July 1997, the Company purchased the dental assets of EFOS Corporation
("EFOS") for Canadian $20.7 million in a cash transaction valued at
approximately $15.0 million. EFOS, located in Toronto, Canada, is the
developer and manufacturer of DENTSPLY's dental curing lights and amalgamators.
Additionally, EFOS serves the dental market with protective eyewear products,
replacement parts and curing light repair and service.
Also in July 1997, the Company purchased the outstanding capital stock of
SIMFRA S.A. ("SIMFRA") for FF32.1 million in a cash transaction valued at
approximately $5.5 million and assumption of $1.4 million of debt. Located in
Paris, SIMFRA is the exclusive importer of Maillefer Instruments, S.A. in
France.
In March 1997, the Company purchased all of the capital stock of New Image
Industries, Inc. ("New Image") for $2.00 per share or approximately $11.0
million pursuant to a tender offer and assumption of $2.9 million of debt. New
Image designs, develops, manufactures, and distributes intraoral cameras and
computer imaging systems and related software exclusively for the dental
market, and is located in Carlsbad, California.
In January 1997, the Company purchased the assets of DW Industries, Inc.
("DW") in a cash transaction valued at approximately $16.3 million and an earn-
out based on future sales growth of the business. Located in Las Vegas,
Nevada, DW 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, S.A. ("SPAD") for FF199.5 million or $36.0 million
in cash and a deferred payment of FF 21.5 million or $3.5 million which was
paid in January 1998. SPAD, a subsidiary of GROUP MONOT, S.A., is a leading
French manufacturer and distributor of dental anesthetic and other dental
products.
The 1997 acquisitions were accounted for under the purchase method of
accounting; accordingly, the results of their operations 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. The excess of acquisition cost over net
assets acquired of $4.2 million for DW, $33.5 million for SPAD, $6.5 million
for New Image, $3.8 million for SIMFRA, and $.1 million for MPL is being
amortized over 25 years. Since the fair value of net assets acquired from EFOS
exceeded the purchase price by approximately $.6 million, the values otherwise
assignable to noncurrent assets acquired have been reduced by a proportionate
part of the excess. These acquisitions, individually and in the aggregate, did
not have a material impact on the Company's 1997 results; accordingly, pro
forma information has been omitted.
59
In August 1996, the Company paid $5 million for a 51% interest in CeraMed
Dental, LLC ("CeraMed") and the right to acquire the remaining 49% interest at
a later date. CeraMed, located in Lakewood, Colorado, is the leading US
manufacturer and distributor of bone grafting materials and HA plasma-feed
coating materials to dental markets.
In January 1996, the Company purchased certain assets of Tulsa Dental
Products LLC ("Tulsa Dental") in a cash transaction valued at $75.1 million and
an earn-out based on future operating performance of the business. Based in
Tulsa, Oklahoma, Tulsa Dental is a manufacturer and distributor of endodontic
instruments and materials.
In August 1995, the Company purchased the assets of Dunvale Corporation
("Dunvale") in a cash transaction valued at $1.8 million.
In June 1995, the Company purchased approximately 96% of the outstanding
capital stock of Maillefer Instruments, S.A. ("Maillefer") in a cash
transaction valued at approximately $65.8 million. An additional 3.9% of
Maillefer stock was purchased in June 1996 for cash of approximately $2.3
million. Based in Switzerland, Maillefer is a manufacturer and distributor of
principally endodontic instruments.
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 1996 and 1995 acquisitions were also accounted for under the purchase
method of accounting; accordingly, the results of their operations 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 the fair values of assets acquired. The excess of
acquisition cost over net assets acquired of $.9 million for CeraMed, $53.7
million for Tulsa Dental, $1.5 million for Dunvale, and $10.2 million for KV33
is being amortized over 25 years. Since the fair value of net assets acquired
from Maillefer exceeded the purchase price by approximately $16.7 million, the
values otherwise assignable to noncurrent assets acquired have been reduced by
a proportionate part of the excess.
In January 1998, the Company purchased the assets of Blendax Professional
Dental Business ("Blendax") from Procter & Gamble for $7 million. Blendax is a
distributor doing business principally in Germany, Austria and the United
Kingdom. The Blendax product line consists of rotary cutting instruments,
impression materials, composite filling material, and fluoride rinses and gels.
In March 1998, the Company purchased the assets of InfoSoft in a cash
transaction valued at approximately $8.5 million. Headquartered in White
Marsh, Maryland, the primary business of InfoSoft is the development and sale
of full-featured, practice-management software. InfoSoft is also the number
one processor of electronic dental insurance claims in America.
NOTE 4 - INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
- ----------------------------------------------------
The Company's 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
60
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 operations 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. Assets by
geographic area are those used in the operations in the geographic area.
61
The following table sets forth information about the Company's operations in different
geographic areas for 1997, 1996, and 1995:
United
1997 States Europe Other Corporate Eliminations Total
- ---- -------- -------- -------- --------- ------------ --------
Net sales: (in thousands)
Customers $402,743 $217,962 $100,055 $ --- $ --- $720,760
Intercompany 63,048 27,309 4,961 --- (95,318) ---
-------- -------- -------- -------- -------- --------
Total net sales 465,791 245,271 105,016 --- (95,318) 720,760
Operating income (loss) 99,361 40,889 6,096 (12,975) (915) 132,456
Assets 561,419 303,076 55,281 380,979 (526,379) 774,376
1996
- ----
Net sales:
Customers $364,221 $198,601 $ 93,735 $ --- $ --- $656,557
Intercompany 52,755 27,028 4,832 --- (84,615) ---
-------- -------- -------- -------- -------- --------
Total net sales 416,976 225,629 98,567 --- (84,615) 656,557
Operating income (loss) 91,617 33,685 3,669 (8,975) (532) 119,464
Assets 411,655 259,826 48,079 218,314 (270,212) 667,662
1995
- ----
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) 84,914 26,015 434 (9,302) (1,326) 100,735
Assets 319,429 258,723 43,631 128,823 (168,223) 582,383
<FN>
Third party export sales from the United States are less than ten percent of consolidated net
sales. One customer accounted for 12% of consolidated net sales in 1997. No customer accounted for
10% or more of consolidated net sales in 1996 and 1995.
</FN>
62
NOTE 5 - INVENTORIES
- --------------------
Inventories consist of the following:
December 31,
--------------------
1997 1996
-------- --------
(in thousands)
Finished goods $ 63,987 $ 73,650
Work-in-process 24,844 23,936
Raw materials and supplies 35,917 27,812
-------- --------
$124,748 $125,398
======== ========
Pre-tax income was $.4 million, $.3 million, and $.2 million lower in
1997, 1996,and 1995, respectively 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, 1997 and 1996 by $1.3
million and $1.7 million, respectively.
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------
Property, plant and equipment consist of the following:
December 31,
--------------------
1997 1996
-------- --------
Assets, at cost: (in thousands)
Land $ 15,045 $ 17,222
Buildings and improvements 68,009 68,185
Machinery and equipment 117,243 103,887
Construction in progress 11,856 8,505
-------- --------
212,153 197,799
Less: Accumulated depreciation 65,023 56,341
-------- --------
$147,130 $141,458
======== ========
NOTE 7 - ACCRUED LIABILITIES
- ----------------------------
Accrued liabilities consist of the following:
December 31,
--------------------
1997 1996
-------- --------
Payroll, commissions, bonuses (in thousands)
and other cash compensation $ 16,554 $ 10,739
Employee benefits 6,803 6,710
Other 48,206 35,055
-------- --------
$ 71,563 $ 52,504
======== ========
63
NOTE 8 - FINANCING ARRANGEMENTS
- -------------------------------
Short-Term Borrowings
- ---------------------
Short-term bank borrowings amounted to $23.4 million and $26.3 million at
December 31, 1997 and 1996, respectively. Unused lines of credit for short-
term financing at December 31, 1997 and 1996 were $54.0 million and $63.5
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,
--------------------
1997 1996
-------- --------
(in thousands)
$175.0 million bank revolving loan facility
maturing October 2002, Swiss Francs 45.4
million, Pounds Sterling 6.5 million, and
$50.0 million outstanding at December 31,
1997, bearing interest at a weighted average
of 2.1% for Swiss Francs borrowings, 7.7% for
Pounds Sterling borrowings, and 6.0% for
dollar borrowings $ 91,737 $ ---
$175.0 million bank revolving loan facility
maturing December 1999 --- 10,000
$60.0 million bank term loan maturing
December 1999 --- 55,636
$25.0 million bank multicurrency revolving
credit facility maturing December 1999,
various currencies outstanding at
December 31, 1997, bearing interest at
a weighted average of 8.1% 12,981 8,577
Other borrowings, various currencies and rates 1,370 1,318
-------- --------
106,088 75,531
Less: Current portion (included in notes payable
and current portion of long-term debt) 583 422
-------- --------
$105,505 $ 75,109
======== ========
In October 1997, the Company entered into new revolving credit agreements
(the "Revolving Credit Agreements") for a $175.0 million five-year facility and
a $125.0 million 364-day facility. The Revolving Credit Agreements replaced
the $175.0 million facility maturing in 1999 and the $60.0 million bank term
loan.
The Revolving Credit Agreements contain certain affirmative and negative
covenants as to the operations and financial condition of the Company, the most
64
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 amount of the
commitment under the $175.0 five-year facility and .08 percent annually under
the 364-day facility. Interest rates on amounts borrowed under the facility
will depend on the maturity of the borrowing, the currency borrowed, the
interest rate option selected, and, in the event of a LIBOR borrowing, the
ratio of interest expense to operating income.
The bank multicurrency revolving credit facility contains affirmative and
negative covenants as to the operations and financial condition of the Company,
which are substantially equivalent to those in the Revolving Credit Agreements.
The Company pays a facility fee of .10 percent annually on the entire amount of
the bank multicurrency revolving credit facility commitment.
NOTE 9 - OTHER LIABILITIES
- --------------------------
Other liabilities consist of the following:
December 31,
--------------------
1997 1996
-------- --------
(in thousands)
Pension $ 29,357 $ 30,870
Medical and other postretirement benefits 10,307 10,299
Other 4,290 8,298
-------- --------
$ 43,954 $ 49,467
======== ========
NOTE 10 - STOCKHOLDERS' EQUITY
- ------------------------------
All amounts have been restated to reflect the stock split in 1997.
In December 1997, 1996, and 1995, the Board of Directors authorized the
repurchase of up to .5 million, 5.4 million, and 5.6 million shares,
respectively, of common stock on the open market or in negotiated transactions.
Each of these authorizations to repurchase shares expires on December 31 of the
following year. The Company repurchased forty thousand shares for $.9 million,
.2 million shares for $3.8 million and 2.7 million shares for $42.7 million in
1997, 1996 and 1995, respectively.
A former Chairman of the Board holds options to purchase 30,000 shares of
common stock at an exercise price of $22.25, which was equal to the market
price on the date of grant. The options are exercisable at any time through
January 2004.
The Company issued 360,000 stock purchase warrants in August 1990 in
connection with an acquisition to the principals of an investment banking firm,
one of whom is a former director of the Company. The warrants are exercisable
at any time through August 28, 2000, at an exercise price of $3.06 per share
(market price at date issued). During 1997, 16,000 of the warrants were
exercised and 52,000 remain outstanding at December 31, 1997.
The Company has three stock option plans (1987 Plan, 1992 Plan, and 1993
Plan). Under the 1987 and 1992 Plans, a committee appointed by the Board of
65
Directors granted to key employees and directors of the Company options to
purchase 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 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 6,000 shares of common stock on the date he or she becomes a
non-employee director and an additional 6,000 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. All options
granted to date under the 1993 Plan have been NSOs.
Options granted under any of the three 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.
The following is a summary of the status of the Plans as of December 31,
1997, 1996, and 1995 and changes during the years ending on those dates:
----Outstanding---- ----Exercisable----
Weighted Weighted Available
Average Average for
Exercise Exercise Grant
Shares Price Shares Price Shares
--------- -------- --------- -------- ---------
December 31, 1994 1,349,284 $15.81 571,484 $ 7.42 2,649,028
Authorized --- 5,950
Granted 894,600 18.34 (894,600)
Exercised (377,762) 5.18 ---
Expired/Canceled (134,000) 22.00 134,000
--------- ---------
December 31, 1995 1,732,122 18.96 393,126 16.74 1,894,378
Authorized --- (80,612)
Granted 363,600 22.66 (363,600)
Exercised (71,878) 16.71 ---
Expired/Canceled (105,856) 20.38 102,334
--------- ---------
66
December 31, 1996 1,917,988 19.66 805,848 18.64 1,552,500
Authorized --- (5,586)
Granted 489,300 28.00 (489,300)
Exercised (288,235) 18.26 ---
Expired/Canceled (82,456) 19.60 82,456
--------- ---------
December 31, 1997 2,036,597 21.87 1,090,921 19.71 1,140,070
=========
The following table summarizes information about stock options outstanding
under the Plans at December 31, 1997:
-------Options Outstanding-------- -Options Exercisable-
Weighted
Number Average Number
Outstanding Remaining Weighted Exercisable Weighted
At Contractual Average At Average
Range of December 31, Life Exercise December 31, Exercise
Exercise Prices 1997 (in years) Price 1997 Price
- --------------- ----------- ----------- -------- ----------- --------
$ 2.60 - $11.60 60,000 3.7 $ 7.31 60,000 $ 7.31
14.50 - 17.40 91,532 6.8 17.21 62,398 17.17
17.41 - 20.30 689,566 7.5 18.77 470,371 18.82
20.31 - 23.20 479,266 6.5 22.08 420,204 22.19
23.21 - 26.10 326,133 8.9 23.65 77,948 23.38
26.11 - 29.00 390,100 9.9 28.91 --- ---
--------- ---------
2,036,597 7.8 $21.87 1,090,921 $19.71
========= =========
The per share weighted-average fair value of stock options granted during
1997, 1996 and 1995 was $10.43, $8.65 and $6.81, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions: 1997-expected dividend yield 0.8%, risk-free interest rate
6.0%, expected volatility 26%, and an expected life of 6.5 years; 1996-expected
dividend yield 0.8%, risk-free interest rate 6.4%, expected volatility 26%, and
an expected life of 6.5 years; and 1995-expected dividend yield 0.8%, risk-free
interest rate 5.9%, expected volatility 26%, and an expected life of 6.5 years.
The Company applies APB 25 in accounting for the Plans and, accordingly,
no compensation cost has been recognized for stock options in the financial
statements. Had the Company determined compensation cost based on the fair
value of stock options at the grant date under SFAS 123, the Company's net
income would have been reduced as indicated below:
Year Ended December 31,
1997 1996 1995
-------- -------- --------
(in thousands, except per share amounts)
Net income
As reported $ 74,554 $ 67,222 $ 53,963
Pro forma under SFAS 123 72,851 66,109 53,774
Basic earnings per common share
As reported 1.38 1.25 1.00
Pro forma under SFAS 123 1.35 1.23 1.00
Diluted earnings per common share
As reported 1.37 1.25 1.00
Pro forma under SFAS 123 1.34 1.22 .99
67
Pro forma net income reflects only options granted since January 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS 123 is not reflected in the pro forma net income amounts presented
above because compensation cost is reflected over the options' vesting period
of 3 years and compensation cost for options granted prior to January 1, 1995
is not considered.
NOTE 11 - INCOME TAXES
- ----------------------
The components of income before income taxes are as follows:
Year Ended December 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(in thousands)
United States $ 77,398 $ 77,619 $ 66,403
Foreign 44,608 33,341 23,614
-------- -------- --------
$122,006 $110,960 $ 90,017
======== ======== ========
The components of the provision for income taxes are as follows:
Year Ended December 31,
--------------------------------
1997 1996 1995
-------- -------- --------
Current: (in thousands)
U.S. federal $ 27,407 $ 26,715 $ 21,526
U.S. state 4,350 4,401 4,112
Foreign 17,523 15,630 11,627
-------- -------- --------
Total 49,280 46,746 37,265
-------- -------- --------
Deferred:
U.S. federal (1,671) (886) (994)
U.S. state (191) (139) (170)
Foreign 34 (1,983) (47)
-------- -------- --------
Total (1,828) (3,008) (1,211)
-------- -------- --------
$ 47,452 $ 43,738 $ 36,054
======== ======== ========
68
The provision for income taxes is reconciled to income before income taxes
as follows:
Year Ended December 31,
--------------------------------
1997 1996 1995
-------- -------- --------
Statutory federal income tax rate 35.0% 35.0% 35.0%
Effect of:
State income taxes, net of
federal benefit 2.3 2.3 3.0
Nondeductible amortization
of goodwill 1.3 1.2 1.5
Foreign losses with no tax benefit 1.2 .9 1.4
Other (.9) --- (.8)
-------- -------- --------
38.9% 39.4% 40.1%
======== ======== ========
The tax effect of temporary differences giving rise to deferred tax assets
and liabilities are as follows:
December 31, 1997 December 31, 1996
----------------------- -----------------------
Current Noncurrent Current Noncurrent
Asset Asset Asset Asset
(Liability) (Liability) (Liability) (Liability)
----------- ----------- ----------- -----------
(in thousands)
Employee benefit accruals $ 952 $ 5,185 $ 879 $ 5,056
Product warranty accruals 1,016 --- 1,166 ---
Facility relocation accruals 425 1,040 2,084 702
Insurance premium accruals 2,515 --- 2,090 ---
Differences in financial
reporting and tax basis
for:
Inventory 851 --- (2,010) ---
Property, plant and
equipment --- (24,043) --- (26,249)
Identifiable intangible assets --- (10,126) --- (9,855)
Other 2,685 697 2,344 541
Foreign tax credit
carryforwards --- --- --- 413
Tax loss carryforwards in
foreign jurisdictions --- 6,520 --- 5,987
Valuation allowance for
foreign tax credit and
tax loss carryforwards --- (6,520) --- (6,400)
-------- -------- -------- --------
$ 8,444 $(27,247) $ 6,553 $(29,805)
======== ======== ======== ========
69
Current and non-current deferred tax assets and liabilities are included in
the following balance sheet captions:
December 31,
--------------------
1997 1996
-------- --------
(in thousands)
Prepaid expenses and other current assets $ 11,096 $ 8,571
Income taxes payable (2,652) (2,018)
Other noncurrent assets, net 400 195
Deferred income taxes (27,647) (30,000)
The provision for income taxes was reduced due to utilization of tax loss
carryforwards by $151,000 in 1996. Certain foreign subsidiaries of the Company
have tax loss carryforwards of $17.2 million at December 31, 1997, of which
$11.1 million expire through 2005 and $6.1 million may be carried forward
indefinitely. The tax benefit of these tax loss carryforwards has been offset
by a valuation allowance.
Income taxes have not been provided on $52.6 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 12 - 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 $7.1 million in 1997, $7.8 million in 1996 and $7.5
million in 1995. The DENTSPLY Employee Stock Ownership Plan ("ESOP") covers
substantially all the U.S. non-union employees of DENTSPLY. Contributions to
the ESOP for 1997, 1996 and 1995 were $2.1 million, $2.0 million and $1.7
million, respectively. In addition, interest expense incurred on ESOP loans
and participant notes approximated $.2 million for 1995. Interest for 1997 and
1996 was paid directly from income of the ESOP Trust.
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 totaling at least $3.0 million over the next six 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, 1997, the ESOP held 8.4 million shares, of which 7.1 million
shares were allocated to Plan participants and 1.3 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. Accordingly, all shares held by
the ESOP are considered outstanding and are included in the earnings per common
share computations.
The Employee Stock Ownership Plan reserve consists of a loan receivable
from the ESOP bearing interest at 3.06%, payable in equal quarterly
70
installments through March 31, 2004.
The Company maintains pension plans for its employees in Germany and
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:
Year Ended December 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(in thousands)
Service cost $ 1,995 $ 2,464 $ 1,935
Interest cost on projected benefit
obligations 2,622 3,171 2,839
Net investment return on plan assets (1,317) (1,296) (251)
Net amortization and deferral (651) (412) 296
-------- -------- --------
$ 2,649 $ 3,927 $ 4,819
======== ======== ========
The funded status and amounts recognized in the consolidated balance
sheets for these retirement plans were as follows:
December 31, 1997 December 31, 1996
------------------------ ------------------------
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 $ 18,635 $ 23,688 $ 18,551 $ 24,204
======== ======== ======== ========
Accumulated benefit
obligations $ 18,635 $ 25,181 $ 18,551 $ 26,123
======== ======== ======== ========
Actuarial present value
of projected benefit
obligations $ 19,566 $ 28,089 $ 19,213 $ 28,579
Plan assets at fair value 27,508 --- 25,557 ---
-------- -------- -------- --------
Plan assets less (greater)
than projected benefit
obligations (7,942) 28,089 (6,344) 28,579
Unrecognized obligation --- (1,314) --- (1,640)
Unrecognized net gain 5,674 1,506 3,675 4,616
-------- -------- -------- --------
(Prepaid pension expense)
pension liability $ (2,268) $ 28,281 $ (2,669) $ 31,555
======== ======== ======== ========
The projected benefit obligations for these plans were determined using
71
discount rates of 7.0 percent as of December 31, 1997 and 7.5 percent as of
December 31, 1996 in Germany and 4.5 percent as of December 31, 1997 and 1996
in Switzerland. The assumed long-term rate of return on Swiss plan assets for
1997 was 5.0 percent. The weighted average rate of increase used for future
compensation levels was 3.0 percent for 1997 and 5.0 percent for 1996 and 1995
in Germany and 3.0 percent for 1997, 1996 and 1995 in Switzerland.
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,
--------------------
1997 1996
-------- --------
Accumulated postretirement benefit (in thousands)
obligation:
Retirees $ 5,839 $ 8,270
Fully eligible active plan
participants 283 464
Other active plan participants 813 1,496
-------- --------
Accumulated postretirement benefit
obligation at end of period 6,935 10,230
Unrecognized gain 3,372 69
-------- --------
Net postretirement benefit
liability $ 10,307 $ 10,299
======== ========
Year Ended December 31,
--------------------------------
1997 1996 1995
-------- -------- --------
Net periodic postretirement benefit (in thousands)
cost for the period included the
following components:
Service cost - benefits attributed
to service during the period $ 159 $ 188 $ 188
Interest cost on accumulated
postretirement benefit obligation 605 764 804
Net amortization and deferral (130) --- ---
-------- -------- --------
Net periodic postretirement
benefit cost $ 634 $ 952 $ 992
======== ======== ========
72
For measurement purposes, the annual rate of increase in the per capita
cost of covered healthcare benefits assumed for 1997 and thereafter was 7% in
1997 and 10% in 1996 and 1995. 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
increase the accumulated postretirement benefit obligation at December 31, 1997
by $.6 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 7.25% for 1997 and 8% for 1996.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
The Company leases automobiles and certain office, warehouse, machinery
and equipment and manufacturing facilities under noncancelable 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 1997, $9.2 million for 1996 and
$8.8 million for 1995.
Rental commitments, principally for real estate (exclusive of taxes,
insurance and maintenance), automobiles and office equipment amount to: $7.2
million for 1998, $6.1 million for 1999, $3.9 million for 2000, $1.7 million
for 2001, $1.2 million for 2002, and $8.9 million thereafter (net of sublease
rentals of $1.0 million in 1998, $.2 million in 1999, $.2 million in 2000, $.2
million in 2001, $.1 million in 2002, and $.5 million thereafter).
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 in 1991 under the Implant
Distribution Agreement, along with certain assets of the implant business, have
been transferred back to Core-Vent Corporation. The noncancelable purchase
commitment related to the Implant Distribution Agreement has been terminated.
The Company has no material noncancelable purchase commitments.
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 $6.1 million at December 31, 1997.
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.
73
NOTE 14 - UNUSUAL OR NON-RECURRING ITEMS
- ----------------------------------------
During 1995, 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, consisted of $1.4 million of costs
associated with consolidation of all executive functions in York, Pennsylvania
and a loss of $.4 million on the sale of the corporate aircraft. The impact of
these expenses on basic earnings per common share was $.035 in 1995.
NOTE 15 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- -----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
1997 (in thousands, except per share amounts)
- ----
Net sales $172,359 $178,307 $172,674 $197,420
Gross profit 88,050 90,771 87,802 102,103
Operating income 28,055 32,519 29,888 41,994
Net income 16,924 17,843 16,256 23,531
Earnings per common share-basic .31 .33 .30 .44
Earnings per common share-diluted .31 .33 .30 .43
Cash dividends declared per
common share .04625 .04625 .05125 .05125
1996
- ----
Net sales $155,910 $165,029 $155,327 $180,291
Gross profit 76,928 81,640 74,472 91,630
Operating income 26,901 31,228 24,699 36,636
Net income 14,987 17,770 13,873 20,592
Earnings per common share-basic .28 .33 .26 .39
Earnings per common share-diluted .28 .33 .26 .38
Cash dividends declared per
common share .04125 .04125 .04125 .04625
74
Schedule II DENTSPLY INTERNATIONAL INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
Additions
--------------------------
Charged
Balance at (Credited) Charged to Write-offs Balance
Beginning To Costs Other Net of Translation at End
Description of Period And Expenses Accounts Recoveries Adjustment of Period
- ----------- ---------- ------------ ----------- ---------- ----------- ----------
(in thousands)
Allowance for doubtful accounts:
For Year Ended December 31,
1995 $1,677 $ 515 $ 209 (a) $ (213) $ 66 $ 2,254
1996 2,254 498 20 (b) (224) (73) 2,475
1997 2,475 590 2,496 (c) (746) (178) 4,637
Allowance for trade discounts:
For Year Ended December 31,
1995 506 2,446 - (2,220) 5 737
1996 737 2,693 - (2,920) (3) 507
1997 507 2,904 - (1,214) (71) 2,126
Inventory valuation reserves:
For Year Ended December 31,
1995 5,622 908 15,608 (d) (1,869) 459 20,728
1996 20,728 (569) 167 (b) (1,380) (2,128) 16,818
1997 16,818 (2,178) 2,282 (e) (1,679) (1,169) 14,075
- ------------------
<FN>
(a) Maillefer acquisition.
(b) Tulsa acquisition.
(c) Includes $2,498 from acquisitions of MPL, New Image, SIMFRA and SPAD.
(d) Includes $15,531 from Maillefer acquisition.
(e) Includes $2,128 from acquisitions of MPL, New Image, SIMFRA and SPAD.
</FN>
75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By:/s/ John C. Miles II
-----------------------
John C. Miles II
Vice Chairman of the Board
and Chief Executive Officer
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/ Leslie A. Jones Chairman of the Board March 27, 1998
- ------------------------- and a Director
Leslie A. Jones
/s/ John C. Miles II Vice Chairman of the March 27, 1998
- ------------------------- Board and Chief Executive
John C. Miles II Officer and a Director
(Principal Executive Officer)
/s/ Gerald K. Kunkle President and Chief March 27, 1998
- ------------------------- Operating Officer
Gerald K. Kunkle
/s/ Edward D. Yates Senior Vice President March 27, 1998
- ------------------------- and Chief Financial
Edward D. Yates Officer (Principal
Financial and Accounting
Officer)
/s/ Burton C. Borgelt Director March 27, 1998
- -------------------------
Burton C. Borgelt
/s/ Douglas K. Chapman Director March 27, 1998
- -------------------------
Douglas K. Chapman
Michael J. Coleman Director March 27, 1998
- -------------------------
Michael J. Coleman
76
/s/ Arthur A. Dugoni Director March 27, 1998
- -------------------------
Arthur A. Dugoni, D.D.S., M.S.D.
/s/ C. Frederick Fetterolf Director March 27, 1998
- --------------------------
C. Frederick Fetterolf
/s/ Edgar H. Schollmaier Director March 27, 1998
- -------------------------
Edgar H. Schollmaier
/s/ W. Keith Smith Director March 27, 1998
- -------------------------
W. Keith Smith
77
EXHIBIT INDEX
Sequential
Exhibit No. Description Page No.
- ----------- ----------- ----------
3.1 Certificate of Incorporation (1)
3.2 By-Laws, as amended (1)
4.1 364-Day and 5-Year Competitive Advance, 81
Revolving Credit and Guaranty
Agreements dated as of October 23, 1997
among the Company, the guarantors named
therein, the Chase Manhattan Bank as
Administrative Agent, and ABN Amro
Bank, N.V. as Documentation Agent.
(Note: All attachments have been
omitted. Copies of such attachments
Will be furnished supplementally to
the Securites and Exchange Commission
upon request.)
10.1 (a) 1987 Employee Stock Option Plan (4)
(b) Amendment No. 1 to the Company's (5)
1987 Employee Stock Option Plan
10.2 (a) Letter Agreement dated June 29, (3)
1990 by and between Cravey, Green &
Wahlen Incorporated and the Company
(b) Stock Purchase Warrant dated August (2)
28, 1990 issued to Cravey, Green &
Wahlen Incorporated by the Company
(c) Stock Purchase Warrant Plan adopted (6)
February 25, 1993
10.3 1992 Stock Option Plan adopted May (7)
26, 1992
10.4 (a) Employee Stock Ownership Plan as (10)
amended effective as of December 1,
1982, restated as of January 1,
1991
(b) Second Amendment to the DENTSPLY (13)
Employee Stock Ownership Plan
10.5 (a) Retainer Agreement dated December (8)
29, 1992 between the Company and
State Street Bank and Trust Company
("State Street")
(b) Trust Agreement between the Company (9)
and State Street Bank and Trust
Company dated as of August 11, 1993
(c) Amendment to Trust Agreement (9)
between the Company and State
Street Bank and Trust Company
effective August 11, 1993
10.6 DENTSPLY Stock Option Conversion (8)
Plan approved June 23, 1993
10.7 Employment Agreement dated January (12)
1, 1996 between the Company and
Burton C. Borgelt
10.8 (a) Employment Agreement dated as of (8)
December 31, 1987 between the
Company and John C. Miles II
78
(b) Amendment to Employment Agreement (12)
between the Company and John C.
Miles II dated February 16, 1996,
effective January 1, 1996
10.9 Employment Agreement dated as of (8)
December 31, 1987, as amended as of
February 8, 1990, between the
Company and Leslie A. Jones
10.10 Employment Agreement dated as of (8)
December 10, 1992 between the
Company and Michael R. Crane
10.11 Employment Agreement dated as of (8)
December 10, 1992 between the
Company and Edward D. Yates
10.12 Employment Agreement dated as of (8)
December 10, 1992 between the
Company and J. Patrick Clark
10.13 Employment Agreement dated January (12)
1, 1996 between the Company and W.
William Weston
10.14 Employment Agreement dated January (12)
1, 1996 between the Company and
Thomas L. Whiting
10.15 Employment Agreement dated October (13)
11, 1996 between the Company and
Gerald K. Kunkle Jr.
10.16 1993 Stock Option Plan (1)
10.17 Revolving Credit Agreement among (10)
DENTSPLY International Inc., each
of the guarantors named therein,
and ABN AMRO Bank N.V., dated as of
September 9, 1994
10.18 (a) DENTSPLY International Inc. 401(k) (10)
Savings Plan Summary Plan
Description, as amended effective
January 1, 1994
(b) Fourth Amendment to the DENTSPLY (13)
International 401(k) Savings Plan
10.19 Midwest Dental Products Corporation (10)
Pension Plan as amended and re-
stated effective January 1, 1989
10.20 Revised Ransom & Randolph Pension (10)
Plan, as amended effective as of
September 1, 1985, restated as of
January 1, 1989
10.21 DENTSPLY International Inc. (13)
Directors' Deferred Compensation
Plan effective January 1, 1997
10.22 Asset Purchase and Sale Agreement, (11)
dated January 10, 1996, between
Tulsa Dental Products, L.L.C. and
DENTSPLY International Inc.
21.1 Subsidiaries of the Company 250
23.1 Consent of KPMG Peat Marwick LLP 252
27 Financial Data Schedule 253
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79
(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 (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 Registration Statement on Form S-8 (No. 33-61780).
(7) Incorporated by reference to exhibit included in the
Company's Registration Statement on Form S-8 (No. 33-52616).
(8) 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.
(9) 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.
(10) 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.
(11) Incorporated by reference to exhibit included in the
Company's Current Report on Form 8-K dated January 10,
1996, 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
ended December 31, 1995, File No. 0-16211.
(13) Incorporated by reference to exhibit included in the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31,1996, File No. 0-16211.
80