SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
--------------
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, P. O. Box 872, York, PA 17405-0872
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(717) 845-7511
----------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
( X ) Yes ( ) No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: At May 5, 1999 the Company had
52,773,523 shares of Common Stock outstanding, with a par value of $.01 per
share.
Page 1 of 21
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Exhibit Index at Page 20
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DENTSPLY INTERNATIONAL INC.
FORM 10-Q
For Quarter Ended March 31, 1999
----------------
INDEX
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Page No.
--------
PART I - FINANCIAL INFORMATION (unaudited)
Item 1 - Financial Statements
Consolidated Condensed Balance Sheets............ 3
Consolidated Condensed Statements of Income...... 4
Consolidated Condensed Statements of Cash Flows.. 5
Consolidated Condensed Statement of
Stockholders' Equity........................... 7
Notes to Unaudited Consolidated Condensed
Financial Statements........................... 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.... 13
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk................................ 17
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings........................... 18
Item 6 - Exhibits and Reports on Form 8-K............ 18
Signatures........................................... 19
2
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PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DENTSPLY INTERNATIONAL INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
March 31, December 31,
1999 1998
ASSETS ------------ ------------
Current assets: (in thousands)
Cash and cash equivalents $ 9,108 $ 8,690
Accounts and notes receivable-trade, net 133,218 134,218
Inventories 140,639 139,235
Prepaid expenses and other current assets 39,921 40,309
--------- ---------
Total Current Assets 322,886 322,452
Property, plant and equipment, net 167,096 158,998
Other noncurrent assets, net 19,596 67,799
Identifiable intangible assets, net 80,674 80,537
Costs in excess of fair value of net
assets acquired, net 285,572 265,536
--------- ---------
Total Assets $ 875,824 $ 895,322
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 36,176 $ 42,654
Accrued liabilities 83,937 99,427
Income taxes payable 41,647 36,025
Notes payable and current portion
of long-term debt 34,998 16,270
--------- ---------
Total Current Liabilities 196,758 194,376
Long-term debt 197,571 217,491
Deferred income taxes 17,661 18,803
Other liabilities 45,249 48,113
--------- ---------
Total Liabilities 457,239 478,783
--------- ---------
Minority interests in consolidated subsidiaries 3,042 2,738
Stockholders= equity: --------- ---------
Preferred stock, $.01 par value; .25 million
shares authorized; no shares issued
Common stock, $.01 par value; 100 million
shares authorized; 54.3 million
shares issued at March 31, 1999 and 54.3
million shares issued at December 31, 1998 543 543
Capital in excess of par value 152,306 152,871
Retained earnings 341,315 324,745
Accumulated other comprehensive income (31,394) (14,730)
Employee stock ownership plan reserve (7,598) (7,977)
Treasury stock, at cost, 1.7 million shares
at March 31, 1999 and 1.7 million shares
at December 31, 1998 (39,629) (41,651)
--------- ---------
Total Stockholders' Equity 415,543 413,801
--------- ---------
Total Liabilities and Stockholders' Equity $875,824 $ 895,322
========= =========
See accompanying notes to unaudited consolidated condensed financial statements.
3
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DENTSPLY INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(unaudited)
Three Months Ended
March 31,
--------------------
1999 1998
-------- --------
(in thousands, except per share data)
Net sales $196,589 $180,706
Cost of products sold 94,960 85,369
-------- --------
Gross profit 101,629 95,337
Selling, general and administrative expenses 67,320 63,785
-------- --------
Operating income 34,309 31,552
Interest expense 4,573 2,966
Interest income (121) (218)
Other (income) expense, net (554) (1,472)
-------- --------
Income before income taxes 30,411 30,276
Provision for income taxes 10,884 11,279
-------- --------
Net income $ 19,527 $ 18,997
======== ========
Earnings per common share:
Basic $.37 $.35
Diluted $.37 $.35
Cash dividends declared per common share $ .05625 $ .05125
Weighted average common shares outstanding:
Basic 52,566 54,124
Diluted 52,758 54,474
See accompanying notes to unaudited consolidated condensed financial statements.
4
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DENTSPLY INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31,
-------------------
1999 1998
-------- --------
Cash flows from operating activities: (in thousands)
Net income $ 19,527 $ 18,997
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 5,090 4,436
Amortization 5,519 4,660
Other, net (12,885) (25,591)
-------- --------
Net cash provided by operating activities 17,251 2,502
-------- --------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired 3,446 (13,839)
Additional consideration for prior purchased
business --- (3,522)
Property, plant and equipment additions (6,668) (7,044)
Other, net --- (527)
-------- --------
Net cash used in investing activities (3,222) (24,932)
-------- --------
Cash flows from financing activities:
Debt repayment (27,574) (14,439)
Proceeds from long-term debt 7,653 27,886
Increase (decrease) in bank overdrafts and
other short-term borrowings 12,829 2,205
Other, net (4,075) 1,106
-------- --------
Net cash provided by financing activities (11,167) 16,758
-------- --------
Effect of exchange rate changes on cash
and cash equivalents (2,444) 1,244
-------- --------
Net increase (decrease) in cash and cash equivalents 418 (4,428)
Cash and cash equivalents at beginning of period 8,690 9,848
-------- --------
Cash and cash equivalents at end of period $ 9,108 $ 5,420
======== ========
See accompanying notes to unaudited consolidated condensed financial statements.
5
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DENTSPLY INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS, CONTINUED
(unaudited)
Supplemental disclosures of cash flow information:
Interest paid $ 3,848 $ 2,128
Income taxes paid 6,662 7,888
Non-cash transactions:
Liabilities assumed from acquisitions - 2,511
Supplemental disclosures of non-cash transactions (in thousands):
In January 1998, the Company purchased the assets of Blendax Professional Dental
Business ("Blendax"). In March 1998, the Company purchased the assets of
InfoSoft, Inc. ("InfoSoft"). In conjunction with the acquisitions, liabilities
were assumed as follows:
Blendax InfoSoft
-------- --------
Fair value of assets acquired $ 6,711 $ 10,530
Cash paid for assets or capital stock (6,112) (8,618)
-------- --------
Liabilities assumed $ 599 $ 1,912
======== ========
See accompanying notes to unaudited consolidated condensed financial statements.
6
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<TABLE>
<CAPTION>
DENTSPLY INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
Accumulated
Capital in Other Total
Common Excess of Retained Comprehensive Treasury Stockholders'
Stock Par Value Earnings Income ESOP Reserve Stock Equity
(in thousands) ------ ----------- -------- ------------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 543 $152,871 $324,745 $(14,730) $ (7,977) $(41,651) $413,801
Comprehensive Income:
Net income 19,527 19,527
Other comprehensive income
Foreign currency translation
adjustments (16,664) (16,664)
--------
Comprehensive Income 2,863
Exercise of stock options and
warrants (923) 2,022 1,099
Tax benefit related to stock
options and warrants exercised 358 358
Net change in ESOP reserve 379 379
Cash dividends declared, $.05625
per share (2,957) (2,957)
------ -------- -------- -------- -------- -------- --------
Balance at March 31, 1999 $ 543 $152,306 $341,315 $(31,394) $ (7,598) $(39,629) $415,543
====== ======== ======== ======== ======== ======== ========
<FN>
See accompanying notes to unaudited consolidated condensed financial statements.
</FN>
</TABLE>
7
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DENTSPLY INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
--------------------------------------------------------------
MARCH 31, 1999
--------------
The accompanying interim consolidated condensed financial statements
reflect all adjustments (consisting only of normal recurring adjustments) which
in the opinion of management are necessary for a fair presentation of financial
position, results of operations and cash flows for the interim periods. These
interim financial statements conform with the requirements for interim financial
statements and consequently do not include all the disclosures normally required
by generally accepted accounting principles. Disclosures are updated where
appropriate.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
Principles of Consolidation
- ---------------------------
The consolidated condensed financial statements include the accounts of
DENTSPLY International Inc. (the "Company") and its subsidiaries. Minority
interests in net income of consolidated subsidiaries are not material and are
included in other (income) expense, net.
Inventories
- -----------
Inventories are stated at the lower of cost or market. At March 31, 1999
and December 31, 1998, the cost of $14.7 million or 11% and $15.3 million or
11%, respectively, of inventories was determined by the last-in, first-out
(LIFO) method. The cost of other inventories was determined by the first-in,
first-out (FIFO) or average cost method.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost, net of accumulated
depreciation. Except for leasehold improvements, depreciation for financial
reporting purposes is computed by the straight-line method over the following
estimated useful lives: buildings - generally 40 years; and machinery and
equipment - 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.
Derivatives
- -----------
The Company's only involvement with derivative financial instruments is
forward contracts to hedge certain assets and liabilities denominated in foreign
currencies and swap agreements which convert current floating interest debt to
fixed rates.
8
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NOTE 2 - EARNINGS PER COMMON SHARE
- ----------------------------------
The following table sets forth the computation of basic and diluted
earnings per common share:
Three Months Ended
March 31,
1999 1998
Basic EPS Computation: ------- -------
Numerator (Net Income) $19,527 $18,997
------- -------
Denominator:
Common shares outstanding 52,566 54,124
------- -------
Basic EPS $ 0.37 $ 0.35
======= =======
Diluted EPS Computation:
Numerator (Net Income) $19,527 $18,997
------- -------
Denominator:
Common shares outstanding 52,566 54,124
Incremental shares from assumed exercise
of dilutive options and warrants 192 350
------- -------
Total shares 52,758 54,474
------- -------
Diluted EPS $ 0.37 $ 0.35
======= =======
NOTE 3 - INVENTORIES
- --------------------
Inventories consist of the following:
March 31, December 31,
1999 1998
------------ ------------
(in thousands)
Finished goods $ 77,072 $ 75,637
Work-in-process 28,756 27,632
Raw materials and supplies 34,811 35,966
-------- --------
$140,639 $139,235
======== ========
Pre-tax income was $.1 million lower in the three months ended March 31,
1999 and 1998 as a result of using the LIFO method compared to the first-in,
first-out (FIFO) method. If the FIFO method had been used to determine the cost
of the LIFO inventories, the amounts at which net inventory is stated would be
lower than reported at March 31, 1999 and December 31, 1998 by $.9 million and
$1.0 million, respectively.
9
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NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------
Property, plant and equipment consist of the following:
March 31, December 31,
1999 1998
------------ ------------
Assets, at cost: (in thousands)
Land $ 14,075 $ 12,315
Buildings and improvements 77,632 74,966
Machinery and equipment 143,973 138,644
Construction in progress 14,287 13,262
-------- --------
249,967 239,187
Less: Accumulated depreciation 82,871 80,189
-------- --------
$167,096 $158,998
======== ========
NOTE 5 - NOTES PAYABLE AND LONG-TERM DEBT
- -----------------------------------------
The increase from December 31, 1998 in notes payable and current portion
of long-term debt ($18.7 million) was primarily due to the maturing of long-term
debt.
NOTE 6 - RESTRUCTURING AND OTHER COSTS
- --------------------------------------
In the second quarter of 1998, the Company recorded a pre-tax charge of
$29.0 million for restructuring and other costs. This charge included costs of
$26.0 million to rationalize and restructure the Company's worldwide laboratory
business, primarily for the closure of the Company's German tooth manufacturing
facility. The remaining $3.0 million of the charge was recorded to cover
termination costs associated with its former implant products business. Included
in the $26.0 million restructuring charge are costs to cover severance, the
write-down of property, plant and equipment, and tooth product rationalization.
The principal actions involve the closure of the Company's Dreieich, Germany
tooth facility and rationalization of certain tooth products in Europe, North
America and Australia. The Company anticipates the restructuring will reduce
production costs and increase operational efficiencies, contributing to future
earnings. The restructuring results in the elimination of approximately 275
administrative and manufacturing positions, mostly in Germany. The closure of
the German tooth facility was completed in the first quarter of 1999 with
benefits of the restructuring expected to begin late in 1999 or early 2000.
At March 31, 1999, $5.3 million remained in the restructuring accrual.
Through the first quarter 1999, the Company has paid approximately $14.7 million
for severance and other related shut down costs and employee related costs for
the German workforce. The Company also paid approximately $.2 million for
implant related termination costs. During this same period, the reserve has also
been reduced by approximately $2.8 million for non-cash implant termination
costs and approximately $6.0 million for a non-cash write down of property,
plant and equipment.
10
<PAGE>
The major components of the charge and remaining accruals follow:
Amounts Balance
Provision Applied March 31, 1999
--------- ------- --------------
(in thousands)
Severance $13,400 $11,900 $ 1,500
Write-down of property,
plant and equipment 6,000 6,000 -
Implant termination costs 3,000 3,000 -
Other 6,600 2,800 3,800
------- ------- -------
$29,000 $23,700 $ 5,300
======= ======= =======
In the fourth quarter of 1998, the Company recorded a pre-tax charge of
$42.5 million for restructuring the New Image business. This charge includes the
write-off of intangibles, including goodwill associated with the business,
write-off of discontinued products, write-down of fixed assets and other assets,
and severance and other costs associated with the discontinuance of the New
Image division in Carlsbad, California. As part of the restructuring, certain
intraoral camera products will be sold and supported by the Gendex Dental X-ray
division in Des Plaines, Illinois. The restructuring includes the elimination of
approximately 115 administrative and manufacturing positions in California. The
Company plans to complete the restructuring by the end of the second quarter of
1999. The facility in California was closed at the end of the first quarter of
1999.
The major components of the charge and remaining accruals follow:
Amounts Balance
Provision Applied March 31, 1999
--------- ------- --------------
(in thousands)
Write-off of intangibles
including goodwill $33,200 $33,200 $ -
Discontinued products 3,800 3,800 -
Write-down of fixed assets 1,500 1,500 -
Severance 1,000 900 100
Write-down of other assets 700 700 -
Other costs 2,300 1,300 1,000
------- ------- -------
$42,500 $41,400 $ 1,100
======= ======= =======
NOTE 7 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
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.
11
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In June 1995, the Antitrust Division of the United States Department of Justice
initiated an antitrust investigation regarding the policies and conduct
undertaken by the Company's Trubyte Division with respect to the distribution of
artificial teeth and related products. On January 5, 1999 the Department of
Justice filed a complaint against the company in the U.S. District Court in
Wilmington, Delaware alleging that the Company's tooth distribution practices
violate the antitrust laws and seeking an order for the Company to discontinue
its practices. A follow on private class action suit on behalf of dentists who
purchased Trubyte teeth was filed January 12, 1999 in the Supreme Court of the
State of New York for New York County which was removed to and is now pending in
the U.S. District court for the Southern District of New York. A second follow
on private class action suit on behalf of laboratories who purchased Trubyte
teeth was filed April 21, 1999 in the U.S. District Court in Wilmington,
Delaware. This case has been assigned to the same judge who is handling the
Department of Justice action. It is the Company's position that the conduct and
activities of the Trubyte Division do not violate the antitrust laws.
12
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DENTSPLY INTERNATIONAL INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Certain statements made 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 materially
affect the Company's business and prospects, and should be read in conjunction
with the risk factors set forth in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
RESULTS OF OPERATIONS
Quarter Ended March 31, 1999 Compared to Quarter Ended March 31, 1998
For the quarter ended March 31, 1999, net sales increased $15.9 million, or
8.8%, to $196.6 million, up from $180.7 million in the same period of 1998.
Acquisitions, net of divestitures, accounted for 6.8% of the sales growth for
the quarter. Base business sales were up 2.0% with a base business sales
increase of 5.3% in the United States. The sales increase was offset by a
decline of 4.9% in Europe including a significant drop in sales to the
Commonwealth of Independent States (C.I.S.) and a soft market in Germany, and a
decline of 1.8% in the Pacific Rim and Latin America, mainly due to dealer
returns in India and economic problems in Brazil. Base business sales growth in
other territories was up 9.9%. Exchange rate fluctuations had a negligible
impact on sales in the first quarter.
Gross profit increased $6.3 million, or 6.6%, to $101.6 million from $95.3
million in the first quarter of 1998 as a result of higher net sales offset
somewhat by a decrease in the gross profit percentage in the first quarter of
1999. As a percentage of sales, gross profit decreased from 52.8% in the first
quarter of 1998 to 51.7% in the same period of 1999. Costs associated with
moving the manufacturing operations of the New Image business and the German
tooth operations in Dreieich caused most of the margin percentage decrease.
Selling, general and administrative expenses increased $3.5 million, or 5.5%. As
a percentage of sales, expenses decreased from 35.3% in the first quarter of
1998 to 34.2% for the same period of 1999. This decrease included a credit of
$1.1 million in Germany resulting from the curtailment of the Dreieich operation
pension plan.
Interest expense increased $1.6 million in the first quarter of 1999 due to
increased interest expense on debt incurred to finance acquisitions and the
stock repurchase program in 1998. Other income decreased $0.9 million in the
first quarter of 1999 due primarily to an unfavorable currency fluctuation in
Brazil.
Income before income taxes increased $0.1 million, or 0.4%. The effective tax
rate for operations was lowered to 35.8% in the first quarter of 1999 compared
to 37.3% in the first quarter of 1998 reflecting savings from federal, state and
foreign tax planning activities. Net income increased $0.5 million, or 2.8%,
from the first quarter of 1998 due to higher sales and lower expenses as a
percentage of sales along with a lower provision
13
<PAGE>
for income taxes in the first quarter of 1999 partially offset by a decline in
the gross profit margin. Basic and diluted earnings per common share increased
from $.35 in 1998 to $.37 in 1999, or 5.7%.
LIQUIDITY AND CAPITAL RESOURCES
Investing activities for the three months ended March 31, 1999 include capital
expenditures of $6.7 million.
The Company's current ratio was 1.6 with working capital of $126.1 million at
March 31, 1999. This compares with a current ratio of 1.7 and working capital of
$128.1 million at December 31, 1998.
The Company expects to be able to finance cash requirements, including capital
expenditures, stock repurchases, debt service, and possible future acquisitions,
from the funds generated from operations and amounts available under the
existing Bank Revolving Loan Facility.
For the three months ended March 31, 1999, cash flows from operating activities
were $17.3 million compared to $2.5 million for the three months ended March 31,
1998. Cash flows from operating activities for 1999 included $9.2 million of
negative cash flow associated with the two restructurings recorded in 1998. The
increase of $14.8 million results primarily from decreases in inventory,
receivables and prepaids offset by decreases in accrued liabilities.
NEW STANDARDS
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities," was issued by the Financial
Accounting Standards Board in June 1998. This Statement establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
recognition of all derivatives as either assets or liabilities on the balance
sheet and measurement of those instruments at fair value. If certain conditions
are met, a derivative may be designated specifically as (a) a hedge of the
exposure to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment referred to as a fair value hedge, (b) a hedge of
the exposure to variability in cash flows of a forecasted transaction (a cash
flow hedge), or (c) a hedge of the foreign currency exposure of a net investment
in a foreign operation, an unrecognized firm commitment, an available-for-sale
security, or a forecasted transaction. The Company expects to adopt SFAS 133
beginning January 1, 2000. The Company has not yet determined the effect of
adopting SFAS 133.
YEAR 2000
The following discussion contains Year 2000 Readiness Disclosures under the Year
2000 Information and Readiness Disclosures Act.
An issue affecting DENTSPLY and all other companies is whether computer systems
and applications will recognize and process data for the Year 2000 and beyond.
The Year 2000 issue arose because many existing computer programs use only the
last two digits to refer to a year. These computer programs do not recognize a
year that begins with "20" instead of "19". The inability of many computer
applications to interpret the Year 2000
14
<PAGE>
correctly may cause potential business disruptions affecting all aspects of
normal operations. The Year 2000 issue has global ramifications affecting not
only the Company's operations but also the operations of the Company's
suppliers, vendors and customers.
In 1995, the Company commenced an upgrade of its information technology ("IT")
systems for all of its locations. A primary software was chosen to upgrade the
Company's computerized business application systems to world class standards and
also enable the Company to become Year 2000 compliant. The upgrade included
necessary hardware and software improvements, training, data conversion, systems
testing and implementation, and Year 2000 compliance.
Most of the identification, planning, and development phases of the Year 2000
project have been completed. The Company is in the process of implementing the
information system upgrade with an anticipated completion date of mid-1999. Work
has been completed on 100% of North American, 98% of Latin American and Asian
systems, as well as 90% of European systems. To date, the Company has spent
approximately $15.8 million for the IT project. An additional $1.2 million of
spending is anticipated for the remainder of 1999. These costs encompass the
total upgrade of the Company's manufacturing, distribution and financial
reporting systems. The Company has not deferred other IT projects due to its
Year 2000 initiative, but rather, the Year 2000 initiative has been part of the
upgrade of its current IT system. Possible Year 2000 issues that are not covered
by the IT upgrade are being addressed separately and may require software
replacement, reprogramming or other remedial action. The Company is engaged in a
program to identify affected systems and applications and to develop a plan to
correct any issues in the most effective manner. The Company is in the process
of formulating contingency plans to the extent necessary in fiscal 1999.
The Year 2000 initiative presents a number of uncertainties including the status
and planning of third parties. The Company is currently surveying its
significant customers and vendors as to their Year 2000 compliance. Based on the
nature of their responses, the Company will develop contingency plans as
appropriate. However, the Company has no means of assuring that external
customers and vendors will be Year 2000 compliant. The inability of third
parties to complete their Year 2000 resolution process in a timely fashion could
materially impact the Company.
The Company's Year 2000 remediation efforts along with the information system
upgrade are funded from the Company's operating cash flows and its borrowing
facilities. The following table contains historical and estimated future costs
of the total IT system upgrade, which includes the Year 2000 initiative.
Infrastructure and daily IT-related operating expenses have been excluded from
the reported costs.
Project Costs Anticipated
To Date Future Costs
------------- ------------
(in thousands)
Capital Expenditures $ 8,473 $ 830
Expenses 7,378 340
-------- --------
Total $ 15,851 $ 1,170
======== ========
15
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EURO CURRENCY CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European Union
(the "participating countries") established fixed conversion rates between their
legacy currencies and the newly established Euro currency.
The legacy currencies will remain legal tender in the participating countries
between January 1, 1999 and January 1, 2002 (the "transition period"). On
January 1, 2002 the European Central Bank will issue Euro-denominated bills and
coins for use in cash transactions. On or before July 1, 2002, the legacy
currencies of participating countries will no longer be legal tender for any
transactions.
The Company's various operating units which are affected by the Euro conversion
intend to keep their books in their respective legacy currency through a portion
of the three year transition period. At this time, the Company does not expect
the reasonable foreseeable consequences of the Euro conversion to have material
adverse effects on the Company's business, operations or financial condition.
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.
16
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Item 3 - Quantitative and Qualitative Disclosures About Market Risk
There have been no significant material changes to the market risks as disclosed
in the Company's Annual Report on Form 10-K filed for the year ending
December 31, 1998.
17
<PAGE>
PART II
OTHER INFORMATION
Item 1 - Legal Proceedings
DENTSPLY and its subsidiaries are from time to time parties to lawsuits
arising out of their respective operations. The Company believes that pending
litigation to which DENTSPLY is a party will not have a material adverse effect
upon its consolidated financial position or results of operations.
In June 1995, the Antitrust Division of the United States Department of
Justice initiated an antitrust investigation regarding the policies and conduct
undertaken by the Company's Trubyte Division with respect to the distribution of
artificial teeth and related products. On January 5, 1999 the Department of
Justice filed a complaint against the company in the U.S. District Court in
Wilmington, Delaware alleging that the Company's tooth distribution practices
violate the antitrust laws and seeking an order for the Company to discontinue
its practices. A follow on private class action suit on behalf of dentists who
purchased Trubyte teeth was filed January 12, 1999 in the Supreme Court of the
State of New York for New York County which was removed to and is now pending in
the U.S. District court for the Southern District of New York. A second follow
on private class action suit on behalf of laboratories who purchased Trubyte
teeth was filed April 21, 1999 in the U.S. District Court in Wilmington,
Delaware. This case has been assigned to the same judge who is handling the
Department of Justice action. It is the Company's position that the conduct and
activities of the Trubyte Division do not violate the antitrust laws.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed herewith:
---------
Number Description
------ -----------
27 Financial Data Schedule (pursuant to Item 601(c)(1)(iv) of
Regulation S-K, this exhibit shall not be deemed filed for
purposes of Section 18 of the Securities Exchange Act of 1934,
as amended)
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1999.
18
<PAGE>
Signatures
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DENTSPLY INTERNATIONAL INC.
May 14, 1999 /s/ John C. Miles II
- ----------------- ----------------------------------
Date John C. Miles II
Chairman and
Chief Executive Officer
May 14, 1999 /s/ William R. Jellison
- ----------------- ----------------------------------
Date William R. Jellison
Senior Vice President and
Chief Financial Officer
19
<PAGE>
EXHIBIT INDEX
-------------
Number Description Sequential Page No.
------ ----------- -------------------
27 Financial Data Schedule 21
(pursuant to Item 601(c)(1)(iv) of
Regulation S-K, this exhibit shall
not be deemed filed for purposes
of Section 18 of the Securities
Exchange Act of 1934, as amended)
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF DENTSPLY INTERNATIONAL
INC. AT MARCH 31, 1999 AND FOR THE FISCAL QUARTER THEN ENDED, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> DENTSPLY INTERNATIONAL
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