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, 2003
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 39-143466
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
221 West Philadelphia Street, York, Pennsylvania 17405-0872
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (717)
845-7511
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an
accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes [X] No [ ]
The aggregate market value of the voting common stock held
by non-affiliates of the registrant as of June 28, 2002 was
$2,827,512,659.
The number of shares of the registrant's Common Stock
outstanding as of the close of business on March 1, 2004 was
80,239,253.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the definitive Proxy Statement of
DENTSPLY International Inc. to be used in connection with the
2004 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
deemed to be filed as part of this Annual Report on Form 10-K.
PART I
Item 1. Business
Certain statements made by the Company, including without
limitation, statements containing the words "plans",
"anticipates", "believes", "expects", or words of similar import
may be deemed to be forward-looking statements and 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
are described in this Item 1 and which may materially affect the
Company's business and prospects.
History and Overview
DENTSPLY International Inc. ("DENTSPLY" or the "Company"), a
Delaware corporation, was created by a merger of Dentsply
International Inc. ("Old Dentsply") and GENDEX Corporation in
1993. Old Dentsply, founded in 1899, was a manufacturer and
distributor of artificial teeth, dental equipment, and dental
consumable products. GENDEX, founded in 1983, was a manufacturer
of dental x-ray equipment and handpieces. On December 11, 2003,
the Company entered into a definitive agreement to sell the x-ray
equipment business of the prior GENDEX Corporation to Danaher
Corporation for $102.5 million which was completed on February
27, 2004. Reference is made to the information about discontinued
operations set forth in Note 6 of the Notes to Consolidated
Financial Statements in this Annual Report on Form 10-K.
DENTSPLY is the world's largest designer, developer,
manufacturer and marketer of a broad range of products for the
dental market. The Company's worldwide headquarters and executive
offices are located in York, Pennsylvania.
The Company operates within five operating segments all of
which are primarily engaged in the design, manufacture and
distribution of dental products in three principal categories: 1)
Dental consumables, 2) Dental laboratory products, and 3)
Specialty dental products. Sales of the Company's dental products
accounted for approximately 98% of DENTSPLY's consolidated sales
for the year ended December 31, 2003. The remaining 2% of
consolidated sales is primarily related to materials sold to the
investment casting industry.
The Company conducts its business in over 120 foreign
countries, principally through its foreign subsidiaries.
DENTSPLY has a long-established presence in Canada and in the
European market, particularly in Germany, Switzerland, France,
Italy and the United Kingdom. The Company also has a significant
market presence in Central and South America including Brazil,
Mexico, Argentina, Colombia, and Chile; in South Africa; and in
the Pacific Rim including Australia, New Zealand, China
(including Hong Kong), Thailand, India, Philippines, Taiwan,
Korea, Vietnam, Indonesia and Japan. DENTSPLY has also
established marketing activities in Moscow, Russia to serve the
countries of the former Soviet Union.
For 2003, 2002, and 2001, the Company's sales to customers
outside the United States, including export sales, accounted for
approximately 58%, 56% and 39%, respectively, of consolidated net
sales. Reference is made to the information about the Company's
United States and foreign sales by shipment origin and assets set
forth in Note 4 of the Notes to Consolidated Financial Statements
in this Annual Report on Form 10-K.
As a result of the Company's significant international
operations, DENTSPLY is subject to fluctuations in exchange rates
of various foreign currencies and other risks associated with
foreign trade. 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 United States of products
sourced from plants and third party suppliers located overseas,
principally in Germany and Switzerland. The Company enters into
forward foreign exchange contracts to selectively hedge assets,
liabilities and purchases denominated in foreign currencies.
Reference is made to the information regarding foreign exchange
risk management activities set forth in Quantitative and
Qualitative Disclosure About Market Risk under Item 7A and Note
17 of the Notes to Consolidated Financial Statements in this
Annual Report on Form 10-K.
DENTSPLY believes that the dental products industry is
experiencing substantial consolidation with respect to both
product manufacturing and distribution, although it continues to
be fragmented creating numerous acquisition opportunities. As a
result, during the past three years, the Company has made
numerous acquisitions including three significant acquisitions
made during 2001. In January 2001, the Company acquired the
outstanding shares of Friadent GmbH ("Friadent"), a global dental
implant manufacturer and marketer previously headquartered in
Mannheim, Germany. In March 2001, the Company acquired the dental
injectible anaesthetic assets of AstraZeneca ("AZ Assets"). The
assets acquired in the business consisted primarily of an
exclusive, perpetual, royalty-free licensing rights to the dental
products and tradenames. In addition, certain limited equipment
was acquired, but no production facilities were acquired as part
of the transaction. In October 2001, the Company acquired the
Degussa Dental Group ("Degussa Dental"), a manufacturer and
seller of dental products, including precious metal alloys,
ceramics, dental laboratory equipment and chairside products
previously headquartered in Hanau, Germany. Information about
these acquisitions and other acquisition and divestiture
activities is set forth in Note 3 of the Notes to Consolidated
Financial Statements in the Company's 2003 Annual Report to
Shareholders and is incorporated herein by reference. These
acquisitions are intended to supplement DENTSPLY's core growth
and assure ongoing expansion of its business. In addition,
acquisitions have provided DENTSPLY with new technologies and
additional product breadth.
Certain provisions of DENTSPLY'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 DENTSPLY.
Such provisions include the division of the Board of Directors of
DENTSPLY into three classes, with the three-year term of a 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 DENTSPLY's By-laws and call
special meetings of stockholders. In addition, members of
DENTSPLY's management and participants in its Employee Stock
Ownership Plan collectively own approximately 10% of the
outstanding common stock of DENTSPLY, which may discourage a
third party from attempting to acquire control of DENTSPLY in a
transaction that is opposed by DENTSPLY's management and
employees.
Principal Products
The worldwide professional dental industry encompasses the diagnosis,
treatment and prevention of disease and ailments of the teeth, gums and
supporting bone. DENTSPLY's principal dental product categories are dental
consumables, dental laboratory products and dental specialty products. 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 ANKYLOS(R), AQUASIL(TM),
CAULK(R), CAVITRON(R), CERAMCO(R), CERCON(R), CITANEST(R), DELTON(R),
DENTSPLY(R), DETREY(R), ELEPHANT(R), ESTHET.X(R), FRIALIT(R), GAC
ORTHOWORKS(TM), GOLDEN GATE(R), IN-OVATION(TM), MAILLEFER(R), MIDWEST(R),
MYSTIQUE(TM), NUPRO(R), PEPGEN P-15(TM), POLOCAINE(R), PROFILE(R), PROTAPER(TM),
RINN(R), R&R(R), SANI-TIP(R), THERMAFIL(R), TRUBYTE(R) and XYLOCAINE(R).
Dental Consumables. Consumable products consist of dental
sundries used in dental offices in the treatment of patient and
small equipment used by the dental professional. DENTSPLY's
products in this category include dental anesthetics, prophylaxis
paste, dental sealants, impression materials, restorative
materials, tooth whiteners, and topical fluoride. The Company
manufactures thousands of different consumable products marketed
under more than a hundred brand names. Small equipment products
consist of various durable goods used in dental offices for
treatment of patients. DENTSPLY's small equipment products
include high and low speed handpieces, intraoral curing light
systems and ultrasonic scalers and polishers. Sales of general
dental consumables accounted for approximately 35% of the
Company's consolidated sales for the year ended December 31, 2003.
Dental Laboratory Products. Laboratory products are used in
dental laboratories in the preparation of dental appliances.
DENTSPLY's products in this category include dental prosthetics,
including artificial teeth, precious metal dental alloys, dental
ceramics, and crown and bridge materials. Small equipment in
this category includes computer aided machining (CAM) ceramics
systems and porcelain furnaces. Sales of dental laboratory
products accounted for approximately 33% of the Company's
consolidated sales for the year ended December 31, 2003.
Dental Specialty Products. Specialty dental products are used
for specific purposes within the dental office and laboratory
settings. DENTSPLY's products in this category include
endodontic (root canal) instruments and materials, implants, and
orthodontic appliances and accessories. Sales of specialty
products accounted for approximately 30% of the Company's
consolidated sales for the year ended December 31, 2003.
Markets, Sales and Distribution
DENTSPLY distributes approximately 55% of its dental products
through domestic and foreign distributors, dealers and
importers. However, certain highly technical products such as
precious metal dental alloys, dental ceramics, crown and bridge
porcelain products, endodontic instruments and materials,
orthodontic appliances, implants and bone substitute and grafting
materials are sold directly to the dental laboratory or dental
professional in some markets. No single customer accounted for
more than ten percent of consolidated net sales in 2003.
Reference is made to the information about the Company's
foreign and domestic operations and export sales set forth in
Note 4 of the Notes to Consolidated Financial Statements in this
Annual Report on Form 10-K.
Although much of its sales are made to distributors, dealers,
and importers, DENTSPLY focuses its marketing efforts on the
dentists, dental hygienists, dental assistants, dental
laboratories and dental schools who are the end users of its
products. As part of this end-user "pull through" marketing
approach, DENTSPLY employs approximately 1,700 highly trained,
product-specific sales and technical staff to provide
comprehensive marketing and service tailored to the particular
sales and technical support requirements of the dealers and the
end users. The Company conducts extensive distributor and
end-user marketing programs and trains laboratory technicians and
dentists in the proper use of its products, introducing them to
the latest technological developments at its Educational Centers
located throughout the world in key dental markets. The Company
also maintains ongoing relationships with various dental
associations and recognized worldwide opinion leaders in the
dental field.
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 following three stages of development:
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 expenditures 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. These markets
require varied and complex dental products, 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.
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 develop, 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 any
opportunities for growth in all of the markets that it serves.
The Company believes that the following trends support the
Company's confidence in its industry growth outlook:
o Increasing worldwide population.
o Growth of the population 65 or older - The percentage of the
United States, European and Japanese population over age 65 is
expected to nearly double by the year 2030. In addition to
having significant needs for dental care, the elderly are well
positioned to pay for the required procedures since they
control sizable amounts of discretionary income.
o Natural teeth are being retained longer - Individuals with
natural teeth are much more likely to visit a dentist in a
given year than those without any natural teeth remaining.
o The Changing Dental Practice in the U.S. - Dentistry in
North America has been transformed from a profession primarily
dealing with pain, infections and tooth decay to one with
increased emphasis on preventive care and cosmetic dentistry.
o Per capita and discretionary incomes are increasing in
emerging nations - As personal incomes continue to rise in the
emerging nations of the Pacific Rim and Latin America,
healthcare, including dental services, are a growing priority.
o The Company's business is less susceptible than other
industries to general downturns in the economies in which it
operates. Many of the products the Company offers relate to
dental procedures that are considered necessary by patients
regardless of the economic environment.
Product Development
Technological innovation and successful product development are
critical to strengthening the Company's prominent position in
worldwide dental markets, maintaining its leadership positions in
product categories where it has a high market share, and
increasing market share in product categories where gains are
possible. While many of DENTSPLY's innovations represent
sequential improvements of existing products, the Company also
continues to successfully launch products that represent
fundamental change. Its research centers throughout the world
employ approximately 400 scientists, Ph.D.'s, engineers and
technicians dedicated to research and product development.
Approximately $43.3 million, $39.9 million, and $27.3 million,
respectively, was internally invested by the Company in
connection with the development of new products and in the
improvement of existing products in the years ended 2003, 2002,
and 2001, respectively. There can be no assurance that DENTSPLY
will be able to continue to develop innovative products and that
regulatory approval of any new products will be obtained, or that
if such approvals are obtained, such products will be accepted in
the marketplace. Additionally, there is no assurance that
entirely new technology or approaches to dental treatment will
not be introduced that could obsolete the Company's products.
Operating and Technical Expertise
DENTSPLY believes that its manufacturing capabilities are
important to its success. 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 Company continues to
automate its global manufacturing operations in order to remain a
low cost producer.
DENTSPLY has completed or has in progress a number of key
initiatives around the world that are focused on helping the
Company improve its operating margins.
o The Company is constructing a major dental anesthetic
filling plant outside Chicago. The Company believes that the
plant will become operational late in 2004, following the FDA
validation of manufacturing practices, at which time it will
begin to supply products to certain international markets. This
initiative is very important to the Company since the assets
acquired from AstraZeneca did not include production
facilities. The company has a contract with AstraZeneca to
produce the company's requirements at their facilities on a
contract manufacturing basis pending the completion of the
Company's manufacturing facility in Chicago, Illinois. The
contract with AstraZeneca has recently been renegotiated and
extended to March 2005, with further extensions available to
the Company with six months advance notice. Based on the
current contract manufacturing arrangement in place, the
Company believes that it has sufficient sources of supply and
contractual flexibility to ensure a continued source of supply
until the facilities in Chicago are completed.
o A Corporate Purchasing office has been established to
leverage the buying power of Dentsply around the world and
reduce our product costs through lower prices and reduced
related overhead.
o The Company has centralized its warehousing and distribution
in North America and Europe. While the initial gains from this
strategy have been realized, ongoing efforts are in place to
maximize additional opportunities that can be gained through
improving our functional expertise in supply chain management.
In an effort to improve customer service levels and reduce
costs, the Company is currently in the process of relocating
its European warehouse form Nijmegen, The Netherlands to
Radolfzell, Germany. This relocation is expected to be complete
by the first quarter of 2004.
o A Corporate Quality group is focused on improving
manufacturing and distribution processes throughout the Company
with a goal to eliminate non-value added activities, improving
product quality and expanding product margins.
o DENTSPLY has seen significant gains from the formation of a
North American Shared Services group. The Company is evaluating
the possible efficiency opportunities related to consolidating
accounting and finance processes within Europe.
o Information technology initiatives are underway to
standardize worldwide telecommunications, implement improved
manufacturing and financial accounting systems and an ongoing
training of IT users to maximize the capabilities of global
systems.
o DENTSPLY continues to pursue opportunities to leverage its
assets by consolidating business units where appropriate and to
optimize its diversity of worldwide manufacturing capabilities.
Financing
DENTSPLY's long-term debt at December 31, 2003 was $790.2
million and the ratio of long-term debt to total capitalization
was 41.3%. This capitalization ratio is down from 54.3% at
December 31, 2001, the quarter in which the Degussa Dental
acquisition was completed. DENTSPLY may incur additional debt in
the future, including the funding of additional acquisitions and
capital expenditures. DENTSPLY's ability to make payments on its
indebtedness, and to fund its operations depends on its future
performance and financial results, which, to a certain extent,
are subject to general economic, financial, competitive,
regulatory and other factors that are beyond its control.
Although the Management believes that the Company has and will
continue to have sufficient liquidity, there can be no assurance
that DENTSPLY's business will generate sufficient cash flow from
operations in the future to service its debt and operate its
business.
DENTSPLY's existing borrowing documentation contains a number
of covenants and financial ratios which it is required to
satisfy. Any breach of any such covenants or restrictions would
result in a default under the existing borrowing documentation
that would permit the lenders to declare all borrowings under
such documentation to be immediately due and payable and, through
cross default provisions, would entitle DENTSPLY's other lenders
to accelerate their loans. DENTSPLY may not be able to meet its
obligations under its outstanding indebtedness in the event that
any cross default provision is triggered.
The Company has $21.1 million of long-term debt coming due in
the next year. Additional information about DENTSPLY's working
capital, liquidity and capital resources provided in
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in this Annual Report on Form 10-K.
Competition
The Company conducts its operations, both domestic and foreign,
under highly competitive market conditions. Competition in the
dental products industry 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
that produce some, but not all, of the same types of products as
those produced by the Company. Certain of DENTSPLY's competitors
may have greater resources than does the Company in certain of
its product offerings.
The worldwide market for dental supplies 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.
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. The anesthetic products sold by the Company are
regulated as a drug by the FDA and by all other similar
regulatory agencies around the world.
Dental devices of the types sold by DENTSPLY 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.
DENTSPLY's facilities are subject to periodic inspection by the
FDA to monitor DENTSPLY's compliance with these regulations.
There can be no assurance that the FDA will not raise compliance
concerns. Failure to satisfy FDA requirements can result in FDA
enforcement actions, including product seizure, injunction and/or
criminal or civil proceedings. In the European Union, DENTSPLY's
products are subject to the medical devices laws of the various
member states which are based on a Directive of the European
Commission. Such laws generally regulate the safety of the
products in a similar way to the FDA regulations. DENTSPLY
products in Europe bear the CE sign showing that such products
adhere to the European regulations.
All dental amalgam filling materials, including those
manufactured and sold by DENTSPLY, 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. If the FDA were to reclassify dental
mercury and amalgam filling materials as classes of products
requiring FDA pre-market 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. In Europe, in particular in Scandinavia and
Germany, the contents of mercury in amalgam filling materials has
been the subject of public discussion. As a consequence, in 1994
the German health authorities required suppliers of dental
amalgam to amend the instructions for use for amalgam filling
materials, to include a precaution against the use of amalgam for
children under eighteen years of age and to women of childbearing
age. DENTSPLY also manufactures and sells non-amalgam dental
filling materials that do not contain mercury.
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. DENTSPLY believes that it is in substantial compliance with
the foreign regulatory requirements that are applicable to its
products and manufacturing operations.
Sources and Supply of Raw Materials
All of the raw materials used by the Company in the manufacture
of its products are purchased from various suppliers and are
available from numerous sources. No single supplier accounts for
a significant percentage of DENTSPLY's raw material requirements.
Intellectual Property
Products manufactured by DENTSPLY are sold primarily under its
own trademarks and trade names. DENTSPLY also owns and maintains
more than 1,000 patents throughout the world and is licensed
under a small number of patents owned by others.
DENTSPLY's policy is to protect its products and technology
through patents and trademark registrations in the United States
and in significant international markets for its products. The
Company carefully monitors trademark use worldwide, and promotes
enforcement of its patents and trademarks in a manner that is
designed to balance the cost of such protection against obtaining
the greatest value for the Company. DENTSPLY believes its
patents and trademark properties are important and contribute to
the Company's marketing position but it does not consider its
overall business to be materially dependent upon any individual
patent or trademark.
Employees
As of December 31, 2003, the Company and its subsidiaries
employed approximately 7,600 employees. A small percentage of
the Company's employees are represented by labor unions. 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, 2008. Hourly workers at the Company's Midwest Dental
Products facility in Des Plaines, Illinois are represented by
International Association of Machinists and Aerospace Workers,
AFL-CIO in Chicago under a collective bargaining agreement that
expires on May 31, 2006. In addition, approximately 30% of
DeguDent, a German subsidiary, are represented by labor unions.
The Company believes that its relationship with its employees is
good.
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.
Environmental Matters
DENTSPLY believes that its operations comply in all material
respects with applicable environmental laws and regulations.
Maintaining this level of compliance has not had, and is not
expected to have, a material effect on the Company's capital
expenditures or on its business.
Securities and Exchange Act Reports
DENTSPLY makes available free of charge through its website at
www.dentsply.com its annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and amendments to these
reports filed or furnished pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 as soon as reasonably
practicable after such materials are filed with or furnished to,
the Securities and Exchange Commission.
Item 2. Properties
The following is a current list of DENTSPLY's principal
manufacturing locations:
Leased
Location Function or Owned
United States:
Los Angeles, California Manufacture and distribution of investment Leased
casting products
Yucaipa , California Manufacture and distribution of dental Owned
laboratory products and dental ceramics
Lakewood, Colorado Manufacture and distribution of bone grafting Leased
materials and hydroxylapatite plasma-feed coating
materials and distribution of dental implant poducts
Milford, Delaware Manufacture of consumable dental products Owned
Des Plaines, Illinois Manufacture and assembly of dental handpieces Leased
Elk Grove Village, Illinois Future manufacture of anesthetic products Owned and Leased
Elgin, Illinois Manufacture of dental x-ray film holders, film Owned
mounts and accessories
Maumee, Ohio Manufacture and distribution of investment Owned
casting products
York, Pennsylvania Manufacture and distribution of artificial teeth Owned
and other dental laboratory products;
York, Pennsylvania Manufacture of small dental equipment and Owned
preventive dental products
Johnson City, Tennessee Manufacture and distribution of endodontic Leased
instruments and materials
Foreign:
Catanduva, Brazil Manufacture and distribution of consumable Owned
dental products
Petropolis, Brazil Manufacture and distribution of artificial teeth Owned
and consumable dental products
Leased
Location Function or Owned
Bonsucesso, Brazil Manufacture and distribution of dental Owned
anesthetics
Tianjin, China Manufacture and distribution of dental products Leased
Plymouth, England Manufacture of dental hand instruments Leased
Ivry Sur-Seine, France Manufacture and distribution of investment Leased
casting products
Bohmte, Germany Manufacture and distribution of dental Owned
laboratory products
Hanau, Germany Manufacture and distribution of precious metal Owned
dental alloys, dental ceramics and dental
implant products
Konstanz, Germany Manufacture and distribution of consumable Owned
dental products
Mannheim, Germany Manufacture and distribution of dental Owned
implant products
Munich, Germany Manufacture and distribution of endodontic Owned
instruments and materials
Rosbach, Germany Manufacture and distribution of dental ceramics Owned
New Delhi, India Manufacture and distribution of dental products Leased
Nasu, Japan Manufacture and distribution of precious metal Owned
dental alloys, consumable dental products and
orthodontic products
Hoorn, Netherlands Manufacture and distribution of precious metal Owned
dental alloys and dental ceramics
Las Piedras, Puerto Rico Manufacture of crown and bridge materials Owned
Ballaigues, Switzerland Manufacture and distribution of endodontic Owned
instruments
Ballaigues, Switzerland Manufacture and distribution of endodontic Owned
instruments, plastic components and
packaging material
Le Creux, Switzerland Manufacture and distribution of endodontic Owned
instruments
In addition, the Company maintains sales and distribution
offices at certain of its foreign and domestic manufacturing
facilities, as well as at various other United States and
international locations. Most of the various sites around the
world that are used exclusively for sales and distribution are
leased.
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 it is remote that pending litigation to which DENTSPLY
is a party will 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. The trial in the government's case was held in April
and May 2002. On August 14, 2003, the Judge entered a decision
that the Company's tooth distribution practices do not violate
the antitrust laws. On October 14, 2003, the Department of
Justice appealed this decision to the U.S. Third Circuit Court of
Appeals. The parties are proceeding under the briefing schedule
issued by the Third Circuit.
Subsequent to the filing of the Department of Justice Complaint
in 1999, several private party class actions were filed based on
allegations similar to those in the Department of Justice case,
on behalf of laboratories, and denture patients in seventeen
states who purchased Trubyte teeth or products containing Trubyte
teeth. These cases were transferred to the U.S. District Court in
Wilmington, Delaware. The private party suits seek damages in an
unspecified amount. The Court has granted the Company's Motion
on the lack of standing of the laboratory and patient class
actions to pursue damage claims. The Plaintiffs in the
laboratory case have filed a petition with the Third Circuit to
hear an interlocutory appeal of this decision. Also, private
party class actions on behalf of indirect purchasers were filed
in California and Florida state courts. The California and
Florida cases have been dismissed by the Plaintiffs following the
decision by the Federal District Court Judge issued in August
2003.
On March 27, 2002, a Complaint was filed in Alameda County,
California (which was transferred to Los Angeles County) by Bruce
Glover, D.D.S. alleging, inter alia, breach of express and
implied warranties, fraud, unfair trade practices and negligent
misrepresentation in the Company's manufacture and sale of
Advance(R) cement. The Complaint seeks damages in an unspecified
amount for costs incurred in repairing dental work in which the
Advance(R) product allegedly failed. In September 2003, the
Plaintiff filed a Motion for class certification, which the
Company opposed. Oral arguments were held in December 2003, and
in January, 2004, the Judge entered an Order granting class
certification only on the claims of breach of warranty and
fraud. In general, the Class is defined as California dentists
who purchased and used Advance(R) cement and were required, because
of failures of Advance(R), to repair or reperform dental
procedures. The Company has filed a Writ of Mandate in the
appellate court seeking reversal of the class certification. The
Advance(R) cement product was sold from 1994 through 2000 and total
sales in the United States during that period were approximately
$5.2 million.
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 February 28, 2004.
Name Age Position
Gerald K. Kunkle Jr. 57 Vice Chairman of the
Board and Chief Executive Officer
Thomas L. Whiting 61 President and Chief
Operating Officer
Christopher T. Clark 42 Senior Vice President
William R. Jellison 46 Senior Vice President
Rudolf Lehner 46 Senior Vice President
James G. Mosch 46 Senior Vice President
J. Henrik Roos 46 Senior Vice President
Bret W. Wise 43 Senior Vice President
and Chief Financial Officer
Brian M. Addison 49 Vice President,
Secretary and General Counsel
Gerald K. Kunkle Jr. was named Vice Chairman of the Board and
Chief Executive Officer of the Company effective January 1,
2004. Prior thereto, Mr. Kunkle served as President and Chief
Operating Officer since January, 1997. Prior to joining
DENTSPLY, 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.
Thomas L. Whiting was named President and Chief Operating
Officer of the Company effective January 1, 2004. Prior thereto,
Mr. Whiting was appointed Executive Vice President since
November, 2002.Prior to this appointment, Mr. Whiting served as
Senior Vice President since early 1995. Prior to his Senior Vice
President appointment, Mr. Whiting was Vice President and General
Manager of the Company's L.D. Caulk Operating unit from March
1987 to early 1995. Prior to that time, Mr. Whiting held
management positions with Deseret Medical and the Parke-Davis
Company.
Christopher T. Clark was named Senior Vice President effective
November 1, 2002 and oversees the following areas: North American
Group Marketing and Administration; Alliance and Government
Sales; and the Ransom and Randolph, DENTSPLY Sankin, L.D. Caulk,
and DeDent operating units. Prior to this appointment, Mr. Clark
served as Vice President and General Manager of the Gendex
operating unit since June 1999. Prior to that time, he served as
Vice President and General Manager of the Trubyte operating unit
since July of 1996. Prior to that, Mr. Clark was Director of
Marketing of the Trubyte Operating Unit since September 1992 when
he started with the Company.
William R. Jellison was named Senior Vice President effective
November 1, 2002 and oversees the following operating units:
DENTSPLY Asia, DENTSPLY Professional, Maillefer, Dentsply
Endodontics, including Tulsa Dental Products and Vereinigte
Dentalwerke ("VDW"). Prior to this appointment, Mr. Jellison
served as Senior Vice President and Chief Financial Officer of
the Company since April 1998. Prior to that time, Mr. Jellison
held various financial management positions including Vice
President of Finance, Treasurer and Corporate Controller for
Donnelly Corporation of Holland, Michigan since 1980. Mr.
Jellison is a Certified Management Accountant.
Rudolf Lehner was named Senior Vice President effective
December 12, 2001 and oversees the following operating units:
Degussa Dental Germany, Degussa Dental Austria, Elephant Dental,
DENTSPLY France, DENTSPLY Italy, DENTSPLY Russia, DENTSPLY United
Kingdom, and Middle East/Africa. Prior to that time, Mr Lehner
was Chief Operating Officer of Degussa Dental since mid-2000.
From 1999 to mid 2000, he had the overall responsibilities for
Sales & Marketing at Degussa Dental. From 1994 to 1999, Mr.
Lehner held the position of Chief Executive Officer of Elephant
Dental. From 1990 to 1994, he had overall responsibility for
international activities at Degussa Dental. Prior to that, Mr
Lehner held various positions at Degussa Dental and its parent,
Degussa AG, since starting in 1984.
James G. Mosch was named Senior Vice President effective
November 1, 2002 and oversees the following operating units:
DENTSPLY Pharmaceutical, DENTSPLY Australia, DENTSPLY Brazil,
DENTSPLY Canada, DENTSPLY Latin America and DENTSPLY Mexico..
Prior to this appointment, Mr. Mosch served as Vice President and
General Manager of the DENTSPLY Professional operating unit since
July 1994 when he started with the Company.
J. Henrik Roos was named Senior Vice President effective June
1, 1999 and oversees the following operating units: Ceramco,
CeraMed, Friadent, GAC, and Trubyte. Prior to his Senior Vice
President appointment, Mr. Roos served as Vice President and
General Manager of the Company's Gendex division from June 1995
to June 1999. Prior to that, he served as President of Gendex
European operations in Frankfurt, Germany since joining the
Company in August 1993.
Bret W. Wise was named Senior Vice President and Chief
Financial Officer of the Company effective December 1, 2002. In
this position, he is also responsible for Business Development,
Accounting, Treasury, Tax, Information Technology, Internal Audit
and the Rinn operating unit. Prior to that time, Mr. Wise was
Senior Vice President and Chief Financial Officer with Ferro
Corporation of Cleveland, OH. Prior to joining Ferro Corporate in
1999, Mr. Wise held the position of Vice President and Chief
Financial Officer at WCI Steel, Inc., of Warren, OH, from 1994 to
1999. Prior to joining WCI Steel, Inc., Mr. Wise was a partner
with KPMG LLP. Mr. Wise 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.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The information set forth under the caption "Supplemental Stock
Information" is filed as part of this Annual Report on Form 10-K.
Item 6. Selected Financial Data
The information set forth under the caption "Selected Financial
Data" is filed as part of this Annual Report on Form 10-K.
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" is filed as part of this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosure About Market
Risk
The information set forth under the caption "Quantitative and
Qualitative Disclosure About Market Risk" is filed as part of
this Annual Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data
The information set forth under the captions "Management's
Financial Responsibility," "Report of Independent Accountants,"
"Consolidated Statements of Income," "Consolidated Balance
Sheets," "Consolidated Statements of Stockholders' Equity,"
"Consolidated Statements of Cash Flows," and "Notes to
Consolidated Financial Statements" is filed as part of this
Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of the
Company's Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the Company's disclosure controls
and procedures as of the end of the period covered by this
report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's
disclosure controls and procedures as of the end of the period
covered by this report have been designed and are functioning
effectively to provide reasonable assurance that the information
required to be disclosed by the Company in reports filed under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
SEC's rules and forms. The Company believes that a controls
system, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the controls system are
met, and no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a
company have been detected.
(b) Change in Internal Control over Financial Reporting
No change in the Company's internal control over financial
reporting occurred during the Company's most recent fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial
reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information (i) set forth under the caption "Executive
Officers of the Registrant" in Part I of this Annual Report on
Form 10-K and (ii) set forth under the captions "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the 2004 Proxy Statement is incorporated herein by
reference.
Code of Ethics
The Company has adopted a Code of Business Conduct and Ethics
that applies to the Chief Executive Officer and the Chief
Financial Officer and all of the Company's employees. This Code
of Business Conduct and Ethics is provided as Exhibit 99.1 of
this Annual Report on Form 10-K.
Item 11. Executive Compensation
The information set forth under the caption "Executive
Compensation" in the 2004 Proxy Statement is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
The information set forth under the caption "Security Ownership
of Certain Beneficial Owners and Management" in the 2004 Proxy
Statement is incorporated herein by reference.
Securities Authorized For Issuance Under Equity Compensation Plans
The following table provides information at December 31, 2003
regarding compensation plans and arrangements under which equity
securities of DENTSPLY are authorized for issuance.
Number of
Number of securities Weighted average securities remaining
to be issued upon exercise price available for future issuance
exercise of of outstanding under equity compensation
outstanding options, options, warrants plans (excluding securities
Plan category warrants and rights and rights reflected in column (a))
(a) (b) (c)
Equity compensation plans approved
by security holders (1) 8,132,457 28.42 6,116,264 (2)
Equity compensation plans not approved
by security holders (3) 45,000 14.83 n/a
Other equity compensation plans not approved
by security holders (4) 99,555 n/a n/a
Total 8,277,012
(1) Consists of the DENTSPLY International Inc. 1993 Stock
Option Plan, 1998 Stock Option Plan and 2002 Stock Option
Plan.
(2) The maximum number of shares available for issuance under
the 2002 Stock Option Plan is 7,000,000 shares of common
stock (plus any shares of common stock covered by any
unexercised portion of canceled or terminated stock options
granted under the 1993 Stock Option Plan or 1998 Stock
Option Plan) (the "Maximum Number"). The Maximum Number
(which includes shares already granted as options under the
plan) may be increased on January 1 of each calendar year
during the term of the 2002 Stock Option Plan to equal 7% of
the outstanding shares of common stock on such date, prior
to such increase if greater than 7,000,000.
(3) Consists of the Burton C. Borgelt Nonstatutory Stock Option
Agreement granted on January 13, 1994. These options were
fully exercised in January 2004..
(4) See below for a description of the Directors' Deferred
Compensation Plan and the Supplemental Executive Retirement
Plan pursuant to which shares of common stock may be issued
to outside directors and certain management employees.
Directors Deferred Compensation Plan
Effective January 1, 1997, the Company established a Directors'
Deferred Compensation Plan (the "Deferred Plan"). The Deferred
Plan permits non-employee directors to elect to defer receipt of
directors fees or other compensation for their services as
directors. Non-employee directors can elect to have their
deferred payments administered as a cash with interest account or
a stock unit account. Distributions to a director under the
Deferred Plan will not be made to any non-employee director until
the non-employee director ceases to be a member of the Board of
Directors. Upon ceasing to be a member of the Board of Directors,
the deferred non-employee director fees are paid based on an
earlier election to have their accounts distributed immediately
or in annual installments for up to ten (10) years.
Supplemental Executive Retirement Plan
Effective January 1, 1999, the Board of Directors of the
Company adopted a Supplemental Executive Retirement Plan (the
"Plan"). The purpose of the Plan is to provide additional
retirement benefits for a limited group of management employees
whom the Board concluded were not receiving competitive
retirement benefits. No actual benefits are put aside for
participants and the participants are general creditors of the
Company for payment of the benefits upon retirement or
termination from the Company. Participants can elect to have
these benefits administered as a cash with interest or stock unit
account. Upon retirement/termination, the participant is paid
the benefits in their account based on an earlier election to
have their accounts distributed immediately or in annual
installments for up to five (5) years.
Item 13. Certain Relationships and Related Transactions
No relationships or transactions are required to be reported.
Item 14. Principal Accountant Fees and Services
The information set forth under the caption "Relationship with
Independent Auditors" in the 2004 Proxy Statement is incorporated
herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) Documents filed as part of this Report
1 Financial Statements
The following consolidated financial statements of the
Company are filed as part of this Annual Report on Form 10-K:
Report of Independent Auditors
Consolidated Statements of Income - Years ended December 31,
2003, 2002 and 2001
Consolidated Balance Sheets - December 31, 2003 and 2002
Consolidated Statements of Stockholders' Equity - Years
ended December 31, 2003, 2002 and 2001
Consolidated Statements of Cash Flows - Years ended December
31, 2003, 2002 and 2001
Notes to Consolidated Financial Statements
2 Financial Statement Schedules
The following financial statement schedule is
filed as part of this Annual Report on Form 10-K:
Schedule II -- Valuation and Qualifying Accounts.
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required to be included herein
under the related instructions or are inapplicable and,
therefore, have been omitted.
3 Exhibits. The Exhibits listed below are filed or
incorporated by reference as part of this Annual Report on
Form 10-K.
Exhibit
Number Description
3.1 Restated Certificate of Incorporation (17)
3.2 By-Laws, as amended (16)
4.1. (a) United States Commercial Paper Issuing and paying Agency Agreement dated as of August 12,1999 between the Company
and the Chase Manhattan Bank. (13)
(b) United States Commercial Paper Dealer Agreement dated as of March 28, 2002 between the Company and Salomon Smith
Barney Inc. (18)
(c) United States Commercial Paper Dealer Agreement dated as of April 30, 2002 between the Company and Credit Suisse
First Boston Corporation. (18)
(d) Euro Commercial Paper Note Agreement dated as of July 18, 2002 between the Company and Citibank International plc. (18)
(e) Euro Commercial Paper Dealer Agreement dated as of July 18, 2002 between the Company and Citibank International
plc and Credit Suisse First Boston (Europe) Limited. (18)
4.2 (a) Note Agreement (governing Series A, Series B and Series C Notes) dated March 1, 2001 between the Company and
Prudential Insurance Company of America. (14)
(b) First Amendment to Note Agreement dated September 1, 2001 between the Company and Prudential Insurance Company of
America. (16)
4.3 (a) 5-Year Competitive Advance, Revolving Credit and Guaranty Agreements dated as of May 25, 2001 among the Company,
the guarantors named therein, the banks named therein, the ABN Amro Bank, N.V as Administrative Agent, and First Union
National Bank and Harris Trust and Savings Bank as Documentation Agents. (16)
(b) 364-Day Competitive Advance, Revolving Credit and Guaranty Agreements dated as of May 25, 2001 among the Company,
the guarantors named therein, the banks named therein, the ABN Amro Bank, N.V as Administrative Agent, and
First Union National Bank and Harris Trust and Savings Bank as Documentation Agents. (16)
(c) Amendment to the 5-Year Competitive Advance, Revolving Credit and Guaranty Agreements dated as of May 25, 2001 among
the Company, the guarantors named therein, the banks named therein, the ABN Amro Bank, N.V as Administrative
Agent, and First Union National Bank and Harris Trust and Savings Bank as Documentation Agents. (18)
(d) Amendment to the 364-Day Competitive Advance, Revolving Credit and Guaranty Agreements dated as of May 25, 2001
among the Company, the guarantors named therein, the banks named therein, the ABN Amro Bank, N.V as Administrative
Agent, and First Union National Bank and Harris Trust and Savings Bank as Documentation Agents. (18)
(e) Amendment to the 5-Year Competitive Advance, Revolving Credit and Guaranty Agreements dated as of August 30, 2001
among the Company, the guarantors named therein, the banks named therein, the ABN Amro Bank, N.V as Administrative
Agent, and First Union National Bank and Harris Trust and Savings Bank as Documentation Agents. (18)
(f) Amendment to the 364-Day Competitive Advance, Revolving Credit and Guaranty Agreements dated as of August 30, 2001
among the Company, the guarantors named therein, the banks named therein, the ABN Amro Bank, N.V as Administrative
Agent, and First Union National Bank and Harris Trust and Savings Bank as Documentation Agents. (18)
(g) Amendment to the 364-Day Competitive Advance, Revolving Credit and Guaranty Agreements dated as of May 24, 2002
among the Company, the guarantors named therein, the banks named therein, the ABN Amro Bank, N.V as Administrative
Agent, and First Union National Bank and Harris Trust and Savings Bank as Documentation Agents. (18)
(h) Amendment to the 364-Day Competitive Advance, Revolving Credit and Guaranty Agreements dated as of May 23, 2003
among the Company, the guarantors named therein, the banks named therein, the ABN Amro Bank, N.V as Administrative
Agent, and First Union National Bank and Harris Trust and Savings Bank as Documentation Agents.
4.4 Private placement note dated December 28, 2001 between the Company and Massachusetts Mutual Life Insurance Company
and Nationwide Life Insurance Company. (16)
4.5 (a) Eurobonds Agency Agreement dated December 13, 2001 between the Company and Citibank, N.A. (16)
(b) Eurobond Subscription Agreement dated December 11, 2001 between the Company and Credit Suisse First Boston (Europe)
Limited, UBS AG, ABN AMRO Bank N.V., First Union Securities, Inc.; and Tokyo-Mitsubishi International plc
(the Managers). (16)
(c) Pages 4 through 16 of the Company's Eurobond Offering Circular dated December 11, 2001. (16)
10.1 1993 Stock Option Plan (2)
10.2 1998 Stock Option Plan (1)
10.3 2002 Stock Option Plan (17)
10.4 Nonstatutory Stock Option Agreement between the Company and Burton C. Borgelt (3)
10.5 (a) Trust Agreement for the Company's Employee Stock Ownership Plan between the Company and T. Rowe Price Trust Company
dated as of November 1, 2000. (14)
(b) Plan Recordkeeping Agreement for the Company's Employee Stock Ownership Plan between the Company and T. Rowe
Price Trust Company dated as of November 1, 2000. (14)
10.6 Written Description of the Chairman's Agreement between the Company and John C. Miles II
10.7 Employment Agreement dated January 1, 1996 between the Company and W. William Weston (9)*
10.8 Employment Agreement dated January 1, 1996 between the Company and Thomas L. Whiting (9)*
10.9 Employment Agreement dated October 11,1996 between the Company and Gerald K. Kunkle Jr. (10)*
10.10 Employment Agreement dated April 20, 1998 between the Company and William R. Jellison (12)*
10.11 Employment Agreement dated September 10, 1998 between the Company and Brian M. Addison (12)*
10.12 Employment Agreement dated June 1, 1999 between the Company and J. Henrik Roos (13)*
10.13 Employment Agreement dated October 1, 2001 between the Company and Rudolf Lehner (16)*
10.14 Employment Agreement dated November 1, 2002 between the Company and Christopher T. Clark (18)*
10.15 Employment Agreement dated November 1, 2002 between the Company and James G. Mosch (18)*
10.16 Employment Agreement dated December 1, 2002 between the Company and Bret W. Wise (18)*
10.17 DENTSPLY International Inc. Directors' Deferred Compensation Plan effective January 1, 1997 (10)*
10.18 Supplemental Executive Retirement Plan effective January 1, 1999 (12)*
10.19 Written Description of Year 2003 Incentive Compensation Plan.
10.20(a) AZLAD Products Agreement, dated January 18, 2001 between AstraZeneca AB and Maillefer Instruments Holdings, S.A.
(a subsidiary of the Company). (14)
(b) AZLAD Products Manufacturing Agreement, dated January 18, 2001 between AstraZeneca AB and Maillefer Instruments
Holdings, S.A. (14)
(c) AZ Trade Marks License Agreement, dated January 18, 2001 between AstraZeneca AB and Maillefer Instruments Holdings,
S.A. (14)
(d) AZLAD Products Manufacturing Agreement, effective March 1, 2004 between AstraZeneca AB and Maillefer Instruments
Holdings, S.A.
10.21 Sale and Purchase Agreement of Gendex Equipment Business between the Company and Danaher Corporation Dated
December 11, 2003.
10.22(a) Precious metal inventory Purchase and Sale Agreement dated November 30, 2001 between Fleet Precious Metal Inc.
and the Company. (16)
(b) Precious metal inventory Purchase and Sale Agreement dated December 20, 2001 between JPMorgan Chase Bank
and the Company. (16)
(c) Precious metal inventory Purchase and Sale Agreement dated December 20, 2001 between Mitsui & Co., Precious
Metals Inc. and the Company. (16)
21.1 Subsidiaries of the Company
23.1 Consent of Independent Auditors - PricewaterhouseCoopers LLP
31 Section 302 Certification Statements
32 Section 906 Certification Statement
99.1 DENTSPLY International Inc. Code of Business Conduct and Ethics
* Management contract or compensatory plan.
(1) Incorporated by reference to exhibit included in the
Company's Registration Statement on Form S-8 (No. 333-56093).
(2) Incorporated by reference to exhibit included in the
Company's Registration Statement on Form S-8 (No. 33-71792).
(3) Incorporated by reference to exhibit included in the
Company's Registration Statement on Form S-8 (No. 33-79094).
(4) Incorporated by reference to exhibit included in the
Company's Registration Statement on Form S-8 (No. 33-52616).
(5) 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.
(6) 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.
(7) 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.
(8) Incorporated by reference to exhibit included in the
Company's Current Report on Form 8-K dated January 10, 1996,
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, 1995, 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
ended December 31, 1996, File No. 0-16211.
(11) Incorporated by reference to exhibit included in the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, 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, 1998, 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, 1999, File No. 0-16211.
(14) Incorporated by reference to exhibit included in the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000, File No. 0-16211.
(15) Incorporated by reference to exhibit included in the
Company's Quarterly Report on Form 10-Q for the period ended
June 30, 2001, File No. 0-16211.
(16) Incorporated by reference to exhibit included in the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2001, File No. 0-16211.
(17) Incorporated by reference to exhibit included in the
Company's Registration Statement on Form S-8 (No.
333-101548).
(18) Incorporated by reference to exhibit included in the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2002, 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 June 13, 2001 between Midland Bank PLC
and Dentsply Limited for GBP 3,000,000 overdraft and
$2,000,000 foreign exchange facility.
(3) Agreement dated June 21, 2001 in the principal amount
of $6,000,000 between Dentsply Research and Development
Corp, Hong Kong Branch and Bank of Tokyo Mitsubishi.
(4) Form of "comfort letters" to various foreign commercial
lending institutions having a lending relationship with one
or more of the Company's international subsidiaries.
(b) Reports on Form 8-K
On January 28, 2004, the Company filed a Form 8-K, under
item 12, furnishing the press release issued on January 27,
2004 regarding its fourth quarter 2003 sales and earnings.
On February 3, 2004, the Company filed a Form 8-K, under
item 12, furnishing a transcript of its January 28, 2004,
conference call regarding the Company's discussion of its
fourth quarter 2003 sales and earnings.
On March 1, 2004, the Company filed a Form 8-K, under item
5, furnishing a summary of the Company's quarterly results
of operations for the fiscal years 2003 and 2002, related to
its continuing and discontinued operations.
SCHEDULE II
DENTSPLY INTERNATIONAL INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 2003
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,
2001 $ 6,360 $ 2,844 $ 5,289 (a) $(1,638) $ (253) $ 12,602
2002 12,602 2,904 3,560 (b) (1,987) 1,413 18,492
2003 18,492 569 (29) (4,771) 2,041 16,302
Allowance for trade discounts:
For Year Ended December 31,
2001 1,629 555 - (1,194) (77) 913
2002 913 988 - (871) 61 1,091
2003 1,091 1,494 19 (1,681) 139 1,062
Inventory valuation reserves:
For Year Ended December 31,
2001 14,942 4,369 8,409 (c) (2,996) (365) 24,359
2002 24,359 4,855 4,671 (d) (5,581) 2,366 30,670
2003 30,670 2,845 (22) (3,418) 3,037 33,112
Deferred tax asset valuation allowance:
For Year Ended December 31,
2001 2,353 909 - (215) (183) 2,864
2002 2,864 3,431 - (1,129) 176 5,342
2003 5,342 5,764 - (2,596) 1,139 9,649
- ------------------
(a) Includes $389 from acquisition of Friadent and $4,900 from acquisition of Degussa Dental.
(b) Includes $797 from acquisition of Austenal and $2,763 related to the acquisition of Degussa Dental.
(c) Includes $1,580 from acquisition of Friadent and $6,829 from acquisition of Degussa Dental.
(d) Includes $588 from acquisition of Austenal and $4,083 related to the acquisition of Degussa Dental.
DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
Year ended December 31,
2003 2002 2001 2000 1999
(dollars in thousands, except per share amounts)
Statement of Income Data:
Net sales $ 1,570,925 $ 1,417,600 $ 1,045,275 $ 810,409 $ 763,093
Net sales without precious metal content 1,365,890 1,230,511 994,630 810,409 763,093
Gross profit 773,201 704,411 542,838 438,728 406,933
Restructuring and other costs (income) 3,700 (2,732) 5,073 (56) -
Operating income 267,983 249,452 170,209 155,571 143,099
Income before income taxes 251,196 214,090 179,522 146,907 134,216
Net income from continuing operations (1) $ 169,853 $ 143,641 $ 117,714 $ 97,822 $ 87,586
Net income from discontinued operations 4,330 4,311 3,782 3,194 2,277
Total net income (1) $ 174,183 $ 147,952 $ 121,496 $ 101,016 $ 89,863
Earnings per common share - basic:
Continuing operations (1) $ 2.16 $ 1.84 $ 1.51 $ 1.26 $ 1.11
Discontinued operations 0.05 0.05 0.05 0.04 0.03
Total earnings per common share - basic (1) $ 2.21 $ 1.89 $ 1.56 $ 1.30 $ 1.14
Earnings per common share - diluted
Continuing operations (1) $ 2.11 $ 1.80 $ 1.49 $ 1.25 $ 1.10
Discontinued operations 0.05 0.05 0.05 0.04 0.03
Total earnings per common share - diluted (1) $ 2.16 $ 1.85 $ 1.54 $ 1.29 $ 1.13
Cash dividends declared per
common share $ 0.19700 $ 0.18400 $ 0.18333 $ 0.17083 $ 0.15417
Weighted Average Common Shares Outstanding:
Basic 78,823 78,180 77,671 77,785 79,131
Diluted 80,647 79,994 78,975 78,560 79,367
Balance Sheet Data:
Cash and cash equivalents $ 163,755 $ 25,652 $ 33,710 $ 15,433 $ 11,418
Total assets 2,445,587 2,087,033 1,798,151 866,615 863,730
Total debt 812,175 774,373 731,158 110,294 165,467
Stockholders' equity 1,122,069 835,928 609,519 520,370 468,872
Return on average stockholders' equity 17.8% 20.5% 21.5% 20.4% 20.4%
Long-term debt to total capitalization 41.3% 47.9% 54.3% 17.4% 23.7%
Other Data:
Depreciation and amortization $ 45,661 $ 41,352 $ 51,512 $ 39,170 $ 37,479
Capital expenditures 76,583 55,476 47,529 26,885 31,944
Property, plant and equipment, net 376,211 313,178 240,890 181,341 180,536
Goodwill and other intangibles, net 1,209,739 1,134,506 1,012,160 344,753 349,421
Interest expense, net 24,205 27,389 18,256 6,735 12,247
Cash flows from operating activities 257,992 172,983 211,068 145,622 125,622
Inventory days 93 100 93 114 122
Receivable days 50 49 46 52 52
Income tax rate 32.4% 32.9% 34.4% 33.4% 34.7%
(1) In the first and second quarters of 2003, the Company
recorded pre-tax charges of $4.1 million and $5.5 million,
respectively, related primarily to adjustments to inventory,
accounts receivable and prepaid expense accounts at one division
in the United States and two international subsidiaries. Of the
$9.6 million in total pre-tax charges, $2.4 million were
determined to be properly recorded as changes in estimates, $0.4
million were determined to be errors between the first and second
quarters of 2003, and the remaining $6.8 million ($4.6 million
after-tax) were determined to errors relating to prior periods.
In addition, the Company determined that $4.8 million of reserves
reversed in 2003 and $4.1 million of reserves reversed in 2001
and 2002 should have been reversed in earlier periods or had been
erroneously established. In the aggregate, had the charge and
reserve errors been recorded in the proper period, reported net
income would have increased by $0.8 million ($0.1 per basic and
diluted share) in 2000, increased by $1.2 million ($0.02 per
basic and diluted share) in 2001, and decreased by $3.4 million
($0.04 per basic and diluted share) in 2002. The effect of
recording the Charge Errors and Reserve Errors in 2003 reduced
net income by $1.3 million ($0.02 per basic and diluted share).
Following a quantitative and qualitative assessment of
materiality, Company concluded that the charges and reserve
errors were not material to the results of operations and
financial position of the Company for the years ended December
31, 2000, 2001, 2002 and 2003 and accordingly, the prior period
financial statements have not been restated. See Note 19 to the
consolidated financial statements for additional information
related to this matter.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements made by the Company, including without
limitation, statements in the Overview section below and other
statements containing the words "plans", "anticipates",
"believes", "expects", or words of similar import may be deemed to
be forward-looking statements and 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 and uncertainties discussed
within Item I, Part I of this Annual Report on Form 10-K.
OVERVIEW
Dentsply International Inc. is the world's largest manufacturer
of professional dental products . The Company is headquartered
in the United States, and operates in more than 120 other
countries, principally through its foreign subsidiaries. While
the United States and Europe are the Company's largest markets,
the Company serves all of the major professional dental markets
worldwide. In 2003, sales to customers outside the United States
represented 58% of the Company's net sales.
There are several important aspects of its business which the
Company has commented on in the past. These include: (1)
internal growth in the United States, Europe and the Pacific Rim;
(2) the development and introduction of innovative new products;
(3) growth through acquisition; and (4) continued focus on
controlling costs and enhancing efficiency. We define "internal
growth" as the increase in our net sales from period to period,
excluding precious metal content, the impact of changes in
currency exchange rates, and the net sales, for a period of
twelve months following the transaction date, of businesses that
we have acquired or divested.
In 2003, overall economic conditions resulted in a slowing of
the Company's internal growth rate in the United States, the
largest dental market in the world. Our internal growth rate in
the United States slowed to 3.3% in 2003, down from rates of 9.0%
and 7.2% experienced in 2002 and 2001, respectively. Management
expects that economic conditions will improve in the United
States in 2004 and thus anticipates that our internal growth rate
will accelerate as economic conditions improve. In contrast to
the United States, the rate of internal growth in Europe in 2003
improved to 8.6%, compared to 6.6% and 5.0% in 2002 and 2001,
respectively. Management believes that this growth rate resulted
from strong market acceptance in Europe of our product portfolio
and our improved market presence stemming from the acquisitions
we completed throughout 2001. Management anticipates continued
strong growth in Europe in 2004. Japan represents the third
largest dental market in the world behind the United States and
Europe. Japan's dental market growth closely parallels its
economic growth. The Company views the Japanese market as an
important growth opportunity, both in terms of a recovery in the
Japanese economy and the opportunity to increase our market
share. In 2002 and early 2003, the growth rate in the dental
markets in Asia was among the highest in the world. The SARs
crisis experienced in 2003 caused substantial disruption in the
dental markets in several key Asian countries. Trends in late
2003 and early 2004 show a recovery in Asian dental market
conditions, but it is not yet clear whether this improvement is
sustainable. Although Asia, excluding Japan, represented only
3.3% of the Company's sales in 2003, management believes that the
Asian markets represent a long-term growth opportunity for the
industry and the Company.
Product innovation is an important element of the Company's
growth strategy. Management plans include an acceleration of
investment in research and development of approximately 20% in
2004 to support new and innovative products and technology.
Management believes that the Company's strategy of being a lead
innovator in the industry is an important element to the
long-term success of the Company.
Although the professional dental market in which the Company
operates has experienced consolidation, it is still a fragmented
industry. The Company continues to focus on opportunities to
expand the Company's product offerings through acquisition.
Management believes that there will continue to be adequate
opportunities to participate as a consolidator in the industry
for the foreseeable future.
The Company also remains focused on reducing costs and
improving competitiveness. Management expects to continue to
consolidate operations or functions and reduce the cost of those
operations and functions while improving service levels. The
Company believes that the benefits from these opportunities will
improve the cost structure and offset areas of rising costs such
as energy, benefits, regulatory oversight and compliance and
financial reporting in the United States.
FACTORS IMPACTING COMPARABILITY BETWEEN YEARS
Acquisitions
In January 2002, the Company acquired the partial denture
business of Austenal Inc. ("Austenal"), and in 2001 the Company
made three significant acquisitions. In January 2001, the
Company acquired the outstanding shares of Friadent GmbH
("Friadent"), a global dental implant manufacturer and marketer.
In March 2001, the Company acquired the dental injectible
anaesthetic assets of AstraZeneca ("AZ Assets"). In October 2001,
the Company acquired the Degussa Dental Group ("Degussa Dental"),
a manufacturer and seller of dental products, including precious
metal alloys, ceramics, dental laboratory equipment and chairside
products. The details of these transactions are discussed in
Note 3 to the Consolidated Financial Statements. The results of
these acquired companies have been included in the consolidated
financial statements since the dates of acquisition. These
acquisitions, accounted for using the purchase method,
significantly impact the comparability between 2001 and 2002.
Accounting Charges and Reserve Reversals
In the first and second quarters of 2003, the Company recorded
pretax charges of $4.1 million and $5.5 million, respectively,
related primarily to adjustments to inventory, accounts
receivable, and prepaid expense accounts at one division in the
United States and two international subsidiaries. All of these
operating units had been involved in integrating one or more of
the acquisitions completed in 2001. Of the $9.6 million in total
pretax charges recorded in the first and second quarters of 2003,
$2.4 million were determined to be properly recorded as changes
in estimate, $0.4 million were determined to be errors between
the first and second quarters of 2003, and the remaining $6.8
million ($4.6 million after tax) were determined to be errors
relating in prior periods ("Charge Errors"). The Charge Errors
included $3.0 million related to inaccurate reconciliations and
valuation of inventory, $2.0 million related to inaccurate
reconciliations and valuation of accounts receivable, $1.3
million related to unrecoverable prepaid expenses and $0.5
million related to other accounts. Had the Charge Errors been
recorded in the proper period, net income as reported would have
been decreased by $0.6 million ($0.01 per diluted share) in 2001
and $4.0 million ($0.05 per diluted share) in 2002. Recording
the effect of the Charge Errors in 2003 reduced net income by
$4.6 million ($0.06 per diluted share).
In addition to the aforementioned, in the first and second
quarters of 2003, the Company determined that $4.8 million in
reserves reversed in 2003 and $4.1 million of reserves reversed
in 2001 and 2002 should have been reversed in earlier years or
had been erroneously established ("Reserve Errors). The Reserve
Errors occurred in 2000 through 2002 and related primarily to
asset valuation accounts and accrued liabilities, including (on a
pre-tax basis) $5.1 million related to product return provisions,
$1.1 million related to bonus accruals, $0.8 million related to
product warranties, $0.7 million related to inventory valuation
and $1.2 million related to other accounts. Had the Reserve
Errors been recorded in the proper period, they would have
increased net income as reported by $0.8 million ($0.01 per
diluted share) in 2000, $1.8 million ($0.02 per diluted share) in
2001 and $0.7 million ($0.01 per diluted share) in 2002.
Recording the effect of the Reserve Errors in 2003 increased net
income by $3.3 million ($0.04 per diluted share).
The above described charges (including the $2.4 million changes
in estimates) and Reserve Errors amounted to $19.9 million
(pre-tax) on an absolute basis and occurred from 2000 through the
second quarter of 2003. Included in this total, are $2.0 million
of Reserve Errors and $0.4 million of Charge Errors that
originated and reversed in different quarters of same year. In
the aggregate, had the Charge Errors and Reserve Errors described
above been recorded in the proper period, reported net income
would have increased by $0.8 million ($0.01 per diluted share) in
2000, $1.2 million ($0.02 per diluted share) in 2001 and
decreased by $3.4 million ($0.04 per diluted share) in 2002. The
effect of recording the Reserve Errors and Charge Errors in 2003
reduced net income by $1.3 million ($0.02 per diluted share).
The Company performed an analysis of the Charge Errors and
Reserve Errors on both a qualitative and quantitative basis and
concluded that the errors were not material to the results of
operations and financial position of the Company for the years
ended December 31, 2000, 2001, 2002 and 2003. Accordingly, prior
period financial statements have not been restated.
Discontinued Operations
In December 2003, the Company entered into an agreement to sell
its Gendex equipment business to Danaher Corporation.
Additionally, the Company announced to its dental needle
customers that it was discontinuing production of dental needles.
The sale of the Gendex business and discontinuance of dental
needle production have been accounted for as discontinued
operations pursuant to Statement of Financial Accounting Standard
No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". The results of operations for all periods presented have
been restated to reclassify the results of operations for both
the Gendex equipment and the dental needle businesses to
discontinued operations.
Reclassifications
Certain other reclassifications have been made to prior years'
data in order to conform to current year presentation.
RESULTS OF CONTINUING OPERATIONS, 2003 COMPARED TO 2002
Net Sales
The discussions below summarize the Company's sales growth,
excluding precious metals, from internal growth and net
acquisition growth and highlights the impact of foreign currency
translation. These disclosures of net sales growth provide the
reader with sales results on a comparable basis between periods.
As the presentation of net sales excluding precious metal
content could be considered a measure not calculated in
accordance with generally accepted accounting principles (a
so-called non-GAAP measure), the Company provides the following
reconciliation of net sales to net sales excluding precious metal
content. Our definitions and calculations of net sales excluding
precious metal content and other operating measures derived using
net sales excluding precious metal content may not necessarily be
the same as those used by other companies.
Year Ended December 31,
2003 2002 2001
(in millions)
Net Sales $ 1,570.9 $ 1,417.6 $1,045.3
Precious Metal Content of Sales (205.0) (187.1) (50.7)
Net Sales Excluding Precious Metal Conten $ 1,365.9 $ 1,230.5 $ 994.6
Management believes that the presentation of net sales
excluding precious metal content provides useful information to
investors because a significant portion of DENTSPLY's net sales
is comprised of sales of precious metals generated through sales
of the Company's precious metal alloy products, which are used by
third parties to construct crown and bridge materials.
Due to the fluctuations of precious metal prices and because
the precious metal content of the Company's sales is largely a
pass-through to customers and has minimal effect on earnings,
DENTSPLY reports sales both with and without precious metal
content to show the Company's performance independent of precious
metal price volatility and to enhance comparability of
performance between periods.
The Company uses its cost of precious metal purchased as a
proxy for the precious metal content of sales, as the precious
metal content of sales is not separately tracked and invoiced to
customers. The Company believes that it is reasonable to use the
cost of precious metal content purchased in this manner since
precious metal alloy sale prices are adjusted when the prices of
underlying precious metals change.
Net sales in 2003 increased $153.3 million, or 10.8%, to
$1,570.9 million. Net sales, excluding precious metal content,
increased $135.4 million, or 11.0%, to $1,365.9 million. Sales
growth excluding precious metal content was comprised of 4.5%
internal growth, 6.6% foreign currency translation less 0.1% for
net acquisitions/divestitures. The 4.5% internal growth was
comprised of 8.6% in Europe, 3.3% in the United States and 0.4%
for all other regions combined.
The internal sales growth in 2003, excluding precious metal
content, was highest in Europe with strong growth in endodontic,
dental implant and certain laboratory products. In the United
States internal sales growth was strongest in endodontic and
orthodontic products and other chairside consumables, offset by a
softening in sales to dental laboratories. The market for dental
laboratory products tends to be the most sensitive to economic
cycles and contracted in the United States in 2003.
Gross Profit
Gross profit was $773.2 million in 2003 compared to $704.4
million in 2002, an increase of $68.8 million, or 9.8%. Gross
profit, including precious metal content, represented 49.2% of
net sales in 2003 compared to 49.7% in 2002. The gross profit for
2003, excluding precious metal content, represented 56.6% of net
sales compared to 57.2% in 2002. Gross profit as reported would
have been higher by $2.8 million in 2003 and lower by $5.4
million in 2002 had the Charge Errors and Reserve Errors been
recorded in the proper periods. In addition, geographic mix
negatively influenced gross margins in 2003 compared to 2002.
Operating Expenses
Selling, general and administrative ("SG&A") expense increased
$43.8 million, or 9.6%, to $501.5 million in 2003 from $457.7
million in 2002. The 9.6% increase in expenses, as reported,
reflects increases for the translation impact from a weaker U.S.
dollar of approximately $35.3 million. As a percentage of sales,
including precious metal content, SG&A expenses decreased to
31.9% compared to 32.3% in 2002. As a percentage of sales,
excluding precious metal content, SG&A expenses decreased to
36.7% compared to 37.2% in 2002. SG&A would have been higher by
$0.8 million in 2003 and lower by $0.3 million in 2002, had the
Charge Errors and Reserve Errors been recorded in the proper
periods. The leveraging of general and administrative expenses
was the primary reason for the percentage decrease in SG&A
expenses from 2002 to 2003.
During 2003, the Company recorded restructuring and other costs
of $3.7 million. The largest portion of this was an impairment
charge related to certain investments made in emerging
technologies that the Company no longer views as recoverable. In
addition, in December 2003, the Company announced the
consolidation of its U.S. laboratory businesses and recorded a
charge for a portion of the costs to complete the consolidation.
Based on the restructuring activities undertaken in 2003, the
U.S. laboratory businesses are expected to incur additional
restructuring costs of approximately $2.5 million in 2004 to
complete the plan. The Company made the decision to consolidate
these laboratory businesses in order to improve operational
efficiencies, to broaden customer penetration and to strengthen
customer service. Upon completion, which is expected in late
2004, this plan is projected to result in future annual expense
reductions of approximately $1.5 million, primarily within SG&A.
During 2002, the Company recorded restructuring and other
income of $2.7 million, including a $3.7 million benefit which
resulted from changes in estimates related to prior period
restructuring initiatives, offset somewhat by a restructuring
charge for the combination of the CeraMed and U.S. Friadent
divisions of $1.7 million. In addition, the Company recognized a
gain of $0.7 million related to the insurance settlement for fire
damages sustained at the Company's Maillefer facility. (see Note
16 to the Consolidated Financial Statements).
Other Income and Expenses
Net interest expense and other expenses were $16.8 million in
2003 compared to $35.4 million in 2002. The year 2003 included
$24.2 million of net interest expense, less $7.4 million of
income from PracticeWorks, Inc., including a $5.8 million pre-tax
gain realized and recognized in the fourth quarter of 2003 on the
sale of the Company's interest in PracticeWorks, Inc. The year
2002 included: $27.4 million of net interest; $3.5 million of
currency transaction losses; a $1.1 million loss realized on the
share exchange with PracticeWorks, Inc.; and a $2.5 million
mark-to-market loss related to PracticeWorks warrants.
Earnings
The effective tax rate decreased to 32.4% in 2003 from 32.9% in
2002.
Income from continuing operations increased $26.3 million, or
18.3%, to $169.9 million in 2003 from $143.6 million in 2002.
Fully diluted earnings per share from continuing operations were
$2.11 in 2003, an increase of 17.2% from $1.80 in 2002. Had the
Charge Errors and Reserve Errors described above been recorded in
the proper periods, income from continuing operations would have
been higher by $1.3 million ($.02 per diluted share) in 2003 and
lower by $3.4 million ($.04 per diluted share) in 2002.
Discontinued Operations
The Company entered into an agreement to sell its Gendex
equipment business to Danaher Corporation in December, 2003, and
completed the transaction in the first quarter of 2004. In
addition, the Company announced to its dental needle customers
that it was discontinuing production of dental needles.
Accordingly, the Gendex equipment and needle businesses have been
reported as discontinued operations for all periods presented.
Income from discontinued operations was $4.3 million in both
2003 and 2002. Fully diluted earnings per share from
discontinued operations were $.05 in both 2003 and 2002.
Operating Segment Results
The Company has five operating groups, which are managed by
five Senior Vice Presidents and equate to our operating
segments. Each of these operating groups covers a wide range of
product categories and geographic regions. The product
categories and geographic regions often overlap across the
groups. Further information regarding the details of each group
is presented in Note 4 of the Consolidated Financial Statements.
The management of each group is evaluated for performance and
incentive compensation purposes on the net third party sales,
excluding precious metal content and segment operating income.
Dental Consumables--U.S. and Europe/Japan/Non-dental
Net sales for this group were $264.6 million in 2003, a 9.3%
increase compared to $242.1 million in 2002. Internal growth was
2.8% and currency translation added 6.5% to sales in 2003. The
U.S. consumables business had the highest growth in the group,
which was offset by lower sales in the Japanese market and low
growth in the non-dental business.
Operating profit increased $11.5 million to $82.4 million from
$70.9 million in 2002. Sales growth in the U.S. dental
consumable business and gross margin improvement in the European
dental consumable business were the most significant contributors
to the increase. Operating profit benefited from currency
translation. Operating profit would have been lower by $2.7
million in 2003 and higher by $1.6 million in 2002 if the Reserve
Errors had been recorded in the proper period.
Endodontics/Professional Division Dental Consumables/Asia
Net sales for this group increased $23.9 million, or 6.7%, up
from $357.6 million in 2002. Internal growth was 3.8% and
currency translation added 2.9% to 2003 sales. Sales growth was
strongest in the endodontic business. This was offset by lower
sales in the dental consumables business due to aggressive
competitive pressures in the U.S. market.
Operating profit was $154.0 million, an increase of $12.4
million from $141.6 million in 2002. Continued growth in the
endodontic business was primarily responsible for the increase.
In addition, operating profit benefited from currency translation
partially offset by the negative currency impact of intercompany
transactions. Operating profit would have been lower by $0.7
million in 2003 and lower by $0.6 million in 2002 if the Reserve
Errors had been recorded in the proper period.
Dental Consumables--United Kingdom, France, Italy, CIS, Middle
East, Africa/European Dental Laboratory Business
Net sales for this group were $307.0 million in 2003, a 27.3%
increase compared to $241.1 million in 2002. Internal growth was
7.0% and currency translation added 19.9% to sales in 2003. The
primary reason for the sales growth was strong sales performance
in Germany, France, CIS and Africa.
Operating profit increased $19.2 million to $30.6 million from
$11.4 million in 2002. The primary reason for the profit
improvement was sales increases and margin improvement in the
European dental laboratory business including improvements from
the consolidation of the historical Dentsply tooth business in
Europe into the DeguDent business. In addition, operating profit
benefited from currency translation. Operating profit would have
been lower by $0.3 million in 2003 if the Charge Errors and
Reserve Errors had been recorded in the proper period.
Australia/Canada/Latin America/Pharmaceutical
Net sales for this group increased $4.8 million, or 4.4%,
compared to $108.5 million in 2002. Internal growth was 3.6% and
currency translation added 0.8% to 2003 sales. Sales were
strongest in the U.S. pharmaceutical business and in Latin
America. Canada and Australia experienced slower sales growth.
Operating profit was $12.0 million, a $2.8 million decrease
from $14.8 million in 2002. Lower operating margins in Latin
America hurt profitability. Operating profit would have been
higher by $1.0 million in 2003 and lower by $0.7 million in 2002
if the Charge Errors and Reserve Errors had been recorded in the
proper period.
U.S. Dental Laboratory Business/Implants/Orthodontics
Net sales for this group were $278.7 million in 2003, a 6.9%
increase compared to $260.7 million in 2002. Internal growth was
3.2% and currency translation added 3.7% to sales in 2003. Sales
growth was adversely impacted by the soft U.S. dental laboratory
market. Sales growth for implants in Europe and the orthodontic
business showed continued strong sales growth.
Operating profit decreased $8.8 million to $41.4 million from
$50.2 million in 2002. The soft U.S. dental laboratory market
and the negative currency impact of intercompany transactions
adversely impacted operating profit. Operating profit would have
been higher by $4.7 million in 2003 and lower by $5.3 million in
2002 if the Charge Errors and Reserve Errors had been booked in
the proper period.
RESULTS OF CONTINUING OPERATIONS, 2002 COMPARED TO 2001
Net Sales
Net sales in 2002 increased $372.3 million, or 35.6%, to
$1,417.6 million. Net sales, excluding precious metal content,
increased $235.9 million, or 23.7%, to $1,230.5 million. The
growth in sales, excluding precious metal content, was driven by
internal growth of 6.7%, 15.8% growth from acquisitions and a
1.2% positive impact from currency translation as several major
currencies strengthened against the U.S. dollar during the year.
The 6.7% of internal growth was comprised of 9.0% in the United
States, 6.6% in Europe, and 1.1% for all other regions combined.
Internal growth for the dental business was 7.1% excluding
precious metal content.
The internal sales growth in 2002, excluding precious metal
content, was highest in United States, with strong growth in
endodontic and orthodontic products and other chairside
consumable products. In Europe internal sales growth was 6.6%
with strong sales gains in endodontic and orthodontic products,
implants, and other chairside consumable products. The internal
sales growth, excluding precious metal content, in all other
regions was 1.1%, with strong sales growth in Canada and Japan
offset by softening sales in Latin America and the Middle East
regions.
Gross Profit
Gross profit was $704.4 million in 2002 compared to $542.8
million in 2001, an increase of $161.6 million, or 29.8%. Gross
profit, including precious metal content, represented 49.7% of
net sales in 2002 compared to 51.9% in 2001. The decline in 2002
is due to the inclusion of the Degussa Dental business for a full
year versus just one quarter in 2001 and the corresponding
relatively high precious metal content of Degussa Dental's sales.
Gross profit for 2002, excluding precious metal content,
represented 57.2% of net sales compared to 54.6% in 2001. The
gross profit margin in 2002, excluding the precious metal content
pass through, benefited from new product introductions, a
favorable product mix, and the integration and restructuring
benefits related to acquisitions completed over the past several
years. The 2001 period included the negative impact of the
amortization of the Friadent and Degussa Dental inventory
step-ups recorded in connecton with purchase price accounting.
Gross profit as reported would have been lower by $5.4 million in
2002 and higher by $1.8 million in 2001 had the Charge Errors and
Reserve Errors been recorded in the proper periods.
Operating Expenses
Selling, general and administrative ("SG&A") expense increased
$90.1 million, or 24.5%, to $457.7 million in 2002 from $367.6
million in 2001. As a percentage of sales, including precious
metal content, SG&A expenses decreased to 32.3% compared to 35.2%
in 2001. This decrease is mainly due to the discontinuation of
goodwill and indefinite-lived intangible asset amortization in
2002, which in 2001 amounted to $17.6 million ($13.8 million, net
of tax). As a percentage of sales, excluding precious metal
content, SG&A expenses increased to 37.2% compared to 37.0% in
2001. This increase was primarily driven by the inclusion of the
Degussa Dental business, and its higher SG&A expense ratio
(excluding precious metal content), for a full year versus one
quarter in 2001, offset by the discontinuation of goodwill and
indefinite-lived intangible asset amortization in 2002. This
increase was also reflective of higher insurance and legal
expenses in 2002. SG&A would have been lower by $0.3 million in
2002 and lower by $0.1 million in 2001, had the Charge Errors and
Reserve Errors been recorded in the proper periods.
During 2002, the Company recorded restructuring and other
income of $2.7 million, including $3.7 million which resulted
from changes in estimates related to prior period restructuring
initiatives, offset somewhat by a restructuring charge for the
combination of the CeraMed and U.S. Friadent divisions of $1.7
million. In addition, the Company recognized a gain of $0.7
million related to the insurance settlement for fire damages
sustained at the Company's Maillefer facility. The 2001 period
included a restructuring charge of $5.5 million to improve
efficiencies in Europe, Brazil and North America and $11.5
million of restructuring and other costs primarily related to the
Degussa Dental acquisition and its integration with DENTSPLY. An
additional cost of $2.4 million was recorded for a payment made
at the point of regulatory filings related to Oraqix, a product
for which the Company acquired rights in the AZ Asset
acquisition. These charges were offset by a gain of $8.5 million
related to the restructuring of the Company's U.K. pension
arrangements and a gain of $5.8 million for an insurance
settlement for equipment destroyed in the fire at the Company's
Maillefer facility in Switzerland. The above items in 2001, on a
net basis, amount to charges of $5.1 million (see Note 16 to the
Consolidated Financial Statements).
Other Income and Expenses
Net interest expense increased $9.1 million in 2002 due to
higher debt levels associated with the acquisition activities in
2002 and 2001. Other income decreased $35.5 million in 2002, due
primarily to income recognized in 2001 of $24.5 million ($15.1
million, net of tax) which included a $23.1 million gain from the
sale of Infosoft, LLC and a $1.4 million minority interest
benefit related to an intangible impairment charge included in
restructuring and other costs. Other income and expense in 2002
also included a $4.7 million unfavorable change in currency
transaction gain/loss resulting from the significant weakening of
the U.S. dollar in 2002, a $1.1 million loss realized on the
share exchange with PracticeWorks, Inc. and a net loss of $2.5
million on mark-to-market adjustment for the warrants received in
the transaction. Also contributing to the decrease in other
income in 2002 was a decrease of $0.8 million in accrued
dividends related to the PracticeWorks, Inc. preferred stock
prior to the time of the PracticeWorks share exchange.
Earnings
The effective tax rate decreased to 32.9% in 2002 from 34.4% in
2001. This decrease was largely related to the discontinuance of
goodwill amortization in 2002, which in the past negatively
impacted the effective tax rate since much of this amortization
was non-deductible for tax purposes.
Net income from continuing operations increased $25.9 million,
or 22.0%, to $143.6 million in 2002 from $117.7 million in 2001.
Fully diluted earnings per share from continuing operations were
$1.80 in 2002, an increase of 20.8% from $1.49 in 2001. Had the
Charge Errors and Reserve Errors described above been recorded in
the proper periods, net income from continuing operations would
have been lower by $3.4 million ($.04 per diluted share) in 2002
and higher by $1.2 million ($.02 per diluted share) in 2001.
Discontinued Operations
Net income from discontinued operations was $4.3 million in
2002 compared to $3.8 million in 2001. Fully diluted earnings
per share from discontinued operations were $.05 in both 2002 and