UNITED STATES 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 [FEE REQUIRED] For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _________ to ____________ Commission file number 0-16211 DENTSPLY International Inc. (Exact name of registrant as specified in its charter) Delaware 39-1434669 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 570 West College Avenue, York, Pennsylvania 17405-0872 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (717) 845- 7511 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ------------------- ----------------------------------------- None Not applicable Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers 1
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. [X] As of March 3, 1997, the aggregate market value of voting common stock held by non-affiliates of the registrant, based upon the last reported sale price for the registrant's Common Stock on the Nasdaq National Market on such date, as reported in The Wall Street Journal, was $1,359,360,923 (calculated by excluding shares owned beneficially by directors and executive officers as a group from total outstanding shares solely for the purpose of this response). The number of shares of the registrant's Common Stock outstanding as of the close of business on March 3, 1997 was 26,932,042. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the definitive Proxy Statement of DENTSPLY International Inc. to be used in connection with the 1997 Annual Meeting of Stockholders (the "Proxy Statement") are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent provided herein. Except as specifically incorporated by reference herein, the Proxy Statement is not to be deemed filed as part of this Annual Report on Form 10-K. 2
PART I Item 1. Business - ----------------- General DENTSPLY International Inc. ("DENTSPLY" or the "Company"), a Delaware corporation, designs, develops, manufactures and markets products in two principal categories: dental consumable and laboratory products, and dental equipment. Dental consumable and laboratory products include artificial teeth, endodontic instruments and materials, impression materials, restorative materials, crown and bridge materials, prophylaxis paste, dental sealants and dental anesthetics. Dental equipment includes dental x-ray systems, intraoral cameras, computer imaging systems and related software, handpieces, cutting instruments, and ultrasonic scalers and polishers. In August 1996, the Company acquired a 51 percent interest in CeraMed Dental LLC ("CeraMed") and the right to acquire the remaining 49 percent at a later date. CeraMed is the leading United States manufacturer and distributor of bone grafting materials and Hydroxylapatite plasma-feed coating materials to dental markets. In January 1997, DENTSPLY purchased the assets of DW Industries, Inc., the leading manufacturer of disposable air- water syringe tips. Also in January 1997, the Company purchased 100 percent of the outstanding capital stock of Laboratoire SPAD, S.A. ("SPAD"), a leading French manufacturer and distributor of dental anesthetics and other dental products. SPAD gives DENTSPLY entry to the dental anesthetic market in addition to expanding DENTSPLY's existing business in France. In addition, in January 1997, DENTSPLY commenced a tender offer for all of the outstanding shares of New Image Industries, Inc. ("New Image"). On March 7, 1997, pursuant to the tender offer, DENTSPLY purchased shares representing approximately 90 percent of the outstanding shares of New Image. The remaining shares will be acquired in a merger. New Image is a leader in the design, development, manufacturing and distribution of intraoral cameras, computer imaging systems and related software. Market Overview Professional Dental Products General. The worldwide professional dental industry encompasses the diagnosis, treatment and prevention of disease 3
and ailments of the teeth, gums and supporting bone. DENTSPLY believes that demand in a given geographic market for dental procedures and products varies according to the stage of social, economic and technical development that the market has attained. Geographic markets for DENTSPLY's dental products can be categorized into the three stages of development described below. The United States, Canada, Western Europe, the United Kingdom, Japan, and Australia are highly developed markets that demand the most advanced dental procedures and products and have the highest level of expenditure on dental care. In these markets, the focus of dental care is increasingly upon preventive care and specialized dentistry. In addition to basic procedures such as the excavation and filling of cavities and tooth extraction and denture replacement, dental professionals perform an increasing volume of preventive and cosmetic procedures, including periodontia (the treatment of the structure supporting the teeth), endodontia (the revitalization of teeth that would otherwise require extraction), orthodontia (the movement and realignment of teeth for improved function and aesthetics), gnathology (the treatment of temporomandibular joint (TMJ) dysfunction and occlusive modification), implantology (the insertion of prosthetic devices to provide support for partial or full dentures) and cosmetic dentistry. These markets require varied and complex dental products, such as advanced cleaning and scaling equipment and related solutions, light-cured bonding and restorative compounds, precision-molded and customized crowns, bridges, bone grafting materials, implants and other prosthodontic devices, materials and instruments used in endodontic procedures, and aesthetically accurate stains and tints. These markets also utilize sophisticated diagnostic and imaging equipment, and demand high levels of attention to protection against infection and patient cross-contamination. In certain countries in Central America, South America and the Pacific Rim, dental care is often limited to the excavation and filling of cavities and other restorative techniques, reflecting more modest per capita expenditures for dental care. These markets demand diverse products such as high and low speed handpieces, restorative compounds, finishing devices and custom restorative devices. In the People's Republic of China, India, Eastern Europe, the Commonwealth of Independent States, and other developing countries, dental ailments are treated primarily through tooth extraction and denture replacement. These procedures require basic surgical instruments, artificial teeth for dentures and bridgework, and anchoring devices such as posts. The Company offers products and equipment for use in markets at each of these stages of development. The Company believes that as each of these markets develops, demand for more technically 4
advanced products will increase. The Company also believes that its recognized brand names, high quality and innovative products, technical support services and strong international distribution capabilities position it well to take advantage of continued growth in all of the markets that it serves. United States. The market for professional dental products in the United States has experienced significant growth in recent years. Statistics published by the U.S. Department of Health and Human Services indicate that annual United States spending on dental products and services increased from $31.6 billion to $45.8 billion from 1990 to 1995, or 7.7% per annum. The Company believes that the United States market will continue to be influenced by favorable demographic trends, increasing coverage of dental care by private insurance and government programs, and an intensifying focus on preventive dental care. The percentage of the United States population over age 65 is expected to nearly double by the year 2030, to 22%, and this segment of the population commands a relatively high level of discretionary income. The Company believes that as the number of older, more affluent Americans increases, the demand for restorative and cosmetic dental procedures will increase as these individuals seek to retain their natural teeth and improve their appearance. The Company also believes that the United States market will increasingly demand products which reduce the risks of infection and patient cross-contamination. This growing demand reflects increasing government regulation, professional practice guidelines and public attention focused on preventing the transmission in the dental office of infectious diseases such as hepatitis-B and the virus that causes acquired immune deficiency syndrome. The Company offers products to address the growing market for infection control products, such as sterilizable dental handpieces and cutting instruments, single-use prophylaxis pastes, disposable prophy angles and air-water syringe tips, and infection control barriers, and intends to continue to develop and acquire products to address this market. DENTSPLY expects insurance coverage of dental care to play an important role in the United States market. According to the National Center for Health Statistics, approximately 40% of the United States population is covered by some form of dental insurance, up from 35% in 1980. While insurance coverage has been increasing, the Health Care Finance Review indicates that, in 1995, approximately 50% of dental expenditures were paid for directly by the consumer. 5
Products DENTSPLY's two principal dental product lines are consumable and laboratory products, and equipment. These products are produced by the Company in the United States and internationally and are distributed throughout the world under some of the most well-established brand names and tradenames in the industry, including ASH(R), CAULK(R), CAVITRON(R), CERAMCO(R), DENTSPLY(R), DETREY(R), GENDEX(R), MIDWEST(R), R&R(R), RINN(R), TRUBYTE(R), MAILLEFER(R), PROFILE(R), THERMAFIL(R), ACUCAM(R) and SANI-TIP(R). Sales of the Company's professional dental products from continuing operations accounted for approximately 95%, 95% and 96% of DENTSPLY's consolidated sales for 1996, 1995 and 1994, respectively. Consumable and Laboratory Products. Consumable and laboratory products consist of dental sundries used in dental offices in the treatment of patients and in dental laboratories in the preparation of dental appliances, such as crowns and bridges. The Company manufactures approximately 1,200 different consumable and laboratory products marketed under more than 70 brand names. Consumable and laboratory products include: Resin-Based and Porcelain Artificial Teeth: Artificial teeth replace natural teeth lost through deterioration, disease or injury. The Company's artificial teeth are marketed under the TRUBYTE(R) and PORTRAIT(R) IPN(R) trade names, among others, and are produced by the Company in York, Pennsylvania, Brazil and Germany in some 15,000 combinations of shapes, sizes and shades. Impression Materials: Impression materials are used to make molds of teeth for fitting crowns, bridges and dentures. DENTSPLY's JELTRATE(R), BLUEPRINT(TM), REPROSIL(R) and AQUASIL LV Smart Wetting Impression Material are designed to increase the rate of successful impressions without retakes and to set quickly to minimize patient discomfort. Restorative Materials: Restorative materials are used in sealing, lining and filling excavated tooth cavities and repairing broken or damaged teeth, and include amalgams, bonding agents, light-cured composites and glass ionomer filling materials for more aesthetic restorations. The Company's DYRACT(R) product is a revolutionary, patented, single component restorative material featuring simplicity in delivery combined with excellence in restorative results. The Company's PRISMA(R) AP.H(R), PRISMA(R) TP.H(R) and TP.H(R) SPECTRUM(TM) universal composite materials permit restorations to be performed on either the anterior or posterior teeth using the same material, and are rapidly replacing older, single-purpose composite materials. The Company's ADVANCE(TM) Hybrid Ionomer Cement is a resin modified, fluoride- releasing glass ionomer cement with superior adhesion to 6
metal for crown and bridge work while helping to prevent secondary caries and extending the life of a restoration. PRIME & BOND(TM) 2.1 is the latest generation of a single bottle, multi-purpose dental adhesive and bonding agent which combines the functions of a primer and an adhesive in a simple-to-use single component formula. PRIME & BOND(TM) 2.1's proprietary resin formulation enhances the long-term marginal integrity of stress-bearing restorations at both dentin and enamel margins. DENTSPLY also markets the DISPERSALLOY(R), UNISON(R) and MEGALLOY(TM) lines of restorative amalgams; DELTON(R) and DELTON(R) PLUS (with fluoride release) brand dental sealants; and ADAPTIC(R) self-cured composite. Crown and Bridge Porcelains and Ceramics: These porcelain and ceramic products are used by dental laboratories in making crowns, bridges, inlays and onlays for restorative dental procedures, where aesthetics are particularly important, and to provide functional biting and chewing surfaces that appear and feel natural. The Company produces specialty crown and bridge porcelain materials and fully automatic programmable porcelain furnaces, as well as castable ceramic materials, used by dental laboratories. Product offerings include the CERAMCO(R) line, and in Europe, the DETREY(R) CARAT(TM) line of specialty crown and bridge porcelain products for use as fixed prosthetics. FINESSE(TM) Porcelain, recently introduced by Ceramco, features superb shade matching and permits the dental laboratory to fire restorations with extraordinary aesthetics. FINESSE(TM) Porcelain restorations also allow dentists to adjust and repolish at chairside without reglazing. Endodontic Instruments and Materials: These products are used in root canal treatment of severely damaged or decayed teeth. With the recent acquisition of Maillefer Instruments S.A. ("Maillefer") and Tulsa Dental Products L.L.C. ("Tulsa"), the Company has an extensive endodontic product offering including broaches, files, and other endodontic materials and instruments. The SUREFLEX(TM) NICKEL TITANIUM FILE features superior flexibility and shape memory which allows the instrument to follow the path of the root canal. The Company's PROFILE(R) SERIES 29(R) line of endodontic files offer a standard 29 percent increase between the tip diameters of each size instrument for a smooth, progressive enlargement from one file to the next. PROFILE(R) .04 TAPERS(R) feature non-standard tapers constructed from super-flexible nickel titanium for use in a controlled, slow-speed, high- torque rotary dental handpiece. The latest endodontic technology was incorporated into the newly developed THERMASYSTEM(R) PLUS. This new product provides a three-dimensional root canal fill in a fraction of the time it takes for traditional lateral condensation procedures. 7
Protective Supplies: These products are designed to ameliorate possible sources of patient cross-contamination of infectious disease, and include RITE-ANGLE(R) and NUPRO(R) Disposable Prophy Angles (disposable mechanical devices used by dentists and hygienists to clean and polish teeth), hand cleansers, disposable barriers, enzymatic cleansers, needle stick prevention devices and disposable air-water syringe tips. The SANI-TIP(R) Disposable Air/Water Syringe Tip features a central water channel encircled by six separate air channels. This innovative design, when coupled with a SANI-TIP(R) adaptor, produces precise separation or atomization of air and water while its clear cellulose- based plastic does not obstruct the practioner's vision and allows office staff to determine if a tip was previously used. Tooth Whitener: DENTSPLY also offers a tooth whitening system. The NUPRO(R) GOLD Tooth Whitening System is a complete, professionally administered program. Patients receive a tooth whitening system in a convenient, easy-to-use take home kit. Clinical studies for this innovative product showed that teeth averaged eight shares whiter which far exceeds the American Dental Association recommendation which states that whiteners must change teeth by a least two shades. Other Consumable and Laboratory Products: Other products produced by the Company for use in dental offices and laboratories include NUPRO(R) prophylaxis paste that is used in cleaning and polishing teeth, the VERTEX(R) disposable articulator used in dental laboratories to simulate the dynamic movement of teeth against one another, and MICROBASE(TM), a methyl methacrylate free, high-pressure injection system for denture resin which eliminates potential problems for those sensitive to residual leaching of monomer and features a quicker, microwave cure cycle resulting in excellent fitting dentures. Dental Equipment. DENTSPLY's dental equipment product lines include high and low speed handpieces, intraoral lighting systems, dental cutting instruments, ultrasonic scalers and polishers, and x-ray systems and related support equipment and accessories. Handpieces: Under the MIDWEST(R) brand name, DENTSPLY manufactures and distributes a line of high-speed and low-speed air-driven handpieces and intraoral lighting systems and distributes carbide and specialty burs. High- speed handpieces are the primary instruments utilized by dentists for restorative, prosthodontic and aesthetic procedures. Low-speed handpieces may also be used in these procedures and in procedures which require more control and 8
higher torque, such as removal of soft decay, tooth cleaning and polishing, and chairside adjustment of dentures. Handpiece intraoral lighting systems supply light to the fiber optic bundles in the handpieces through tubes that also provide air and water to the handpiece. Midwest's recently introduced RDH(TM) Hygienist Handpiece is a more comfortable, ergonomically sound and lightweight handpiece for the dental hygienist. Its one piece "twist and click" connection avoids cumbersome sterilization protocols and provides faster handpiece changes. Dental Cutting Instruments: The Company distributes MIDWEST(R) carbide and specialty burs. Regular carbide burs are the most commonly used dental cutting instruments in the North American market. Carbide burs mounted in handpieces are used as milling tools. While these burs are primarily used for cavity excavation, the variety of available shapes allows for alternative uses such as limited trimming and finishing techniques. Specialty burs are designed to cut and remove metal alloy dental restorations, to produce smooth surfaces on composite materials, amalgams, gold, enamel and dentin, and for gross reduction of tooth anatomy in preparation for fitting crowns and normal cavity excavations. Ultrasonic Scalers and Polishers: DENTSPLY manufactures and distributes the CAVITRON(R) ultrasonic scaler (which uses ultrasonic waves to remove hardened tooth calculus which results from the interaction of plaque, saliva and food particles), the PROPHY-JET(R) 30 Air Polishing Prophylaxis Unit (which cleans, polishes and buffs the tooth surface after scaling is completed) and the CAVITRON(R) JET (which combines both ultrasonic scaling and air polishing prophylaxis in one multi-function unit). The Company also produces the CAVITRON(R) MED (which delivers medicaments directly to pockets below the gum surface in periodontic treatments). DENTSPLY manufactures a variety of inserts for use with its ultrasonic prophylaxis units. The FOCUSED SPRAY(TM) INSERT brings water directly to the instrument tip and focuses water where it is most needed. The SLIMLINE(TM) Ultrasonic Insert is 40 percent thinner than standard ultrasonic inserts and allows subgingival ultrasonic instrumentation at depths up to 7 mm. The new FSI(TM) SLIMLINE(TM) combines the best features of the FOCUSED SPRAY(TM) INSERT and the SLIMLINE(TM) Ultrasonic Insert. Dental X-Ray Systems: The Company offers a full line of dental x-ray equipment for intraoral, panoramic and cephalometric procedures, all marketed under the GENDEX(R) brand name. Intraoral films provide a view of a particular area of tooth and jaw structure. Panoramic x-rays utilize a moving x-ray tube and provide an image of the entire oral 9
cavity, an image that is particularly valuable to oral surgeons and orthodontists. Cephalometric systems permit precise, repeatable positioning of the patient's skull so that images taken at different times can be compared. The Company markets VISUALIX(R), a real time, digital video x-ray system. Through its solid state, intraoral x-ray sensor and associated computer, the VISUALIX(R) system allows the dentist to produce radiographic images without using film. X-rays generated by a standard system strike the sensor. The image is then displayed on a computer screen, where it can be enlarged, enhanced and manipulated. The image may also be stored for future retrieval. The extremely sensitive sensor provides excellent image quality with a significantly lower x-ray dosage compared to film. X-Ray Support Equipment: Under the RINN(R) brand name, DENTSPLY manufactures and distributes x-ray film mounts, film holders and related equipment and accessories. X-ray film mounts are used as organizing, storage and retrieval holders for dental x-ray films. Film holders are film positioning devices used in taking dental x-ray films which ensure the alignment of the x-ray beam to the intraoral film. Equipment and accessories include film viewers, film duplicators, chair-side darkrooms, patient aprons, developing chemicals and x-ray collimating devices. The GXP(TM) Processor, which develops intraoral, panoramic, and cephalometric x-ray film, features a closed chemical recirculation system so that potentially environmentally hazardous solutions may be disposed of properly. Film enters and exits in the front of the processor, thereby allowing placement of the unit flush against a wall to conserve space. DENTSPLY also supplies specialty chemical binders, refractory particles, investment mold materials and related products to the precision investment casting industry, which produces metal parts of complex geometry and "near net" shapes requiring little or no subsequent machining or finishing. Marketing, Sales and Distribution The market for DENTSPLY's dental products is primarily comprised of dentists, dental hygienists, dental assistants, dental laboratories and dental schools. DENTSPLY focuses its marketing efforts on both the dental professionals who are the end users of its products and the dealers who distribute certain of those products. DENTSPLY employs highly trained, product- specific sales and technical staffs to provide comprehensive marketing and service tailored to the particular sales and technical support requirements of its customers. DENTSPLY's 10
marketing efforts seek to capitalize on the strength of the Company's brand names and international infrastructure to expand sales of new and existing products throughout the world, including emerging dental markets in the Pacific Rim, Central and South America and Eastern Europe. DENTSPLY's product-specific sales force is divided into domestic and foreign field selling organizations, each of which is responsible for maintaining contact with both dealers and dental professionals. The dental sales force includes approximately 300 domestic representatives, approximately 400 international representatives and approximately 40 telemarketers who support the domestic representatives. This sales force is further divided into product-based teams. Each specialized sales force tailors its sales strategy to the particular sales and technical support requirements of its customers. Sales personnel attend over 100 dental trade shows each year where the Company's products are exhibited to dental professionals and dealers. Sales personnel also routinely participate with dealers to disseminate product information and conduct product demonstrations, seminars, study groups and lectures for dental professionals. In addition, DENTSPLY invests significant amounts in advertising in national and international dental publications. DENTSPLY distributes its dental products primarily through approximately 350 domestic and over 800 foreign dealers and importers. While the overwhelming majority of DENTSPLY's products are distributed through dental dealers, certain highly technical products such as the Company's CERAMCO(R) line of crown and bridge porcelain products and Tulsa's endodontic instruments and materials are sold directly to the dental laboratory or dentist. DENTSPLY also maintains eight educational facilities. The Company's facilities in York, Pennsylvania; Burlington, New Jersey; Dreieich, Germany; and Weybridge, England are used for training, product demonstrations and seminars and to promote interest in and understanding of the use of DENTSPLY's dental laboratory products. The DENTSPLY Educational Center in York provides personalized training in both fixed and removable prosthodontic specialties. Additional teaching facilities are maintained in Milford, Delaware; Konstanz, Germany; Hong Kong, and Mexico for training dental professionals in the use of consumable dental products. The Company also offers many seminars throughout the world in such areas as endodontics, crown and bridge porcelain and ceramics, restoratives and dental implant systems. Product Development During 1996, 1995 and 1994, approximately $14.7 million, $12.3 million and $10.9 million, respectively, was invested by 11
the Company in connection with the development of new products and in the improvement of existing products. DENTSPLY employs approximately 170 scientists, engineers and technicians dedicated to product development. The Company believes that its product development programs are critical in meeting market demands and achieving future growth. The Company also sponsors independent clinical research projects aimed at developing, adapting and testing new technologies for use in DENTSPLY products. From time to time, the Company contracts with independent consultants and engineers to augment efforts to develop new products. Manufacturing and Technical Expertise DENTSPLY believes that its manufacturing capabilities are critical to its success. The Company continues to automate its global manufacturing operations in order to remain a low cost producer. The manufacture of the Company's products requires substantial and varied technical expertise. Complex materials technology and processes are necessary to manufacture the Company's products. The manufacture of artificial teeth and dental composites involves expertise in polymer chemistry. A polymer is a compound of high molecular weight derived through the combination of many smaller molecules or by the condensation of many smaller molecules through the elimination of water or alcohol. DENTSPLY manufactures certain lines of artificial teeth by a process that disperses the polymeric molecules found within cross-linked polymers, thereby improving the tooth's resistance to blushing, whitening, crazing and disintegration. Another line of artificial teeth utilizes an ultra-high viscosity polypropylene that significantly increases wear resistance. Visible light-cured composites utilize a single paste that immediately polymerizes when exposed to a light source. DENTSPLY's PRISMA(R) TP.H(R) light-cured composites contain non- radiopaque fillers of approximately .02-.08 microns in size. The small size of this filler increases the bonding power of the composite. It also permits the material to be polished in order to more accurately replicate the color of a natural tooth. Basic, self-cured (self-hardened) composites are formed by combining two pastes that trigger polymerization when reacted. The Company manufactures extremely high quality endodontic instruments using production equipment designed and manufactured in-house. In general, the equipment used is not available on the external market. Dental handpiece manufacturing technology requires precision machining of component parts to extremely tight tolerances in 12
order to accommodate the operating speed of the air-driven turbine, which exceeds 350,000 r.p.m. in high speed handpieces, and the wide range of applications for which the unit is used. These tolerances require dimensional machining to as little as 15 millionths of an inch to produce the delicate balance necessary for a quiet, smooth-running turbine with minimal vibration. The Company utilizes "computer numerically controlled" (CNC) machines and computer-assisted design software in its handpiece manufacturing processes. Production of the Company's x-ray products involves a variety of manufacturing disciplines. For example, the manufacture of x-ray tubes requires expertise in high-temperature metallurgy, sophisticated glass blowing techniques, and the ability to evacuate molecular impurities from the x-ray tube through degasification. The Company also designs and fabricates printed circuit boards, assembles electrical harnesses, fabricates sheet metal, and engages in precision machining, painting and high-tension coil winding in connection with the manufacturing of its x-ray products. Foreign Operations The Company conducts its business in over 100 foreign countries, principally through its foreign subsidiaries which operate 35 foreign facilities (including 13 manufacturing operations). DENTSPLY has a long-established presence in Canada and in the European market, particularly in Germany, Switzerland and England. The Company also has a significant market presence in Central and South America, Australia, Hong Kong, Thailand, India, Philippines and Japan. DENTSPLY has established joint ventures and marketing activities in the People's Republic of China and the Commonwealth of Independent States. In 1996, a wholly-owned subsidiary, including a manufacturing facility, was established in the People's Republic of China. Manufacturing operations in India also commenced in 1996. For 1996, 1995 and 1994, the Company's sales outside the United States, including export sales, accounted for approximately 49%, 48% and 45%, respectively, of consolidated net sales from continuing operations. For information about the Company's continuing operations in different geographic areas for 1996, 1995 and 1994, see Note 4 of the Notes to the Company's Consolidated Financial Statements. As a result of the Company's significant international presence, DENTSPLY is subject to fluctuations in exchange rates of various foreign currencies and other risks associated with foreign trade. The Company actively manages its currency risk exposures. Fluctuations in exchange rates have not had a material adverse impact upon the Company's financial position. 13
Competition The Company conducts its operations, both domestic and foreign, under highly competitive market conditions. Competition in the dental materials and equipment industries is based primarily upon product performance, quality, safety and ease of use, as well as price, customer service, innovation and acceptance by professionals and technicians. DENTSPLY believes that its principal strengths include its well-established brand names, its reputation for high-quality and innovative products, its leadership in product development and manufacturing, and its commitment to customer service and technical support. The size and number of the Company's competitors vary by product line and from region to region. There are many companies which produce some, but not all, of the same types of products as those produced by the Company. Certain of DENTSPLY's competitors may have greater resources than does the Company in certain of its product offerings. Regulation The Company's products are subject to regulation by, among other governmental entities, the United States Food and Drug Administration (the "FDA"). In general, if a dental "device" is subject to FDA regulation, compliance with the FDA's requirements constitutes compliance with corresponding state requirements. In order to ensure that dental products distributed for human use in the United States are safe and effective, the FDA regulates the introduction, manufacture, advertising, labeling, packaging, marketing and distribution of, and record-keeping for, such products. Dental devices of the types sold by the Company are generally classified by the FDA into a category that renders them subject only to general controls that apply to all medical devices, including regulations regarding alteration, misbranding, notification, record-keeping and good manufacturing practices. The Company believes that it is in compliance with FDA regulations applicable to its products and manufacturing operations. All dental amalgam filling materials, including those manufactured and sold by the Company, contain mercury. Various groups have alleged that dental amalgam containing mercury is harmful to human health and have actively lobbied state and federal lawmakers and regulators to pass laws or adopt regulatory changes restricting the use, or requiring a warning against alleged potential risks, of dental amalgams. The FDA's Dental Devices Classification Panel, the National Institutes of Health and the United States Public Health Service have each indicated that no direct hazard to humans from exposure to dental amalgams 14
has been demonstrated to them. If the FDA were to reclassify dental mercury and amalgam filling materials as classes of products requiring FDA premarket approval, there can be no assurance that the required approval would be obtained or that the FDA would permit the continued sale of amalgam filling materials pending its determination. The introduction and sale of dental products of the types produced by the Company are also subject to government regulation in the various foreign countries in which they are produced or sold. Some of these regulatory requirements are more stringent than those applicable in the United States. DENTSPLY believes that it is in substantial compliance with the foreign regulatory requirements that are applicable to its products and manufacturing operations. Sources and Supply of Raw Materials All of the raw materials used by the Company in the manufacture of its products are purchased from various suppliers and are available from numerous sources. No single supplier accounts for a significant percentage of DENTSPLY's raw material requirements. Trademarks and Patents The Company's trademark properties are important and contribute to the Company's marketing position. To safeguard these properties, the Company maintains trademark registrations in the United States and in significant international markets for its products, and carefully monitors trademark use worldwide. DENTSPLY also owns and maintains several hundred foreign and domestic patents. Although the protection afforded to the Company by these patents is advantageous to its business, the Company does not consider that its business is materially dependent on its patents. Employees As of March 15, 1997, the Company and its subsidiaries had approximately 5,100 employees, of whom approximately 2,800 were engaged in manufacturing operations, approximately 1,600 were engaged in sales and distribution, approximately 530 were engaged in finance and administration, and approximately 170 were engaged in research and product development activities. Hourly workers at the Company's Ransom & Randolph facility in Maumee, Ohio are represented by Local No. 12 of the International Union, United Automobile, Aerospace and Agriculture Implement Workers of America under a collective bargaining agreement that expires on January 31, 2000; and hourly workers at the Company's Midwest Dental Products facility in Des Plaines, Illinois are represented by Tool & Die Makers Local 113 of the International Association 15
of Machinists and Aerospace Workers under a collective bargaining agreement that expires on May 31, 1997. The Company believes that its relationship with its employees is good. Item 2. Properties - ------------------- As of March 15, 1997, DENTSPLY maintains manufacturing facilities at the following locations: Leased Location Function or Owned - -------- -------- -------- York, Pennsylvania Manufacture and distribution of Owned artificial teeth and other dental laboratory products; export of dental products; corporate headquarters York, Pennsylvania Manufacture and distribution of Leased dental equipment and preventive dental products Des Plaines, Illinois Manufacture and assembly of dental Leased handpieces and components and dental x-ray equipment Milford, Delaware Manufacture and distribution of Owned consumable dental products Las Piedras, Manufacture of crown and bridge Owned Puerto Rico materials Elgin, Illinois Manufacture of dental x-ray film Owned holders, film mounts and accessories Maumee, Ohio Manufacture and distribution of Owned investment casting products Lakewood, Colorado Manufacture and distribution of Leased bone grafting materials and Hydroxylapatite plasma-feed coating materials Commerce, California Manufacture and distribution of Leased investment casting products Carlsbad, California Manufacture and distribution of Leased intraoral cameras and computer imaging systems 16
Johnson City, Manufacture and distribution of Leased Tennessee endodontic instruments and materials Las Vegas, Nevada Manufacture and distribution of Leased disposable air-water syringe tips Petropolis, Brazil Manufacture and distribution of Owned artificial teeth and consumable dental products Dreieich, Germany Manufacture and distribution of Owned artificial teeth and other dental laboratory products Konstanz, Germany Manufacture and distribution of Owned consumable dental products; distribution of dental equipment Milan, Italy Manufacture and distribution of Leased dental x-ray equipment Mexico City, Mexico Manufacture and distribution of Owned dental products Plymouth, England Manufacture and distribution of Leased dental hand instruments Blackpool,England Manufacture and distribution of Leased dental materials Ballaigues, Manufacture and distribution of Owned Switzerland endodontic instruments Ballaigues, Manufacture and distribution of Owned Switzerland plastic components and packaging material Le Creux, Manufacture and distribution of Owned Switzerland endodontic instruments Moscow, Russia Manufacture and distributon of Leased consumable dental products New Delhi, India Manufacture and distribution of Leased dental products Tianjin, China Manufacture and distribution of Leased dental laboratory products In addition, the Company maintains sales and distribution offices at certain of its foreign and domestic manufacturing facilities, as well as at three other United States locations and at 16 international locations in 12 foreign countries. Of the 19 17
United States and international sites used exclusively for sales and distribution, one is owned by the Company and the remaining 18 are leased. The Company also maintains sales offices in various countries throughout the world. DENTSPLY believes that its properties and facilities are well maintained and are generally suitable and adequate for the purposes for which they are used. Item 3. Legal Proceedings - -------------------------- DENTSPLY and its subsidiaries are from time to time parties to lawsuits arising out of their respective operations. The Company believes that pending litigation to which DENTSPLY is a party will not have a material adverse effect upon its consolidated financial position or results of operations. In May 1994, Core-Vent Corporation and Dr. Gerald Niznick filed an equity action against DENTSPLY in Common Pleas Court in York County, Pennsylvania, arising out of the terms of an April 1991 Exclusive Distribution Agreement ("Agreement"). The action sought to enjoin DENTSPLY from publishing certain marketing materials for dental implant products. DENTSPLY countersued alleging that the Agreement, or in the alternative an amendment to the Agreement, should be terminated because of the misconduct of Dr. Niznick. The case was referred to arbitration pursuant to the terms of the Agreement and both parties amended their pleadings to allege monetary damages. On March 19, 1997, the arbitrator ruled in favor of DENTSPLY; as a result, the Agreement has been terminated. In May 1996, DENTSPLY and its subsidiary, Tulsa Dental Products Inc. ("Tulsa") filed a complaint against Tycom Corporation et al "(Defendants") alleging patent infringement by Tycom of certain patents owned by Tulsa covering endodontic instruments. Tycom filed an answer and counterclaim denying patent infringement and alleging that DENTSPLY and Tulsa (i) engaged in conduct which violates Section 2 of the Sherman Antitrust Act; (ii) tortiously interfered with Defendants' business relations; and (iii) were guilty of unfair competition. This suit is in the discovery stage. DENTSPLY and Tulsa are vigorously contesting the Defendants counterclaims in this suit and believe these claims to be without merit. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ Not applicable. 18
Executive Officers of the Registrant The following table sets forth certain information regarding the executive officers of the Company as of March 15, 1997. Name Age Position ---- --- -------- Leslie A. Jones 57 Chairman of the Board John C. Miles II 55 Vice Chairman of the Board and Chief Executive Officer Gerald K. Kunkle Jr. 50 President and Chief Operating Officer W. William Weston 49 Senior Vice President, European Group Michael R. Crane 56 Senior Vice President, North American Group Edward D. Yates 53 Senior Vice President and Chief Financial Officer Thomas L. Whiting 54 Senior Vice President, Pacific Rim, Latin America, Gendex, Tulsa Dental and New Image Industries J. Patrick Clark 55 Vice President, Secretary and General Counsel Leslie A. Jones was appointed Chairman of the Board in May 1996. Mr. Jones has served as a director since the June 11, 1993 merger (the "Merger") of Dentsply International Inc. ("Old Dentsply") and GENDEX Corporation ("Gendex"), of which the Company is the surviving corporation. Prior to the Merger he served as a director of Old Dentsply. Mr. Jones has been Chairman and a director of OBOS Inc., a manufacturer of communication devices, since August 1993. From 1992 until August 1993 he was a private investor. From January 1991 to January 1992, he was a Senior Vice President and Special Assistant to the President of Old Dentsply. John C. Miles II was named Vice Chairman of the Board effective January 1, 1997. He was named Chief Executive Officer of the Company upon the resignation of Burton C. Borgelt from that position on January 1, 1996. Prior to that he was President and Chief Operating Officer and a director of the Company since the Merger and of Old Dentsply commencing in January 1990. Gerald K. Kunkle Jr. was named President and Chief Operating Officer effective January 1, 1997. Prior thereto, Mr. Kunkle served as President of Johnson and Johnson's Vistakon Division, a manufacturer and marketer of contact lenses, from January 1994 and, from early 1992 until January 1994, was President of Johnson and Johnson Orthopaedics, Inc., a manufacturer of orthopaedic implants, fracture management products and trauma devices. 19
Michael R. Crane was named Senior Vice President, North American Group effective January 1, 1996. Prior to that he was Senior Vice President, Europe, Mideast, Africa and Commonwealth of Independent States of the Company effective in early 1995. Prior thereto he served as Senior Vice President, International Operations of the Company since the Merger, and in a similar capacity with Old Dentsply commencing in November 1989. Prior to that time, he served as Vice President Sales/Marketing for Whaledent International, a division of IPCO Corporation. W. William Weston was named Senior Vice President, European Group of the Company effective January 1, 1996. Prior to that Mr. Weston served as the Vice President and General Manager of DENTSPLY's DeDent Operations in Europe from October 1, 1990 to January 1, 1996. Prior to that time he was Pharmaceutical Director for Pfizer in Germany. Edward D. Yates has been Senior Vice President and Chief Financial Officer of the Company since the Merger and prior thereto served in a similar capacity with Old Dentsply commencing in March 1991. From January 1990 until March 1991, he served as Old Dentsply's Controller. Prior to that time, he was the Treasurer of Old Dentsply. Mr. Yates is a Certified Public Accountant. Thomas L. Whiting was named Senior Vice President, Pacific Rim, Latin America and Gendex of the Company in July 1994, to be effective in early 1995; his responsibilities and title were expanded to encompass Tulsa and New Image upon the Company's acquisitions of those businesses. Prior to this appointment, Mr. Whiting was Vice President and General Manager of the Company's L.D. Caulk Division since the Merger, and prior thereto served in the same capacity with Old Dentsply since joining Old Dentsply in 1987. Prior to that time, Mr. Whiting held management positions with Deseret Medical and the Parker-Davis Company. J. Patrick Clark has been Vice President, Secretary and General Counsel of the Company since the Merger and prior thereto served as General Counsel and Secretary of Old Dentsply since 1986. 20
PART II Item 5. Market for Registrant's Common Equity and Related - ---------------------------------------------------------- Stockholder Matters - ------------------- The information set forth under the caption "Supplemental Stock Information" in Part IV of this Annual Report on Form 10-K is incorporated herein by reference in response to this Item 5. Item 6. Selected Financial Data - -------------------------------- The information set forth under the caption "Selected Financial Data" in Part IV of this Annual Report on Form 10-K is incorporated herein by reference in response to this Item 6. Item 7. Management's Discussion and Analysis of Financial - ---------------------------------------------------------- Condition and Results of Operations - ----------------------------------- The information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part IV of this Annual Report on Form 10-K is incorporated herein by reference in response to this Item 7. Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------- The information set forth under the captions "Consolidated Statements of Income," "Consolidated Balance Sheets," "Consolidated Statements of Stockholders' Equity," "Consolidated Statements of Cash Flows," "Notes to Consolidated Financial Statements," "Management's Financial Responsibility" and "Independent Auditors' Report" of KPMG Peat Marwick LLP in Part IV of this Annual Report on Form 10-K is incorporated herein by reference in response to this Item 8. Item 9. Changes in and Disagreements with Accountants on - --------------------------------------------------------- Accounting and Financial Disclosure - ----------------------------------- Not applicable. 21
PART III Item 10. Directors and Executive Officers of the Registrant - ------------------------------------------------------------ The information set forth under the caption "Executive Officers of the Registrant" in Part I of this Annual Report on Form 10-K and the information set forth under the captions "Election of Directors," "Section 16(a) Beneficial Ownership Reporting Compliance" and "Other Matters" in the Proxy Statement is incorporated herein by reference in response to this Item 10. Item 11. Executive Compensation - -------------------------------- The information set forth under the caption "Executive Compensation" in the Proxy Statement is incorporated herein by reference in response to this Item 11. Item 12. Security Ownership of Certain Beneficial Owners and - ------------------------------------------------------------- Management - ---------- The information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement is incorporated herein by reference in response to this Item 12. Item 13. Certain Relationships and Related Transactions - -------------------------------------------------------- The information set forth under the subcaption "Executive Compensation--Compensation Committee Interlocks and Insider Participation" in the Proxy Statement is incorporated herein by reference to this Item 13. 22
PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on - ---------------------------------------------------------------- Form 8-K - -------- Sequential (a) Documents filed as part of this Report Page No. -------------------------------------- ---------- 1. Supplemental Stock Information 31 2. Selected Financial Data 32 3. Management's Discussion and Analysis of Financial Condition and Results of Operations 34 4. Financial Statements and Supplementary Data -------------------------------------- The following consolidated financial statements of the Company are filed as part of this Annual Report on Form 10-K: Management's Financial Responsibility 39 Independent Auditors' Report of KPMG Peat Marwick LLP 40 Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 41 Consolidated Balance Sheets as of December 31, 1996 and 1995 42 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994 43 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 45 Notes to Consolidated Financial Statements 49 23
Sequential 5. Financial Statement Schedules Page No. ----------------------------- ---------- The following financial statement schedule is filed as part of this Annual Report on Form 10-K: Schedule II - Valuation and qualifying 69 accounts Financial statement schedules not listed above have been omitted because they are inapplicable, are not re- quired under applicable provisions of Regulation S-X, or the information that would otherwise be included in such schedules is contained in the registrant's consolidated financial statements or accompanying notes. 24
6. Exhibits. The Exhibits listed below are filed or incorporated by reference as part of this Annual Report on Form 10-K. Exhibit Number Description ------- ----------- 3.1 Certificate of Incorporation (1) 3.2 By-Laws, as amended (1) 4.1 (a) Competitive Advance, Revolving Credit and Guaranty Agreement, dated as of November 15, 1993, among the Company, the guarantors named therein, the banks named therein, and Chemical Bank, as agent (Note: All attachments have been omitted. Copies of such attachments will be furnished supplementally to the Securities and Exchange Commission upon request.) (10) (b) First Amendment, dated as of December 23, 1994, to Competitive Advance, Revolving Credit and Guaranty Agreement (11) 10.1 (a) 1987 Employee Stock Option Plan (4)* (b) Amendment No. 1 to the Company's 1987 Employee Stock Option Plan (5)* 10.2 (a) Letter Agreement dated June 29, 1990 by and between Cravey, Green & Wahlen Incorporated and the Company (3)* (b) Stock Purchase Warrant dated August 28, 1990 issued to Cravey, Green & Wahlen Incorporated by the Company (2)* (c) Stock Purchase Warrant Plan adopted February 25, 1993 (6) 10.3 1992 Stock Option Plan adopted May 26, 1992 (7)* 10.4 (a) Employee Stock Ownership Plan as amended effective as of December 1, 1982, restated as of January 1, 1991 (11)* (b) Second Amendment to the DENTSPLY Employee Stock Ownership Plan 10.5 (a) Retainer Agreement dated December 29, 1992 between the Company and State Street Bank and Trust Company ("State Street") (8) 25
(b) Trust Agreement between the Company and State Street Bank and Trust Company dated as of August 11, 1993 (10) (c) Amendment to Trust Agreement between the Company and State Street Bank and Trust Company effective August 11, 1993 (10) 10.6 DENTSPLY Stock Option Conversion Plan approved June 23, 1993 (8)* 10.7 Employment Agreement dated January 1, 1996 between the Company and Burton C. Borgelt (14)* 10.8 (a) Employment Agreement dated as of December 31, 1987 between the Company and John C. Miles II (8)* (b) Amendment to Employment Agreement between the Company and John C. Miles II dated February 16, 1996, effective January 1, 1996 (14)* 10.9 Employment Agreement dated as of December 31, 1987, as amended as of February 8, 1990, between the Company and Leslie A. Jones (8)* 10.10 Employment Agreement dated as of December 10, 1992 between the Company and Michael R. Crane (8)* 10.11 Employment Agreement dated as of December 10, 1992 between the Company and Edward D. Yates (8)* 10.12 Employment Agreement dated as of December 10, 1992 between the Company and J. Patrick Clark (8)* 10.13 Employment Agreement dated January 1, 1996 between the Company and W. William Weston (14)* 10.14 Employment Agreement dated January 1, 1996 between the Company and Thomas L. Whiting (14)* 10.15 Employment Agreement dated October 11, 1996 between the Company and Gerald K. Kunkle Jr. * 10.16 (a) Exclusive Distribution Agreement dated April 19, 1991, between Core-Vent Corporation ("Core- Vent"), Dr. Gerald Niznick and the Company (8) (b) First Amendment to Exclusive Distribution Agreement dated April 30, 1991 (8) (c) Second Amendment to Exclusive Distribution Agreement dated April 26
21, 1993 (Note: Exhibits 2.3.1B (Notice of New Products), 2.3.1A (Price List) and 16 (Mutual Release) have been omitted. Copies of such exhibits will be furnished to the Securities and Exchange Commission supplementally upon request.) (8) 10.17 1993 Stock Option Plan (1)* 10.18 Revolving Credit Agreement among DENTSPLY International Inc., each of the guarantors named therein, and ABN AMRO Bank N.V., dated as of September 9, 1994 (11) 10.19 Multi-Currency Term Loan Agreement among Dentsply Ltd., the banks named therein, and ABN AMRO Bank N.V., dated as of May 12, 1995 (Note: All attachments have been omitted. Copies of such attach- ments will be furnished supplementally to the Securities and Exchange Commission upon request.)(14) 10.20 (a) DENTSPLY International Inc. 401(k) Savings Plan Summary Plan Description, as amended effective January 1, 1994 (11)* (b) Fourth Amendment to the DENTSPLY International 401(k) Savings Plan * 10.21 Midwest Dental Products Corporation Pension Plan as amended and re- stated effective January 1, 1989 (11)* 10.22 Revised Ransom & Randolph Pension Plan, as amended effective as of September 1, 1985, restated as of January 1, 1989 (11)* 10.23 DENTSPLY International Inc. Directors' Deferred Compensation Plan effective January 1, 1997 * 10.24 Letter Agreement, dated October 13, 1994, between Dentsply Limited and DePuy International Limited (11) 10.25 Sales-Purchase Agreement, dated May 30, 1995, between certain stock- holders of Maillefer Instruments, S.A., Dentsply Ltd., and DENTSPLY International Inc. as guarantor (12) 10.26 Asset Purchase and Sale Agreement, dated January 10, 1996, between 27
Tulsa Dental Products, L.L.C. and DENTSPLY International Inc. (13) 10.27 Stock Purchase Agreement dated January 13, 1997 between Groupe Monot, S.A. and Dentsply DeTrey GmbH for the purchase of Laboratoire SPAD, S.A. Attached to the Agreement is a Table of Contents of the Schedules and Exhibits to the Agreement, any of which will be provided upon request of the Commission. 11 Computation of earnings per share 21.1 Subsidiaries of the Company 23.1 Consent of KPMG Peat Marwick LLP 27 Financial Data Schedule - ------------------- * Management contract or compensatory plan. (1) Incorporated by reference to exhibit included in the Company's Registration Statement on Form S-8 (No. 33-71792). (2) Incorporated by reference to exhibit included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1991, File No. 0-16211. (3) Incorporated by reference to exhibit included in the Company's Registration Statement on Form S-2 (No. 33-43079). (4) Incorporated by reference to exhibit included in the Company's Registration Statement on Form S-18 (No. 33- 15355C). (5) Incorporated by reference to exhibit included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1992, File No. 0-16211. (6) Incorporated by reference to exhibit included in the Company's Registration Statement on Form S-8 (No. 33-61780). (7) Incorporated by reference to exhibit included in the Company's Registration Statement on Form S-8 (No. 33-52616). (8) Incorporated by reference to exhibit included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1993, File No. 0-16211. (9) Incorporated by reference to exhibit included in the Company's Current Report on Form 8-K dated August 28, 1990, File No. 0-16211. 28
(10) 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. (11) 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. (12) Incorporated by reference to exhibit included in the Company's Current Report on Form 8-K dated June 30, 1995, File No. 0-16211. (13) Incorporated by reference to exhibit included in the Company's Current Report on Form 8-K dated January 10, 1996, 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, 1995, File No. 0-16211. Loan Documents The Company and certain of its subsidiaries have entered into various loan and credit agreements and issued various promissory notes and guaranties of such notes, listed below, the aggregate principal amount of which is less than 10% of its assets on a consolidated basis. The Company has not filed copies of such documents but undertakes to provide copies thereof to the Securities and Exchange Commission supplementally upon request. (1) Master Grid Note dated November 4, 1996 executed in favor of The Chase Manhattan Bank in connection with a line of credit up to $20,000,000 between the Company and The Chase Manhattan Bank. (2) Agreement dated November 4, 1996 between National Westminster Bank PLC and Dentsply Limited for (pound)2,500,000. (3) Promissory Note dated May 1, 1992 in the principal amount of $3,000,000 of the Company in favor of CoreStates Bank. (4) Credit Agreement dated August 15, 1996 between Dentsply Canada Limited ("DCL") and Mellon Bank Canada. (5) Promissory Note dated December 1, 1995 in connection with a line of credit up to $20,000,000 between the Company and Mellon Bank. (6) Form of "comfort letters" to various foreign commercial lending institutions having a lending relationship with one or more of the Company's international subsidiaries. 29
(7) Unsecured Note dated July 8, 1993 between the Company and Harris Trust and Savings Bank in the principal amount of $1,750,000. (b) Reports on Form 8-K ------------------- The Company did not file any Reports on Form 8-K during the quarter ended December 31, 1996. * * * * * * 30
Supplemental Stock Information - ------------------------------ The Common Stock of the Company is traded on the NASDAQ National Market under the symbol "XRAY". The following table sets forth low and high sale prices of the Company's common stock for the periods indicated as reported on the NASDAQ National Market: Market Range of Common Stock Cash ---------------------------- Dividend 1996 High Low Declared - ---- -------- -------- -------- First Quarter $40-3/4 $37-1/2 $.0825 Second Quarter 44-3/4 40 .0825 Third Quarter 44-1/2 37-1/4 .0825 Fourth Quarter 49 41-3/4 .0925 1995 - ---- First Quarter $36-1/4 $31 $.075 Second Quarter 36-7/8 34-1/4 .075 Third Quarter 40-1/4 32-3/4 .075 Fourth Quarter 40-1/4 33-7/8 .0825 1994 - ---- First Quarter $47 $36 $ --- Second Quarter 39-1/2 34 --- Third Quarter 37-3/4 31-1/4 .075 Fourth Quarter 35-3/4 28-1/4 .075 The Company estimates there are approximately 11,350 holders of common stock, including 516 holders of record. 31
<TABLE> DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA <CAPTION> Year Ended December 31, ----------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ------------ ------------ ------------ ------------ ------------ Statement of Income Data: (in thousands, except per share amounts) <S> <C> <C> <C> <C> <C> Net sales $ 656,557 $ 572,028 $ 524,758 $ 503,820 $ 476,335 Cost of products sold 331,887 291,176 267,034 257,707 246,126 ------------ ------------ ------------ ------------ ------------ Gross profit 324,670 280,852 257,724 246,113 230,209 Selling, general and administrative expenses 205,206 180,117 160,324 172,147 148,264 ------------ ------------ ------------ ------------ ------------ Operating income from continuing operations before discretionary ESOP contributions 119,464 100,735 97,400 73,966 81,945 Discretionary ESOP contributions --- --- --- 4,361 6,568 Interest expense 11,095 9,144 7,999 20,752 22,099 Interest income (1,024) (1,265) (1,527) (370) (628) Other (income) expense, net (1,567) 2,839 (734) (2,119) (1,797) ------------ ------------ ------------ ------------ ------------ Income from continuing operations before income taxes 110,960 90,017 91,662 51,342 55,703 Provision for income taxes 43,738 36,054 37,518 26,197 24,416 ------------ ------------ ------------ ------------ ------------ Income from continuing operations 67,222 53,963 54,144 25,145 31,287 ------------ ------------ ------------ ------------ ------------ Discontinued operations: Income from the operation of discontinued Medical business (net of income taxes of $.6 million in 1994; $1.6 million in 1993; and $1.7 million in 1992) --- --- 1,311 2,925 2,988 Gain on disposal of Medical business, including provision of $.5 million for operating losses during phase-out period (net of income taxes of $5.5 million) --- --- 6,543 --- --- ------------ ------------ ------------ ------------ ------------ Income from discontinued operations --- --- 7,854 2,925 2,988 ------------ ------------ ------------ ------------ ------------ Income before extraordinary item 67,222 53,963(1) 61,998 28,070(1) 34,275 Extraordinary loss related to early extinguishment of debt (net of income tax benefit of $6.3 million) --- --- --- 14,018 --- ------------ ------------ ------------ ------------ ------------ Net income $ 67,222 $ 53,963(1) $ 61,998 $ 14,052(1) $ 34,275 ============ ============ ============ ============ ============ <FN> </FN> </TABLE> 32
<TABLE> <CAPTION> Year Ended December 31, ----------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ------------ ------------ ------------ ------------ ------------ Earnings per Common Share: (in thousands, except per share amounts) <S> <C> <C> <C> <C> <C> Income from continuing operations $ 2.50 $ 2.00 $ 1.95 $ 1.02 $ 1.29 Income from the operation of discontinued Medical business --- --- .05 .12 .13 Gain on disposal of Medical business --- --- .23 --- --- ------------ ------------ ------------ ------------ ------------ Income before extraordinary item 2.50 2.00 2.23 1.14 1.42 Extraordinary item --- --- --- (.57) --- ------------ ------------ ------------ ------------ ------------ Net income $ 2.50 $ 2.00 $ 2.23 $ .57 $ 1.42 ============ ============ ============ ============ ============ Dividends per Common Share $ .34 $ .3075 $ .15 $ --- $ --- Weighted average common shares outstanding 26,920 27,012 27,776 24,598 24,220 Balance Sheet Data (at end of period): Working capital $ 113,547 $ 122,706(2) $ 92,206(2) $ 82,779(2) $ 38,185(2) Total assets 667,662 582,383(2) 466,930(2) 466,787(2) 450,641(2) Total long-term debt 75,109 68,675 12,789 95,356 192,082 Stockholders' equity 365,590 315,922 299,337 236,397 100,285 Other Data: Depreciation and amortization 28,108 21,488 18,133(3) 17,951(3) 15,333(3) Capital expenditures (3) 20,801 17,421 12,504 9,212 14,626 <FN> (1) Includes certain unusual or non-recurring charges of approximately $3.1 million (approximately $1.8 million after tax) in 1995 and $21.8 million (approximately $16.5 million after tax) in 1993. The effect of these unusual or non-recurring charges on operating income from continuing operations before discretionary ESOP contributions was approximately $17.9 million during the year ended December 31, 1993. (2) Excludes net assets of discontinued operations. (3) Excludes discontinued operations. </FN> </TABLE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Any statements released by the Company that are forward looking are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward looking statements involve risks and uncertainties which may affect the Company's business and prospects, including economic, competitive, governmental, technological and other factors discussed in the Company's filings with the Securities and Exchange Commission. On October 13, 1994, the Company announced its strategic decision to discontinue the operations comprising its medical business which includes the Eureka X-Ray Tube Corp. ("Eureka"), GENDEX Medical and CMW business units. Accordingly, the Company's financial statements have been restated to reflect the accounting treatment for discontinued operations. Results of Operations, 1996 Compared to 1995 - -------------------------------------------- Net sales increased $84.6 million, or 14.8% from $572.0 million in 1995 to $656.6 million in 1996. About one half of this increase was due to the inclusion of a full year of the operations of Maillefer Instruments S.A. ("Maillefer") in 1996 versus a partial year in 1995, when Maillefer was acquired, and the 1996 acquisitions of the dental operations of Tulsa Dental Products LLC ("Tulsa") and CeraMed Dental, LLC ("CeraMed"). The remainder was due to strong growth in the Pacific Rim and Latin America and modest growth in both the United States and Europe. Gross profit increased $43.8 million, or 15.6% due primarily to higher net sales. Gross profit as a percentage of net sales was 49.5% in 1996 compared to 49.1% in 1995. The improvement in the gross margin percentage was due to a combination of high margin products from acquisitions, cost reductions, and increased margin obtained from replacing distributors with DENTSPLY affiliates in certain foreign locations. Improvements in the gross profit percentage were partially offset by the adverse impact of acquisition accounting for Maillefer, Tulsa, and CeraMed. Selling, general and administrative expenses increased $25.1 million, or 13.9%. As a percentage of net sales, expenses decreased from 31.5% in 1995 to 31.3% in 1996. This decrease was primarily due to lower spending levels compared to sales in Europe, Pacific Rim, and Latin America. The percentage to net sales improvement was partially offset by expenses associated with upgrading management information systems in the United States and Europe, continued emphasis on end user pull through marketing strategy, and research and development. The $2.2 million increase in net interest expense was primarily due to acquisition debt, partially offset by cash generated from operations. Other income was $1.6 million in 1996, compared to other 34
expense of $2.8 million in 1995. Other income in 1996 was primarily due to a legal settlement of $1.2 million in the Company's favor in the first quarter, while the Company took a one-time charge of $3.1 million the second quarter of 1995 to cover the costs of closing down its Executive Offices in Illinois and consolidating its executive operations in York, Pennsylvania. Income from continuing operations before income taxes increased $21.0 million, or 23.3% from $90.0 million in 1995 to $111.0 million in 1996. Without the one-time charge of $3.1 million in 1995 to cover the costs of closing the Company's executive offices in Illinois, income from continuing operations before income taxes increased $17.9 million, or 19.2%. Net income increased $13.2 million to $67.2 million in 1996 from $54.0 million in 1995, an increase of 24.6%. Without the one-time after-tax charge of $1.8 million in 1995 to cover the costs of closing the Company's executive offices in Illinois, net income increased $11.4 million, or 20.4%. Earnings per common share from continuing operations of $2.50 for 1996 increased $.50, or 25.0% from $2.00 in 1995. Without the one-time after-tax charge of $1.8 million in 1995 to cover the costs of closing the Company's executive offices in Illinois, earnings per common share increased $.43, or 20.8% over 1995. The sale of the GENDEX Medical business, the last remaining unit of the discontinued medical segment, occurred in the first quarter of 1996. Net sales of this business were $2.7 million in 1996. Results of Operations, 1995 Compared to 1994 - -------------------------------------------- Net sales increased $47.2 million, or 9.0% from $524.8 million in 1994 to $572.0 million in 1995. The increase was primarily in Europe, with a significant portion of the increase coming from the acquisition of Maillefer. The sales increase in the United States was adversely impacted by discontinuing certain dealer incentives in the third quarter of 1995 which previously had the effect of encouraging dealers to place large stocking orders. Gross profit increased $23.1 million, or 9.0% due primarily to higher net sales. Gross profit as a percentage of net sales was 49.1%, equal to 1994. Improvements in the gross profit percentage in 1995 were offset by the adverse impact of acquisition accounting for Maillefer. Selling, general and administrative expenses increased $19.8 million, or 12.3%. As a percentage of net sales, expenses increased from 30.6% in 1994 to 31.5% in 1995. This increase was mainly due to incremental expenses incurred in 1995 to establish and operate new offices in the Pacific Rim, expenses associated with the implementation of management information systems in Europe, and severance payments due to cost cutting and realignment in the United States and Europe. 35
The $1.4 million increase in net interest expense was primarily due to acquisition debt and the repurchase of common shares under the share repurchase program. Other expense of $2.8 million in 1995 compares to $.7 million of other income in 1994 due the one-time charge of $3.1 million to cover the costs of closing the Company's executive offices in Illinois and consolidating its executive offices in York, Pennsylvania. Income from continuing operations before income taxes decreased $1.7 million, from $91.7 million in 1994 to $90.0 million in 1995. Without the one-time charge of $3.1 million to cover the costs of closing the Company's executive offices in Illinois, income from continuing operations before income taxes increased $1.4 million, or 1.5%. Income from continuing operations was $54.0 million in 1995 compared to $54.1 million in 1994. Without the one-time after-tax charge of $1.8 million to cover the costs of closing the Company's executive offices in Illinois, income from continuing operations was $55.8 million, an increase of 3.1% over 1994. During 1995, the Company repurchased 1.3 million common shares under its share repurchase program. These repurchases are reflected in the reduction of weighted average common shares outstanding from 27.8 million common shares in 1994 to 27.0 million common shares in 1995. Earnings per common share from continuing operations of $2.00 for 1995 increased $.05, or 2.6% from $1.95 in 1994. Without the one-time after-tax charge of $1.8 million to cover the costs of closing the Company's executive offices in Illinois, earnings per common share from continuing operations were $2.07, a 6.2% increase over 1994. The net assets of CMW and Eureka were sold during November and December 1994. Net sales for the GENDEX Medical business, the last remaining unit of the discontinued medical segment, were $18.9 million in 1995. Foreign Currency - ---------------- Since approximately 45% of the Company's revenues have been generated in currencies other than the U.S. dollar, the value of the U.S. dollar in relation to those currencies affects the results of operations of the Company. The impact of currency fluctuations in any given period can be favorable or unfavorable. The impact of foreign currency fluctuations of European currencies on operating income is offset to a significant extent by sales in the U.S. of products sourced from plants and third party suppliers located overseas, principally in Germany and Switzerland. The Company carefully considers the impact of currency fluctuations in its business decisions. 36
Liquidity and Capital Resources - ------------------------------- In January 1996, the Company acquired the dental manufacturing and distribution operations of Tulsa in a cash transaction for $75.1 million and an earn-out based on the operating performance of the business. The transaction was funded from the Company's $175.0 million Bank Revolving Loan Facility and short-term bank borrowing. Under its Bank Revolving Loan Facility, the Company is able to borrow up to $175.0 million on an unsecured basis through December 23, 1999. The Revolving Credit Agreement contains various financial and other covenants. Under its Bank Multicurrency Revolving Credit Facility, the Company is able to borrow up to $25.0 million for foreign working capital purposes on an unsecured basis through December 23, 1999. In addition, the Company had unused lines of credit for short-term financing of $63.5 million at December 31, 1996. Investment activities for 1996 included capital expenditures of $20.8 million. During 1996, the Company repurchased .1 million shares of its common stock for $3.8 million, in accordance with the share repurchase program authorized by the Board of Directors in December 1995. This authorization to repurchase shares expired on December 31, 1996. In December 1996, the Board of Directors authorized the repurchase of up to 2.7 million additional shares of common stock on the open market or in negotiated transactions. The timing and amounts of any additional purchases will depend upon many factors, including market conditions and the Company's business and financial condition. At December 31, 1996, the Company's current ratio was 1.8 with working capital of $113.5 million. This compares with a current ratio of 2.0 and working capital of $122.7 million at December 31, 1995, excluding the net assets of discontinued operations. The decrease is due primarily to increased short-term borrowings in 1996. The Company expects to be able to finance its cash requirements, including capital expenditures, stock repurchases, debt service and the acquisition of DW Industries, Inc., Laboratoire SPAD, S.A. and New Image Industries, Inc. from funds generated from operations and amounts available under its Bank Revolving Loan Facility. Cash flows from operating activities increased to $83.2 million in 1996 from $67.5 million in 1995 primarily due to higher net income. Impairment of Assets - -------------------- In 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). Under provisions of the Statement, impairment losses would be recognized if the expected future cash flows were less than the assets' carrying 37
value. There was no effect on the financial statements from the adoption of SFAS 121. Impact of Inflation - ------------------- The Company has generally offset the impact of inflation on wages and the cost of purchased materials by reducing operating costs and increasing selling prices to the extent permitted by market conditions. 38
Management's Financial Responsibility The management of DENTSPLY International Inc. is responsible for the contents of the consolidated financial statements. The consolidated financial statements were prepared in conformity with generally accepted accounting principles applied on a consistent basis and were based in part on reasonable estimates, giving due consideration to materiality. Financial information appearing elsewhere in this Annual Report is consistent with that in the consolidated financial statements. The Company maintains a system of internal accounting controls which, in the opinion of management, provides reasonable assurance as to the integrity and reliability of the financial records and the protection of assets. The internal accounting control system is supported by written policies and procedures and its effectiveness is monitored. Management operates the Company in compliance with its written Code of Business Conduct. The Audit Committee of the Board of Directors is composed entirely of outside directors who meet periodically with management and our independent auditors, KPMG Peat Marwick LLP. The Audit Committee reviews the financial controls and reporting practices and generally monitors the accounting affairs of the Company. Also, the Audit Committee recommends to the stockholders the appointment of the independent auditors. John C. Miles II Edward D. Yates Vice Chairman and Senior Vice President and Chief Executive Officer Chief Financial Officer 39
Independent Auditors' Report The Board of Directors and Stockholders DENTSPLY International Inc. We have audited the consolidated financial statements of DENTSPLY International Inc. and subsidiaries as listed in the accompanying index on page 23. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index on page 24. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DENTSPLY International Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Philadelphia, Pennsylvania January 22, 1997 40
DENTSPLY International Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, -------------------------------- 1996 1995 1994 -------------------------------- (in thousands, except per share amounts) Net sales $656,557 $572,028 $524,758 Cost of products sold 331,887 291,176 267,034 -------- -------- -------- Gross profit 324,670 280,852 257,724 Selling, general and administrative expenses 205,206 180,117 160,324 -------- -------- -------- Operating income from continuing operations 119,464 100,735 97,400 Other costs and expenses: Interest expense 11,095 9,144 7,999 Interest income (1,024) (1,265) (1,527) Other (income) expense, net (1,567) 2,839 (734) -------- -------- -------- Income from continuing operations before income taxes 110,960 90,017 91,662 Provision for income taxes 43,738 36,054 37,518 -------- -------- -------- Income from continuing operations 67,222 53,963 54,144 -------- -------- -------- Discontinued operations: Income from the operation of discontinued Medical business (net of income taxes of $.6 million) --- --- 1,311 Gain on disposal of Medical business, including provision of $.5 million for operating losses during phase-out period (net of income taxes of $5.5 million) --- --- 6,543 -------- -------- -------- Income from discontinued operations --- --- 7,854 -------- -------- -------- Net income $ 67,222 $ 53,963 $ 61,998 ======== ======== ======== Earnings per common share: Income from continuing operations $ 2.50 $ 2.00 $ 1.95 Income from the operation of discontinued Medical business -- -- .05 Gain on disposal of Medical business -- -- .23 -------- -------- -------- Net income $ 2.50 $ 2.00 $ 2.23 ======== ======== ======== Dividends per common share $ .34 $ .3075 $ .15 Weighted average common shares outstanding 26,920 27,012 27,776 The accompanying Notes are an integral part of these Financial Statements. 41
DENTSPLY International Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS December 31, ------------------- 1996 1995 Assets ------------------- Current assets: (in thousands) Cash and cash equivalents $ 5,619 $ 3,974 Accounts and notes receivable - trade, net 101,977 93,315 Inventories 125,398 125,704 Prepaid expenses and other current assets 23,752 16,906 Net assets of discontinued operations --- 5,870 -------- -------- Total Current Assets 256,746 245,769 Property, plant and equipment, net 141,458 140,101 Other noncurrent assets, net 13,259 13,974 Identifiable intangible assets, net 59,787 39,282 Costs in excess of fair value of net assets acquired, net 196,412 149,127 -------- -------- Total Assets $667,662 $588,253 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Notes payable and current portion of long-term debt $ 26,711 $ 7,616 Accounts payable 33,720 31,785 Accrued liabilities 52,504 46,571 Income taxes payable 30,264 31,221 -------- -------- Total Current Liabilities 143,199 117,193 Long-term debt 75,109 68,675 Other liabilities 49,467 47,104 Deferred income taxes 30,000 35,927 -------- -------- Total Liabilities 297,775 268,899 -------- -------- Minority interests in consolidated subsidiaries 4,297 3,432 -------- -------- Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; .25 million shares authorized; no shares issued --- --- Common stock, $.01 par value; 100 million shares authorized; 27.1 million shares issued at December 31, 1996 and 1995 271 271 Capital in excess of par value 150,031 149,999 Retained earnings 237,300 179,231 Cumulative translation adjustment (4,278) 3,234 Employee stock ownership plan reserve (11,016) (12,536) Treasury stock, at cost, .2 million and .1 million shares at December 31, 1996 and 1995, respectively (6,718) (4,277) -------- -------- Total Stockholders' Equity 365,590 315,922 -------- -------- Total Liabilities and Stockholders' Equity $667,662 $588,253 ======== ======== The accompanying Notes are an integral part of these Financial Statements. 42
<TABLE> DENTSPLY International Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY <CAPTION> Capital in Cumulative Employee Stock Total Common Excess of Retained Translation Ownership Treasury Stockholders' Stock Par Value Earnings Adjustment Plan Reserve Stock Equity ---------- ------------ ----------- ----------- -------------- ---------- ------------- (in thousands) <S> <C> <C> <C> <C> <C> <C> <C> Balance at December 31, 1993 $ 277 $179,402 $ 75,702 $(3,238) $(15,723) $ (23) $236,397 Exercise of stock options 1 749 --- --- --- --- 750 Tax benefit related to stock options exercised --- 1,858 --- --- --- --- 1,858 Repurchase of .1 million shares of common stock --- --- --- --- --- (2,679) (2,679) Cash dividends declared, $.15 per common share --- --- (4,169) --- --- --- (4,169) Compensatory stock options granted --- 78 --- --- --- --- 78 Translation adjustment --- --- --- 3,436 --- --- 3,436 Net change in ESOP reserve --- --- --- --- 1,668 --- 1,668 Net income --- --- 61,998 --- --- --- 61,998 ------- -------- -------- ------- -------- -------- -------- Balance at December 31, 1994 278 182,087 133,531 198 (14,055) (2,702) 299,337 Exercise of stock options and warrants 2 (4,850) --- --- --- 9,100 4,252 Tax benefit related to stock options and warrants exercised --- 4,781 --- --- --- --- 4,781 Repurchase of 1.3 million shares of common stock --- --- --- --- --- (42,703) (42,703) Cash dividends declared, $.3075 per common share --- --- (8,263) --- --- --- (8,263) Cancellation of .9 million shares of treasury stock (9) (32,019) --- --- --- 32,028 --- Translation adjustment --- --- --- 3,036 --- --- 3,036 Net change in ESOP reserve --- --- --- --- 1,519 --- 1,519 Net income --- --- 53,963 --- --- --- 53,963 ------- -------- -------- ------- -------- -------- -------- Balance at December 31, 1995 271 149,999 179,231 3,234 (12,536) (4,277) 315,922 <FN> The accompanying Notes are an integral part of these Financial Statements. </FN> </TABLE> 43
<TABLE> DENTSPLY International Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY <CAPTION> Capital in Cumulative Employee Stock Total Common Excess of Retained Translation Ownership Treasury Stockholders' Stock Par Value Earnings Adjustment Plan Reserve Stock Equity ---------- ------------ ----------- ----------- -------------- ---------- ------------- (in thousands) <S> <C> <C> <C> <C> <C> <C> <C> Balance at December 31, 1995 271 149,999 179,231 3,234 (12,536) (4,277) 315,922 Exercise of stock options and warrants - (146) - - - 1,384 1,238 Tax benefit related to stock options and warrants exercised - 218 - - - - 218 Compensatory stock options lapsed - (40) - - - - (40) Repurchase of .1 million shares of common stock - - - - - (3,825) (3,825) Cash dividends declared, $.34 per common share - - (9,153) - - - (9,153) Translation adjustment - - - (7,512) - - (7,512) Net change in ESOP reserve - - - - 1,520 - 1,520 Net income - - 67,222 - - - 67,222 ------- -------- -------- ------- -------- -------- -------- Balance at December 31, 1996 $ 271 $150,031 $237,300 $(4,278) $(11,016) $ (6,718) $365,590 ======= ======== ======== ======= ======== ======== ======== <FN> The accompanying Notes are an integral part of these Financial Statements. </FN> </TABLE> 44
<TABLE> DENTSPLY International Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS <CAPTION> Year Ended December 31, ---------------------------------- 1996 1995 1994 -------- -------- -------- Cash flows from operating activities: (in thousands) <S> <C> <C> <C> Net income $ 67,222 $ 53,963 $ 61,998 Adjustments to reconcile net income to net cash provided by operating activities: Gain on disposal of Medical business, before income taxes --- --- (12,061) Depreciation 14,799 12,130 10,153 Amortization 13,309 9,358 9,874 Deferred income taxes associated with continuing operations (3,008) (1,211) 9,404 Deferred income taxes associated with discontinued operations --- (481) (5,181) Other non-cash transactions 289 668 (27) Loss on disposal of property, plant and equipment 367 1,027 23 Changes in operating assets and liabilities, net of effects from acquisitions and divestitures of businesses and effects of exchange: Accounts and notes receivable-trade, net (6,777) (1,893) (13,308) Inventories 256 (8,233) (7,020) Prepaid expenses and other current assets (4,574) (775) 4,555 Other noncurrent assets, net 497 225 (580) Accounts payable 472 2,372 (4,514) Accrued liabilities 945 (51) 638 Income taxes payable 1,467 (2,971) 8,971 Other liabilities (2,075) 3,388 882 -------- -------- -------- Net cash provided by operating activities 83,189 67,516 63,807 -------- -------- -------- <FN> The accompanying Notes are an integral part of these Financial Statements. </FN> </TABLE> 45
<TABLE> DENTSPLY International Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS <CAPTION> Year Ended December 31, ---------------------------------- 1996 1995 1994 -------- -------- -------- Cash flows from investing activities: (in thousands) <S> <C> <C> <C> Proceeds from disposal of Medical business 7,500 3,260 44,244 Proceeds from sale of property, plant and equipment, net 351 2,443 192 Capital expenditures (20,804) (17,633) (13,766) Expenditures for identifiable intangible assets (3,000) (60) (20) Acquisitions of businesses, net of cash acquired (82,181) (73,407) --- Other direct costs of acquisition and divestiture activities (259) (512) (561) Other, net (355) --- (81) -------- -------- -------- Net cash provided by (used in) investing activities (98,748) (85,909) 30,008 -------- -------- -------- <FN> The accompanying Notes are an integral part of these Financial Statements. </FN> </TABLE> 46
<TABLE> DENTSPLY International Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS <CAPTION> Year Ended December 31, ---------------------------------- 1996 1995 1994 -------- -------- -------- Cash flows from financing activities: (in thousands) <S> <C> <C> <C> Proceeds from sale of common stock, including tax benefit of stock options exercised 1,456 9,034 2,608 Cash paid for treasury stock (3,825) (42,703) (2,679) Dividends paid (8,893) (8,123) (2,085) Increase (decrease) in bank overdrafts (2,357) 1,580 (1,738) Proceeds from long-term borrowings, net of deferred financing costs 87,499 123,635 89,272 Payments on long-term borrowings (67,490) (70,915) (195,568) Increase (decrease) in short-term borrowings 11,382 (28) 5,456 Decrease in employee stock ownership plan reserve 1,520 1,519 1,668 -------- -------- -------- Net cash provided by (used in) financing activities 19,292 13,999 (103,066) -------- -------- -------- Effect of exchange rate changes on cash and cash equivalents (2,088) 1,090 (1,455) -------- -------- -------- Net increase (decrease) in cash and cash equivalents 1,645 (3,304) (10,706) Cash and cash equivalents at beginning of period 3,974 7,278 17,984 -------- -------- -------- Cash and cash equivalents at end of period $ 5,619 $ 3,974 $ 7,278 ======== ======== ======== <FN> The accompanying Notes are an integral part of these Financial Statements. </FN> </TABLE> 47
<TABLE> DENTSPLY International Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS <CAPTION> Year Ended December 31, ---------------------------------- 1996 1995 1994 -------- -------- -------- Supplemental disclosures of cash flow information: (in thousands) <S> <C> <C> <C> Interest paid $ 7,484 $ 6,243 $ 6,766 Income taxes paid 43,879 35,573 26,136 In January 1996, the Company purchased certain net assets of Tulsa Dental Products LLC ("Tulsa") for $75.1 million. In March 1995, the Company purchased all of the capital stock of KV33 Corporation ("KV33") for $11.5 million. In June 1995, the Company purchased approximately 96% of the capital stock of Maillefer Instruments, S.A. ("Maillefer") for $65.8 million. In August 1995, the Company purchased the assets of Dunvale Corporation ("Dunvale") for $1.8 million. In conjunction with the acquisitions, liabilities were assumed as follows: Tulsa KV33 Maillefer Dunvale ------- -------- --------- ------- (in thousands) Fair value of assets acquired $78,662 $ 14,329 $ 97,188 $ 1,982 Cash paid for assets or capital stock (75,114) (11,450) (65,798) (1,839) ------- -------- --------- ------- Liabilities assumed $ 3,548 $ 2,879 $ 31,390 $ 143 ======= ======== ========= ======= <FN> The accompanying Notes are an integral part of these Financial Statements. </FN> </TABLE> 48
DENTSPLY International Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - ---------------------------------------- Description of Business - ----------------------- DENTSPLY (the "Company") designs, develops, manufactures and markets a broad range of products for the dental market. The Company believes that it is the world's leading manufacturer and distributor of artificial teeth, endodontic instruments and materials, impression materials, prophylaxis paste, dental sealants, ultrasonic scalers, and crown and bridge materials; the leading United States manufacturer and distributor of dental x-ray equipment, dental handpieces, dental x-ray film holders, film mounts and bone substitute/ grafting materials; and a leading United States distributor of dental cutting instruments and dental implants. The Company distributes its dental products in over 100 countries under some of the most well-established brand names in the industry. DENTSPLY is committed to the development of innovative, high quality, cost-effective new products for the dental market. Principles of Consolidation - --------------------------- The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. Intercompany accounts and transactions are eliminated. Minority interests in net income of consolidated subsidiaries is not material and is included in other (income) expense, net. During 1994, the Company adopted a formal plan to dispose of its Medical segment. Accordingly, the results of discontinued operations and the gain on disposal thereof have been reported separately from the continuing operations of the Company (See Note 3 - Discontinued Operations). Certain items in the prior years have been reclassified to conform to the 1996 presentation. Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash and Cash Equivalents - ------------------------- The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. 49
Accounts and Notes Receivable-Trade - ----------------------------------- The Company sells dental equipment and supplies primarily through a worldwide network of distributors, although certain product lines are sold directly to the end user. Revenue is recognized when products are shipped. For customers on credit terms, the Company performs ongoing credit evaluation of those customers' financial condition and generally does not require collateral from them. Accounts and notes receivable-trade are stated net of an allowance for doubtful accounts of $2.5 million and $2.3 million at December 31, 1996 and 1995, respectively. Inventories - ----------- Inventories are stated at the lower of cost or market. At December 31, 1996 and 1995, the cost of $10.0 million, or 8% and $10.6 million, or 8%, respectively, of inventories was determined by the last-in, first-out (LIFO) method. The cost of other inventories was determined by the first-in, first-out (FIFO) or average cost method. Property, Plant and Equipment - ----------------------------- Property, plant and equipment are stated at cost, net of accumulated depreciation. Except for leasehold improvements, depreciation for financial reporting purposes is computed by the straight-line method over the following estimated useful lives: buildings - generally 40 years and machinery and equipment - 4 to 15 years. The cost of leasehold improvements is amortized over the shorter of the estimated useful life or the term of the lease. For income tax purposes, depreciation is computed using various methods. Identifiable Intangible Assets - ------------------------------ Identifiable intangible assets include patents, trademarks, non-compete covenants, licensing agreements, distributor networks and product manufacturing rights which are amortized on a straight-line basis over their estimated useful lives, ranging from 5 to 40 years. Identifiable intangible assets are stated net of accumulated amortization of $28.9 million and $22.5 million at December 31, 1996 and 1995, respectively. Identifiable intangible assets are reviewed for impairment whenever events or circumstances provide evidence that suggest that the carrying amount of the asset may not be recoverable. Impairment is determined by using identifiable undiscounted cash flows. Costs in Excess of Fair Value of Net Assets Acquired - ---------------------------------------------------- The excess of costs of acquired companies and product lines over the fair value of net assets acquired (goodwill) is being amortized on a straight-line basis over 25 to 40 years. Costs in excess of the fair value of net assets acquired are stated net of accumulated amortization of $26.1 million and $20.0 million at December 31, 1996 and 1995, respectively. Costs in excess of fair value of net assets acquired are reviewed for impairment whenever events or circumstances provide evidence that suggest that the carrying amount of the asset may not be recoverable. Impairment is determined by using identifiable undiscounted cash flows. 50
Fair Value of Financial Instruments - ----------------------------------- The fair value of financial instruments is determined by reference to various market data and other valuation techniques as appropriate. The fair values of financial instruments approximate their recorded values. Derivatives - ----------- The Company's only involvement with derivative financial instruments is forward contracts to hedge assets and liabilities denominated in foreign currencies. Foreign Exchange Risk Management - -------------------------------- The Company routinely enters into forward foreign exchange contracts to selectively hedge assets and liabilities denominated in foreign currencies. Market value gains and losses are recognized in income currently and the resulting gains or losses offset foreign exchange gains or losses recognized on the foreign currency assets and liabilities hedged. Determination of hedge activity is based upon market conditions, the magnitude of the foreign currency assets and liabilities and perceived risks. As of December 31, 1996, the company had contracts outstanding for the purchase of 21.4 million Swiss francs or approximately $16.2 million. As of December 31, 1995, the Company had contracts outstanding for the purchase of 5.1 million Swiss francs or approximately $4.4 million. These foreign exchange contracts generally have maturities of less than six months and counterparties to the transactions are typically large international financial institutions. Foreign Currency Translation - ---------------------------- The functional currency for foreign operations, except for those in highly inflationary economies, has been determined to be the local currency. Assets and liabilities of foreign subsidiaries are translated at exchange rates on the balance sheet date; revenue and expenses are translated at the average year-to-date rates of exchange. The effects of these translation adjustments are reported in a separate component of stockholders' equity. Exchange gains and losses arising from transactions denominated in a currency other than the functional currency of the entity involved and translation adjustments in countries with highly inflationary economies are included in income. Exchange losses of $.3 million in 1996 and $.5 million in 1994 and gains of $.2 million in 1995 are included in other (income) expense, net. Research and Development Costs - ------------------------------ Research and development costs are charged to expense as incurred and are included in selling, general and administrative expenses. Research and development costs amounted to approximately $14.7 million, $12.3 million and $10.9 million for 1996, 1995 and 1994, respectively. 51
Stock Based Compensation - ------------------------ In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 123 presents companies with the alternative of retaining the current accounting for stock based compensation under APB Opinion No. 25 ("APB 25") or adopting a new accounting method based on the estimated fair value of equity instruments granted during the year. The Company applies APB 25 in accounting for its stock options (see Note 10 - Stockholders' Equity). Earnings per Common Share - ------------------------- Earnings per common share are based on the weighted average number of common shares outstanding. Common stock equivalents (options and warrants) had no material effect on the earnings per common share computation. All shares held by the DENTSPLY Employee Stock Ownership Plan are considered outstanding and are included in the earnings per common share computation. NOTE 2 - BUSINESS ACQUISITIONS - ------------------------------ In August 1996, the Company paid $5 million for a 51% interest in CeraMed Dental, LLC ("CeraMed") and the right to acquire the remaining 49% interest at a later date. CeraMed, located in Lakewood, Colorado, is the leading US manufacturer and distributor of bone grafting materials and HA plasma-feed coating materials to dental markets. The acquisition was accounted for under the purchase method of accounting and the results of CeraMed's operations have been included in the accompanying financial statements since the date of acquisition. The aggregate purchase price of $5 million plus direct acquisition costs has been allocated on the basis of preliminary estimates of the fair values of assets acquired. The excess ($.9 million) of acquisition cost over net assets acquired is being amortized over 25 years. Pro forma information has been omitted due to immateriality. In January 1996, the Company purchased certain assets of Tulsa Dental Products L.L.C. ("Tulsa") in a cash transaction valued at $75.1 million and an earn-out based on the operating performance of the business. Based in Tulsa, Oklahoma, Tulsa is a manufacturer and distributor of endodontic instruments and materials. The acquisition was accounted for under the purchase method of accounting and the results of Tulsa's operations have been included in the accompanying financial statements since the date of acquisition. The aggregate purchase price of $75.1 million plus direct acquisition costs has been allocated on the basis of preliminary estimates of the fair values of assets acquired and liabilities assumed. The excess ($53.7 million) of acquisition cost over net assets acquired is being amortized over 25 years. The following unaudited pro forma consolidated results of operations assume that the acquisition of Tulsa occurred on January 1, 1995: Year Ended December 31, ----------------------- 1996 1995 -------- -------- (in thousands, except per share amounts) Net sales $656,557 $591,670 Net income 67,503 51,714 Earnings per common share 2.51 1.91 52
The pro forma information does not purport to be indicative of the results that actually would have been obtained had the operations been combined during the periods presented. In August 1995, the Company purchased the assets of Dunvale Corporation ("Dunvale") in a cash transaction valued at $1.8 million. The acquisition was accounted for under the purchase method of accounting and the results of Dunvale's operations have been included in the accompanying financial statements since the date of acquisition. The excess ($1.5 million) of acquisition cost over the fair value of net assets acquired is being amortized over 25 years. In June 1995, the Company purchased approximately 96% of the outstanding capital stock of Maillefer Instruments S.A. ("Maillefer") in a cash transaction valued at approximately $65.8 million. An additional 3.9% of Maillefer stock was purchased in June 1996 for cash of approximately $2.3 million. Based in Switzerland, Maillefer is a manufacturer and distributor of principally endodontic instruments. The acquisition was accounted for under the purchase method of accounting and the results of Maillefer's operations have been included in the accompanying financial statements since the date of acquisition. The aggregate purchase price of $65.8 million plus direct acquisition costs has been allocated on the basis of the fair values of assets acquired and liabilities assumed. Since the fair value of net assets acquired exceeded the purchase price by approximately $16.7 million, the values otherwise assignable to noncurrent assets acquired have been reduced by a proportionate part of the excess. In March 1995, the Company purchased all of the outstanding capital stock of KV33 Corporation ("KV33") in a cash transaction valued at $11.5 million. The acquisition was accounted for under the purchase method of accounting and the results of KV33's operations have been included in the accompanying financial statements since the date of acquisition. The excess ($10.2 million) of acquisition cost over the fair value of net assets acquired is being amortized over 25 years. In January 1997, the Company purchased the assets of DW Industries, Inc. in a cash transaction valued at approximately $17 million and an earn-out based on the sales growth of the business, and purchased 100% of the outstanding capital stock of Laboratoire SPAD, S.A. ("SPAD") for FF198 million in a cash transaction valued at approximately $35 million. Headquartered in Las Vegas, Nevada, DW Industries is the leading manufacturer of disposable air-water syringe tips for use in clinical dental office procedures. SPAD, a division of GROUPE MONOT, S.A., is a leading French manufacturer and distributor of dental anesthetic and other dental products. In January 1997, the Company commenced a tender offer for all outstanding shares of New Image Industries, Inc. ("New Image") for $2.00 per share. Total funds required to purchase all outstanding New Image Shares and pay related costs and expenses will be approximately $12 million. In connection with the transaction, DENTSPLY will loan New Image up to $3 million, of which $2.5 million was outstanding on December 31, 1996, to be used as working capital. New Image, which designs, develops, manufactures and distributes intraoral cameras and computer imaging systems and related software exclusively to the dental market, is located in Carlsbad, California. 53
NOTE 3 - DISCONTINUED OPERATIONS - -------------------------------- In October 1994, the Company announced its strategic decision to discontinue the operations comprising its medical business. The medical operations included the Eureka X-Ray Tube Corp. ("Eureka"), GENDEX Medical and CMW business units which manufacture medical x-ray tubes, medical x-ray systems and orthopedic bone cement, respectively. The net assets of CMW were sold in November 1994 and substantially all of the net assets of Eureka were sold in two transactions in November and December 1994, for a total of $44.5 million. Substantially all of the remaining assets comprising the medical business were sold in the first quarter of 1996 for $7.5 million. Sales from these operations were $2.7 million, $18.9 million, and $48.6 million for 1996, 1995 and 1994, respectively. Certain expenses have been allocated to discontinued operations, including interest expense, which was allocated based on the ratio of net assets discontinued to the total net assets of the consolidated entity. NOTE 4 - INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION - ---------------------------------------------------- The Company's continuing operations are conducted primarily in one industry segment as a designer, manufacturer and distributor of dental equipment and supplies. The Company's operations are structured to achieve consolidated objectives. As a result, significant interdependencies exist among the Company's operations in different geographic areas. Intercompany sales of manufacturing materials between areas are at prices which, in general, provide a reasonable profit after coverage of all manufacturing costs. Intercompany sales of finished goods are at prices intended to provide a reasonable profit for purchasing locations after coverage of marketing and general and administrative costs. Operating income (loss) from continuing operations consists of net sales less related costs, direct operating expenses and intercompany royalties allocated from Corporate for use of patents and trademarks owned by the Company. Assets by geographic area are those used in the operations in the geographic area. 54
<TABLE> The following table sets forth information about the Company's continuing operations in different geographic areas for 1996, 1995, and 1994: United Adjustments/ States Europe Other Corporate Eliminations Total -------- -------- -------- --------- ------------ -------- <S> <C> <C> <C> <C> <C> <C> 1996 (in thousands) - ---- Net sales: Customers $364,221 $198,601 $ 93,735 $ --- $ --- $656,557 Intercompany 52,755 27,028 4,832 --- (84,615) --- -------- -------- -------- -------- -------- -------- Total net sales 416,976 225,629 98,567 --- (84,615) 656,557 Operating income (loss) from continuing operations 91,617 33,685 3,669 (8,975) (532) 119,464 Assets 411,655 259,826 48,079 218,314 (270,212) 667,662 1995 - ---- Net sales: Customers $322,929 $174,139 $ 74,960 $ --- $ --- $572,028 Intercompany 46,613 13,680 4,822 --- (65,115) --- -------- -------- -------- -------- -------- -------- Total net sales 369,542 187,819 79,782 --- (65,115) 572,028 Operating income (loss) from continuing operations 84,914 26,015 434 (9,302) (1,326) 100,735 Assets 319,429 258,723 43,631 128,823 (168,223) 582,383 <FN> </FN> </TABLE> 55
<TABLE> <CAPTION> United Adjustments/ States Europe Other Corporate Eliminations Total -------- -------- -------- --------- ------------ -------- <S> <C> <C> <C> <C> <C> <C> 1994 (in thousands) - ---- Net sales: Customers $317,492 $136,505 $ 70,761 $ --- $ --- $524,758 Intercompany 41,653 7,085 4,130 --- (52,868) --- -------- -------- -------- -------- -------- -------- Total net sales 359,145 143,590 74,891 --- (52,868) 524,758 Operating income (loss) from continuing operations 88,204 15,200 3,133 (9,948) 811 97,400 Assets 287,364 162,365 39,400 110,802 (133,001) 466,930 <FN> Third party export sales from the United States are less than ten percent of consolidated net sales. In 1996 and 1995, no customer accounted for 10% or more of consolidated net sales. One customer accounted for approximately 11% of consolidated net sales in 1994. </FN> </TABLE> 56
NOTE 5 - INVENTORIES - -------------------- Inventories consist of the following: December 31, -------------------- 1996 1995 -------- -------- (in thousands) Finished goods $ 73,650 $ 70,677 Work-in-process 23,936 26,440 Raw materials and supplies 27,812 28,587 -------- -------- $125,398 $125,704 ======== ======== Pre-tax income was $.3 million, $.2 million, and $1.2 million lower in 1996, 1995,and 1994, respectively as a result of using the LIFO method as compared to using the FIFO method. If the FIFO method had been used to determine the cost of LIFO inventories, the amounts at which net inventories are stated would be lower than reported at December 31, 1996 and 1995 by $1.7 million and $2.0 million, respectively. NOTE 6 - PROPERTY, PLANT AND EQUIPMENT - -------------------------------------- Property, plant and equipment consist of the following: December 31, -------------------- 1996 1995 -------- -------- Assets, at cost: (in thousands) Land $ 17,222 $ 17,395 Buildings and improvements 68,185 67,903 Machinery and equipment 103,887 88,417 Construction in progress 8,505 9,039 -------- -------- 197,799 182,754 Less: Accumulated depreciation 56,341 42,653 -------- -------- $141,458 $140,101 ======== ======== NOTE 7 - ACCRUED LIABILITIES - ---------------------------- Accrued liabilities consist of the following: December 31, -------------------- 1996 1995 -------- -------- Payroll, commissions, bonuses (in thousands) and other cash compensation $ 10,739 $ 10,441 Employee benefits 6,710 6,947 Other 35,055 29,183 -------- -------- $ 52,504 $ 46,571 ======== ======== 57
NOTE 8 - FINANCING ARRANGEMENTS - ------------------------------- Short-Term Borrowings - --------------------- Short-term bank borrowings amounted to $26.3 million and $7.6 million at December 31, 1996 and 1995, respectively. Unused lines of credit for short-term financing at December 31, 1996 and 1995 were $63.5 million and $63.0 million, respectively. Substantially all unused lines of credit have no major restrictions and are renewable annually. Interest is charged on borrowings under these lines of credit at various rates, generally under prime or equivalent money rates. Long-Term Borrowings - -------------------- December 31, -------------------- 1996 1995 -------- -------- $175.0 million bank revolving loan facility (in thousands) maturing December 23, 1999 $ 10,000 $ --- $60.0 million bank term loan maturing December 23, 1999, Swiss Francs 45.9 million and Pounds Sterling 12.5 million outstanding at December 31, 1996, bearing interest at a weighted average of 2.5% for Swiss Franc borrowings and 6.6% for Pounds Sterling borrowings 55,636 59,172 $25.0 million bank multicurrency revolving credit facility maturing December 23, 1999, various currencies outstanding at December 31, 1996, bearing interest at a weighted average of 7.9% 8,577 9,496 Other borrowings, various currencies and rates 1,318 7 -------- -------- 75,531 68,675 Less: Current portion (included in notes payable and current portion of long-term debt) 422 --- -------- -------- $ 75,109 $ 68,675 ======== ======== Long-term debt of $74.2 million matures in December 1999. The bank revolving credit agreement contains certain affirmative and negative covenants as to the operations and financial condition of the Company, the most restrictive of which pertain to asset dispositions, maintenance of certain levels of net worth, and prescribed ratios of indebtedness to total capital and operating income plus depreciation and amortization to interest expense. The Company pays a facility fee of .10 percent annually on the entire amount of the commitment. Interest rates on amounts borrowed under the facility will depend on the maturity of the borrowing, the interest rate option selected, and, in the event of a LIBOR borrowing, the ratio of interest expense to operating income. 58
The bank term loan and the bank multicurrency revolving credit facility contain affirmative and negative covenants as to the operations and financial condition of the Company, which are substantially equivalent to those in the bank revolving credit agreement. The Company pays a facility fee of .10 percent annually on the entire amount of the bank multicurrency revolving credit facility commitment. NOTE 9 - OTHER LIABILITIES - -------------------------- Other liabilities consist of the following: December 31, -------------------- 1996 1995 -------- -------- (in thousands) Pension $ 30,870 $ 30,635 Medical and other postretirement benefits 10,299 10,729 Other 8,298 5,740 -------- -------- $ 49,467 $ 47,104 ======== ======== NOTE 10 - STOCKHOLDERS' EQUITY - ------------------------------ In December 1996, 1995, and 1994 the Board of Directors authorized the repurchase of up to 2.7 million, 2.8 million, and 2.8 million shares, respectively, of common stock on the open market or in negotiated transactions. Each of these authorizations to repurchase shares expires on December 31 of the following year. The Company repurchased .1 million shares for $3.8 million, 1.3 million shares for $42.7 million and .1 million shares for $2.7 million in 1996, 1995 and 1994, respectively. In January 1994, the Company granted options to purchase 15,000 shares of common stock to the former Chairman of the Board at an exercise price of $44.50, which was equal to the market price on the date of grant. The options were immediately exercisable and expire ten years from date of grant. The Company issued 180,000 stock purchase warrants in August 1990 in connection with an acquisition to the principals of an investment banking firm, one of whom is a former director of the Company. The warrants are exercisable at any time through August 28, 2000, at an exercise price of $6.125 per share (market price at date issued). During 1996, 6,000 of the warrants were exercised and 34,000 remain outstanding at December 31, 1996. The Company has four stock option plans (1987 Plan, 1992 Plan, 1993 Stock Option Conversion Plan and 1993 Plan). Under the 1987 and 1992 Plans, a committee appointed by the Board of Directors granted to key employees and directors of the Company options to purchase shares of common stock at an exercise price determined by such committee, but not less than the fair market value of the common stock on the date of grant. Options expire ten years and one month or ten years and one day after date of grant under the 1987 Plan and 1992 Plan, respectively. All outstanding options under the 1993 Stock Option Conversion Plan expired on or were exercised prior to April 9, 1996. No further options can be granted under this plan. 59
The 1993 Plan enables the Company to grant "incentive stock options" ("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, to key employees of the Company, and stock options which do not constitute ISOs ("NSOs") to key employees and non-employee directors of the Company. Each non-employee director receives automatic and non-discretionary NSOs to purchase 3,000 shares of common stock on the date he or she becomes a non-employee director and an additional 3,000 shares on the third anniversary of the date the non-employee director was last granted an option. Grants of options to key employees are solely discretionary. ISOs and NSOs generally expire ten years from date of grant and become exercisable over a period of three years after the date of grant at the rate of one-third per year, except that they become immediately exercisable upon death, disability or retirement. The committee may shorten or lengthen the exercise schedule for any or all options granted to key employees. The exercise price of ISOs and NSOs is generally equal to the fair market value on the date of grant. ISOs granted to an individual who possesses more than 10% of the combined voting power of all classes of stock of the Company have an exercise price of 110% of fair market value and expire five years from the date of grant. The number of shares available for options under the 1993 Plan is adjusted annually to equal 5% of the outstanding common shares of the Company on each January 1. All options granted to date under the 1993 Plan have been NSOs. Options granted under any of the four Plans may be exercised only while the grantee is employed by the Company or is a member of the Board of Directors or within defined periods after termination. The following is a summary of the status of the Plans as of December 31, 1996, 1995, and 1994 and changes during the years ending on those dates: ----Outstanding---- ----Exercisable---- Weighted Weighted Available Average Average for Exercise Exercise Grant Shares Price Shares Price Shares ------- -------- ------- -------- --------- December 31, 1993 467,350 $13.93 413,350 $10.68 1,290,000 Authorized --- --- 388,299 Granted 387,385 44.19 --- (387,385) Became exercisable --- 18,885 --- Exercised (146,493) 5.47 (146,493) --- Expired/Canceled (33,600) 44.50 --- 33,600 ------- ------- --------- December 31, 1994 674,642 31.62 285,742 14.84 1,324,514 Authorized --- --- 2,975 Granted 447,300 36.68 --- (447,300) Became exercisable --- 132,834 --- Exercised (188,881) 10.36 (188,881) --- Expired/Canceled (67,000) 43.99 (33,132) 67,000 ------- ------- --------- December 31, 1995 866,061 37.91 196,563 33.47 947,189 Authorized --- --- (40,306) Granted 181,800 45.31 --- (181,800) Became exercisable --- 262,665 --- Exercised (35,939) 33.41 (35,939) --- Expired/Canceled (52,928) 40.75 (20,365) 51,167 ------- ------- --------- December 31, 1996 958,994 39.32 402,924 37.27 776,250 ======= ======= ========= 60
The following table summarizes information about stock options outstanding under the Plans at December 31, 1996: -------Options Outstanding-------- -Options Exercisable- Weighted Number Average Number Outstanding Remaining Weighted Exercisable Weighted At Contractual Average At Average Range of December 31 Life Exercise December 31 Exercise Exercise Prices 1996 (in years) Price 1996 Price - -------------------- ----------- ----------- -------- ----------- -------- $ 5.25 to $ 5.81 23,000 6.4 $ 5.59 23,000 $ 5.59 19.13 to 19.13 30,000 5.0 19.13 30,000 19.13 31.00 to 34.75 65,432 8.8 34.18 22,302 33.81 35.00 to 37.00 76,897 8.8 35.21 24,242 35.39 37.75 to 39.75 324,832 8.7 37.99 124,557 38.11 42.00 to 44.50 313,533 7.4 44.23 178,823 44.50 46.75 to 46.75 125,300 9.9 46.75 --- --- ------- ------- 5.25 to 46.75 958,994 8.3 39.32 402,924 37.27 ======= ======= The per share weighted-average fair value of stock options granted during 1996 and 1995 was $17.30 and $13.62, respectively, on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: 1996-expected dividend yield 0.8%, risk-free interest rate 6.4%, expected volatility 26%, and an expected life of 6.5 years; and 1995-expected dividend yield 0.8%, risk-free interest rate 5.9%, expected volatility 26%, and an expected life of 6.5 years. The Company applies APB 25 in accounting for the Plans and, accordingly, no compensation cost has been recognized for stock options in the financial statements. Had the Company determined compensation cost based on the fair value of stock options at the grant date under SFAS 123, the Company's net income would have been reduced as indicated below: 1996 1995 -------- -------- (in thousands, except per share amounts) Net income As reported $ 67,222 $ 53,963 Pro forma under SFAS 123 66,109 53,774 Earnings per common share As reported 2.50 2.00 Pro forma under SFAS 123 2.46 1.99 Pro forma net income reflects only options granted in 1996 and 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' vesting period of 3 years and compensation cost for options granted prior to January 1, 1995 is not considered. 61
NOTE 11 - INCOME TAXES - ---------------------- The components of income from continuing operations before income taxes are as follows: Year Ended December 31, -------------------------------- 1996 1995 1994 -------- -------- -------- (in thousands) United States $ 77,619 $ 66,403 $ 74,479 Foreign 33,341 23,614 17,183 -------- -------- -------- $110,960 $ 90,017 $ 91,662 ======== ======== ======== The components of the provision for income taxes are as follows: Year Ended December 31, -------------------------------- 1996 1995 1994 -------- -------- -------- Current: (in thousands) U.S. federal $ 26,715 $ 21,526 $ 17,774 U.S. state 4,401 4,112 3,403 Foreign 15,630 11,627 6,937 -------- -------- -------- Total 46,746 37,265 28,114 -------- -------- -------- Deferred: U.S. federal (886) (994) 6,863 U.S. state (139) (170) 1,584 Foreign (1,983) (47) 957 -------- -------- -------- Total (3,008) (1,211) 9,404 -------- -------- -------- $ 43,738 $ 36,054 $ 37,518 ======== ======== ======== The provision for income taxes is reconciled to income from continuing operations before income taxes as follows: Year Ended December 31, -------------------------------- 1996 1995 1994 -------- -------- -------- Statutory federal income tax rate 35.0% 35.0% 35.0% Effect of: State income taxes, net of federal benefit 2.3 3.0 3.5 Nondeductible amortization of goodwill 1.2 1.5 1.0 Foreign losses with no tax benefit .9 1.4 1.2 Other --- (.8) .2 -------- -------- -------- 39.4% 40.1% 40.9% ======== ======== ======== 62
The tax effect of temporary differences giving rise to deferred tax assets and liabilities are as follows: December 31, 1996 December 31, 1995 ----------------------- ----------------------- Current Noncurrent Current Noncurrent Asset Asset Asset Asset (Liability) (Liability) (Liability) (Liability) ----------- ----------- ----------- ----------- (in thousands) Employee benefit accruals $ 879 $ 5,056 $ 972 $ 4,968 Product warranty accruals 1,166 --- 929 --- Facility relocation accruals 2,084 702 648 433 Insurance premium accruals 2,090 --- 1,884 --- Differences in financial reporting and tax basis for: Inventory (2,010) --- (3,845) --- Property, plant and equipment --- (26,249) --- (28,852) Identifiable intangible assets --- (9,855) --- (9,943) Accrued costs associated with discontinued operations --- --- 4,611 --- Other 2,344 541 1,047 (1,520) Foreign tax credit carryforwards --- 413 --- 1,070 Tax loss carryforwards in foreign jurisdictions --- 5,987 --- 4,882 Valuation allowance for foreign tax credit and tax loss carryforwards --- (6,400) --- (5,952) -------- -------- -------- -------- $ 6,553 $(29,805) $ 6,246 $(34,914) ======== ======== ======== ======== Current and non-current deferred tax assets and liabilities are included in the following balance sheet captions: December 31, -------------------- 1996 1995 -------- -------- (in thousands) Prepaid expenses and other current assets $ 8,571 $ 6,379 Net assets of discontinued operations --- 4,611 Income taxes payable (2,018) (4,744) Other noncurrent assets, net 195 1,013 Deferred income taxes (30,000) (35,927) The provision for income taxes was reduced due to utilization of tax loss carryforwards by $151,000 in 1996, $0 in 1995, and $47,000 in 1994. Certain foreign subsidiaries of the Company have tax loss carryforwards of $14.9 million at December 31, 1996, of which $11.2 million expire through 2001 and $3.7 million may be carried forward indefinitely. The tax benefit of these tax loss carryforwards has been offset by a valuation allowance. At December 31, 1996, the Company had foreign tax credits available for carryforward of $.4 million, which expire in 1997. The tax benefit of these tax credit carryforwards has been offset by a valuation allowance. 63
Income taxes have not been provided on $33.0 million of undistributed earnings of foreign subsidiaries, which will continue to be reinvested. If remitted as dividends, these earnings could become subject to additional tax. It is not practicable to estimate the amount of additional tax that might be payable; however, the Company believes that U.S. foreign tax credits would largely eliminate any U.S. tax payable. NOTE 12 - BENEFIT PLANS - ----------------------- Substantially all of the employees of the Company and its subsidiaries are covered by government or Company-sponsored pension plans. Total pension costs for Company-sponsored defined benefit, defined contribution and employee stock ownership plans amounted to $7.8 million in 1996, $7.5 million in 1995 and $6.0 million for 1994. The Company maintains an Employee Stock Ownership Plan (the "ESOP") covering substantially all the U.S. non-union employees of DENTSPLY. Contributions to the ESOP for 1996, 1995 and 1994 were $2.0 million, $1.7 million and $1.9 million, respectively. In addition, interest expense incurred on ESOP loans and participant notes approximated $.2 million for 1995 and $.5 million for 1994. Interest for 1996 was paid directly from income of the ESOP Trust. The Company makes annual contributions to the ESOP of not less than the amounts required to service ESOP debt. In connection with the refinancing of ESOP debt in March 1994, the Company will also make additional cash contributions of at least $3.4 million over the next seven years. Dividends received by the ESOP on allocated shares are passed through to Plan participants. Most ESOP shares were initially pledged as collateral for its debt. As the debt is repaid, shares are released from collateral and allocated to active employees, based on the proportion of debt service paid in the year. At December 31, 1996, the ESOP held 4.7 million shares, of which 3.9 million shares were allocated to Plan participants and .8 million shares were unallocated and pledged as collateral for ESOP debt. Unallocated shares held by the ESOP were acquired prior to December 31, 1992 and are accounted for in accordance with Statement of Position 76-3. The Employee Stock Ownership Plan reserve consists of a loan receivable from the ESOP bearing interest at 3.06%, payable in equal quarterly installments through March 31, 2004. The Company maintains pension plans for its employees in Germany and Switzerland. These plans provide benefits based upon age, years of service and remuneration. The German plans are unfunded book reserve plans. The pension provision for the German and Swiss plans included the following components: Year Ended December 31, -------------------------------- 1996 1995 1994 -------- -------- -------- (in thousands) Service cost $ 2,464 $ 1,935 $ 1,021 Interest cost on projected benefit obligations 3,171 2,839 2,009 Net investment return on plan assets (1,296) (251) --- Net amortization and deferral (412) 296 87 -------- -------- -------- $ 3,927 $ 4,819 $ 3,117 ======== ======== ======== 64
The funded status and amounts recognized in the consolidated balance sheets for these retirement plans were as follows: December 31, 1996 December 31, 1995 ------------------------ ------------------------ Assets Accumulated Assets Accumulated Exceeded Benefits Exceeded Benefits Accumulated Exceeded Accumulated Exceeded Benefits Assets Benefits Assets ----------- ----------- ----------- ----------- Actuarial present value of: (in thousands) Vested benefit obligations $ 18,551 $ 24,204 $ 18,936 $ 25,660 ======== ======== ======== ======== Accumulated benefit obligations $ 18,551 $ 26,123 $ 18,936 $ 27,756 ======== ======== ======== ======== Actuarial present value of projected benefit obligations $ 19,213 $ 28,579 $ 20,443 $ 32,382 Plan assets at fair value 25,557 --- 25,526 --- -------- -------- -------- -------- Plan assets less (greater) than projected benefit obligations (6,344) 28,579 (5,083) 32,382 Unrecognized obligation --- (1,640) --- (1,870) Unrecognized net gain 3,675 4,616 630 905 -------- -------- -------- -------- (Prepaid pension expense) pension liability $ (2,669) $ 31,555 $ (4,453) $ 31,417 ======== ======== ======== ======== The projected benefit obligations for these plans were determined using discount rates of 7.5 percent as of December 31, 1996 and 1995 in Germany and 4.5 percent as of December 31, 1996 and 1995 in Switzerland. The assumed long-term rate of return on Swiss plan assets for 1996 was 5.0 percent. The weighted average rate of increase used for future compensation levels was 5.0 percent for 1996, 1995 and 1994 in Germany and 3.0 percent for 1996 and 1995 in Switzerland. The Company sponsors an unfunded defined benefit postretirement medical plan that covers certain U.S. based non-union employees. This postretirement healthcare plan is contributory, with retiree contributions adjusted annually to limit the Company's contribution to $21 per month per retiree for most participants who retired after June 1, 1985. The Company also sponsors unfunded non-contributory postretirement medical plans for a limited number of union employees and their spouses and retirees of a discontinued operation. 65
The following table sets forth the combined status of the plans: December 31, -------------------- 1996 1995 -------- -------- Accumulated postretirement benefit (in thousands) obligation: Retirees $ 8,270 $ 8,317 Fully eligible active plan participants 464 468 Other active plan participants 1,496 1,498 -------- -------- Accumulated postretirement benefit obligation at end of period 10,230 10,283 Unrecognized gain 69 446 -------- -------- Net postretirement benefit liability $ 10,299 $ 10,729 ======== ======== Year Ended December 31, -------------------------------- 1996 1995 1994 -------- -------- -------- Net periodic postretirement benefit (in thousands) cost for the period included the following components: Service cost - benefits attributed to service during the period $ 188 $ 188 $ 178 Interest cost on accumulated postretirement benefit obligation 764 804 679 -------- -------- -------- Net periodic postretirement benefit cost $ 952 $ 992 $ 857 ======== ======== ======== For measurement purposes, the annual rate of increase in the per capita cost of covered healthcare benefits assumed for 1996 and thereafter was 10% in 1996, 1995, and 1994. The healthcare cost trend rate assumption has a significant effect on the amounts reported. To illustrate, increasing the assumed healthcare cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation at December 31, 1996 by $.8 million and the aggregate of the service and interest cost components of net periodic postretirement benefit cost by $.1 million for the year then ended. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8% for 1996 and 1995. 66
NOTE 13 - COMMITMENTS AND CONTINGENCIES - --------------------------------------- The Company leases automobiles and certain office, warehouse, machinery and equipment and manufacturing facilities under noncancellable operating leases. These leases generally require the Company to pay insurance, property taxes and other expenses related to the leased property. Total rental expense for all operating leases was $9.2 million for 1996, $8.8 million for 1995 and $8.1 million for 1994. Rental commitments, principally for real estate (exclusive of taxes, insurance and maintenance), automobiles and office equipment amount to: $7.4 million for 1997, $5.5 million for 1998, $4.7 million for 1999, $2.8 million for 2000, $1.9 million for 2001, and $9.8 million thereafter (net of sublease rentals of $1.1 million in 1997, $.9 million in 1998, $.1 million in 1999, $.1 million in 2000, $.1 million in 2001, and $.6 million thereafter). At December 31, 1996, the Company had a contractual commitment to purchase implant, prosthetic and laboratory products from Core-Vent Corporation. This commitment is estimated at $158.1 million at December 31, 1996, for years through 2003 as follows: (in thousands) 1997 $ 22,729 1998 22,320 1999 23,660 2000 25,080 2001 26,584 Later years 37,753 -------- $158,126 ======== Purchases under the contract were $18.2 million in 1996, $19.4 million in 1995, and $19.1 million in 1994. The Company has certain noncancellable purchase commitments for dental burs, x-ray units, x-ray parts, curing lights and supplies amounting to $4.3 million in 1997, $1.2 million in 1998 and $.4 million thereafter. The Company has employment agreements with its executive officers and certain other management employees. These agreements generally provide for salary continuation for a specified number of months under certain circumstances. If all of the employees under contract were to be terminated by the Company without cause (as defined) the Company's liability would be approximately $7.7 million at December 31, 1996. The Company is from time to time a party to lawsuits arising out of its operations. The Company believes that pending litigation to which it is a party will not have a material adverse effect upon its consolidated financial position or results of operations. 67
NOTE 14 - UNUSUAL OR NON-RECURRING ITEMS - ---------------------------------------- During 1995, the Company recorded certain unusual or non-recurring charges which impacted the comparison with other periods. These unusual or non-recurring charges, on an after tax basis, consisted of $1.4 million of costs associated with consolidation of all executive functions in York, Pennsylvania and a loss of $.4 million on the sale of the corporate aircraft. The impact of these expenses on earnings per common share was $.07 in 1995. NOTE 15 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED) - ----------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- -------- -------- 1996 (in thousands, except per share amounts) - ---- Net sales $155,910 $165,029 $155,327 $180,291 Gross profit 76,928 81,640 74,472 91,630 Operating income 26,901 31,228 24,699 36,636 Net income 14,987 17,770 13,873 20,592 Earnings per common share .56 .66 .52 .77 Dividends per common share .0825 .0825 .0825 .0925 1995 - ---- Net sales $133,105 $139,878 $137,330 $161,715 Gross profit 66,435 70,163 62,919 81,335 Operating income 22,911 26,912 17,342 33,570 Net income 12,972 13,237 9,479 18,275 Earnings per common share .48 .49 .35 .68 Dividends per common share .075 .075 .075 .0825 68
<TABLE> Schedule II DENTSPLY INTERNATIONAL INC. VALUATION AND QUALIFYING ACCOUNTS(a) FOR THE THREE YEARS ENDED DECEMBER 31, 1996 <CAPTION> 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) <S> <C> <C> <C> <C> <C> <C> Allowance for doubtful accounts: For Year Ended December 31, 1994 $1,742 $ 163 $ - $ (287) $ 59 $ 1,677 1995 1,677 515 209 (b) (213) 66 2,254 1996 2,254 498 20 (d) (224) (73) 2,475 Allowance for trade discounts: For Year Ended December 31, 1994 315 2,662 - (2,466) (5) 506 1995 506 2,446 - (2,220) 5 737 1996 737 2,693 (2,920) (3) 507 Inventory valuation reserves: For Year Ended December 31, 1994 5,374 1,886 2 (1,765) 125 5,622 1995 5,622 908 15,608 (c) (1,869) 459 20,728 1996 20,728 (569) 167 (d) (1,380) (2,128) 16,818 - ------------------ <FN> (a) Excludes discontinued operations. (b) Includes Maillefer acquisition $209. (c) Includes Maillefer acquisition $15,531. (d) Tulsa acquisition. </FN> </TABLE> 69
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DENTSPLY INTERNATIONAL INC. By:/s/ John C. Miles II ----------------------- John C. Miles II Vice Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Leslie A. Jones Chairman of the Board March 27, 1997 - ------------------------- and a Director Leslie A. Jones /s/ John C. Miles II Vice Chairman of the March 27, 1997 - ------------------------- Board and Chief Executive John C. Miles II Officer and a Director (Principal Executive Officer) /s/ Edward D. Yates Senior Vice President March 27, 1997 - ------------------------- and Chief Financial Edward D. Yates Officer (Principal Financial and Accounting Officer) /s/ Burton C. Borgelt Director March 27, 1997 - ------------------------- Burton C. Borgelt /s/ Douglas K. Chapman Director March 27, 1997 - ------------------------- Douglas K. Chapman /s/ Michael J. Coleman Director March 27, 1997 - ------------------------- Michael J. Coleman /s/ Arthur A. Dugoni Director March 27, 1997 - ------------------------- Arthur A. Dugoni, D.D.S., M.S.D. 70
/s/ C. Frederick Fetterolf Director March 27, 1997 - -------------------------- C. Frederick Fetterolf /s/ Edgar H. Schollmaier Director March 27, 1997 - ------------------------- Edgar H. Schollmaier /s/ W. Keith Smith Director March 27, 1997 - ------------------------- W. Keith Smith 71
EXHIBIT INDEX Sequential Exhibit No. Description Page No. - ----------- ----------- ---------- 3.1 Certificate of Incorporation (1) 3.2 By-Laws, as amended (1) 4.1 (a) Competitive Advance, Revolving (10) Credit and Guaranty Agreement, dated as of November 15, 1993, among the Company, the guarantors named therein, the banks named therein, and Chemical Bank, as agent (Note: All attachments have been omitted. Copies of such attachments will be furnished supplementally to the Securities and Exchange Commission upon request.) (b) First Amendment, dated as of (11) December 23, 1994, to Competitive Advance, Revolving Credit and Guaranty Agreement 10.1 (a) 1987 Employee Stock Option Plan (4) (b) Amendment No. 1 to the Company's (5) 1987 Employee Stock Option Plan 10.2 (a) Letter Agreement dated June 29, (3) 1990 by and between Cravey, Green & Wahlen Incorporated and the Company (b) Stock Purchase Warrant dated August (2) 28, 1990 issued to Cravey, Green & Wahlen Incorporated by the Company (c) Stock Purchase Warrant Plan adopted (6) February 25, 1993 10.3 1992 Stock Option Plan adopted May (7) 26, 1992 10.4 (a) Employee Stock Ownership Plan as (11) amended effective as of December 1, 1982, restated as of January 1, 1991 (b) Second Amendment to the DENTSPLY 76 Employee Stock Ownership Plan 10.5 (a) Retainer Agreement dated December (8) 29, 1992 between the Company and State Street Bank and Trust Company ("State Street") (b) Trust Agreement between the Company (10) and State Street Bank and Trust Company dated as of August 11, 1993 (c) Amendment to Trust Agreement (10) between the Company and State Street Bank and Trust Company effective August 11, 1993 10.6 DENTSPLY Stock Option Conversion (8) Plan approved June 23, 1993 10.7 Employment Agreement dated January (14) 1, 1996 between the Company and 72
Burton C. Borgelt 10.8 (a) Employment Agreement dated as of (8) December 31, 1987 between the Company and John C. Miles II (b) Amendment to Employment Agreement (14) between the Company and John C. Miles II dated February 16, 1996, effective January 1, 1996 10.9 Employment Agreement dated as of (8) December 31, 1987, as amended as of February 8, 1990, between the Company and Leslie A. Jones 10.10 Employment Agreement dated as of (8) December 10, 1992 between the Company and Michael R. Crane 10.11 Employment Agreement dated as of (8) December 10, 1992 between the Company and Edward D. Yates 10.12 Employment Agreement dated as of (8) December 10, 1992 between the Company and J. Patrick Clark 10.13 Employment Agreement dated January (14) 1, 1996 between the Company and W. William Weston 10.14 Employment Agreement dated January (14) 1, 1996 between the Company and Thomas L. Whiting 10.15 Employment Agreement dated October 77 11, 1996 between the Company and Gerald K. Kunkle Jr. 10.16 (a) Exclusive Distribution Agreement (8) dated April 19, 1991, between Core-Vent Corporation ("Core- Vent"), Dr. Gerald Niznick and the Company (b) First Amendment to Exclusive (8) Distribution Agreement dated April 30, 1991 (c) Second Amendment to Exclusive (8) Distribution Agreement dated April 21, 1993 (Note: Exhibits 2.3.1B (Notice of New Products), 2.3.1A (Price List) and 16 (Mutual Release) have been omitted. Copies of such exhibits will be furnished to the Securities and Exchange Commission supplementally upon request.) 10.17 1993 Stock Option Plan (1) 10.18 Revolving Credit Agreement among (11) DENTSPLY International Inc., each of the guarantors named therein, and ABN AMRO Bank N.V., dated as of September 9, 1994 10.19 Multi-Currency Term Loan Agreement (14) among Dentsply Ltd., the banks named therein, and ABN AMRO Bank 73
N.V., dated as of May 12, 1995 (Note: All attachments have been omitted. Copies of such attachments will be furnished supplementally to the Securities and Exchange Commission upon request.) 10.20 (a) DENTSPLY International Inc. 401(k) (11) Savings Plan Summary Plan Description, as amended effective January 1, 1994 (b) Fourth Amendment to the DENTSPLY 84 International 401(k) Savings Plan 10.21 Midwest Dental Products Corporation (11) Pension Plan as amended and re- stated effective January 1, 1989 10.22 Revised Ransom & Randolph Pension (11) Plan, as amended effective as of September 1, 1985, restated as of January 1, 1989 10.23 DENTSPLY International Inc. 86 Directors' Deferred Compensation Plan effective January 1, 1997 10.24 Letter Agreement, dated October 13, (11) 1994, between Dentsply Limited and DePuy International Limited 10.25 Sales-Purchase Agreement, dated May (12) 30, 1995, between certain stock- holders of Maillefer Instruments, S.A., Dentsply Ltd., and DENTSPLY International Inc. as guarantor 10.26 Asset Purchase and Sale Agreement, (13) dated January 10, 1996, between Tulsa Dental Products, L.L.C. and DENTSPLY International Inc. 10.27 Stock Purchase Agreement dated 89 January 13, 1997 between Groupe Monot, S.A. and Dentsply DeTrey GmbH for the purchase of Laboratoire SPAD, S.A. 11 Computation of earnings per share 120 21.1 Subsidiaries of the Company 121 23.1 Consent of KPMG Peat Marwick LLP 123 27 Financial Data Schedule 124 - -------------- (1) Incorporated by reference to exhibit included in the Company's Registration Statement on Form S-8 (No. 33-71792). (2) Incorporated by reference to exhibit included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1991, File No. 0-16211. (3) Incorporated by reference to exhibit included in the Company's Registration Statement on Form S-2 (No. 33-43079). 74
(4) Incorporated by reference to exhibit included in the Company's Registration Statement on Form S-18 (No. 33- 15355C). (5) Incorporated by reference to exhibit included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1992, File No. 0-16211. (6) Incorporated by reference to exhibit included in the Company's Registration Statement on Form S-8 (No. 33-61780). (7) Incorporated by reference to exhibit included in the Company's Registration Statement on Form S-8 (No. 33-52616). (8) Incorporated by reference to exhibit included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1993, File No. 0-16211. (9) Incorporated by reference to exhibit included in the Company's Current Report on Form 8-K dated August 28, 1990, 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, 1993, 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 December 31, 1994, File No. 0-16211. (12) Incorporated by reference to exhibit included in the Company's Current Report on Form 8-K dated June 30, 1995, File No. 0-16211. (13) Incorporated by reference to exhibit included in the Company's Current Report on Form 8-K dated January 10, 1996, 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, 1995, File No. 0-16211. 75