DENTSPLY SIRONA Inc (XRAY) 2002 Q2 法說會逐字稿

Ladies and gentlemen, good day. Thank you for standing by. Welcome to the Dentsply second quarter earnings conference call. At this time all participant lines are in a listen-only mode. Later there will be a question and answer session and instructions will be given at that time. If you should require assistance during the call, please press zero, followed by star, and an operator will assist you. As a reminder, today's conference call is being recorded. I will now turn the conference call over to Chairman and CEO, Mr. John Miles. Please go ahead, sir.

Thank you, . Good morning, everyone, and thank you for joining Dentsply's second quarter 2002 conference call. My name is John Miles, Dentsply's Chairman and Chief Executive Officer, and with me this morning are Gary Kunkle, President and Chief Operating Officer, and Bill Jellison , Senior Vice President and Chief Financial Officer.

As is our usual format, I will start by giving some overview comments concerning our second quarter results, as well as our overall business. Bill will then go through a more detailed review of the P&L and balance sheet and, finally, we'll collectively be pleased to answer any questions you may have.

I'm sure each of you has received a copy of our second quarter earnings announcement released yesterday after the Market closed. I'm extremely pleased to report that Dentsply again achieved another record quarterly results and exceeded consensus analyst's expectations for both sales and earnings.

Before reviewing the specific numbers for the second quarter and, in light of the headlines we have all been reading about over the past several weeks, dealing with inaccurate accounting records at several large public companies. Bill, Gary and I want to reaffirm the accuracy of and integrity in which Dentsply's financial statements are presented.

Our reported sales for the second quarter were $378 million, a 48.4% increase over the year earlier quarter. Diluted earnings per share were $0.46, an increase of 31.4% over the second quarter of 2001. The 48.4% sales gain for the quarter broke out as follows: Core or base business growth was 8.3, foreign exchange was a positive 1.7%, primarily due to the weakening of the U.S. dollar against the euro and other European currencies, and acquisitions, divestitures net was a positive 38.4%. The base business growth of 8.3% in the second quarter of 2002 benefited from a somewhat easier comparison relating to shipping issues from the European central warehouse a year ago. We estimate this increased base business growth in the quarter by about 0.6 of 1%. Since open orders at the end of the second quarter last year were shipped into the third quarter of 2001, we would obviously expect a lower internal sales growth rate in the third quarter of 2002 than the 8.3% achieved in the just completed quarter.

Base business growth on a geographical basis broke out as follows: In the United States, base business growth was 8.6%. It was actually 9.1% dental only. Dental consumables achieved excellent growth in the U.S. market during the second quarter. Notable growth was achieved in endodontics, primarily the nickel titanium endodontic files, GAC orthodontics and dental implants, PepGen P-15 bone grafting materials and the broad line of division consumables. U.S. consumables growth continues to be driven by recent new product launches. The overall U.S. dental market remains very healthy. Dentists continue to have full appointment books and Dentsply continues to gain market share at the expense of its competitors.

Europe CIS had base business growth of 7%, 7.8 in Europe only. As stated earlier, shipping issues a year ago at the European central warehouse improved the second quarter 2002 base business growth. Without this impact, we estimate European base business growth would have been about 5.2%. European sales continue to be led by excellent gains across Dentsply's broad consumable lines, with strong performances being turned in by Germany, United Kingdom and France.

In Asia, our base business growth was positive 7.1%. Dentsply's own subsidiaries in Korea and India turned in impressive double-digit sales gains as the Asian economies continue to struggle to generate consistent quarterly growth. In Latin America, our base business growth was negative 4.1%. Numerous economic and political issues are negatively impacting nearly every country in this region, and the rest of the world grew 18%. Very strong double-digit sales increases in Canada, Australia and Japan more than offset weaknesses throughout the mid-east African region.

Some of the topics that I'll make comments on: the DeGussa integration is essentially complete in the United States, Europe and Japan. In Brazil, the DeGussa Sao Paulo offices and the Manaus plant were closed at the end of June and amalgam manufacturing operations have been successfully relocated to an existing facility at , Brazil. integration plans were formalized during the second quarter. The Chicago plant will be closed at year-end and operations will be consolidated into York, PA. The Astra-Zeneca integration plans continue to progress well. Astra-Zeneca anesthetic plants in Canada, Mexico, Argentina and Sweden have now been shut down.

Dentsply's new sterile site in the Chicago area continues on target with a start-up plan for year-end 2003 or very early 2004. And, as indicated last quarter, the Oraquix drug applications were submitted during the first quarter in both the United States and in Europe. Dentsply combined its U.S. implant and bone grafting divisions U.S.A. and Ceramed during the second quarter in order to increase critical mass in these allied and rapidly growing areas of dentistry. ceramics continues to generate extremely enthusiastic responses from both dentists and laboratories. Scale-up issues have been worked through and resolved and heavy advertising promotions are running in all dental publications. We remain convinced is going to be a huge winner for our Company.

We have just announced a decision to add an incremental 35 field-sales representatives to several of our fastest growing U.S. divisions. The target is to have all representatives hired, trained and in their new territories by year end. This investment will accelerate our market share growth in future years.

Testimony in the U.S. Department of Justice lawsuit concerning Dentsply's exclusive dealing criteria for artificial teeth has completed and post-closing briefs must be filed by the end of August. A decision from the Judge is expected by year-end or first quarter 2003. You may recall the lawsuit only impacts approximately 2.5% of Dentsply's overall sales. While no one can foretell what the final ruling will be, Dentsply was very satisfied with the testimony given during the three week trial.

I'm very pleased to report that, based on the strengths of our business, Dentsply is increasing its full-year guidance for both internal sales growth and earnings per share. Our new guidance increases the internal sales growth rate for 2002 from 6-7% to 6.5-7.5% and earnings per share from $1.78 to a range of $1.80-$1.82. We are confident these higher rates will be achieved.

Let me conclude by commenting that our global business is running very well, acquisition integrations are ahead of schedule and our new product pipeline is very promising, all of which gives us comfort in being able to achieve the guidance numbers we have specified.

I now turn the conference over to Bill who will take you through the P&L and balance sheet.

Good morning. Obviously, the performance of our stock in the last 4-6 weeks is not indicative of what is going on inside of Dentsply. Our business has continued to perform extremely well even during these turbulent times in the market. We know that our operating performance is what ultimately drives the Company stock price and we are very pleased not only with the performance we have been able to deliver again this quarter, but also with the opportunities we see before us.

As John stated, sales for the second quarter were $378 million, an increase of 48.4% over the second quarter last year. Base business grew 8.3%, acquisitions added 38.4% and exchange rates had a positive impact for the first time in over four years of 1.7%. Year-to-date sales were $729 million, or 45.8% above the first half of 2001, and included an internal growth rate for the first six months of 7.4%, with growth from acquisitions of 38.4% and no sales impact from exchange rates in the six month period. Sales in the quarter were especially strong comparing to a softer second quarter in 2001, which experienced European logistics issues at the end of the quarter. The issue was resolved in the third quarter last year, which should result in a slower growth rate in the third quarter of this year than the 8.3% reported in this quarter.

However, as we stated in the press release, we are increasing our internal sales growth assumptions for all of 2002 from 6-7% to 6.5-7.5%, including precious metals. Fully diluted earnings per share were $0.46 in the quarter, an increase of 31.4% over the second quarter of 2001. The first six months fully diluted earnings per share were $0.88 and included a restructuring benefit of approximately $0.02. Excluding restructuring benefits in 2002 and the gain from the sale of and restructuring in the first half of 2001, diluted earnings per common share were $0.86, an increase of 30.3% over $0.66 per share in the first six months of 2001.

We are increasing our earnings guidance for 2002 from $1.78 to a range of $1.80-$1.82 per share. This projected increase includes additional expenses to support an expanded ramp-up of an additional 35 sales reps which we plan to have hired, trained and in their territories by the end of this year. These reps are being added now as a result of the strong operational performance the Company is experiencing. In essence, we are continuing to reinvest some of our higher profitability to further support our future growth initiatives.

Gross profit margin in the second quarter was 49.1%, or 55.8% excluding precious metals, compared to 52.5% in the same period last year. For the first six months, gross profit margin was 48.8%, or 56.1% excluding precious metals, compared to 52.7% last year. Margins were higher in the quarter and year-to-date due to favorable product mix and operational improvements. The Company is focused on driving operational improvements and synergies associated with our acquisitions. These efforts strengthen performance and create new challenges for our competitors.

Selling, general and administrative expenses were $120 million in the second quarter, or 31.8% as a percent-to-sales. Excluding acquisitions, SG&A improved as a percent-to-sales by 1.3 percentage points, including the elimination of goodwill amortization. Operating margin rates in the second quarter of 2002 were 17.3%, or 19.7% excluding precious metals, more than 2 full percentage points higher than the 17.4% in the same period last year. Operating margin rates for the first six months, excluding precious metals and restructuring impacts, were also higher by more than 2 full percentage points when compared to the same period last year. This improvement is the result of favorable product mix, the benefits of restructuring and operational improvements, the elimination of goodwill amortization and the elimination of the negative impact of inventory step-up from last year's acquisitions. Management expects the positive operating rate improvement, excluding precious metals, will continue throughout the year.

Interest and other expenses increased from $3.2 million in the second quarter of 2001 to $9.7 million in the second quarter of 2002. Interest expense in the period was $4 million higher than last year and losses on foreign exchange movements were $2.3 million compared to a gain of $.5 million in the second quarter last year. Although the Company had translation gains in the second quarter this year, the transaction losses were higher for the period. The tax rate for the second quarter and first half of 2002 was 34%. Tax rates for the year are expected to be between 33 and 34%.

Long-term debt increased to $786 million from $723 million at year-end. Long-term debt-to-capitalization, however, decreased to 52% at the end of the first half, from 54% at year-end. Although long-term debt has increased from both year-end and from the end of the first quarter, it is important to note that over $90 million is due to exchange rate fluctuations. The offset of this increase is reflected in both the increase in the asset value of our debt-related foreign exchange swaps, which are not reflected in our debt but must be shown as an increase in other non-current assets, and also through the increase in our equity account. This reflects the benefits of a well-positioned foreign exchange mix within our debt structure. If the swap value change was shown as a direct offset against debt, our long-term debt-to-capitalization would actually be down to 51%.

Year-to-date operating cash flow was $54 million compared to $72 million in the first half of the year -- in the first half of last year. The lower cash flow occurred in the first quarter as a result of restructuring outflows and customer annualized volume rebates for precious metals. Second quarter operating cash flow, however, was $42 million, an increase of 74% over $24 million in the second quarter of last year. Working capital increased approximately $36 million in the first half, with approximately half the increase coming from acquisitions and exchange rate movements and cash decreasing by 16 million. Inventory days increased to 107 from 100 at the end of the first quarter. Five days of the increase, however, were the result of exchange rates, with most of the remaining increase the result of inventory builds in specific areas associated with new product ramp-ups. We expect inventory levels to improve in the second half to a level in the low to mid 90's by year-end. Accounts receivable days remained flat, when compared to the first quarter, at 53 and are expected to run at or below this level in the future.

Capital expenditures were $22 million for the first half of 2002, with depreciation of $17 million and amortization of $5 million. Capital expenditures should increase in the second half as we complete a building purchase associated with the acquisition of DeGussa Dental and incur costs associated with the construction of our pharmaceutical facility in Chicago. During the second quarter, we exchanged our preferred stock and accrued dividends in Practice Works for $15 million of cash, $15 million of common stock with a one year lock-up, and $450 thousand at a strike price of $15.50 per share with a seven year life. This transaction provides Dentsply with some immediate cash, as well as improved liquidity on its investment in Practice Works, while also providing additional upside opportunities if Practice Works business and stock price continues to perform well. Moving-forward, Dentsply will no longer receive a benefit for preferred stock dividends and any price movement in our common stock holding will only be reflected in equity until the stock is sold and any price movement in the will be reflected through income each quarter until sold.

Also during the second quarter, we took a small restructuring charge for the combination of our Ceramed PepGen P-15 division and our U.S. Friadent implant division. This restructuring charge was more than offset by the elimination of some previously expensed restructuring charges. The final payment to DeGussa of approximately $5 million and the DeGussa building purchase of $10 million were not made in this quarter as previously planned, but both are expected to be made within the next month.

We'd like to thank you for your interest in Dentsply and we'd be glad to answer any questions that you may have.

Very good. Ladies and gentlemen, at this time if you'd like to ask a question, please depress the 1 on your touch-tone phone and you'll hear a tone indicating you've been place in queue. You may remove yourself from the queue by pressing the pound key. If using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you'd like to ask a question, please depress the 1 at this time.

Our first question in queue is from the line of from Robert W. Baird. Please go ahead.

Hi, John and Bill. Congrats on the great quarter here.

Thank you, .

Thanks,

Three quick questions. First, if the exchange rates stay the way they are, what would be the impact in the top line in the third quarter?

Well, if they stay where they're at right now, we'd probably be similar to where we were at in the second quarter so we'd expect probably 1.5-2% increase in comparison to last year.

OK, that was 1.5-2%? 2.5%?

1.5 to 2.0.

OK. Next question. It sounds like the new products are really catching on here. If you look across your new product pipeline and across new products which have already been introduced, which do you feel is the highest potential item in your lineup?

Well, I think we've got some really exciting ones, but certainly in implants. Our immediate-load implants are doing extremely well. , of course, is a topic all by itself. It's red-hot right now. Two very exciting new orthodontic products have been launched: Mystique, which is the clear bracket, and InnovationR, which is a miniature sized self-ligating bracket, and we've also just launched a really neat new high-speed hand-piece called Stylus. I'd say those are the major ones that were launched in the first half of this year and several new products will actually be launched in the third quarter as well.

John, can you talk about your goals for placements for this year?

Yeah, we know this is an important area. Frankly, you know that we do not want to talk about placements for competitive reasons, but we gave some guidance last quarter, we'll do so again this year. And then, I think, going-forward we'd prefer to talk more qualitatively about how the product is running. But, at this point, more than 200 units have been installed and are running in labs globally.

OK, great. One last question here. Could you give us an update on your GAC business and also talk about the ortho market, just kind of general here. And also with regards to pricing trends in that industry.

I guess I would say I think that the ortho market is growing at the 5-6% range. I think that pricing is stable. You know that the large groups get the bigger discounts, of course, but I don't see any change in that. If you're asking specifically about our orthodontic business, in the most recent quarter we grew low double-digits. We have two really red-hot new products and I guess I expect our orthodontic business to remain strong through 2002 and really even into 2003.

OK. Congrats, once again, on the quarter.

Our next question is from the line of from Fund. Please go ahead.

Yes, I was wondering what was the current portion of debt and yet, current liability -- you gave the current liabilities but you didn't break out what portion of that was debt.

Sure. We had total -- for just the period we would have had about $7-8 million of current debt and that compares to the end of the year about the same range, right around $7-8 million.

OK, so the change in that data went up by $60 million, roughly, in the quarter and I was just trying to reconcile what you said -- I kind of didn't understand. If you could go from your operating cash flow down to how it got to the change in debt, I'd appreciate it.

Sure. On the debt side of the equation, the piece of the debt -- keep in mind that we've got some of our debt in foreign currencies. For example, we have a 350 million euro bond, we also have a Japanese denominated debt, as well as Swiss franc denominated debt. A large portion, about $90 million actually, of the increase from year-end is actually exchange rate related. However, if you recall, we actually swapped out of most of the euro bond debt from euros into dollars and that swap is actually reflected in our balance sheet in the other asset category. So we have, roughly, about a $37 million change since year-end reflected in other assets as an increase in assets for that. Plus we also have just the increase in our investments in those different locations, but that change is actually reflected through our equity. So, while our debt has gone actually up, it's really solely because of the exchange rate category movement. Our debt-to-cash level is actually lower and that's because of our balance between where our debt is placed and also where our investments are located.

OK, so how is what you gave me -- what I understand was the actual cash flow from operations was for the quarter and how much of it in the quarter was due to exchange rates?

Well, almost that full 90 is really in the quarter. Most of the exchange rates really moved after the end of the first quarter.

I don't think that was his question. I thought he asked how much operating cash flow related to exchange.

Oh. None of the operating cash flow. The $54 million of operating cash flow, as stated, is a non-exchange impact. That's pure cash flow.

That's cash flow from operations this quarter?

Right. 54 million is year-to-date. It was 42 for the quarter.

42 for the quarter and then 20, what was it, 22 for cap ex?

It was 22 for cap ex, again, that's for the year. miles: Not for the quarter.

Cap ex was 12.

Cap ex was 12 in the quarter?

Yeah, that's about right.

Yeah.

So that's 30 million bucks? Cash flow from operations minus cap ex?

That's correct.

OK. Thanks.

Yep.

Next question is from from Fiduciary Management. Please go ahead.

Thanks. Bill, just wondering if you could give us some of the cap ex D&A numbers anticipated for your full year then for '02.

Well, cap ex, as we've stated, that we actually are planning on somewhere in the mid-50 range for the end of the year.

'Cause that's consistent with that ramp that you talked about in your discussion?

That's exactly right.

OK.

Then, on the D&A level, the D&A should actually run similar to what we are so far for the first part of the year. So we've run about 22 in D&A for the first six months. We'll probably be, as we've stated, in the kind of mid-40's in D&A and that's pretty consistent with what we had stated in the past as well.

OK. Alright, thanks.

Next question is from Bob from Incorporated. Please go ahead.

Good morning.

Good morning.

Morning.

It was implied that there was no gross profit from precious metals in the second quarter?

No, there absolutely was gross -- I think maybe what you're taking a look at on your sheet is on the gross margin change, what takes place. When we show precious metal on the sales line and then on the ex-precious metal line, that's only backing out the pure cost of the underlying precious metal, not the value-added change. So the numbers, for example, in the three months from 378, in comparison to 332, that difference is only taking the true cost of the precious metal out of it. So the gross profit that's reflected doesn't change because we already have the gross profit of the precious metal in that number. However, we're showing that gross profit margin then as a percent of both total sales, as well as total sales excluding the precious metal cost component.

You lost me there. What is the gross profit then? What would be the mid-sales in gross profit?

The gross profit is as stated on the sheet, which is $185.5 million.

No, for precious metal only.

Oh, well we don't break that -- we don't break the precious metal...

I think what we can say, Bob, is that precious metals have lower gross margins than our typical consumables business. But it certainly is a profitable business.

OK. Regarding your ortho market growth of 5-6%, what's your -- is that worldwide or U.S.?

I guess I would say I think the worldwide ortho market is growing 5-6%...

How about U.S.?

...business is doing significantly better than that.

How about the U.S.?

I think it's growing about the same as the international market.

What's your basis for that growth rate?

I guess the market intelligence that we have from our divisions that are out in the field.

Could you give a little more detail to the sales reps growth in what divisions?

I don't think we want to say what divisions we're going to add them to. We're going to add them to several of our U.S. divisions, which are growing rapidly and have high potential future growth. So probably, you know, 8, 9, 10 reps in several divisions.

Could you go into a little more detail on the Practice Works investment?

Sure. The Practice Works investment, as you recall, we sold it about just over a year and a quarter ago. We actually had a division called InfoSoft that we sold to Practice Works, which is, you know, a software management company that's focused on the dental industry, both the general dentistry as well as the orthodontics area. We sold that to them for $32 million last year of preferred stock in Practice Works. We've been accruing dividends, but not being paid dividends, by Practice Works, which was the expectation up through the second quarter of this year. At that point in time, Practice Works went out and did a secondary offering of their stock and we agreed to convert our preferred shares into $15 million of cash, $15 million worth of common stock and 450 thousand of their shares that were good for seven years at a strike price of 15.50. That initial conversion cost us about $1 million of loss on the conversion because of how we valued the up-front. However, within this quarter, we also picked up about $1 million of gain on the because of the stock movement that they had from the middle of the period, when we converted it, to the end of the period. So, on our operational performance for the quarter, there's virtually no impact. Now, moving-forward, we've obviously got the 15 of cash already, we're locked up for one year so we can't sell the 15 million of common stock that we have until about a year from now and we have that are good actually for seven years, so we could sell those -- and we also have a lock-up on those for one year -- so we could sell those anytime, you know, from one year out to seven years out, depending on how the investment in that stock is performing and what our interests are in it at that point in time.

How many shares of stock?

We actually -- the strike price on it when it got the new offering was about 15.50, so we've got, probably, right around 900 thousand shares.

OK, thank you.

OK.

Thank you. Our next question is from Charles from . Please go ahead.

Hi, it's actually Anthony Archer for Charlie. John, could you just -- you guys are increasing your target growth rates to 6.5-7.5 from 6-7?

That's correct.

Is that a function of more how the market is doing or is that more a function of how your products are doing?

I'd say the latter. We are -- I mean, the markets are good, but I think the markets have been good. We're comfortable that we are continuing to gain market share and have raised our guidance as a result.

Are there any particular areas like product lines, categories where you're doing exceptionally well?

I tried to outline some of them. Endodontics worldwide is a major growth driver, principally being led by nickel titanium files. Orthodontics worldwide is doing well, implants are doing well, bone grafting and, generally, our broad-based consumable businesses. Caulk in the United States and Friadent in Europe are also doing well. So, I'd say consumables and a special emphasis on some of the specialty products are what's driving our growth.

And next question. The integration of the sales force at Friadent and at...

Ceramed.

...at Ceramed. Has that been completed already?

Yes, it is now complete.

OK.

We didn't have enough critical mass in either of those divisions. Both divisions are very closely aligned because every person doing implants is bone grafting. So it was pretty natural to put these two businesses together and, by combining their resources, gain some critical mass. In Europe, those businesses already are together in that Friadent Europe is the distributor of our bone grafting materials.

And last question. What are you looking for in terms of sales for the full year, both with the precious metals and ?

I think the statement on that -- we've in essence just stated what our growth rates are. We have not given specific guidance on a absolute sales number other than that our base growth rate is going to be in the 6.5-7.5% range and we've obviously talked about what each of the acquisition impacts have been. Obviously, a piece of that is going to be the piece. for the first six months is now zero, there's no impact at all in the first six months. So, if it continues to stay at the current levels, we would expect a positive increase from in the last six months of the year, as well too, which would be added to that.

OK, great. Thank you very much.

Thank you. Our next question is from Bob Hopkins from . Please go ahead.

Thanks very much. Two quick questions. One, on the implant business, would you say that you guys are growing in line with the market or do you feel that you're taking share in that business as well?

Growing faster than the market growth rate.

OK, and what do you feel the market is growing at?

13-15%.

OK. Next question is on consolidation in the industry. Do you see -- you know, 3M appears to be doing OK and has done alright, as well. Do you guys see among the top 10 players further consolidation as we look out over the next 12-24 months or do you think it's mostly going to be consolidating out some of the smaller, more fragmented players?

I don't know that I really want to comment on that, Bob. I mean, probably that's a better question to ask the other players. I would say, in total, the dental industry remains highly fragmented. I believe that there will be further consolidation and, ultimately, Dentsply will be one of the principle consolidators. But, specifically who targets may be and what sort of timing, I guess I'd rather pass on.

Yeah, I know, not specific targets, but I'm just curious, generally, whether you see the potential for bigger transactions or more on the smaller side. But that's a fair answer, thank you very much.

You're welcome.

Thank you. Again, ladies and gentlemen, if you do have a question, please depress the 1 at this time.

Question in queue from the line of from . Please go ahead.

Bill, you talked about further operating margin improvements throughout the year. Where do you expect the operating margin to get to and what are the key drivers of that?

I think that one of the things that we stated before, even before some of the acquisitions that we completed, that we were driving for margin rates that were at that time that were around 20%. Obviously, with the acquisition and the precious metal impact that reduced those margin rate levels, we've stated since then that we think that we can actually get our number up above 20% and that our number, we think, should be close to maybe a little bit under 20%. But, I think, internally, we're driving for probably an number that's up around 20.

Are there any major initiatives that we need to look for to get there or is it primarily to on the product side and annualizing the integration synergies that you've gotten to-date?

Well, I think that we definitely have some synergistic benefits that, while we've delivered some of those, we still have synergistic benefits associated with the cross-selling opportunities in a number of the locations. We've also stated that some of the new product areas that we have definitely have higher margin levels than we've got. I think that's a key factor for us because you're talking about many products that are up in the 65, 75, even 80% margin rates in comparison to maybe an average that's down around 50. So those are some significant mix opportunities for us. Plus, as we mentioned earlier with the construction of the facility, the facility will ultimately give us that in-house capacity for a much larger portion of our pharmaceutical business and, with that, we expect to have continued synergistic savings associated with that. And that will take place over the next, really, probably 1-3 years.

On the inventory days, your goal of getting to the mid-90's by year-end, what will that do in terms of cash flow?

I think that the first part to note is that although we're at 107 right now, a large chunk of that is because of exchange rates. Because what you've got is you've got the inventory now valued at the higher exchange rate being converted back from, like, the euro areas, so your inventory dollars are higher. But your cost-of-goods-sold piece is not at a full level yet because it's got lower exchange rates for a large part of the year. As you move forward and get to the end of the year, some of that's going to neutralize itself so, that's about 5 days, so that's a non-cash flow related issue. So you've got maybe 102 trying to go down to maybe 95 or so, with a couple of million bucks per day. So, you know, down to 95 would be maybe 14 million bucks.

Great, great. Thanks a lot.

We have a follow-up question from Bob . Please go ahead.

Yes, you were forecasting a 5 or 6% growth for ortho. How about U.S. dental market in general and European market in general for the balance of the year?

I think the U.S. dental market is growing faster than the U.S. ortho market and I might estimate that the U.S. dental market's growing 7 percentish. I would say the European dental market is growing slower and maybe that's in the 5-5.5 range.

If you look at those market growth rates and your new products and your more efficient marketing and sales, I would presume that 6.5 and 7.5 is a pretty conservative projection for your internal sales growth.

Well, you've got some other places. You've got Latin America where we are actually encountering negative growth because the region is blowing up just about everywhere. You've got Mid-east Africa which is kind of another disaster area, so everything isn't totally roses. But, I mean, we'd have to say our whole premise is that our numbers projections tend to be a little conservative and you need more up-side opportunity than down-side risk because things don't always go perfectly.

And 6.5-7.5 represents faster to market.

Yeah, it means that we're taking significant share from our competitors. I mean, you know, our competitors aren't sleeping.

OK, thank you.

Thank you. We have no further questions in queue at this time. Please continue.

That really concludes our comments. We had a great second quarter, we look forward for continued strong performance for the balance of this year and thank you very much for your support of our Company.

Ladies and gentlemen, this conference is available for replay beginning today at 12 noon Eastern Time through Monday, July 29th, at midnight. To access the AT&T Executive Playback service from the U.S., dial 1-800-475-6701, and the access code 643306. International participants, dial area code 320-365-3844 and, again, the access code 643306. That concludes your conference for today. We thank you for your participation.