DENTSPLY SIRONA Inc (XRAY) 2008 Q4 法說會逐字稿

Good day welcome to the Dentsply International fourth quarter and full year 2008 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the call over to Bret Wise, Chairman and Chief Executive Officer. Please go ahead, sir.

Okay, thank you, Colleen. Good morning everyone. Thanks for joining us on our year end conference call. This is Bret Wise, Chairman and Chief Executive Officer and also with us today are Chris Clark, our President and Chief Operating Officer and Bill Jellison our Senior Vice President and Chief Financial Officer. I would like to begin today's call with some overview comments about our results for both the fourth quarter and full year and also provide some insights into where we see the state of the global dental market. Chris Clark will then follow with some insights in to our approach for cost containment while still funding growth initiatives given the current economic environment, and Bill Jellison will then provide some more detail insights into our financial results. And, of course, following our prepared remarks we will be glad to take any questions that you may have..

Before we get started it's important to note that this conference call will include forward-looking statements involving risks and uncertainties. These should be considered in connection with the risks and uncertainties described in the Company's most recent annual report on form 10k. Our periodic reports on form 10Q, our press releases and other filings with the SEC and recording of this conference call in its entirety will be available on our web site.

Last night we announced fourth quarter and full year results for 2008. As noted in the release, fourth quarter sales declined 6.2% on a GAAP reporting basis and 4.5% excluding precious metals. This decline in sales in the quarter was greatly influenced by the strengthening of the US dollar which resulted in a negative pact from currency translation of 4.5%, or essentially the entire decline measured on a ex-precious metal basis. In addition internal growth negative 1.3% in the quarter driven by slower activity in the US while acquisitions added 1.3%. So, constant currency growth for the quarter was essentially flat. The credit crisis and the recessionary economic conditions, particularly in the US and to a lesser degree in Europe, contributed to a notable slowing in dental activity in fourth quarter both for our share site consumable business and our specialty products. The geographic break down for eternal growth ex-precious metals was US contracted 12.8%, Europe grew 3.9%, and the rest of the world grew 8.3%.

In the US our performance was influenced by a number of factors, some of which are specific to our own circumstances and some which were market driven. With respect to the Company's specific issues, you may recall in the third quarter call, we noted that we had suffered an outage at that time of your injectable anesthetic product for our US market due to manufacturing issues at our supplier and that, in fact, we might be out of-- not that product available for the fourth quarter. That in fact did happen. We were essentially out of the market for the complete fourth quarter. We did begin to get supply very late in the quarter and in January, and expect to have supply in Q1. Although we would expect some lingering affects of the outage early here in 2009.

The second matter is that on October 1, going in to the quarter, we implemented price increases for our products to go to the dealer channel. These price increases were higher than we had had in previous years. We did see an increased level of price increase prebuy activity in September, resulting in higher dealer inventories coming into the quarter. The above two factors, combined with the efforts of both end users, meaning dentists, and dealers to reduce inventories at this financial crisis emerged and consumer activity dropped off, resulted in a significant liquidation of products from the channel in the fourth quarter. Absent these two factors we do believe that US performance would have been negative still, probably in the mid single digit range and our sense is that the US market at retail probably contracted similar to our adjusted results here.

On a full world basis, as I mentioned previously our internal growth was negative 1.3%, and adjusted for the two factors described here would probably have been positive in the same range. , Overall growth remained more robust in Europe during the quarter where we grew 3.9%. And although this is slower than we seen earlier in the year, we still see reasonable levels of demand in many regions in Europe as it appears that the global financial crisis has had less of an impact on dental procedures in Europe than what we initially saw in the US.

Rest of world grew 8.3%, and remained robust in many regions particularly Asia Pacific, Brazil and Middle East Africa where we continue to experience double digit internal growth. We did see some slowing in certain regions throughout the world, particularly Japan, which was negative in the quarter. Moving to earnings, our performance in the fourth quarter was driven by margin expansion, both at the gross margin line, which was up over 200 basis points, and to a lesser degree at the operating margin line. During the quarter we did implement certain reductions or cost containment initiatives mostly driven towards discretionary spending. This combined with the continued mix improvement and the price increases implemented October 1 allowed us to exceed our margin improvement goals by reporting operating margin expansion of 60 basis points in both the fourth quarter and for the full year 2008 on a non-GAAP basis, and Chris and Bill will speak to this more in their comments.

So despite a contraction in sales in the quarter, earnings per share for the fourth quarter improved 4.4% on a GAAP basis and 2.3% on a non-GAAP basis. For the full year I believe we had a very successful 2008, including sales growth of 9.6% ex-precious metals, 3.8% points of which was internal growth. Acquisition growth was 2.1% for the full year, so on a constant currency basis or constant currency growth for the full year, was approximately 6%. EPS growth for the full year up 11.3% on a GAAP basis and 13.3% on a non-GAAP basis. So, all told, I think it was a very good year particularly given the environment we are operating in particularly late in the year.

In addition we completed four acquisitions during the year. Two regional expansions of the sales and marketing reach, one new technology for implants supported bridge work and dentures, and finally Zhermack which closed on December 31st, The Zhermack transaction adds production synergies and restoratives and infection control in Europe for us. It also gives us access to certain markets we were previously under developed in. And it also provides us with a strong technical center for silicon based polymers. The acquisitions completed in 2008 should bring us additional 4 to 5% growth constant currency in 2009.

Further, we have very strong balance sheet, ample liquidity, good cash flow generation, so we are very well positioned to take advantage of opportunities that may arise both for organic growth and acquisition. Given the lack of liquidity, from other sources in the market, the M&A climate may improve for us in 2009 and we are very prepared to take advantage of those opportunities should they arise. Looking forward, we are following numerous government bank or independent projections of economic activity throughout our markets. At this time, estimates for economic growth vary but directionally there seems to be a consensus that we are likely to see a contraction in the overall economy and the developed markets of the world next year. And. of course, those markets represent about 80% of our mix. In addition there has been numerous surveys conducted of end user dental demand most of which have been in the US. Although the results of these projections surveys also vary, there does appear to be a consensus that dental office visits have slowed and that there's been some downgrading of sorts of the procedure mix in favor of lower cost alternatives.

Accordingly our view is that dental demand has and will slow as economic activity drops off. But, as in the past, dental should perform slightly better than the overall economy. Our planning at this point assumes that developed country dental markets will range from a flattish development-- development next year so lightly positive for all of 2009. While developing dental markets, we believe, will continue to grow but at a more modest pace than we saw in 2008, probably in the low to mid single digit range. We believe the growth will be lower in the first half of the year as the first half of 2008 was really quiet robust. But, may improve slightly in the back half of the year as some developed countries begin stabilize and show growth and consumer confidence comes back aided in part, by the heavy stimulus packages that we see being introduced.

Our sales and earnings outlook for 2009 is greatly influences by the current currency exchange rates and the uncertainties surrounding both economic activity and currency rate movements. Internal sales growth is very difficult to predict at this point, and we've chosen not to give specific guidance for the year at this point. However, we continue to believe that dentistry will perform better than the overall economy and we should be able to continue to take share. As previously stated, our acquisition growth should be in the 4 to 5% range for 2009, and currency at the current exchange rates will be negative 5 to 7%. Our current expectations are that earnings will also be under some pressure due to slower market growth and adverse currency translation impacts. Accordingly our current estimate for earnings per share to be in $1.85 to $1.95 range next year over the midpoint reflecting slight earnings growth over 2008.

Our guidance reflects our belief that economic activity will not improve significantly until mid year and accordingly we would expect our growth in both sales and earnings to be back end loaded towards the last half of year. Obviously there are a number of assumptions in our guidance here. Probably many more assumptions than usual, and those may change as we work our way through the year, so we will be sure to update you on this guidance on each quarterly call as we move throughout 2009. At this time I would like to turn the call over to Chris Clark who will give you some more insights into our cost containment efforts, our growth initiatives and where we see the greatest opportunities for growth in the near term.

Thank you, Bret, good morning everyone. I would like to take a few moments and give you insights into two areas. First, the approach from a cost containment standpoint and then key growth opportunities that we see in the current economic environment. On the cost containment side our businesses are focused on ensuring that they create and maintain operating and financial flexibility through tight control of both fixed and variable costs, despite the uncertain economic climate we are currently operating in. Our approach to this is both general, across our businesses and also specific to individual business units.

From a general standpoint we have deferred salary increases across our global salary work force including a wage freeze for our officers. All of our businesses are closely monitoring discretionary spending including delaying nonessential travel and lower priority programs. From a fixed cost perspective, we are taking a very pragmatic business specific approach. While all of our businesses are closely monitoring fixed costs including head count businesses that are more heavily impacted by the current economic climate are taking a cascading approach in this area, identifying any short-term reductions that are appropriate, and also identifying downstream contingency options that they can implement should the situation warrant. Any actions will likely be minimal in the areas of sales representation and research and development and this approach really allows us to address the need for flexibility during the period but also ensure that we maintain focus and support on strategic growth areas and initiatives both now and in the future.

To that end I would like to take a moment and highlight some of the key growth areas or opportunities in this market including some areas we are particularly well positioned in the current economic climate. We have a number of product lines that are designed to help our customers reduce their cost structures, including in some cases their fixed costs which is particularly important now. For example, in our centralized manufacturing capabilities in the prosthetics area, we are supporting the desire of our lab customers to reduce fixed cost structures. We believe that we are very well positioned in this area with our current range of services, along with several new products that we are going to be introducing later this quarter.

In addition, we believe the recent acquisitions and partnerships with both Sultan and Zhermack will be particularly beneficial in this economic environment given the fact that both these companies offer a wide range of value position products in their portfolios. We see the Sultan and Zhermack brands as providing platforms for additional value oriented products down stream and we're pursuing several strategies to that end. On a geographic basis we see some markets as particular growth opportunities in the current environment. We continue to experience solid growth in key developing regions, as Bret mentioned, including growth of approximately 20%, in both Asia, CIS and Q4, and north of that figure in the Middle East. While obviously many of the economys are also slowing compared to previous growth rates, we believe the investment we've made in these regions, particularly in the area of expanding our sales force, positions us to continue to grow well in excess of market.

We anticipate that these regions will continue to be highly accretive to our overall growth rate throughout 2009 and we're actually continuing to make ongoing investments in additional sales representation in particular in many of these regions as well as in a handful of other businesses. We also believe the current environment provides an opportunity to make appropriate targeted investments that position the business for more rapid growth if the underlying economic conditions improve on the back end of recession. One key example is our first US implants symposium for key opinion leaders which we scheduled for this June. We continue to view the US implant market as a really key long-term growth opportunity for us. And this event, combined with the US introduction of our unique Ankylos CX implant and abutment design should really help provide a platform to continue to grow at above market rates that are accretive to our overall business. I would like to now turn the call over to Bill Jellison, our chief financial officer, to discuss the Q4 and full year financial results in greater detail. Bill?

Thanks Chris, good morning everyone. The high level of volatility both in the global economic and foreign exchange markets during the fourth quarter resulted in a significant negative impact on our business. We were especially impacted by the rapid slow down of the global economy and corresponding impact on the dental industry along with the negative foreign exchange rate volatility which impacted the translation of our sales and earnings. As Bret mentioned, net sales for the fourth quarter of 2008 decreased by 6.2%, and sales excluding precious metals decreased 4.5% in the quarter with internal growth a negative 1.3% in the period. Net sales for the full year were $2.2 billion an increase of 9.1% over last year, while sales ex-precious metals were $1.99 billion increase of 9.6% for the year. The 2008 geographic mix of sales ex-precious metals was as follows, the US represented 38% of sales, Europe was 41% this year and the rest of the world was 21% of sales. The specialty product category including endodontics, orthodontics and implants, had internal growth in the high single digits for the year. Gross margins for the fourth quarter were 58% of sales excluding precious metals or increase of 2.2 percentage points compared to the fourth quarter of 2007.

The increase in gross margins is a result of favorable product mix arising from higher endodontic and implant growth in the period compared the base products. Improving pricing and operating improvements off set somewhat by negative impacts from currency movements in various markets. Full year gross margins were 57.8% ex-precious metals, a 60 basis point improvement compared to last year, and product mix, some favorable pricing and other operating improvements were the biggest contributors. SG&A expenses were $173.6 million or 37.2% of sales ex-precious metals in the fourth quarter of 2008, versus 35.5% in the fourth quarter of 2007. SG&A was down sequentially from the third quarter despite strengthening of our sales force in the period as other costs containment initiatives were put in place to deal with market volatility. Costs increased from recent acquisitions, but were offset by the strengthening of the dollar in the period. Total year SG&A was $739.2 million or 37.1% of sales ex-precious metals in 2008 versus 37.1% in 2007. Our sales growth for the year supported the key investments we made throughout the year.

As Chris mentioned in his overview, we have taken an number of steps to both minimize some of the more discretionary cost items and are also taking additional steps in some locations to strengthen overall profitability while still investing in other areas to take advantage of a weaker competition during a softer economic cycle. While we incurred restructuring charges in the fourth quarter, we do expect some additional restructuring costs this year as we finalize some costs improvement plans. However, we would expect the savings from our activities to have a rapid pay back and do not expect the charges to be very material. In the fourth quarter, we did incur some restructuring and other costs, the primary charges coming from a write down of a note due to changes in market interest rates and product supply modifications which occurred in the period and in process R&D charge from our recent acquisition and some charges associated with our cost in reduction initiatives. Operating margins were 16.8% including restructuring and other expenses in the fourth quarter of 2008. Operating margins were 18.3% on sales ex-precious metals in the fourth quarter 2008, and 20% in the same period last year. Including restructuring and other charges.

Operating margins ex-precious metals on a non-GAAP basis, excluding restructuring and other charges in both periods, were 20.9% for the fourth quarter 2008, compared to 20.3% in the fourth quarter last year. a 60 basis point improvement. Full year operating margins were 19.1% on sales ex-precious metals in 2008 and 19.5% in 2007. Operating margins on sales ex-precious metals on a non-GAAP basis excluding restructuring and other charges, were 20.7%, in 2008, compared to 20.1% last year. Again increase of 60 basis points in 2008. Net interest and other expense in the fourth quarter was $9.9 million, or $9.5 million higher than last year's fourth quarter. Interest expense was $3.9 million higher in the quarter while foreign exchange transaction losses and other expenses were $5.6 million higher in the quarter compared to the same period last year.

These transaction losses which primarily resulted from the settlement of inner company transactions between our divisions were in addition to the negative $0.03 per share impact from foreign currency translation and purchase variances which were provided as an estimate in our third quarter earnings call. Net interest and other expense for the full year was $24.9 million, which was an expense increase of $28.1 million for the year. Net interest expense was $15.4 million in 2008, compared to interest income of $2.6 million in 2007, or an increase of $18 million. The impact of foreign exchange transaction losses and other items in 2008 was an expense of $9.5 million in 2008, versus income of $0.6 million last year, or an expense increase of $10.1 million, also primarily related to foreign exchange transaction losses. The tax rate for the fourth quarter was 5.8% compared to 28% in the fourth quarter of 2007. However, the operational tax rates in these periods were 22% in the fourth quarter of 2008, and 30.7% in the fourth quarter 2007.

Full year tax rate in 2008 was 20.1%, compared to 27.5% in 2007. The 2008 tax rate of 20.1% included an operational rate of 25.9% compared to 30.4% in 2007. The Company benefited from various tax adjustments of $17.1 million in 2008, compared to $9.9 million of favorable adjustments in 2007. The favorable tax related adjustments in 2008 resulted primarily from a number of favorable tax audits and issue resolutions. The lower operational tax rate for the year is primarily the result of the tax impact of a German tax rate change which became affective January 1st, 2008. This change reduced Germany's over all corporate tax rate to roughly 30% affective January 1st, from approximately 39%, in 2007 and prior. We are also benefiting from a global business initiative implemented in 2008. Both of these items are expected to continue to favorably impact our operational rate. The operational rate for 2009 is currently expected to be approximately in the same range as the operational rate in 2008, although maybe impacted by region and tax rate changes.

To better understand and follow some of the following comments, you can look at the tables included in our recent press release which provide a reconciliation from US generally accounting principles, or GAAP, to an adjusted, non-GAAP performance. Net income for the fourth quarter 2008 was $71 million or $0.47 per diluted share compared to $70 million or $0.45 per diluted share in the fourth quarter 2007. On adjusted basis earnings excluding restructuring and other related to items and tax adjustments in both periods which constitute a non-GAAP measure were $67.8 million or $0.45 per diluted share, in the fourth quarter of 2008 compared to $68.5 million or $0.44 per diluted share in the fourth quarter of 2007, a 2.3% increase in diluted earnings per share. Net income in 2008 for the full year was $283.9 million, or $1.87 per diluted share. Net income for 2007 was $259.7 million, or $1.68 per diluted share. Net income for comparability analysis on a non-GAAP basis, excluding the reconciling items in the press release for the years ending 2008, and 2007 were $285.5 million, and $256.4 million, respectively. This represents earnings of $1.88 per diluted share for 2008, compared to $1.66 in 2007 an increase of 13.3%.

Now let's look again at the cash flow and a few balance sheet items. Operating cash flow was $99 million generated in the fourth quarter of 2008 and operating cash flows for the year were approximately $336 million compared to $388 million in 2007. 2007; however, benefited from a tax net operating loss improving cash flow by $25 million in that year. Capital expenditures were $76 million for the year, yielding free cash flow. Which is operating cash flow less capital expenditures and dividends of about $233 million for the year. Depreciation and amortization for the year was $57 million, and inventory days ended the year at 100 days for 2008 year end versus 95 days last year. Receivable days ended 2008 at 54 days, compared to 59 days at the end of the third quarter 2008, and 51 days at the end of last year. While we continue to closely monitor our accounts receivable exposure, we are pleased with the tight control we have been able to maintain in this area.

The balance sheet remains very healthy at the end of 2008, the year ended with $204 million in cash and short term investments, with total debt of $449 million at the end of 2008. Dentsply repurchased three million shares or $113 million in 2008. Based on the Company's authorization to remain up to 17 million shares of treasury stock we still have approximately 2.8 million shares available for repurchase. We repurchased some shares in the fourth quarter and expect to continue to have some level of share repurchase in 2009. We continue to monitor market liquidity, and our investment needs in making these decisions. In looking at 2009 we expect completed acquisitions will add nearly 4 to 5% to the top line and are expected to be neutral to slightly dilutive to earnings per share in the first half of the year and neutral to slightly accretive in the back half. Currency translation impacts are difficult to predict. However, at current foreign exchange rates, sales growth would negatively be impact by approximately 6 to 7% in 2009, and will have a correspondingly negative impact on earnings.

Although global economic markets remain volatile we do believe that even in a flat to slightly down global economy that the dental consumable market should still show positive growth. As Bret stated our guidance for earnings in 2009 is in the range of $1.85 to $1.95 per diluted share, excludes restructuring and other costs, the reversal of inventory step up from recent acquisitions which will reverse in Q1 and Q2, and income tax related adjustments. That concludes our prepared remarks and we would be glad to answer any questions you may have at this time.

(Operator Instructions) Thank you. And we will take our first call from Derek Leckow with Barrington Research..

Good morning Derek are you there?

Hi there.

Hi, Derek, how are you?

Can you hear me now?

Fine.

Okay, great, thanks. We had an unusual item in the fourth quarter with that anesthetic issue, I think you said it was resolved by the end of the quarter. But, if we are looking at negative 12.4%, what was the actual qualification of that impact on your sales?

Well, in total, we are viewing that as art pouf the inventory liquidation as well. We said we would have been down mid single digits absent that. In truth the anesthetic business is about a third of that impact.

That's a pretty big impact. Would your internal growth rate have been slightly positive without that.

The internal growth rate for the full (inaudible) would have been flattish without that.

Flattish, okay. And you said that was still lingering, what was the issue there? Wouldn't it be reasonable to assume we would see orders kind of making up for that gap in the early part of the year?

Yes. If production goes smoothly at the outsourcer and they can keep up with demand that would be the case.

Okay, and was there corresponding bottom line impact from that also?

Of course we lost the margin on those sales during the quarter.

Was it about a penny or how much would you say that was?

I would say probably between a half a penny and a penny something of that sort.

And then you had really excellent performance on margins, I think from those remarks, it sounded like those margin improvements are expected to be sustainable even with lower sales volume? Is that right?

I think that's right. We target 20 to 50 basis points a year in margin improvement. In the current year we got 60 basis points, so we are a little bit above that. Many of the contingency plans that Chris went through are ways we would try to preserve profitability and margin, even in a slower growth environment. So, we continue to target that 20 to 50 basis points per year, although, I'll warn you, it's over the longer term, so some years will be above that range, some years will be below that range.

So this year probably less than-- probably more like 20 this year, right?

Well it's just difficult to predict because we don't know what is going to happen this year. But I guess my message would be we have programs in place to generate margin improvement, we are going to do that irrespective of the environment.

All right. If we try to analyze the bottom line for next year, in your guidance in terms of what you said regarding currency, is that about a $0.03 top line hit as well a as a $0.03 transactional impact. Is that still the same impact you're expecting for '09?

That was for the fourth quarter 2008 that you are talking about. If you look at kind of the impacts that we've got within that category the volatility of the movements and some of the exchange rates that moved in different directions may continue to have, if rates stay the same, as much as a 3 to $0.04 per share drag on us. But the transaction side that was stated that $6 million that was in the fourth Q, that's really because of a settlement of inner company transaction. It was because of the volatile movement. In rates remain relatively the same in this period that line should literally go back to zero, from a projection perspective and for our internal estimates and planning, we always assume that's zero because it's really dependent upon where interest rates go within the quarter up or down. And, you just don't know what that is going to be. We expect that piece of the impact to in essence be flat.

That becomes a very easy comparison as you move through the year, right?

Well for the fourth quarter that should be an easy comparison unless again you've got high levels of exchange volatility in that period.

Alright, let me stop there, thanks a lot guys, appreciate it.

Alright, Derek, thanks.

We will now take your next question from Jon Wood with Banc of America Securities.

Good morning.

Good morning, Jon, how are you?

Good. Hey Brett, you do have to end user data now in the US, I'm assuming. Can you give us some level of color into how long you think the destocking trend continues in to the next year? And if you got any perspective on the international markets, that would be great as well.

I think the destocking that happened in the fourth quarter was pretty dramatic actually. It's hard for us to tell whether there is more to go yet or not because we don't get dealer inventory levels and we certainly don't get dentist inventory levels, and so it's possible that be it could continue to for a while. But, it was severe in the fourth quarter, and so we would hope we seen most of it at this point. With respect to -- and you brought up we get end user data and we get other measures of dealer sellout of our products, that's why we have reasonable confidence this has happened. Looking at international markets it happens some in international market but not nearly to the extent it happened in the US. And I have no reason to believe that it's going to continue or get worse in international markets as we move forward.

So there's no-- just from the devaluation of some of the currencies internationally in the eastern Europe and Asia, that is not having an impact that you can see?

Well respect to the devaluation of the currencies in those developing countries I'm glad you raised it, it's an important factor. It is making products produced in Europe or the US much more expensive in those countries or depressing margins in those countries. So, that could have an affect. And, I think we've begun to see a little bit of that impact now whereas there is some pricing pressure in those markets.

Okay and just so I understand on the fx situation, so you said negative 5 to 7 on the top line and a similar on the bottom line, so that implies about 9 to $0.13 cents of EPS headwind am I doing that right?

Yeah, I think, as we stated, if exchange rates kind of stay where we are at now, we would expect the drag is in the 3 to $0.04 range. Obviously, as you move into the fourth quarter of next year, which is where rates obviously changed quite dramatically, that quarter should probably not be impacted as much or nearly as much as the first few quarters.

Okay. Just quickly, Bill I'm sorry if you gave this, did you give us operating cash flow and CapEx guidance for '09?

I did not give guidance associated with that from a CapEx perspective you can probably use something in the range of-- probably in the 70 to $80 million should be reasonable for this year as well. And on the cash flow side of the equation I would expect that just running your models through from that perspective, we'd expect some slight improvements. On the inventory day side of the equation for sure and hopefully our expectation is that we aren't going to give that up in the AR days.

Okay, thanks a lot.

Thanks Jon.

We will take our next call from Jeff Johnson with Robert Baird.

Good morning, guys.

Morning, Jeff.

Let me start, Brett, with a couple of of things. I guess one, touching on guidance for '09. Typically over the last few years, we've thought of your guidance as being conservative and you guys give yourself a bit of a cushion, this year it doesn't obviously feel like the year to necessarily be thinking that way. Especially I know you are not giving growth guidance or organic growth guidance, but it sounds to me your thinking the dental consumables market-- 80% of it flat to slightly up, 20% of it up mid single digits, is that kind of organic growth-- again, trying to stay away from specific guidance-- but is that how you guys are baking in to get your buck 85 to buck 95 that we do get some organic growth for the year out of you guys?.

It's fair to say-- two things I would say, first of all I would warn that we really haven't seen an environment like this for a long time, at least not in our institutional memories here. And thus, the guidance is-- I would characterize it as less certain than it's been in the past. That gets back to your earlier comments about I wouldn't characterize our guidance as conservative or aggressive, neither one, but I would characterize it as having many variables in it than we are used to having to deal with.

With respect to growth, if we look back over time we can see the dental market has traditionally held up better than the overall economy, and thus, if we see a slight contraction in the economy the overall GDP economy, and the developed world we think dentistry could continue to grow although modestly and we would think we'd get our share of that or perhaps we would get more than our share of that, hopefully, and thus that's kind of the basis that we are looking at our earnings guidance for next year.

Okay. Fair enough. God forbid we go a quarter or two, into this, the economy isn't getting better, organic growth is staying down, there is risk down sides to the guidance, but at the same time the message is if we get a couple of quarters in and we start to see a little economic recovery, then you're feeling pretty comfortable at maybe a couple of points organic growth.

Yes, I think there is probably equal down side risk and upside opportunity in our guidance.

That's how it feels in my model I don't disagree with that. Next question, Brett, also, kind of this bigger picture-- you guys have been investing in head count even in Q4, at least our understanding on the endo and implant side and maybe elsewhere. Most of your competitors, or just others throughout the world cutting head count here or the very least more aggressively managing the expense side, and I guess Kudos to you for not doing that, that gives you -- it's and insight into your conviction, into your ability to grow here, at least weather the storm, but at the same time is there a reason you are not getting more aggressive maybe on the expense side, as markets slow so significantly here.

I'm going to let Chris address that because we done a lot of work in that area he started to address it in his prepared remarks.

I think reasonable expect most companies in this environment are obviously looking at fixed costs we are certainly there as well. Many companies-- and we are going down the similar approach of establishing a Phase I and even Phase II contingency plans, if you will, and wer're taking a cascading approach to it. We are starting obviously with the discretionary items including paid freezes for the salaried individuals I mentioned, some over head reductions and some localized restructuring plans. Obviously if the situation warrants and the recovery is-- isn't strong or even goes the other way, we are prepared to go further if we need to.

At this point we fundamentally think the strategies we had particularly in expanding our sales representation certainly have been very helpful for us in terms of benefiting the business and certainly can continue to benefit the business downstream if the market recovers. So, we have invested in sales representation,even over the last six months, both in developed and developing regions. Hopefully we can use the strength we got as a company to take some share from some of the weaker players in this economy and position to come back on the back end of the recession even stronger. But, obviously it is a series of layered contingency plans and I would say we are taking a pretty serious look at costs but obviously trying to balance that with the upside opportunities.

Fair enough, just a follow up taking your comments Chris and Bill your comments, I know meaningful restructuring costs at least to dump in to the model for '09 at this point, there's nothing on the books officially as far as a restructuring or any kinds of a salary payout that would have to go out or anything like that with anything, like I said at least officially on the books.

I say Jeff that what we are looking at is consistent with what we've typically looked at in the past. If we have opportunities to restructure and improve the business we will certainly do that. And if the situation warrants that we need to go-- we be more aggressive in that area, we will. So, I would characterize it more in keeping with probably past practices.

Sure . Last two questions. You come up against some tougher international accounts especially in Europe over the next couple of quarters, sounds to me you feel like that's hanging in fairly well at this point even against those more challenging comps, Brett, are you confident we get positive growth there to offset the continued pressures here in the US or just how should we think about the difference there in the region. And then, Bill, last question for you, if I take that transactional loss from the quarter on inter company loans out, we've also seen now a narrowing of Euro interest rates which should benefit you, I believe, going forward, narrowing versus US LIBOR anyway, is it fair to think of your net other line below $15 million all in next year or how do we model

Okay, Jeff, let me, this is Brett, I'll take the first question and Bill can take the second question. Respect to Europe, as you can imagine, there's many different countries there, and the growth dynamics differ pretty widely by country. But, generally speaking, I would characterize that dentistry has held up a little better in Europe than it has in the US, although this quarter you saw our growth rate get cut in half from what it had been earlier in the year. Although it's hard to generalize, if I had to make a statement now I would expect that our growth has a better opportunity to be stronger in Europe than in the US at least at this juncture. Bill can you address the second question?

Sure. As, Jeff, as far as the information in the interest and other line category, I think the assumption that you are making on the FX transaction related loss side of the equation could absolutely be neutralized. I think on the narrowing of the interest rates and equation that absolutely we do expect to see an improvement in the interest rate differential on the investment hedges that we've got out there. Keep in mind though that on the cash balances that we have will be earning much less income on those cash balances in '09 than we did in '08. But, yes, I think you can assume that that line category should be improved in the neighborhood of kind of the items that you identified.

Great, thanks, guys

(Operator Instructions) Our next question is from Mr.Vintac Emm with (inaudible) .

Good morning. (Inaudible)

No we didn't give those numbers and typically we don't give precise numbers by business. I will tell you that our global implant business grew in the low to mid single digits organically in the fourth quarter, actually closer to mid single digits than low. And,it was negative in the US.

Negative in the US?

Yes.

Also if you could provide color on how the dental implants would grow in 2009 probably (Inaudible)

Well we don't give specific guidance by category, what we have said really throughout this year is we view the dental implant category and the orthodontics category as being the most discretionary product areas we have and thus probably most vulnerable to economic downturns and that's played out about as we predicted actually. So, I'm going to decline to give a projection of implant growth for the market next year, although I think in the weaker economy, it will be under pressure because it's usually not reimbursed and it's expensive.

Brett, I might add as well, it is clear based on the announcements from our public competitors we do believe even with the numbers that Brett mentioned we are growing on the high end of what the market growth is and actually capturing share in the implant segment globally despite obviously the tough economic conditions and discretionary nature of purchases as Brett mentioned.

Alright, that's helpful thank you.

Our next question is from [Chris Bowman with MTB Investments.]

Thanks, good morning. Can you talk a little bit and maybe give some color on the impact that you think private label is making in your business and how that might look going forward in terms of private label market share pickup?

Sure. It's always going to be dentists that make purchase decisions based on costs. We do believe some of the fringes in this environment might be looking to take cost out via product selection. But, I guess I would say that in general and we believe in a tough economy the fact is the primary thing dentists want are really good long-term clinical results and products that really improve the efficiency and effectiveness of the procedure, I think there might be a little bit of pressure in the fringes but I don't think there's going to be a wholesale change, if you will, in the context of market dynamic.

One other thing to keep in prospective is the cost of supply is only 6 to 7% of the typical dentist cost structure in terms of the dental offertory,so it's really not that significant. Obviously with most of the products being consumables, obviously the cost of any individual product is quite small. On a relative basis. I think I basically ask you to keep that in mind as well.

Do you have specific numbers that you track in terms of private label share.

Certainly we track private label. Obviously track different segments of the market including the value branded opportunities and products and I think I mentioned some opportunities we had in that segment relative to both the Sultan and the Zermac portfolios in my prepared comments, so that is certainly something we keep an eye on.

Over the long-term we have not seen that vary very much. Private label is a small portion of the market for some time and doesn't move much from the market share from period to period.

It would be fair to say then that even in this type of economic environment you haven't really seen a significant pick up in private label?

I think that's fair assessment.

Okay, thanks.

We will take our next question from [Adam (inaudible) with Barclays].

Hey, good morning guys. Just a quick clarification for Bill. Bill, the increase in minority interest in in consolidated subsidiaries is that due to Zermac or anything else? Just a little color there would be helpful.

It's due to-- from a income statement perspective it's not due to Zermac because we didn't have any charges there except for the expense side of the equation, but we did start consolidating Materialized Dental in the period as well too, so both of those two would have impacts on minority interests moving forward.

Great, thanks a lot, guys.

Just for clarity on that last question, we acquired Zermac on the last day of the year and thus our income statement doesn't have any sales or expenses other than the in process R&D write off we had for Zermac.

It appear there is are no further questions at this time. Mr Wise, I would like to turn the conference back over to you for additional or closing remarks.

Okay. Well, thank you again for joining us and your continued interest in Dentsply, I think despite a pretty difficult economic environment in the fourth quarter we had a very good 2008. We also believe the missions and strategies we have remain strong and will allow us to grow faster than the underlying global dental market. We have a very strong balance sheet and cash flow model we feel very confident about our position and believe that we can weather whatever economic storm confronts us here in 2009 and prosper going forward. And, of course, we look forward to updating you on our progress as we move through 2009, thank you.