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Executives

Bret Wise - CEO

Bill Jellison - CFO

Chris Clark - COO

Analysts

Glen Santangelo - Credit Suisse

Jeff Johnson - Robert Baird

Derek Leckow - Barrington Research

Ravi Fadah - William Blair

Elliot Feldman - Barclays Capital

Scott Green - Bank of America

DENTSPLY International Inc. (XRAY) Q2 2010 Earnings Conference Call July 29, 2010 8:30 AM ET

Operator

Please standby we are about to begin. Good day and welcome to today’s DENTSPLY 2010 second quarter earnings conference call. Today’s call is being recorded. I would now like to turn the conference over to, Mr. Bret Wise. Please go ahead sir.

Bret Wise

Okay thank you Ben and good morning everyone. Thank you for joining us on our second quarter earnings call. This is Bret Wise, Chairman and Chief Executive Officer and also with us today are Chris Clark our President, Chief Operating Officer, and Bill Jellison our Senior Vice President & Chief Financial Officer. I’d like to begin today’s call with some overview comments on our results for the quarter, and also our view of the state of the global dental market. And I’ll then have Bill Jellison provide more details on the financial results. And following our comments, of course we’ll be all glad to answer any questions you may have.

Before we get started it’s important to note that this conference call may include forward-looking statements involving risks and uncertainties. And these should be considered in conjunction with the risk factors and uncertainties described in the company’s most recent annual report on Form 10K, and our periodic reports on Form 10Q, our press releases and other filings with the SEC. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. And as usual a recording of this conference call in its entirety will be available on our website.

This morning we announced our results for the second quarter of 2010 and are pleased to report a continuation of the sequential improvement that we saw emerging, beginning in the third quarter last year, continuing with positive internal growth in the fourth quarter 2009, and now a slight acceleration of growth as we move through the first half of 2010. Overall our sales improved 2.2% in the quarter, and without precious metal content improved 1.5%. This growth was driven by 2.5% internal growth, consistent with what we saw in the first quarter, and acquisition growth of 0.3% giving us a constant currency growth of 2.8%. This allowed us to overcome a negative comparison from currency of a minus 1.3% and that was driven largely by the rapid devaluation of the euro against the dollar during the quarter.

The 2.5% internal growth reflects potentially flat growth in the US, down 0.1%, 4.4% growth in Europe and 3.7% growth for the rest of world. US growth reflects a continuation of the low single digit growth we’ve experienced in the specialties in the aggregate, and that’s really consistent with what we saw in the first quarter, offset by slightly weaker sales in the lab products which we were down low single digits in the quarter. Our overall assessment of the US market really has not shown any meaningful improvement over what we saw in the first quarter. However, that should not be a surprise as we look the economic data and the fact that we are really experiencing a jobless recovery in the US. And of course we will know more about the overall market when the distributors report in the next few weeks.

European growth remains strong at 4.4% in part by easier comparisons from the prior year, particularly in the CIS region, but also strong growth this quarter in our consumables, and in essentially all of our specialty categories. The remainder of the world had internal growth of 3.7% and that was driven mostly by strong performance in Asia, Latin America and Canada. A worldwide performance by product category was low single digit growth in consumables, lab was negative low single digits and the specialty category was positive mid-single digits.

There is always much interest in our dental implant business which had internal growth in the 3% to 4% range, led by double-digit growth in the US and low single digit growth in Europe. We believe we continue to take share in global implant market driven by two very strong implant product platforms, and also the investments we have made in sales, marketing and R&D over the past several years.

Our earnings on a non-GAAP basis came in at $0.50 per share; it’s a 2% improvement on stronger operating margins of 20.3% again on a non-GAAP basis which was a 20 basis point improvement over the prior year quarter. These are the strongest operating margins we have delivered since 2008 prior to the recession. Our earnings would have been much stronger on a currency neutral basis, however the rapid decline in the euro in particular, and strength of the yen combined to hurt earnings by a couple pennies a share in the second quarter.

In addition, we continue to have very strong cash from the quarter, with operating cash flows year-to-date of $150 million, that’s up 30% from the prior year. Year-to-day we have completed four small acquisitions, two of which were in July and today we repurchased 5.4 million shares under our share authorization which was expanded in March. Our balance sheet remains in really in very good shape, we are producing very strong cash flows and improving results and we feel good about our prospects.

We continue to make internal investments in growth, and have been particularly pleased with the performance of some of our new products which was launched over the last year. We feel we continue to gain momentum in the specialty product categories and have had some real positive signs from select new product launches in the consumable category. This tells us that dentists still welcome the opportunity to invest in their practices through new dental technologies, which we view as a good sign for the future.

As noted in the release, our exposure to the euro will likely continue to have a negative impact on our results compared to what we expected when we entered the year. With the euro now below $1.30, which compares unfavorably to what was $1.43 in the third quarter last year, and $1.47 in the fourth quarter last year, our currency will likely continue to be a headwind for us over the next two quarters. Given this currency impact we are adjusting our earning’s guidance to a range of $1.86 to $1.94 on a fully diluted basis for all of 2010, and again that’s measured on a non GAAP basis.

I’d like to now turn the call over to Bill Jellison who will discuss the financial results in more detail. Bill.

Bill Jellison

Thanks Bret morning everyone. Net sales for the second quarter of 2010 increased by 2.2% in total an increase by 1.5% excluding precious metals. The sales increased ex-precious metals for the quarter, included a constant currency increase of 2.8% which included at 2.5% increase from internal growth and 0.3% increase from acquisitions. The quarter was also negatively impacted 1.3% from foreign exchange translation, largely due to the dollar strengthening against the euro compared to last year’s second quarter. The geographic mix of sales ex-precious metals in the second quarter of 2010 included the US at 38%, Europe represented 39% and the rest of the world was 23% of sales. We do not believe the channel inventory changes has any significant impact on the company-wide internal growth rates in the period, however we do believe the European growth was benefited by a rebound in the CIS markets this quarter. The stronger dollar in the second quarter, especially against the euro in the same period last year had a negative impact on earnings per share in the period of nearly $0.02 per share. Although the euro has shown some recent strength based on the current currency rates we believe we will continue to have a negative impact on both, sales and earnings in the back half of the year.

Gross profit margins as a percentage of sales ex-precious metal content in the second quarter of 2010 were 55.4% compared to 55.8% for the second quarter of 2009. When compared to the same period last year, we were negatively impacted by product mix, which was partially offset by improved pricing. We did benefit from some positive manufacturing and purchase price variances, however many of those were not fully reflected in the second quarter, but they will have some benefit on the margin rates in the back half of the year.

SG&A expenses were $182.4 million or 35.1% of sales ex-precious metals in the second quarter of 2010, versus 35.9% in the prior years second quarter. These expenses were not only lower than those in the last years second quarter on a dollar basis, but they were also lower when measured as a percent of sales. We are currently benefiting from some of the expense reductions we put in place last year. Importantly, some of the benefits of our expense focus continue to be reinvested in areas we believe can help support future growth opportunities.

Operational margins for the quarter were 18.6% compared to 17.9% in the second quarter of last year. Our operating margins based on sales excluding precious metals were 20.2% compared to 19.3% last year in the same period. And operating margins based on sales excluding precious metals for comparative purposes, excluding acquisition related activities, and restructuring and other costs in both periods would have been 20.3% in the second quarter of 2010 and 20.1% in 2009.

As we move into the back half of the year, we expect favorable improvements in our gross profit margin rates compared to last year, as we achieved better absorption of costs, reflect improved pricing and benefit from a slightly more favorable mix. However, we also believe SG&A expenses will run higher in the back half of the year as a percentage of sales as many of our cost improvements were already in place in the back half of last year, and we have continued to invest in key growth opportunities.

Net interest and other expense in the second quarter was $6.6 million compared to $3.7 million last year in the second quarter. The increased expense in this area of $2.9 million was primarily the result of a non-cash interest charge of $1.2 million, resulting from a credit risk adjustment on the outstanding derivatives which we highlighted as an adjustment for our non GAAP earnings per share, and a foreign exchange transaction loss of $1.4 million versus a slight gain of $0.2 million in the same quarter last year. We were also negatively impacted by lower interest income on our cash balances as rates have decreased, since last year.

The corporate tax rate in the second quarter of 2009 and 2010 was approximately 25.5%, and we believe this is also a reasonable rate to assume for the remainder of this year. Net income attributable to DENTSPLY International in the second quarter of 2010 was $72.4 million or $0.49 per diluted share compared to $70.2 million or $0.47 per diluted share in the second quarter of 2009. Our net income attributable to DENTSPLY on an adjusted non GAAP basis, excluding acquisition related costs, restructuring and other costs, a credit risk adjustment to outstanding derivatives and income tax related adjustments was $73.9 million or $0.50 per diluted share in 2010 compared to $73.1 million or $0.49 per diluted share in the second quarter of 2009.

Cash flow from operating activities in the second quarter was $113 million compared to $105 million in the prior year quarter, and in the first half of 2010 it was approximately $150 million compared to $115 million in the same period last year. Capital expenditures were $19 million in the first half of the year, with depreciation and amortization at about $34 million in the first half. Capital expenditures right now are currently expected to be in the range of about $50 million to $60 million for the entire year.

Inventory days were 100 at the end of the second quarter of 2010 compared to 103 days at the end of the first quarter, and 110 days at the end of the same period last year. We do expect some additional improvement in inventories by the end of year, but most of that should occur in the forth quarter. Accounts receivable days were 57 days at the end of the second quarter of 2010 compared to 59 days at the end of the first quarter, and 57 days at the end of the second quarter in 2009. We believe our accounts receivable are in good shape and they remain a key focus for our entire team.

At the end of the second quarter of 2010 we had $340 million in cash in short-term investments; total debt was $475 million at the end of the second quarter as well. Year-to-date we have repurchased approximately $185 million of our stock or approximately 5.4 million shares at an average price of approximately $34. Based on the company’s authorization [demand] up to 22 million shares of treasury stock, we now have approximately 2 million shares still available for repurchase.

Finally, due to the strengthening of the dollar against most currencies, and with the dollar at approximately $130 to the euro, we expect a top line headwind in the back half of the year of approximately 3% to 5%. As we look at our results year-to-date, our current business outlook and recent foreign exchange movements we are adjusting our 2010 full year earnings per diluted share guidance to $1.86 to $1.94 on a non GAAP basis, excluding restructuring and other costs, our recent acquisition related activities and income tax related adjustment.

That concludes our prepared remarks and thanks for your support and we’d be glad to answer any questions that you may have at this time.

Question-and-Answer session

Operator

[Operator Instructions] We will take our first question from Glen Santangelo with Credit Suisse.

Glen Santangelo - Credit Suisse

Yes thanks guys, I just had a quick question about organic growth. Bill if I heard you correctly was organic growth 2.5% in the first quarter and it just slightly decelerated to 2% in the second quarter, did I hear that correctly?

Bret Wise

No this is Bret it was actually 2.5% in both, the first and second quarter. So it’s internal growth, excluding FX and excluding acquisitions, 2.5% both quarters.

Glen Santangelo - Credit Suisse

Okay because my question really revolves around gross margins. If I heard correctly you are sort of assuming that gross margins maybe pick up a little bit in the back half of the year, and I was kind of curious as to maybe, and I know you kind of attributed that to better absorption and mix, but is there some expectation of an acceleration of organic growth to drive those higher margins or no?

Bret Wise

Yes, our guidance for the year on internal growth is low single digit, that's what we entered the year with. I think given the state of the market we are comfortable with staying with that kind of guidance, although I don't think we are being specific about whether it would accelerate from here or decelerate a little bit, who knows. I think it’s hard to predict in this market. So the gross margin comments coming from Bill this morning are more driven by the fact that we know what we were doing last year in the back half of year, which was rapidly bringing down inventory, and we have programs in place this year we think that will give us some acceleration in gross margins. So we are comfortable that we’ll have year-over-year benefits in the back half.

Glen Santangelo - Credit Suisse

Okay Bret, so the point is that gross margin should be up year-over-year in the back half, but you are not necessarily saying they should accelerate sequentially.

Bret Wise

I think that would be fair.

Glen Santangelo - Credit Suisse

Okay, and then just a follow up question on SG&A. We obviously picked down about $5 million sequentially in the second quarter and you guys kind touched upon those reasons but I thought I also heard you expected that SG&A to trend higher over the next couple of quarters. Is that also a statement about the sequential sort of trend line for SG&A? Should it head back up to that 185 to 190 level?

Bill Jellison

Associated with the SG&A, the SG&A comment that we made was really relative to kind how the SG&A looked relative to last year. If you look at the kind of quarter breakdowns that existed throughout last year, you’d see that SG&A pretty much improved both really in dollars and also as a percent of sales, especially as we moved into the back half of last year. That’s because most of our cost reduction efforts that we put in place really didn’t fully impact us until the back half of 2009, plus as I mentioned we started to reinvest in a couple other key areas for some additional growth and that reinvestment really didn’t occur until late 2009.

Operator

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

Jeff Johnson - Robert Baird

Bill I guess I’ll start with you on the FX you said it was about a $0.02 hit or so to Q2, your [trim] end guidance by a nickel or so, how much of that trimmed guidance is purely kind of the FX flow through on the model, versus maybe fundamentally taken a little more cautious look at things over the next few quarters?

Bill Jellison

Yes Jeff, as far as FX is concerned based on where the rates were at before and where they are now, virtually the entire reduction to our guidance is associated with the FX changes.

Jeff Johnson - Robert Baird

And the 3% to 5% headwind you were talking that’s an H2 headwind not a full year, so the H2 headwind each of the next two quarters should be 3% to 5% at the top line?

Bill Jellison

That’s correct, and again that’s on the top line that’s not the total impact of the currency move, but that’s the impact that’s affecting our sales.

Jeff Johnson - Robert Baird

Fair enough, and Bret any insight on the acquisitions that were completed in July, size or should I not even be dumping them into my model?

Bret Wise

There is a small tuck under our acquisitions. I don’t think you need to adjust your model form at this point.

Jeff Johnson - Robert Baird

And then on the US number down 0.1% on the organic. Bret I think if I heard your comments you felt like US was pretty stable, the flipside to that is it did seen to slow sequentially by a point, so just trying to reconcile those two things?

Bret Wise

Yes, and I think some of that can be compared to the base line, because you might remember our comments in the first quarter there was some inventory reductions in the base period, more so in the first quarter than in the second quarter. And in the second quarter this year we ended up essentially flat in the US positive in specialties, a little bit of a drag from the lab business and we kind of view that as a stable situation.

One other thing that’s probably affecting us is in the second and third quarters last year. We were promoting our equipment in the US pretty heavily, we had some good uptake on that, and I think that’s creating a little bit of a negative comparison in the second quarter this year, and we may have that in the third quarter again. But that’s pretty minor when measures across the whole business.

Jeff Johnson - Robert Baird

And just so I understand your base period comments that what you are saying is last year in the first quarter of ‘09 you had more of inventory destocking which helped Q1 of ‘10 and that tailwind in Q2 ‘10 wasn’t quite as great?

Bret Wise

Yes, I think by the time we got to the second quarter there wasn’t much inventory liquidation in the US going on last year.

Jeff Johnson - Robert Baird

And last question was on just from a new product standpoint, any comments with the FDA and the MTM product?

Chris Clark

Yes Jeff, its Chris. Let me comment first in terms of broader new products, it hit MTM as well. I mean I think overall we are really pretty pleased as Bret mentioned with the update of recent innovations, in particular we highlight the SDR global portfolio comprises which right now we are up to over 30000 new users globally, which is we think certainly pretty nice in terms of the update and the momentum continues. We are also real pleased with several introductions over the last several quarters on the endo side, particularly Vortex file and the path file. And then also certain kind of brain x-ray on the prosthetic side, we are pleased with continue to see pretty solid uptake in terms of that element of the lab business.

We had a couple of introductions in Q2 as well, we expanded our comparative centralized manufacturing of precious metals to the US, we introduced a SMARTLIGHT Max LED curing light that has a lot more versatility if you will to that area, particularly because this is basically procure a wider range of restorative materials. As we look forward we had a pretty solid pipeline moving forward. Specific to the MTM, I mean we did have a discussion on new the product with dentists and had filed F10-K on the product, and at this point are waiting for approval with FDA. We were hopeful that we would have approval from FDA during this quarter, but obviously that’s kind of tough to predict and we are in dialogue with FDA, we are hopeful that we get approval on that later this year. Obviously once we have approval then we’ll do the full launch moving forward.

Operator

We will take our next question from Derek Leckow with Barrington Research.

Derek Leckow - Barrington Research

On the comments on organic growth 2.5% you did break that down partially, you said low single digit growth and specialties, lab down low single digit, and then what was US consumables and European consumables?

Bret Wise

US consumables for the true consumables, meaning not the small equipment component was positive low single digits, and overall with the equipment was negative low single digits. European consumables I don’t have that handy, do you have that?

Bill Jellison

Yes it was up, mid-single digit.

Derek Leckow - Barrington Research

Mid-single?

Bill Jellison

Mid-single, correct.

Derek Leckow - Barrington Research

Then just wondered if you could give me your market perspective in the specialties category, I know you said you had very strong growth in the area of implants in the US. But maybe just some more color on the market dynamics that are going on and market share that you might be gaining in that category.

Bret Wise

The three categories for specialties are obviously endodontics, orthodontics and implants. In implant market, we have very low market share in the US but we made some key investments, let's call two and half years ago. And I think we've made very good progress on that, and we've been kind of reporting double digit growth there, almost throughout the recession. So we are very happy with that. The implant business also continues to grow in Europe and developed Europe, as well as the emerging markets within the European community, and I think that's positive. We’ve had less success in the rest of the world categories; particularly in Korea which is a market we think is contracting pretty rapidly.

It's a little bit difficult for us to comment on the overall market implants because we are awaiting the reports of the two largest implant players that will come in the next two or three weeks. And that will give us more insights into what's happening in the market, but with respect to our performance, we are very pleased with that. With respect to orthodontics, we had low single digit growth and appeared to be executing well there as well. I think that's probably a pretty tough market because I think orthodontics stocks are probably not up in 2009 or 2010. And we continue to grow in that category and we are happy with that. And then endodontics we had closer to mid-single digit growth, driven by some pretty strong performance across many territories. So, I think we must be taking share in that category.

Chris Clark

Only in new products as I mentioned

Bret Wise

And that’s driven in part by new products.

Derek Leckow - Barrington Research

What was the key new product there again, was it a new file?

Chris Clark

Yes, again we continue to get, as I mentioned Derek through solid traction and high both of Vortex filed in the US and also the path file, which we’ve introduced globally. So those two in particular, but there were several other new product introductions but I’d certainly highlight those two.

Derek Leckow - Barrington Research

And that was in the consumables business as you said both in Europe and in the US, your end user sales were kind of matching what you are seeing with distribution, so the channel seems to be carrying the right levels of inventory. Is that a fair statement?

Bret Wise

Yes, I’d say there wouldn’t be a whole lot of changes year-on-year in terms of channel inventories as we compare it back to last year as well.

Bill Jellison

We like to see the two large distributors report so we can see what the market did.

Bret Wise

Which will give us more insight into that.

Derek Leckow - Barrington Research

And then finally, just looking at your balance sheet the $340 million I think it’s in cash, you have been an aggressive buyer of your stock around the price is $34 a share, I think if I take the $2.2 million I would assume you would execute that here fairly shortly $64 million for that. And then are you guys looking at any bigger acquisitions, or will the board then authorize perhaps an additional amount of stock to repurchase, or what’s the feeling on that?

Bret Wise

Well our priorities haven’t changed. The first priority is to reinvest in the business, the second one is to expand the business through business development and third priority would be share repurchases, and fourth priority is the dividend. So, I don’t want to get out in front of the boards decision on whether to expand the share repurchases, in fact we exhausted what we have left. But I think it’s fair to say that our priorities haven’t changed.

Derek Leckow - Barrington Research

Is there an opportunity to recapitalize some of your debt in the near term, or restructure that a little bit, get better rates?

Bret Wise

No, we actually just reestablished both a private placement and we also did a revolving credit agreement just in the first half of this year Derek. So we are in pretty good shape there.

Derek Leckow - Barrington Research

And so if I looked at your purchasing power at this point in time, if it took away the $64 million what would be your purchasing power as far as acquisitions would be concerned?

Bret Wise

We have a balance sheet Derek that’s set on a net debt basis has almost no leverage on it. So, our purchasing power is quite substantial.

Bill Jellison

Yes, it’s not just limited by the financing that we currently have in place.

Derek Leckow - Barrington Research

Okay, so I would assume may be if you had 21% debt to capital that would be a comfortable range for you?

Bret Wise

Well what we’ve said is that our target is kind of in the mid 30’s for debt to cap.

Bill Jellison

And we recognize we’re well below that at this point, but we have a business that produces very consistent and strong cash flow and a balance sheet that could absorb much more leverage than we have on today.

Operator

We will take our next question from John Kreger with William Blair

Ravi Fadah - William Blair

Hi, good morning guys this is actually Ravi Fadah in for John Kreger today. If you take a look at patient traffic trends in the US and Europe on a monthly basis, how did those trend throughout the quarter? And if you’re willing to comment, what are you seeing so far in Q3?

Chris Clark

Yes, Ravi it’s Chris, I don’t know that we have got a lot of visibility through that. Obviously any state that we would have would be anecdotal, just in terms of from sales reps calling on offices as well as potentially through distributors et cetra. I would say it’s pretty consistent with what we saw in the first quarter. I wouldn’t say that we have seen a significant change in terms of what we thing the underlying dental market activity is. But I’m not sure we’re the barometer for that.

Ravi Fadah - William Blair

Secondly, you had mentioned that last years results, I think it was the first quarter were positively impacted by equipment promotions. Are there any plans to do any additional equipment promotions in the second half of this year?

Bret Wise

Let me clarify that first comment. The comment was that we had equipment promotions in the second and third quarter last year. We always have some promotions, but we had heavier promotions in the US second, third quarter last year. And I would say our promotional activity is more kind of a steady state normal level at this point.

Operator

We will take our next question from Elliot Feldman with Barclays Capital.

Elliot Feldman - Barclays Capital

Just wondering how we can think about the pattern of cash flow generation for the back half of the year? And secondly, just trying to target down on the, you guys are talking about the developing world market for last spring, where you guys are seeing in those markets kind of from a broad perspective?

Bill Jellison

Well I think cash in general should remain pretty solid in the back half. Keep in mind in the back half of the last year we were actually pulling some inventory down, because our inventory days were higher, they were around I think 110 or so in comparison to the 100 that they are at this point. So, we probably won’t get the benefit from the inventory days in the back half, but generally we should still see a good solid cash flow within that period.

Bret Wise

In the developing markets I would say it’s always a mixed bag, there are so many different economies within that group, but the ones that we see best positioned right now would be the Asian markets in total, and Latin America, secondly, within that category and then also some of the CIS and NDA type regions. I think the economies that have not been hit terribly hard by currency, for us at least are performing well, and those that had a significant devaluation of the currency against either euro or the dollar are not performing so well, because they got to import our products at a much higher price. So that's kind of a general comment realizing that we are talking about probably 120 countries when we generalize like that.

Operator

[Operator Instructions] We will take our next question from Scott Green with Bank of America.

Scott Green - Bank of America

To clarify, could you tell us what the mid-point of your new guidance now assume is for FX, is it around $1.30 on the euro?

Bret Wise

Yes, I think that that’s at least a reasonable range to use. We stated that where we are at right now which is about $1.30, that that's probably a reasonable rate at least for you to assume in the back half of the year as far as our guidance is concerned.

Scott Green - Bank of America

Okay and then could you talk about your Barcelona implant symposium and what momentum you got from the show and how that compared to your expectations going in?

Chris Clark

I would say we are real pleased with the events and we continue to be pleased with the momentum after that. Obviously with that event been over 2000 attendees focused on wide range of implant solutions with specific, we are real pleased with the discussions relative to our ankylose line, and specifically the Ankylos CX and we are pleased with the follow up from that meeting in terms of momentum we have on that business. I think that’s certainly helping to drive some of our implant numbers particularly in the US which we are very well placed.

Scott Green - Bank of America

And on Endo how would, if at all Henry Schein Brasseler combination impact your competitive position in the market?

Bret Wise

Well, we compete with both of them now. So I don’t think it would have much impact on us. And I don’t think I want to comment further on that. But those are Henry Schein is our distributor in our consumable lines and they compete with us in some of the specialty lines, and Brasseler of course competes with us primarily in consumables and in stocks.

Scott Green - Bank of America

And then lastly just the outlook or strategy for price increases in the back half of the year and how those might compare to 2009 levels?

Chris Clark

I would say that our price increase timing is very similar to what we’ve done historically. We typically on consumables do take price increases at the end of the third quarter. I would say the levels again, we are still in process of finalizing those, but probably be slightly above last years levels. Like, if I had to put a number on it today it would be in the 2% plus maybe a bit range but again, we are still in the process of finalizing those.

Scott Green - Bank of America

Anything that we should think about in terms of seasonal progressions or you don’t think it will be meaningful enough to have a significant variance over the last year’s trends?

Bret Wise

My sense would be pretty similar to what we saw last year.

Operator

And we will now take a follow-up question from Jeff Johnson with Robert Baird.

Jeff Johnson - Robert Baird

Just two quick ones, Bill what was the share count exiting the quarter? I know what it was for the quarter, but exiting the quarter?

Bill Jellison

I don’t have it handy I think you can assume roughly that it’s right in the $146 million kind of range.

Jeff Johnson - Robert Baird

How about $1 million below?

Bill Jellison

Maybe like $146.5 million yes some more in that for the back half.

Jeff Johnson - Robert Baird

And then was there a little restatement it seemed like Q2 ‘09 numbers shifted around a little bit, not a big impact but enough that it changed kind of my year-over-year comps.

Bill Jellison

Yes, we did a slight reclassification of some of the costs that we had in SG&A last year. It really all dealt with research and development or more specifically our ongoing engineering related categories. Some of those costs were previously in the R&D expense area and they should have actually been up in cost and get sold for a couple of divisions. It is about 20 to 30 basis points swing between those two categories in the back half of the year as well, which is what it was in the first half.

Jeff Johnson - Robert Baird

So take H2 ‘09 gross margin down about 20, 30 bps and OpEx down about 20, 30 bps as well.

Bill Jellison

That’s correct.

Operator

At this time we have no further questions in the queue. I would like to turn the conference back to Mr. Bret Wise for closing remarks.

Bret Wise

Alright, thanks Ben. Thank you for listening in this morning we feel we are off to a good start in the first half of 2010 and have some good momentum, despite a slow recovery in the global dental market. Thanks again for calling in this morning we look forward to updating you on our progress as we move throughout the year. Good morning.

Operator

Ladies and gentlemen that does conclude today’s conference; we thank you for your participation.

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Source: DENTSPLY International Inc. Q2 2010 Earnings Call Transcript
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