Oct 29, 2008
Executives
Bret W. Wise - Chairman, President and CEO William R.
Jellison - CFO, Sr. VP Christopher T.
Clark - EVP and COO
Analysts
Jon Wood - Banc of America Securities Derek Leckow - Barrington Research Jeff Johnson - Robert W. Baird & Co.
Inc Greg Halter - Great Lakes Review
Operator
Good day, and welcome to the DENTSPLY Internationals 2008 Third Quarter Earnings Conference Call. Today's conference is being recorded.
At this time I would like to turn the conference over to Mr. Bret Wise, the Chairman, Chief Executive Officer and the President.
Please go ahead sir.
Bret W. Wise - Chairman, President and Chief Executive Officer
Alright, thank you and good morning everyone. Thank you for joining us on our third quarter conference call.
This is Bret Wise, Chairman and Chief Executive Officer and also with us today are Chris Clark, our Executive Vice President and Chief Operating Officer; and Bill Jolleson, our Senior Vice President and Chief Financial Officer. I'd like to begin today's call with some overview comments regarding our results for the quarter and then Bill Jolleson will provide you with some more detailed insights on the financial results.
And then following our formal remarks, the three of us will be pleased to answer any questions that 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.
These should be considered in conjunction with the risk factors and uncertainties described in the company's most recent annual report, on for 10-K, our periodic reports on form 10-Q, our press releases and our conference call transcripts, all of which have been filed with the SEC. This conference call in its entirety will be part of an 8-K filing that will be available on our website later this week.
Last night, we are very pleased to announced record results for our third quarter, with sales increasing almost 10% and earnings increasing double digits. Given the instability on the world financial markets this quarter and the fact that we now know that many of the economic markets we participate in, probably contracted in Q2 and perhaps again in Q3.
We believe these results are strong indicator of sustainability of our business model. For the third quarter, our sales rose 8.6% to $530 million and gained 9.6%, excluding precious metals to $488 million.
This sales growth reflects both of a very broad demo of consumable mix, but also a balanced global portfolio, both of which we view as key strengths of our company. Internal growth for the quarter XPM was 5.4% while acquisitions added 1% and currency added 3.2%.
So, on the constant currency basis our growth was about 6.4% to 6.5%. On a regional basis, the US internal growth improved to 4.1%, while Europe continued to have strong internal growth of 6.8%, albeit slower than we had seen earlier this year, and the rest world internal growth was 5.7%, led by continued strong performance in Asia and Australia.
Growth in the U.S. was very balanced with mid single-digit growth in each of our chaired site consumables, especially products and lab product categories with negative growth in our non-dental business.
As discussed in our second quarter call, we did implement price increases in our Chair site consumable lines. These are the lines of sell-through distributors as planned on October 1.
These increases were sadly higher than historical levers and we did see increased demand by many of our dealers to buy ahead of these increases. Accordingly in those categories, we believe we had increased sales in the third quarter that will likely come out in the fourth quarter sales.
Overall, we saw strong growth in our global implant business which had internal growth in the low double digits. Or our orthodontic business continued a very strong string of results and had high single-digit internal growth.
And we also saw some improvement in our global chair side consumable lines. Speaking of market trends, I think it's fair to say we've seen early signs of some market slowing in Europe, probably similar to mark reaction we saw in the U.S.
early in the year but less severe at this point. In the U.S.
it's clear that high-end discretionary procedures have slowed. In our view that will continue to lag for the next several quarters.
We believe that office business have probably slowed somewhat in the U.S. in addition to some downgrading of procedures to lower cost alternatives.
For us, I think this means a couple of things. First, we would expect the near term growth transfer the industry to slow a point or two, off the historical 4% to 5% global benchmark that we have at least for the next couple of quarters.
I think we are pricing that now; however, it's important to note that we expect the market to continue to grow throughout the economic cycle, just a bit slower than we have seen for the last couple of years. Second, we would expect the slowing in the growth specially procedures to continue.
However, in our own case, we expect that we can continue to take some share which should mitigate that to some extent. Of course, we have taken these matters into account in our forecasting as it's reflected and the outlook statements that will make effect.
Our earnings for the quarter were very strong at $0.44 on a GAAP basis. This quarter, there are a number of moving parts in the income statement which Bill will cover in detail.
However, removing the restructuring and other charges, and the favorable tax adjustments, our non-GAAP earnings came in at $0.46 a share which is an 18% improvement over the third quarter last year. And we had very strong margin growth at both the gross margin and operating line.
Our operating margin on a non-GAAP basis improved 80 basis points for the quarter, and 70 basis points year-to-date. I think it's fair to say we're managing the business conservatively, given the unknown circumstances in the global economy, resulting in strong operating leverage through our income statement.
From a capital perspective, late in the quarter, we are pleased to announce that our Board had approved an 11% increase in our annual dividend. This reflects both, the strong operating performance we've had, plus continued confidence in the business.
Also late in the quarter, we did sustain temporarily our share buyback program to avoid... really to avoid putting further stress on our banks.
Today, we have approximately $600 million immediate liquidity, including cash balances and available credit lines. So we think we have ample liquidity which should allow us to take advantage of any situations that arise.
We continue to have about $3 million shares available under our authorization and we expect to reinstate... reinstitute that program when the financial markets becomes more stable.
We're very pleased with our performance through 2008 to date. We've recorded internal growth of 5.7%, total growth of 14.7%, and earnings per share on non-GAAP basis were up 18.2% to $1.43 per share, despite some pretty difficult economic circumstances.
Looking forward, our current forecast for internal growth for the full year is now 5% to 5.5%. This guidance reflects the matters we've covered today including the price increase pre-buy activity, which probably moved some sales from Q4 to Q3, particularly in the U.S.
and Europe. In addition, late in the third quarter, our contract manufacturer for injectable anesthetic for the U.S.
market only, informed us of a plant outage that has extended into the fourth quarter. At this point, it's not certain that we'll have product necessary to meet demand in the fourth quarter which may reduce our total internal growth rate in the quarter by as much as three quarters of a percentage point.
We believe this is a temporary situation and would expect to be back in full supply, late in the quarter or by yearend. However, it's likely to suppress our internal growth rate in Q4, again especially in the U.S.
So all to all, we believe the growth in the global dental industry is developing probably about as we would expect it to in an economic slowdown as we've seen. It's highly resistant in many ways but not completely immune.
With lower consumer spending in the next couple of quarters, we would expect the growth in the dental demand would slow but remain positive. In addition, rapid swings in international currency markets will continue to have an impact on our results.
Our earnings performance thus far this year has been quite strong. Our outlook continues to be favorable.
Accordingly, we are reconfirming our full year earnings guidance of $1.86 to $1.91 per diluted share. We started the year with guidance of $1.83 to $1.88 and are pleased to now be looking towards the upper end of the range or perhaps even higher.
Just as a reminder, our guidance is on a non-GAAP basis, so it excludes restructuring, tax adjustments and gains, we expect to recognize this year on the adoption of FAS 157, which we did recognize in fact in the second quarter. We are currently in our planning cycle for 2009, and as we have done in the past, we will announce our earnings guidance for next year, our yearend call which is in early February.
So at this time, I would like to turn over the call over to Bill who will provide you with some additional insights on our reported results and then of course the three of us will be glad to answer any questions you may have. Bill?
William R. Jellison - Chief Financial Officer, Senior Vice President
Good morning, everyone. Net sales for the quarter of 2008 increased by 8.6% in total and increased by 9.6% excluding precious metals.
The sales increase ex-precious metals for the quarter included a 5.4% increase from internal growth, 1% from acquisitions, and a 3.2% increase from foreign exchange translation. Our year-to-date increase in sales ex-precious metals is 14.7% and includes internal growth of 5.7%, acquisition growth of 2.4%, an increase from foreign exchange translation of 6.6%.
The year-to-date geographic mix of sales ex-precious metals in 2008 included the U.S. at 39%, Europe represented 41%, and the rest of the world was 20%.
The U.S. dollar while recently strengthening was still weaker in the third quarter compared to last year.
This continued to benefit sales growth and also slightly benefited earnings in the period. Net purchase price variances caused by the weak dollar, and higher interest expenses from our net investment hedges, are once again offsetting most of the favorable foreign exchange translation benefits on income in the period.
Gross margins, as a percent of sales, ex-precious metals in the third quarter, were 57.4%, an improvement of 60 basis points over the third quarter of 2007. Margin rates compared to last year's third quarter were positively impacted in the quarter, compared to the same period last year, due to a positive product line mix as we benefited from strong implant and restorative product growth, and improving efficiencies offset somewhat by negative purchase price variances caused by a weaker dollar in the third quarter.
SG&A expenses were $180.7 million or 37% of sales ex-precious metals in the third quarter of 2008, versus 37.2% in last year's third quarter. SG&A expenses as a percent of sales were slightly lower in the period, as were able to better leverage expenses with the strong sales growth in the period.
While additional recent investments have been made in SG&A to continue to drive future sales growth, we remain vigilant in controlling our expenses especially during more volatile economic periods. During the third quarter of 2008, we also incurred $18.5 million of restructuring and other costs, primarily associated with litigation cost including the settlement of two suits related to our anti-trust litigation on our tooth distribution.
Operational margins for the quarter were 15.3% compared to 16.9% in the third quarter of last year. Operating margins based on sales, excluding precious metals, were 16.6% compared to 18.5 % last year in the same period.
But on a non-GAAP basis, excluding restructurings and other costs in both periods, operating margins based on sales, excluding precious metals, for comparative purposes, were 20.4 % in the third quarter of 2008 and 19.6% in 2007, an 80 basis point improvement. That's why the operating margins benefited from a positive product line mix and also benefited from the lower rate of SG&A expenses.
Net interest and other expense in the third quarter of 2008 was $5.7 million compared to an expense of $0.7 million in the third quarter last year. Higher net interest expense had the largest impact.
However, we also had a loss on exchange in the period as well. The sharp divergence of lower U.S.
dollar interest rates versus relatively higher Euro and Swiss Franc rate, combined with the weaker U.S. dollar were once again the primary causes of this change.
The impact of the company's net investment hedges typically move in the opposite direction of currency moves, reducing some of the volatility caused by movement in exchange rates on the company's income and equity. Net interest expenses expected to continue to run higher in the fourth quarter, but would be reduced in the future if the gap between European and U.S.
rates narrowed. Recently, foreign exchange rates have been very volatile.
The dollar has strengthened, the yen has strengthened further and most other currencies including the euro and Swiss rates have weakened; some quite significantly. Based on these rapid movements and the fact that U.S.
and European interest rates have not yet narrowed, we could be faced with a negative exchange rate impact of as much as $0.02 to $0.03 per share in the fourth quarter. The corporate tax rate in the quarter was 12.2% compared to 19.7% in the third quarter of 2007.
The tax rate this quarter includes the benefit of the resolution of both state and federal tax items. The year-to-date operational tax rate is approximately 27.1%.
This rate reduction includes the benefits of both a lowering of the German corporate tax rate which became effective as of January 2008, and further benefits of a global business and tax reorganization, which was recently completed. We believe we will be able to keep the full year 2008 and next year tax rate at or below this level.
Net income in the third quarter of 2008 was $66 million or $0.44 per diluted share, compared to $65.7 million or $0.42 per diluted share in the third quarter of 2007. Earnings excluding restructuring and other cost and income tax related adjustments were $69.3 million or $0.46 per diluted share in 2008 compared to $61 million or $0.39 per diluted share in the third quarter of 2007.
This represents a 17. 9% increase in earnings per diluted share on an adjusted non-GAAP basis for the third quarter of 2008.
Cash flow from operating activities were $236 million in the first 9 months of 2008 compared to $257 million in the same period last year. The cash flow for the first nine months of 2008 was lower than last year due to both, a lower tax payment outflow in 2007, and accounts receivable base turning out at a much lower level at the beginning of 2008, versus the beginning of 2007.
Without the lower tax payment outflow in 2007, cash flow would have increased slightly in 2008 year-the-date. Capital expenditures were $55 million in the first nine months of 2008 while depreciation and amortization were $43 million in the period.
Inventory days were 94 at the end of the third quarter of 2008, compared to 106 days at the end of the third quarter last year, and 95 days at the end of 2007. Inventory is well positioned at the end of the third quarter and it should improve a little further by yearend.
Receivable days were 59 days at the end of the third quarter in 2008 which again is slightly better compared to 60 days at the end of the third quarter last year, but higher than the low 51 day level at the end of 2007. At the end of the third quarter of 2008, we had $245 million in cash and short term investments.
Total debt was $404 million at the end of the third quarter. DENTSPLY has repurchased $100 million of stock or approximately $2.5 million shares at an average price of $39.57 so far in 2008.
In the third quarter, we had some repurchase activity early in the quarter, however late in the quarter when the financial crisis occurred, we suspended our repurchase activity to maintain liquidity and avoid drawing additional amounts on our bank lines in support of our banking partners. The company has current authorization to maintain up to $17 million shares as treasury stock under this authorization, we still have approximately 3 million shares available for repurchase.
We will continue to monitor the financial markets and when conditions improve, we expect to resume our repurchase activity. Finally, as Bret noted, we are reconfirming our 2008 full year guidance of $1.86 to $1.91 for earnings per diluted share.
Guidance for 2008 excludes income tax related adjustments, restructuring and other cost, and the benefit from the provisions of SFAS 157. That concludes our prepared remarks.
Thanks for your support and we'll be glad to answer any questions you may have at this time. Question And Answer
Operator
Thank you very much. Ladies and gentlemen, today's question and answer session will be conducted electronically.
[Operator Instructions]. Our first question will come from Eric Lowe [ph] of Merrill Lynch, please go ahead.
Unidentified Analyst
Good morning, guys.
Bret W. Wise - Chairman, President and Chief Executive Officer
Good morning, Eric.
Unidentified Analyst
I want to talk a little bit about Q4 and perhaps even 2009. I know you guys aren't giving guidance right now.
But if organic growth were to slow faster than expected, how quickly do you think you guys could realign the cost structure to maintain profitability?
Bret W. Wise - Chairman, President and Chief Executive Officer
Well, history has shown we can adapt pretty quickly. I must say that what's happened in the last 30 days in the financial markets has been extraordinary, and we would not have anticipated that.
So... and as well as the currency market.
So, things are moving rapidly but past experience would tell us we can adjust reasonably quicklier and to preserve earnings power of the company. The one cavy I would have on that is the currency movements which Bill described which are a little hard to adjust to as fast as they have moved.
Unidentified Analyst
Would the focus be on top-line growth next year or would it be on bottom line profit body and bottom line earnings growth?
Bret W. Wise - Chairman, President and Chief Executive Officer
Well, when we do our call in February, early February we'll give you our guidance for 2009. Obviously, at that point, we'll have a much better view of the market that we are going to participate in next year.
And I think it is probably premature to try to set forth goals for next year at this point.
Unidentified Analyst
You guys had a large restructuring charge in Q3 about a little over $18 million. What was that related to, specifically?
Bret W. Wise - Chairman, President and Chief Executive Officer
Well, I think as Bill commented, that was primarily the settlement of two law suits that we had that related to the anti-trust matter that first arose in the early 90s.
Unidentified Analyst
Okay. So, it's all settlement charges as opposed to cost reductions from SG&A or from the business?
Bret W. Wise - Chairman, President and Chief Executive Officer
It was primarily those settlements.
Unidentified Analyst
Okay, great. And I know you guys were investing in additional sales people in the quarter.
Can you comment on what type of impact that had specifically on SG&A this quarter? How many basis points was it about?
Bret W. Wise - Chairman, President and Chief Executive Officer
Well, what we have said was that we thought that the sales force and marketing expansion plan for the last half of the year would be about a penny per share. We did start that hiring in the third quarter, of course, it's not like turning on a light switch, you got to go out and find those people, hire them and bring them in and train them.
So I would say more of that impact will hit in the fourth quarter than hit in the third quarter at this point.
Unidentified Analyst
Okay, great. Just a couple of more questions; one on ...
one of the reasons why U.S. growth was slow in Q2 was related to the delayed launch of the ATC hand piece.
Can you comment on how that product has been doing and how much of a benefit you think it had to do with our Q3 numbers?
Bret W. Wise - Chairman, President and Chief Executive Officer
Sure. I'll let Chris Clark comment on that?
Christopher T. Clark - Executive Vice President and Chief Operating Officer
Eric, it's...we're pleased at this point with the dentists' reaction to ATC. We've had strong shipments particularly in September, and the product really is gaining momentum out on the field.
It really is the best of both worlds, if you will, in terms of offering the best of both air-driven and electric-driven platforms. And at this point we're pleased with the momentum we have at this stage.
Unidentified Analyst
You guys typically launch about 25 to 30 products a year, do you guys plan to continue doing that over the next 12 to 18 months or would you slowdown your product launches?
Bret W. Wise - Chairman, President and Chief Executive Officer
Let me respond to that Erik, and then perhaps we should let someone else with you ask a question. Our product launches have actually accelerated over the last couple of years.
I think to date, this year we've launched 22 new products. So we're probably going to get close to the high end of the range of 25 to 30.
And we've been expanding our investment in R&D in our last several budget cycles, I expect to do that again this year, which is all driven towards better solutions for the dentists and we hope better innovations that we can take to market. So I think that continues to be an area of heavy emphasis for us.
Unidentified Analyst
Great. Thanks guys.
I'll get back in queue.
Bret W. Wise - Chairman, President and Chief Executive Officer
Okay, Erik. Thanks.
Operator
And our next question is from Jon Wood of Banc of America Securities. Please go ahead.
Jon Wood - Banc of America Securities
Thanks a lot. Thanks for letting me in the queue here.
Bret W. Wise - Chairman, President and Chief Executive Officer
Good morning Jon. How're you doing?
William R. Jellison - Chief Financial Officer, Senior Vice President
How are you doing?
Jon Wood - Banc of America Securities
Pretty good. Bill, first on the balance sheet.
The DSOs, is it reasonable to assume those can continue to counter, I guess flattish. Would you view it as reasonable to remodel that metric up in the fourth quarter or do you expect there's some more room for improvement?
William R. Jellison - Chief Financial Officer, Senior Vice President
I don't know if I stated to model it up Eric in the fourth Q because generally we see a little bit of improvement in that period. But I think it's realistic based on the kind of the economic realities in the world to have an impact.
Thanks Jon. Sorry.
Jon Wood - Banc of America Securities
Okay. Secondarily, Bret, can you talk about the M&A environment.
I think you were active in the acquisition market this quarter. Can you just describe how the pipeline has changed over the last few months, both in terms of size or opportunities as well as evaluation?
Bret W. Wise - Chairman, President and Chief Executive Officer
Sure. Let me expand on your comment there first; which is, we did acquire two companies this quarter; both are in Europe, one is a sales and marketing organization for Orthodontics in Europe and the other is a kind of a start up with some really good technology for precision milled implant bridges.
So, although they are both rather small from a revenue impact, I think they are both important strategically. Outside that, we're in discussions with numerous parties.
I'd say the reaction to financial crisis is significantly different depending on which part it is. Some people are trying to retrench and with the view that their results will be better if they just wait a year and then transact...
do a transaction. Others I think that are more concerned about liquidity I think are more interested in containing to pursue transactions.
So, there's a number of discussions going on. I don't think that evaluations have changed dramatically yet although they seem to have changed dramatically for the public companies, but for the private companies I don't think expectations have changed that dramatically because like our business, the business fields about the same as it did before the crisis.
It doesn't feel dramatically different, although it's a little bit slower but not dramatically slower. So, I think there's still some good opportunities for us there as a mentioned it on the...
in my earlier comments, we've got about $600 million of immediate liquidity available to us and of course we can get more if we needed to do. So we're going to...
we're going to continue the discussions and if there are good deals for us then we are going to do them.
Jon Wood - Banc of America Securities
Okay, very good. And then going back to FX, Bill I mean have you bought options for 2009?
Can you comment on how the degree to which you are hedged for 2009 at this point?
William R. Jellison - Chief Financial Officer, Senior Vice President
Well, we don't make specific comments on some of those things Jon. But in general, because of where we're manufacturing products and we manufacture products obviously all over the world including throughout the U.S., throughout Europe, throughout Latin America and even in Asia.
So, we're selling products back and forth between our different entities as well, and that does provide for some natural hedges associated with that. Where we don't have hedges in different areas with from a natural basis, we do selectively put in hedges from time to time between a couple of different country locations.
But then one of the other kind of offsetting balances that we generally have in place is the net investment hedges and if you see U.S. and European rates begin to narrow as we move forward because obviously, the European rates are much higher today than the U.S.
rates, that actually has also an offsetting positive balance for us.
Jon Wood - Banc of America Securities
What was the actual loss from the net investment hedge in the quarter?
William R. Jellison - Chief Financial Officer, Senior Vice President
That interest expense impact?
Jon Wood - Banc of America Securities
Yes, the interest expense impact.
William R. Jellison - Chief Financial Officer, Senior Vice President
Well the bulk of the $5.7 million that we've got there versus last year of 0.7, you have both the exchange offsetting movement and the rate offsetting movement in that comparison to last year. So the bulk of that change would actually be from those net investment hedges.
Jon Wood - Banc of America Securities
Okay. Thanks a lot.
William R. Jellison - Chief Financial Officer, Senior Vice President
Alright. Thanks, John.
Operator
We'll take our next question from Derek Leckow of Barrington Research. Please go ahead.
Derek Leckow - Barrington Research
Thank you. Good morning everyone, congratulations on a great quarter.
William R. Jellison - Chief Financial Officer, Senior Vice President
Good morning Derek, thanks.
Bret W. Wise - Chairman, President and Chief Executive Officer
Thanks Derek
Christopher T. Clark - Executive Vice President and Chief Operating Officer
Thanks.
Derek Leckow - Barrington Research
Hey just looking at the operating margins here, I mean you're up 80 basis point in the quarter, that's way above your long term trend, I mean is it safe to assume you have got some room there for next year or two to invest more heavily in R&D for example or what you are going to do with all the extra margin there?
William R. Jellison - Chief Financial Officer, Senior Vice President
That's a great question. I think one we're very pleased with how we've done this far this year.
We're going into the fourth quarter where we think we've got a pretty good chance for good margin expansion again although currency movements kind of create some risk for that. As we look at'09, I think it's a early predict just because we haven't done our budgeting, our planning cycle yet.
But we're... we feel really good about this 30 to 50 basis points per year target that we've put out there and we will expect to be...
I mean at this early stage, we would expect to be able to continue to perform in that range after some dramatic move in the business or in some currencies.
Derek Leckow - Barrington Research
And is the increase, something that would help you next quarter as well or how does that factor in?
William R. Jellison - Chief Financial Officer, Senior Vice President
The price increases will help us next quarter although as we commented in our prepared remarks, there was some buying ahead of those price increases in Q3. So, we probably won't feel the full impact in Q4, but as we move into next year of course we will still feel that impact.
So that will be a positive for us.
Derek Leckow - Barrington Research
Were those price increases confined to anyone area or where they pretty broad across the consumables product areas or...
William R. Jellison - Chief Financial Officer, Senior Vice President
They were recently broad. They are not uniform though meaning some brands we can increase prices more than others.
So that's... on average they were more than last year and I would expect...
I would say they affected most of those consumable lines, but not in all countries, primarily a European and a U.S. phenomenon at this point.
Derek Leckow - Barrington Research
Alright. And then just one more question on the acquisitions here using your own history as a guide whenever you've seen the internal growth rate slow, you said you probably expected to slow by a percentage point or so.
Acquisitions tend to become more important or they become more available. I guess because valuations should come down during a period of time like that as well.
So, can you comment any further than you already have on acquisitions and the ability to finance acquisitions; you guys obviously have plenty of cash available. I just wanted to get a better sense for what we'll see in 2009 from growth and acquisitions?
William R. Jellison - Chief Financial Officer, Senior Vice President
Yeah, I think our view there continues to be ... we like to be acquisitive in the market.
The dental market is a very fragmented industry and generally we see great synergy potential when we acquire companies in this market. Usually, it's an ability to help them grow faster through our network but also leverage their cost structure much better that they could do on their own.
So because of those synergies, I think that we can pay reasonable evaluations for transactions. As you point it out, we got plenty of liquidity and we debentured in companies that come to market although we're not desperate to do deals.
We're going to do deals if they are good for us.
Derek Leckow - Barrington Research
And so as far as our evaluations are concerned are you actually seeing that? You know you're seeing discounts there or sellers are still kind of ...
what's the impediment right now, the biggest impediment you have viewed to doing deal?
William R. Jellison - Chief Financial Officer, Senior Vice President
We see discounts only if the other party is at the level of desperation facing the liquidity crisis or generational change they don't know how to deal with. Desperation is too strong for words.
We see people being more reasonable about price in those cases. But again for most companies that are operating in dental, although they are not completely immune to the economic cycle it just doesn't get them as hard as it would many other businesses in the broader business community.
So, I don't think that expectations from private companies have changed a whole lot unless they're in one of those circumstances which drive them to really need a transaction now. It's kind of how we see that at this point.
Derek Leckow - Barrington Research
Okay. Let me stop there.
Good luck.
William R. Jellison - Chief Financial Officer, Senior Vice President
Alright Derek. Thanks.
Derek Leckow - Barrington Research
Thank you.
Operator
Another one from David Bill [ph] of Morgan Stanley. Sir, your line is open.
Unidentified Analyst
One thing that you said that was fairly counter intuitive to me was that, that was the decline in your stock price and then the volatility in the markets, you've actually decreased your share repurchases and to support your banks, I mean, it seems to me that with your stock price down 30% just in the last month or two, this'll be the time that you're ramping up your share repurchase. I wondered if you could just reconcile that for me?
William R. Jellison - Chief Financial Officer, Senior Vice President
Sure. I think what we did was in late September or mid September.
When the financial crisis hit, we saw a lot of financial maintenance that we'd always viewed as rock solid kind of in trouble. We did have availability of our line but the stock was still trading at that point probably in the upper 30s, maybe even low 40s.
At that point, we suspended our sharing purchase programs and we didn't want to have to draw that on our line to do sharing repurchases at that point. And then of course, we entered into a quiet period or a blackout period, where we can't buy shares now.
That period is going to expire three days after this announcement. And in our view, the financial markets have stabilized somewhat; certainly the commercial paper market's better than it was.
I don't take its back to where it was six months ago, but it is better than what it was. And in our prepared remarks, our comment there David was, an indication that, at the evaluation levels we view it fairly compelling, we think the credit markets have stabilized somewhat and we will expect to probably reinstitute that program here in the fourth quarter.
Unidentified Analyst
Okay. So the message is you are sort of holding your breath for a couple of weeks there, but where we are today, you can see a path to being more aggressive?
William R. Jellison - Chief Financial Officer, Senior Vice President
Yes, we can.
Unidentified Analyst
Okay, great. Thank you very much.
William R. Jellison - Chief Financial Officer, Senior Vice President
Thank you.
Operator
Jeff Johnson with Robert Baird. Please go ahead.
Jeff Johnson - Robert W. Baird & Co. Inc
Thank you. Good morning, guys.
Bret W. Wise - Chairman, President and Chief Executive Officer
Good morning, Jeff.
William R. Jellison - Chief Financial Officer, Senior Vice President
Good morning.
Christopher T. Clark - Executive Vice President and Chief Operating Officer
Good morning.
Jeff Johnson - Robert W. Baird & Co. Inc
A few things here if I could. Bret, just going back to your comments on organic growth guidance for the year, if I do the math, can you just confirm here kind of 3% to 5%; as where we should be looking for Q4?
Bret W. Wise - Chairman, President and Chief Executive Officer
Yeah, I think that there is a chance that it could be that in that range. And Jeff, the implications for us or the things we're looking at today is where is the market at today.
Still pretty good demand, certainly positive growth although it's little bit difficult to tell how positive. And then we've got a couple of headwinds, we've got the fact that we are going to be out of the dental anesthetic market in U.S.
in the fourth quarter; looks like completely out of that market, which could cost us up to three quarters of a point of growth globally on our global growth rate. And we do believe although its hard to tell with precision, we do believe that the dealer buying activity of how our price increase was heavier this year than last year, which would also indicate some sales from Q4 probably moved into Q3.
So, we did actually lower our internal growth guidance for the year. We worked from 5.5 to 6.5 and we lowered it to 5 to 5.5, although we're at 5.7 through nine months and I think that's indicative of those two issues I just commented on and the fact that we believe it could be in the range you're talking about for Q4.
Jeff Johnson - Robert W. Baird & Co. Inc
Yes, fair enough. And I think in this environment, we all expect a little flowing and that's fine.
I guess my question is if we see a little flowing Q4, you got these couple of issues here, the anesthetic issue, the buy forward issue, I think I'll have to hurdle. As you get into 2009 and then trying to stay very qualitatively, I know you don't want to guide, but I will assume as those headwinds go away but you potentially face may be growing macro headwinds.
It's hard for me to imagine '09 much below kind of Q4 levels on an annual basis then.
Bret W. Wise - Chairman, President and Chief Executive Officer
Yes I know where you are going with that. It's...
I think the way that I think about that is how we've seen the dental market react in previous economic slowdowns. And it does tend to come off a point or two off its normal global growth rate which is its normal 4.5 to 5 and you come off a couple of points and you are kind of add 2 to 3 or may be 3.5.
I don't think that's an unreasonable assumption at least at this early point. If the economy stays as it is now which looks pretty bleak, that dentistry's growth would slow but remain growing probably in those low single digit ranges that we're talking about.
Jeff Johnson - Robert W. Baird & Co. Inc
Okay, fair enough. And then, you made a comment Bret on the guidance when you were discussing guidance about the high end, was that the high end of your original guidance, the high end of where you are today with EPS guidance for the year, and then Bill, you made a comment about a potential 2 to 3 penny impact due to some below the line noise there on the fourth quarter, is that somewhat kind of in the guidance or how should we think about that?
Bret W. Wise - Chairman, President and Chief Executive Officer
No. Everything we commented on today is in our guidance.
William R. Jellison - Chief Financial Officer, Senior Vice President
Sure.
Bret W. Wise - Chairman, President and Chief Executive Officer
But no. My comment was, we started out the year at $1.83 to $1.88, now we are at $1.86 to $1.91.
So even at the low end of our guidance, we are at the high end of what we started with. And perhaps even above that if we get to the high end of our own guidance.
So, the comments we made are in the annual guidance that we're giving you and my earlier comments is that we are pleased to be at or above the high end of where we were when we started the year.
Jeff Johnson - Robert W. Baird & Co. Inc
Yes, fair enough. That's how I thought it I heard it.
And then, Bill I didn't hear geography or a percentage of revenues by geography for the quarter. I know you did year-to-date, but that's gives a little metal back and out.
Can you give me the Q3 numbers?
William R. Jellison - Chief Financial Officer, Senior Vice President
Yes, I think I need a second Jeff. In the quarter itself, U.S.
was about 41% of the total, Europe about 37%, and then the rest of the world was the other 22%.
Jeff Johnson - Robert W. Baird & Co. Inc
22% great. And then last question just as we think about M&A here in this environment, Bret, what is your stomach I guess for a dilutive deal?
I heard there were a tacky deal out there, if there are in a area you needed to get into whether or is it digital impressions or anything else? How do you think about dilutive deals as far as near term and then the long term benefit they could bring?
Bret W. Wise - Chairman, President and Chief Executive Officer
Well we've commented before that we would accept some mild dilution if they were for the right transaction with good... perhaps a good technology base of our preeminent market position.
But we would expect to be able to get that to neutrally accretive shortly thereafter. So I think that's still where we are.
The point you raised about buying new technologies particularly if they are not quit ready for launch, is by definition they are dilutive for a time and we've done that before with new technologies and absorbed that dilution until we can get the new product to market. So I think we would have an appetite for that if it were good strategically and only had mild dilution.
Jeff Johnson - Robert W. Baird & Co. Inc
All right. Fair enough.
Thank guys, I appreciate it.
Bret W. Wise - Chairman, President and Chief Executive Officer
Okay. Thank you.
Operator
Our next question is from Greg Halter with Great Lakes Review.
Greg Halter - Great Lakes Review
Hi, good morning guys.
Bret W. Wise - Chairman, President and Chief Executive Officer
Hi Greg.
Christopher T. Clark - Executive Vice President and Chief Operating Officer
Good morning, Greg.
William R. Jellison - Chief Financial Officer, Senior Vice President
Hey Greg.
Greg Halter - Great Lakes Review
I know you talked the receivables and your days and so forth, just wondered if you comment on your bad debt reserve and how your customers are looking in terms of payments and so forth on a go forward basis from what you can tell?
William R. Jellison - Chief Financial Officer, Senior Vice President
Sure. We actually took a pretty good look to debt at the end of the third Q to see and to decide based on kind of the environment, whether anything additional is needed and we felt that kind of a reserve level was pretty good.
We did actually have included in the third quarter numbers about a EUR1.2 million additional bad debt impact reserve that we took. But that was actually in our numbers that we had.
But from an overall reserve perspective, we were very pleased at the 59 days which is a little bit below last year's levels. And again, as we move forward here, our general expectation is that we would actually improve typically.
But I think at this point in time, we're still comfortable with the kind of the ranges that are out there right now. And as we continue to move forward, we're obviously making sure that each of our different divisions are taking a hard look at limits and terms and everything else.
Just to make sure that we're prudent in looking at that risk factor.
Greg Halter - Great Lakes Review
Okay. And I know you commented about on the implant side of things in terms of the growth there.
Just wondering if you think you're still continuing to gain share from, I guess, a lower base at least in the U.S. and what the prospects are in that business, going forward?
Bret W. Wise - Chairman, President and Chief Executive Officer
I think that...I think we're pleased with the performance we had. Not all of our competitors haven't reported yet, several of them have, which kind of indicates we're towards the up end or perhaps at the very top end of kind of a larger implant companies' organic sales growth range is.
In the U.S. of course your comment is valid that we got a very small market share here so we view that as a good opportunity.
Although I think the U.S. implant market itself is growing probably low single digits right now.
And we think we're well positioned there, we got two great brands, we got a good sales force and some good technologies coming out both, Q3 or Q4, and then next year. So we feel pretty good about our prospects in that market.
Greg Halter - Great Lakes Review
Okay. And you still expect your capital spending this year to be about $75 million and any early thoughts for '09 at least directionally up and down over that?
William R. Jellison - Chief Financial Officer, Senior Vice President
Yeah, right now that's the reasonable level of expectation for this year in total and I'd say that as we move forward we would expect kind of a normal increase off of that base at least at this point. But as I mentioned we're just going through our budget review process over the next kind of once in a half year.
Greg Halter - Great Lakes Review
Great. Thanks a lot.
Bret W. Wise - Chairman, President and Chief Executive Officer
Thank you.
Operator
[Operator Instructions]. We'll take our next question from Larry Marge [ph] Barclay's Capital.
Unidentified Analyst
Good morning. This is Adam Prusaar [ph] calling you for Larry.
I was just curious you guys mentioned ortho growth at the high single digits? Kind of how did that break down by regions?
Bret W. Wise - Chairman, President and Chief Executive Officer
It was actually pretty balanced this quarter. Ortho was high single digits in the world and I think it was high single digits in both U.S.
and Europe which is primary markets of course that we're in. So, I think it was a very balanced growth profile for us.
Unidentified Analyst
And then how did that go for Endo for the quarter?
Bret W. Wise - Chairman, President and Chief Executive Officer
Endo, I think worldwide was mid single digits growth.
Unidentified Analyst
I am just curious, I guess, on your small equipment, if what would you do characterize and I guess the highest price point in some of those products and what is the average, I guess?
William R. Jellison - Chief Financial Officer, Senior Vice President
Well, I mean that's a range of products. You got everything from systems and that may sell up to $4,500 to $5,000 to the Dentists.
You've got hand pieces, individual hand pieces that will be lower than that. So small equipment for us is probably anything in that $500 to $5,000 range to the Dentist.
Unidentified Analyst
And I guess, for the upper end of that, that's typically not financed by Dentist, right?
William R. Jellison - Chief Financial Officer, Senior Vice President
Typically not. Typically, anything under $5,000, general rule of thumb, they can put on their credit card.
Unidentified Analyst
Thanks a lot guys.
Bret W. Wise - Chairman, President and Chief Executive Officer
Thank you.
Operator
As there are no other questions in queue at this time, I would like to turn the conference back over to Mr. Bret Wise, Chairman, Chief Executive Officer and President.
Please go ahead sir.
Bret W. Wise - Chairman, President and Chief Executive Officer
Alright. Well, thank you again for joining us this morning and of course for your interest in DENTSPLY.
We are very pleased with our performance thus far in 2008 and believe we are very well positioned around that. A very good year again here in the fourth quarter and we look forward to updating you on our progress for both the fourth quarter and our expectations for next year when we talk to you in early February.
Thank you.
Operator
Ladies and gentlemen, this concludes today's DENTSPLY International conference call. Thank you for joining us and have a wonderful day.
You may now disconnect. .