SYD Sybron Dental Specialties

Sybron Dental Specialties, Inc. Reports 10.4% Increase in Third Quarter Net Income ORANGE, Calif., July 26 /PRNewswire-FirstCall/ -- Sybron Dental Specialties, Inc. (NYSE:SYD), a leading manufacturer of a broad range of value-added products for the dental and orthodontic professions including the specialty markets of endodontics and infection prevention, announced today its financial results for its third fiscal quarter ended June 30, 2004. (Logo: http://www.newscom.com/cgi-bin/prnh/20001204/SDSLOGO) Third Quarter Results Net sales for the third quarter of fiscal 2004 totaled $145.5 million, an increase of 8.4% over $134.2 million in the prior year period. Sybron's total internal net sales growth rate, which excludes currency fluctuations and the impact of acquisitions made in the past twelve months, was 3.7% for the third quarter. The Company's consumable products, which represented approximately 96% of total net sales in the third quarter of fiscal 2004, had an internal net sales growth rate of 6.7%. As expected, equipment sales declined by approximately 38% from the prior year period, which benefited from the introduction of the Company's LED curing light in fiscal 2003. Net income for the third quarter of fiscal 2004 was $16.5 million, or $0.41 per diluted share, an increase of 10.4% over net income of $15.0 million, or $0.38 per diluted share, in the same period of the previous year. In the third quarter of fiscal 2004, Sybron generated $21.5 million in free cash flow, defined as cash flows from operating activities of $24.7 million minus capital expenditures of $3.2 million. This compares with free cash flow of $10.5 million in the same period of the previous year (cash flows from operating activities of $13.0 million minus capital expenditures of $2.5 million). "We recorded another quarter of solid results through a combination of organic growth and a meaningful contribution from our August 2003 acquisition of SpofaDental," said Floyd W. Pickrell, Jr., Chief Executive Officer of Sybron Dental Specialties. "We have a number of new products, such as the Premise(TM) nanocomposite, that are being well received. We also continue to successfully increase the user base for our established products, such as the Damon self-ligating brackets, which is also having a positive impact on sales of peripheral products like archwires." ORMCO AND KERR HIGHLIGHTS During the third quarter, the Company's Ormco subsidiary generated internal net sales growth of 9.7%, with strong growth in both domestic and international sales. Sales in the quarter were positively impacted by strong demand for the Damon 2 self-ligating bracket and the Inspire Ice(TM) clear-ceramic bracket. In addition, Ormco also had a very successful preview promotion for the new Damon 3 self-ligating bracket, in which hundreds of top users of the Damon system placed orders for an advance shipment of the new, more esthetic version of the Damon bracket. The Company is planning a broad launch of the Damon 3 bracket in September. During the third quarter, the Kerr subsidiary's internal net sales growth rate was negative 0.7%. Internal net sales of Kerr's consumable products, which exclude equipment sales including the popular LED curing light launched in fiscal 2003, increased 3.7% over the prior year period. Strong sales of the Premise nanocomposite, the new HiRes magnification loupe, and infection prevention products helped to offset the significant decline in sales of curing lights from the previous year. In addition, SpofaDental continues to perform well following its acquisition last year by Kerr and is seeing significant sales of a new impression material developed for the Central and Eastern European markets. The consolidation of SpofaDental's operations from five facilities into one facility in the city of Jicin in the Czech Republic is progressing on schedule. THIRD QUARTER FINANCIAL HIGHLIGHTS Gross margins in the third quarter of 2004 improved to 56.3%, compared with 55.4% in the same period of the previous year. Selling, general and administrative expenses (SG&A) were $52.0 million, or 35.7% of net sales, in the third quarter of 2004, compared with $44.8 million, or 33.4% of net sales, in the same period of the prior year. The increase in SG&A as a percentage of sales from the previous year is primarily attributable to an increase in legal expenses related to patent infringement lawsuits, as well as more activity related to the evaluation of prospective mergers and acquisitions. One of the M&A considerations resulted in the purchase of the Bioplant(R) product line, announced on July 22, 2004, while other discussions remain ongoing pursuant to the Company's strategy of maintaining consistent dialogue with potential acquisition candidates. Research and development expenditures were $2.5 million in the third quarter of 2004, an increase of 15.9% from the $2.1 million of expenditures in the same period of the prior year. Operating income for the third quarter of 2004 was $29.6 million, compared to $29.3 million in the third quarter of 2003. Earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter were $33.0 million. Operating income was 20.3% and EBITDA was 22.7% of net sales for the quarter. Third quarter 2004 EBITDA is calculated by adding net income of $16.5 million, income taxes of $8.1 million, net interest expense of $5.0 million, and depreciation and amortization of approximately $3.4 million. Sybron's effective tax rate in the third quarter of fiscal 2004 was 33%, compared to 36% in the same period of the prior year. The reduced tax rate is primarily attributable to the benefits resulting from the Company's consolidation of several of its European facilities into Switzerland, which has a lower tax rate. Net trade receivables were $103.5 million and days sales outstanding (DSOs) were 59.3 days at June 30, 2004, which compares with 58.7 days at June 30, 2003. Net inventory was $88.8 million at the end of the third quarter and inventory days were 123 days, which compares to 132 days at June 30, 2003. Please refer to the supplemental schedules provided on the Financial Report's section of Sybron's Investor Relations web site (http://www.sybrondental.com/investors/index.html) that detail the calculation of the Company's DSOs and inventory days. Capital expenditures were $3.2 million in the third quarter of fiscal 2004, compared with $2.5 million in the same period of the previous year. The Company has determined that continuing to lease its current corporate headquarters in Orange, California provides greater economic benefits than purchasing the facility, and is currently negotiating a 15 year lease extension. The average debt outstanding for the quarter was approximately $240.6 million with an average interest rate of 7.7%. The Company paid down $15.8 million of debt in the third quarter, leaving total debt outstanding of approximately $233.0 million at June 30, 2004. Sybron's capital structure was 46.1% debt and 53.9% equity at June 30, 2004. This compares with 61.8% debt and 38.2% equity at June 30, 2003. AMENDED CREDIT FACILITY As a result of the recent upgrade in Sybron's credit rating by S&P and Moody's, the Company has received a 50 basis point reduction in the margin on its term loan. In addition, the covenants of Sybron's credit facility have been amended to allow the Company to utilize up to $100 million for stock repurchases or dividend payments, at the Company's discretion. Previously, the Company was limited to $25 million for these purposes. At this point in time, Sybron does not have plans to initiate a stock repurchase program or begin issuing a dividend. OUTLOOK For the fourth quarter of fiscal 2004, Sybron expects revenue to range from $137 million to $142 million, and diluted earnings per share to range from $0.37 to $0.42. Commenting on the outlook for Sybron, Mr. Pickrell said, "We expect to see a continuation of recent trends in the near-term, with growth in the orthodontic and endodontic areas outpacing growth in the general dental area. At Kerr, we are focused on raising additional awareness for the superior features of Premise and utilizing its popularity to cross-market some of our other products used in the restorative process, such as finishing discs and polishers. We will also further strengthen our product offerings for restorative procedures with the introduction of a new self-adhesive cement during the fourth quarter that we believe has excellent potential. "There are a number of catalysts in place that we believe will continue to drive strong results at Ormco, including the broad launch of the Damon 3 bracket in September, which we believe will enhance our efforts to convert orthodontists from traditional brackets. Going forward, we intend to continue building the Damon brand and introduce products such as Damon wires and other high value peripheral products that can increase our share of the overall treatment expenditures," said Mr. Pickrell. NON-GAAP FINANCIAL MEASURES The Company has included information concerning internal net sales growth, EBITDA and free cash flow because management believes that certain investors use internal net sales growth, EBITDA and free cash flow as measures of a company's performance and EBITDA and free cash flow as measures of a company's ability to service its debt. Internal net sales growth, EBITDA and free cash flow should not be considered as alternatives to, or more meaningful than, net income as an indicator of Sybron's operating performance or cash flows as a measure of liquidity. Internal net sales growth, EBITDA and free cash flow have not been prepared in accordance with generally accepted accounting principals (GAAP). Internal net sales growth, EBITDA and free cash flow, as presented by Sybron, may not be comparable to similarly titled measures reported by other companies. CONFERENCE CALL The Company will host a conference call on Tuesday, July 27th at 1:00 p.m. Eastern Daylight Time to review the information in this press release and respond to questions. The dial-in number for the call is (888) 273-9890 passcode 738411 for domestic callers and (612) 332-0820 passcode 738411 for international callers. A recorded replay of the conference call will be offered beginning at 4:30 p.m. Eastern Daylight Time on Tuesday, July 27th via both the Company's website and a telephone dial-in number. The telephone dial-in number for the recorded replay is (800) 475-6701, passcode 738411 for domestic callers and (320) 365-3844, passcode 738411 for international callers. The telephone replay will be available through 11:59 p.m. Pacific Daylight Time on July 30, 2004. The website replay may be accessed in the Investor Relations section of Sybron Dental's website at http://www.sybrondental.com/. CAUTION REGARDING FORWARD-LOOKING STATEMENTS Statements made in this press release regarding future matters are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, including those dealing with the Company's expectations as to its future revenue; earnings per share; organic growth; the demand for its products; the introduction and sales of new products; and the success of its self ligating orthodontic brackets are based on the Company's current expectations. Our actual results may differ materially from those currently expected or desired because of a number of risks and uncertainties, including the level of demand for the Company's products; regulatory compliance; currency fluctuations; distributor inventory adjustments; the intensity of competition; and other factors affecting the Company's business and prospects discussed in the filings made by the Company, from time to time, with the SEC including the factors discussed in the "Cautionary Factors" section in Item 7 of the Company's most recent Annual Report on Form 10-K and its periodic reports on Form 10-Q and 8-K (if any). We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. BUSINESS DESCRIPTION Sybron Dental Specialties and its subsidiaries are leading manufacturers of value-added products for the dental and orthodontic professions and products for use in infection control. Sybron Dental Specialties develops, manufactures, and sells through independent distributors a comprehensive line of consumable general dental and infection prevention products to the dental industry worldwide. It also develops, manufactures, markets and distributes an array of consumable orthodontic and endodontic products worldwide. SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands except per share amounts) (unaudited) Three Months Ended Nine Months Ended June 30, June 30, 2004 2003 2004 2003 Net sales $145,518 $134,232 $428,296 $388,648 Cost of sales 63,517 59,850 190,270 175,341 Restructuring charge 132 -- 1,614 -- Total cost of sales 63,649 59,850 191,884 175,341 Gross profit 81,869 74,382 236,412 213,307 Selling, general and administrative expenses 51,976 44,799 150,969 131,573 Amortization of intangible assets 307 329 938 939 Total selling, general and administrative expenses 52,283 45,128 151,907 132,512 Operating income 29,586 29,254 84,505 80,795 Other expense: Interest expense (4,677) (5,418) (14,778) (16,397) Amortization of deferred financing fees (401) (416) (1,210) (1,237) Other, net 163 (35) 120 825 Income before income taxes 24,671 23,385 68,637 63,986 Income taxes 8,141 8,406 22,650 23,835 Net income $16,530 $14,979 $45,987 $40,151 Earnings per share: Basic earnings per share $0.43 $0.39 $1.19 $1.05 Diluted earnings per share $0.41 $0.38 $1.15 $1.03 Weighted average basic shares outstanding 38,722 38,166 38,501 38,058 Weighted average diluted shares outstanding 40,343 39,735 40,143 38,874 SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands except share amounts) (unaudited) June 30, September 30, 2004 2003 ASSETS Current assets: Cash and cash equivalents $30,018 $22,868 Accounts receivable (less allowance for doubtful receivables of $2,157 and $2,247 at June 30, 2004 and September 30, 2003, respectively) 103,536 103,565 Inventories 88,845 84,239 Deferred income taxes 5,769 4,896 Prepaid expenses and other current assets 12,701 11,624 Total current assets 240,869 227,192 Property, plant and equipment, net of accumulated depreciation of $99,441 and $92,273 at June 30, 2004 and September 30, 2003, respectively 80,428 80,750 Goodwill 261,846 258,590 Intangible assets, net 16,160 16,455 Other assets 27,750 28,672 Total assets $627,053 $611,659 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $14,585 $19,620 Current portion of long-term debt 768 3,714 Income taxes payable 17,201 16,274 Accrued payroll and employee benefits 29,974 28,712 Restructuring reserve 1,125 1,486 Accrued rebates 8,988 9,872 Accrued interest 709 3,901 Other current liabilities 14,008 10,917 Total current liabilities 87,358 94,496 Long-term debt 82,239 124,008 Senior subordinated notes 150,000 150,000 Deferred income taxes 12,885 13,748 Other liabilities 22,677 21,422 Total liabilities 355,159 403,674 Commitments and contingent liabilities Stockholders' equity: Preferred stock, $.01 par value; authorized 20,000,000 shares, no shares outstanding -- -- Common stock, $.01 par value; authorized 250,000,000 shares, 38,945,673 issued and 38,285,224 shares issued and outstanding at June 30, 2004 and September 30, 2003, respectively 389 383 Additional paid-in capital 87,778 74,934 Retained earnings 172,031 126,044 Accumulated other comprehensive income 11,696 6,624 Total stockholders' equity 271,894 207,985 Total liabilities and stockholders' equity $627,053 $611,659 SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Nine Months Ended June 30, 2004 2003 Cash flows from operating activities: Net income $45,987 $40,151 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 9,785 8,637 Amortization of intangible assets 938 939 Amortization of deferred financing fees 1,210 1,237 Gain on sales of property, plant and equipment (102) (659) Provision for losses on doubtful receivables 586 223 Inventory provisions 2,436 2,180 Deferred income taxes (1,118) (2,147) Tax benefit from issuance of stock under employee stock option plan 2,904 450 Changes in assets and liabilities, net of effects of businesses acquired: (Increase)/decrease in accounts receivable 120 (10,930) (Increase)/decrease in inventories (5,592) 3,640 (Increase)/decrease in prepaid expenses and other current assets (1,077) 1,219 Increase/(decrease) in accounts payable (5,035) 682 Increase in income taxes payable 927 11,444 Increase in accrued payroll and employee benefits 1,262 32 Increase/(decrease) in accrued rebates (884) 746 Decrease in restructuring reserve (361) (2,094) Decrease in accrued interest (3,192) (3,366) Increase in other current liabilities 3,091 3,084 Net change in other assets and liabilities 721 (2,898) Net cash provided by operating activities 52,606 52,570 Cash flows from investing activities: Capital expenditures (8,537) (5,352) Proceeds from sales of property, plant, and equipment 159 5,304 Deposit -- (16,083) Payments for intangibles (750) (911) Net cash used in investing activities (9,128) (17,042) Cash flows from financing activities: Proceeds from credit facility 108,500 104,500 Principal payments on credit facility (146,555) (141,074) Proceeds from long-term debt 2,469 3,259 Principal payments on long-term debt (9,345) (3,651) Payment of deferred financing fees -- (473) Cash received from exercise of stock options 8,775 3,105 Cash received from ESP Plan 1,171 -- Net cash used in financing activities (34,985) (34,334) Effect of exchange rate changes on cash and cash equivalents (1,343) 6,037 Net increase in cash and cash equivalents 7,150 7,231 Cash and cash equivalents at beginning of period 22,868 12,652 Cash and cash equivalents at end of period $30,018 $19,883 SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES INTERNAL GROWTH For period ended June 30, 2004 Professional Total Dental Orthodontics SDS Quarter -0.7% 9.7% 3.7% Year to date -1.6% 10.0% 3.3% Total SDS Foreign Domestic Quarter 3.4% 3.9% Year to date 4.2% 2.6% http://www.newscom.com/cgi-bin/prnh/20001204/SDSLOGO http://photoarchive.ap.org/ DATASOURCE: Sybron Dental Specialties, Inc. CONTACT: Gregory D. Waller, Chief Financial Officer of Sybron Dental Specialties, Inc., +1-714-516-7400 Web site: http://www.sybrondental.com/investors/index.html Web site: http://www.sybrondental.com/

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