Sybron Dental Specialties, Inc. Reports 13.5% Increase in Revenue and Strong Growth in Operating Income for Third Quarter of Fis

Sybron Dental Specialties, Inc. Reports 13.5% Increase in Revenue and Strong Growth in Operating Income for Third Quarter of Fiscal 2005 


ORANGE, Calif., Aug. 1  /PRNewswire-FirstCall/ -- Sybron Dental Specialties, Inc. (NYSE:SYD), a leading manufacturer of a broad range of value-added products for the dental profession, including the specialty markets of orthodontics, endodontics and implantology, announced today its financial results for its fiscal year 2005 third quarter, which ended on June 30, 2005.

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  THIRD QUARTER RESULTS


Net sales for the third quarter of fiscal 2005 totaled $165.2 million, an increase of 13.5% over the $145.5 million in net sales in the corresponding prior year period.  Sybron's internal net sales, which exclude currency fluctuations and include only the organic growth of acquisitions made in the past twelve months, grew 8.0% in the third quarter over the same period of the prior year.  The internal net sales growth rate of the Company's consumable products was 8.8%.  The sales of these products accounted for 97% of the Company's total sales in the quarter.

Net income for the third quarter of fiscal 2005 was $20.7 million, an increase of 25.1% over net income of $16.5 million in the same period of the prior year.  Fully diluted earnings per share were $0.50 in the third quarter of fiscal 2005, an increase of 22.0% over fully diluted earnings per share of $0.41 in the same period of the previous year.

In the third quarter of fiscal 2005, Sybron generated $19.9 million in free cash flow, defined as cash flows from operating activities of $25.6 million minus capital expenditures of $5.7 million.  This compares with free cash flow of $21.5 million in the same period of the previous year (cash flows from operating activities of $24.7 million minus capital expenditures of $3.2 million).  The Company's free cash flow was impacted by a $10.1 million contribution to its defined benefit pension plan.  In the third quarter of fiscal 2004, contributions to the defined benefit pension plans totaled $0.1 million.

"Our sales momentum continued to build in the third quarter and we generated our highest level of internal net sales growth in more than a year," said Floyd W. Pickrell, Jr., Chief Executive Officer of Sybron Dental Specialties.  "This was a very balanced quarter with strong contributions from all major areas of the Company and strong revenue growth both domestically and internationally.  We continue to build the user base for products such as the Damon 3 self-ligating bracket, Premise(TM) nanocomposite and Maxcem(TM) self-adhesive cement, which provides an excellent foundation for sustainable growth in future quarters."

SEGMENT SALES HIGHLIGHTS

During the third quarter, the internal net sales of the Company's Specialty Products segment grew 10.3% over the same period in the prior year. Sales were positively impacted by additional account conversions to the Damon 3 self-ligating bracket, as well as, the introduction of Damon buccal tubes. The Company continues to generate double-digit sales growth in its line of endodontic products, driven by strong sales of the Elements Obturation device and nickel-titanium files.

In the third quarter, internal net sales of the Company's Professional Dental segment increased 5.9% over the same period in the prior year. Internal net sales of Professional Dental consumable products increased 8.3%.  Sales in the quarter were positively impacted by solid sales of Premise nanocomposite, Maxcem self-adhesive cement, and a new high resolution loupe from the Company's Orascoptic business.

THIRD QUARTER FINANCIAL HIGHLIGHTS

Gross margins in the third quarter of fiscal 2005 were 55.9%, compared with 56.3% in the same period of the prior year.  The decrease in overall gross margin is attributable to a $1.5 million ($1.0 million after tax) adjustment to cost of goods sold for prior period accounting errors, which is described in more detail below and to unfavorable manufacturing variances that were capitalized in earlier periods and then recognized as the Company sold that inventory during Q3 of fiscal 2005.  These charges were partially offset by gross margin improvements that resulted from the Company's factory rationalizations that took place in Europe and Mexico last year, continued manufacturing process improvements and favorable changes in geographic mix.

Selling, general and administrative expenses (SG&A) were $59.0 million, or 35.7% of net sales, in the third quarter of fiscal 2005, compared with $52.3 million, or 35.9% of net sales, in the same period of the prior year.

Research and development expenditures were $2.9 million in the third quarter of fiscal 2005, an increase of 16.0% over $2.5 million of expenditures in the same period of the prior year.  This increase was driven by development costs for the Company's Demetron LED II curing light and validation testing of the first batches of the Company's new impression material.

Operating income for the third quarter of 2005 was $33.3 million, compared to $29.6 million in the third quarter of fiscal 2004.  Earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter were $37.2 million.  Operating income was 20.2% and EBITDA was 22.5% of net sales for the quarter, compared with 20.3% and 22.8%, respectively, in the same period of 2004.  Third quarter 2005 EBITDA is calculated by adding net income of $20.7 million, income taxes of $7.5 million, net interest expense of $4.8 million and depreciation and amortization of approximately $4.2 million. Third quarter 2004 EBITDA of $33.1 million is calculated by adding net income of $16.5 million, income taxes of $8.1 million, net interest expense of $5.1 million and depreciation and amortization of approximately $3.4 million.

Sybron's effective tax rate in the third quarter of fiscal 2005 was 26.6%, compared with 33% in the third quarter of fiscal 2004.  During the third quarter of 2005, it was determined that it was no longer necessary to maintain several accruals established for potential domestic and foreign tax liabilities.  As a result, the accruals, totaling $1.5 million were reversed.

Net trade receivables were $107.8 million and days sales outstanding (DSOs) were 58.5 days at June 30, 2005, which compares with 59.3 days at June 30, 2004.

Net inventory was $96.2 million at June 30, 2005 and inventory days were 121 days, which compares to 123 days at June 30, 2004 and 145 days at March 31, 2005.

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), for a detailed calculation of the Company's DSOs and inventory days.

Capital expenditures were $5.7 million in the third quarter of fiscal 2005, compared with $3.2 million in the same period of the previous year.

The average debt outstanding for the quarter was $226.6 million with an average interest rate of 7.0%. Net borrowings increased during the quarter as a result of the Company's purchase of Oraltronics and a $10.0 million funding of its defined benefit pension plan, leaving total debt outstanding at June 30, 2005 of $233.5 million versus $230.8 million at March 31, 2005.

Sybron's cash and cash equivalents balance was $46.8 million at June 30, 2005, compared with $47.6 million at March 31, 2005.  The Company continues to maintain a cash balance at several of its foreign subsidiaries that is in excess of traditional working capital requirements.  The Company has evaluated the impact of the American Jobs Creation Act of 2004 and has concluded that it does not provide a significant benefit for the Company due to the level of the Company's historical repatriations of cash and intercompany loans.

Sybron's capital structure was 38.2% debt and 61.8% equity at June 30, 2005.  This compares with 46.1% debt and 53.9% equity at June 30, 2004.

PRIOR PERIOD ACCOUNTING ERRORS

During the third quarter of fiscal 2005, the Company identified accounting errors primarily made at one of the subsidiaries in its Professional Dental segment.  Most of these errors related to inventory and were not detected because complete inventory reconciliations were not being performed.  The Company also identified a practice that was being followed at this same location that resulted in revenue being incorrectly recognized when inventory was shipped to suppliers for further processing. These errors, along with a number of other smaller errors, occurred over multiple quarters.  The cumulative effect of these prior period errors resulted in a charge in the third quarter of $1.5 million ($1.0 million after tax) to cost of goods sold and a reversal of $1.6 million of revenue that had been improperly recognized in earlier fiscal 2005.

The Company completed an internal review of the errors and determined that certain accounting personnel at the subsidiary failed to follow proper accounting procedures related to account reconciliations and revenue recognition.  The Company's management concluded that the effect of the errors was not material to any of the prior quarters in which they occurred and the correcting entries are not material to the third quarter.  The Company's Audit Committee, following an independent review conducted by outside legal counsel under the direction of the Committee, concurred with management's conclusion. Management has determined that these failures evidenced two material weaknesses in the Company's internal control over financial reporting in prior periods. The Company has since improved its internal controls over accounting for inventory.  The procedures related to shipping inventory to suppliers for further processing have been improved to provide assurance that revenue is not recognized on these types of shipments.

OUTLOOK

For the fourth quarter of fiscal 2005, Sybron expects revenue to range from $161 million to $166 million, and diluted earnings per share to range from $0.45 to $0.50.

Commenting on the outlook for Sybron, Mr. Pickrell said, "New products have been instrumental in driving our growth this year, and we continue to have a strong pipeline of new products that are scheduled for introduction over the next few quarters.  In our Professional Dental segment these include a more powerful version of our industry-leading LED curing light and a replacement for alginate impression material that eliminates mixing and provides better dimensional stability. We also expect the Specialty Products segment to make a limited release of a metal version of the Damon 3 bracket. We believe there is increasing adoption of self-ligating brackets in orthodontics and we are moving to further enhance our Damon brand as the leading product line in this area.  We think Damon 3 metal will help to convert more orthodontists, particularly those who are most comfortable working with more traditional metal brackets. Combined with the aesthetic Damon 3 bracket, Damon buccal tubes and Damon wires, we are building Damon into a powerful brand that should position us to take additional market share in orthodontics if the shift to self-ligating brackets continues in the future."

NON-GAAP FINANCIAL MEASURES

The Company has included information concerning EBITDA and free cash flow because management believes that certain investors use this information as measures of a company's performance and ability to service its debt.  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.  EBITDA and free cash flow have not been prepared in accordance with generally accepted accounting principles (GAAP).  EBITDA and free cash flow, as presented by Sybron, may not be comparable to similarly titled measures reported by other companies.

CONFERENCE CALL AND WEBCAST

The Company will host a conference call on Tuesday, August 2, 2005 at 10:00 a.m. Pacific Time to review the information in this press release and respond to questions.  The dial-in number for the call is [phone] for domestic callers and [phone] for international callers, passcode 788912.

A recorded replay of the conference call will be offered beginning at 1:30 p.m. Pacific Time on Tuesday, August 2nd via both the Company's website and a telephone dial-in number.  The telephone dial-in number for the recorded replay is [phone], passcode 788912 for domestic callers and [phone], passcode 788912 for international callers.  The telephone replay will be available through 11:59 p.m. Pacific Time on August 5, 2005.

The live webcast and archived 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; the demand for its products; the development, introduction and sales of new products; the increase in demand in orthodontics for self-ligating brackets; and the Company's ability to capitalize on the demand for self-ligating brackets with its Damon brand of products 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; market reception and competitive response with respect to new products; regulatory compliance; currency fluctuations; distributor inventory adjustments; the intensity of competition; and other factors affecting the Company's business prospects discussed in 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.  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 both a broad range of value-added products for the dental profession, including the specialty markets of orthodontics, endodontics and implantology, and a variety of infection prevention products for use by the medical profession.

               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,

                                       2005      2004      2005      2004

  Net sales                          $165,174  $145,518  $479,270  $428,296
  Cost of sales:
    Cost of products sold              72,908    63,517   208,368   190,270
    Restructuring charge                   (8)      132        76     1,614
      Total cost of sales              72,900    63,649   208,444   191,884
  Gross Profit                         92,274    81,869   270,826   236,412
    Selling, general and
     administrative expenses           58,257    51,976   174,952   150,969
    Restructuring charge                   --        --       488        --
    Amortization of intangible
     assets                               734       307     1,790       938
      Total selling, general and
       administrative expenses         58,991    52,283   177,230   151,907
  Operating income                     33,283    29,586    93,596    84,505
  Other expense:
       Interest expense                (4,404)   (4,677)  (14,037)  (14,778)
       Amortization of deferred
        financing fees                   (414)     (401)   (1,245)   (1,210)
       Other, net                        (308)      163       544       120
  Income before income taxes           28,157    24,671    78,858    68,637
  Income taxes                          7,478     8,141    23,702    22,650
       Net income                     $20,679   $16,530   $55,156   $45,987

  Earnings per share:
       Basic earnings per share         $0.51     $0.43     $1.38     $1.19
       Diluted earnings per share       $0.50     $0.41     $1.33     $1.15

  Weighted average basic shares
   outstanding                         40,180    38,722    39,882    38,501

  Weighted average diluted shares
   outstanding                         41,521    40,343    41,358    40,143



              SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
                  (in thousands, except per share amounts)
                                 (unaudited)

                                                June 30,       September 30,
                                                  2005              2004
                                   ASSETS
  Current assets:
       Cash and cash equivalents                 $46,774           $40,602
       Accounts receivable (less
        allowance for doubtful
        receivables of
            $3,107 and $2,094 at June
             30, 2005 and September 30,
             2004, respectively)                 107,839           104,148
       Inventories                                96,194            93,689
       Deferred income taxes                       6,011             3,293
       Prepaid expenses and other
        current assets                            13,782            12,975
                 Total current assets            270,600           254,707
  Property, plant and equipment, net of
   accumulated depreciation of $113,449
   and
       $101,934 at June 30, 2005 and
        September 30, 2004,
        respectively                              83,679            83,121
  Goodwill                                       293,648           268,768
  Intangible assets, net                          52,409            16,178
  Other assets                                    33,626            23,784
                 Total assets                   $733,962          $646,558

  LIABILITIES AND STOCKHOLDERS' EQUITY
  Current liabilities:
       Accounts payable                          $15,386           $19,512
       Current portion of long-term
        debt                                         812               882
       Income taxes payable                       16,433            17,089
       Accrued payroll and employee
        benefits                                  30,422            29,712
       Restructuring reserve                         -                 711
       Accrued rebates                             7,926             9,475
       Accrued interest                              752             3,620
       Other current liabilities                  16,626            12,291
                 Total current
                  liabilities                     88,357            93,292
  Long-term debt                                  82,729            69,589
  Senior subordinated notes                      150,000           150,000
  Deferred income taxes                           14,363            12,266
  Other liabilities                               20,742            22,639
     Total liabilities                           356,191           347,786
  Commitments and contingent
   liabilities
  Stockholders' equity:
       Preferred stock, $.01 par value;
         authorized 20,000 shares, no shares
         outstanding                                 --                --
       Common stock, $.01 par value;
         authorized 250,000 shares, 40,356
         and 39,307 shares issued and
         outstanding at June 30, 2005 and
         September 30, 2004, respectively            403               393
  Additional paid-in capital                     117,507            93,817
  Retained earnings                              243,312           188,156
  Accumulated other comprehensive income          16,549            16,406
        Total stockholders' equity               377,771           298,772
        Total liabilities and
          stockholders' equity                  $733,962          $646,558



              SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (in thousands)
                                 (unaudited)

                                                Nine Months Ended June 30,
                                                  2005              2004
  Cash flows from operating activities:
       Net income                                $55,156           $45,987
       Adjustments to reconcile net
        income to net cash provided by
          operating activities:
          Depreciation                            10,813             9,785
          Amortization of intangible
           assets                                  1,790               938
          Amortization of deferred
           financing fees                          1,246             1,210
          Loss on sales of property,
           plant and equipment                       316              (102)
          Provision for losses on
           doubtful receivables                      527               586
          Inventory provisions                     3,981             2,436
       Deferred income taxes                        (518)           (1,118)
       Tax benefit from issuance of
        stock under employee stock
        option plan                                7,481             2,904
       Changes in assets and
        liabilities, net of effects of
          businesses acquired:
          (Increase) decrease in
           accounts receivable                      (902)              120
          (Increase) decrease in
           inventories                             2,403            (5,592)
          Increase in prepaid expenses
           and other current assets                 (321)           (1,077)
          Decrease in accounts payable            (5,403)           (5,035)
          Increase (decrease) in income
           taxes payable                          (1,939)              927
          Increase in accrued payroll
           and employee benefits                   1,210             1,262
          Decrease in accrued rebates             (1,549)             (884)
          Decrease in restructuring
           reserve                                  (711)             (361)
          Decrease in accrued interest            (2,868)           (3,192)
          Increase in other current
           liabilities                               977             3,091
          Net change in other assets
           and liabilities                        (9,703)              721
            Net cash provided by
             operating activities                 61,986            52,606
  Cash flows from investing activities:
       Capital expenditures                      (12,030)           (8,537)
       Proceeds from sales of property,
        plant, and equipment                       1,013               159
       Net payments for businesses
        acquired                                 (69,218)               --
       Payments for intangibles                   (1,170)             (750)
            Net cash used in  investing
             activities                          (81,405)           (9,128)
  Cash flows from financing activities:
       Proceeds from credit facility             135,500           108,500
       Principal payments on credit
        facility                                (122,254)         (146,555)
       Proceeds from long-term debt                   --             2,469
       Principal payments on long-term
        debt                                        (354)           (9,345)
       Cash received from exercise of
        stock options                             14,558             8,774
       Cash received from employee
        stock purchase plan                        1,661             1,172
           Net cash provided by (used
            in) financing activities              29,111           (34,985)
  Effect of exchange rate changes on
   cash and cash equivalents                      (3,520)           (1,343)
  Net increase in cash and cash
   equivalents                                     6,172             7,150
  Cash and cash equivalents at
   beginning of period                            40,602            22,868
  Cash and cash equivalents at end of
   period                                        $46,774           $30,018



              SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES
                           ADDITIONAL DISCLOSURES
                       For periods ended June 30, 2005

  INTERNAL GROWTH
                                         Professional  Specialty     Total
                                             Dental    Products       SDS

  Quarter                                     5.9%       10.3%        8.0%
  Year to Date                                4.0%        9.9%        6.7%

                                                 Total SDS
                                            Foreign     Domestic

  Quarter                                     6.3%        9.4%
  Year to Date                                3.3%        9.8%


  DOMESTIC AND INTERNATIONAL SALES BY SEGMENT

                                       Professional  Specialty     Total
                                           Dental     Products      SDS

  Quarter
    Domestic                               $49,254     $38,002     $87,256
    International                           37,645      40,273      77,918
     Total Quarter Sales                   $86,899     $78,275    $165,174

  Year to Date
    Domestic                              $141,732    $110,761    $252,493
    International                          108,621     118,156     226,777
     Total Year to Date Sales             $250,353    $228,917    $479,270


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DATASOURCE: Sybron Dental Specialties, Inc.



CONTACT:  Bernard J. Pitz, Chief Financial Officer of Sybron Dental

Specialties, Inc., [phone]



Web site:  http://www.sybrondental.com/ 

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