Sybron Dental (NYSE:SYD)
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Sybron Dental Specialties, Inc. Reports 23% Increase in Earnings
per Share
ORANGE, Calif., Jan. 24 /PRNewswire-FirstCall/ -- Sybron Dental Specialties,
Inc. (NYSE:SYD), a leading manufacturer of a broad range of value-added
products for the professional dental market and the specialty markets of
orthodontics, endodontics, implants and infection prevention, announced today
its financial results for its first fiscal quarter ended December 31, 2004.
(Logo: http://www.newscom.com/cgi-bin/prnh/20001204/SDSLOGO)
FIRST Quarter Results
Net sales for the first quarter of fiscal 2005 totaled $149.0 million, an
increase of 13.0% over the $131.9 million in net sales in the prior year
period. Sybron's internal net sales, which exclude currency fluctuations and
the impact of acquisitions made in the past twelve months, grew 6.7% in the
first quarter. The Company's consumable products, which represented
approximately 97.5% of total net sales in the first quarter of fiscal 2005, had
an internal net sales growth rate of 8.2%.
Net income for the first quarter of fiscal 2005 was $15.0 million, or $0.37 per
diluted share, compared with net income of $11.9 million, or $0.30 per diluted
share, in the same period of the previous year. Diluted earnings per share
increased by 23% over the prior year period.
In the first quarter of fiscal 2005, Sybron generated $16.4 million in free
cash flow, defined as cash flows from operating activities of $19.8 million
minus capital expenditures of $3.4 million. This compares with free cash flow
of $17.6 million in the same period of the previous year (cash flows from
operating activities of $20.3 million minus capital expenditures of $2.7
million).
"We had an excellent start to the fiscal year driven by a strong response to
our recently introduced products," said Floyd W. Pickrell, Jr., Chief Executive
Officer of Sybron Dental Specialties. "We believe we are continuing to
increase our market share in orthodontics, and we are pleased with the strong
internal growth of our consumable professional dental products. We are also
seeing the benefits of our recent facility rationalization efforts, which,
along with more favorable foreign currency exchange rates, produced an increase
in gross margin of almost three percentage points over the prior year."
ORMCO AND KERR HIGHLIGHTS
During the first quarter, the internal net sales of the Company's Specialty
Products segment (Ormco) grew 10.4% over the same period in the prior year.
Sales in the quarter were positively impacted by account conversions to the new
Damon 3 self-ligating bracket, and strong sales of the new Elements Obturation
device for endodontic procedures. Total sales of the Specialty Products
segment were also positively impacted by the acquisition in October of Innova
LifeSciences and its line of dental implants, the sales of which are meeting
the Company's expectations.
During the first quarter, internal net sales of the Company's Professional
Dental segment (Kerr) increased 3.3% over the same period in the prior year.
Internal net sales of Professional Dental consumable products increased 6.4%.
Sales in the quarter were positively impacted by continued solid sales of the
Premise nanocomposite, a strong response to the new MaxCem self-adhesive
cement, and higher sales of infection prevention products, driven by further
penetration of the medical market.
FIRST QUARTER FINANCIAL HIGHLIGHTS
Gross margins in the first quarter of 2004 were 57.3%, compared with 54.6% in
the same period of the previous year. The increase in overall gross margin is
primarily attributable to increased manufacturing efficiencies resulting from
facility rationalization efforts, as well as more favorable foreign currency
rates.
Selling, general and administrative expenses (SG&A) were $58.0 million, or
38.9% of net sales, in the first quarter of 2005, compared with $48.5 million,
or 36.8% 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 foreign currency fluctuations, as well as the addition of Innova
LifeSciences, which carries a higher SG&A as a percentage of net sales.
Research and development expenditures were $2.8 million in the first quarter of
2005, compared with $3.1 million of expenditures in the same period of the
prior year.
Operating income for the first quarter of 2005 was $27.4 million, compared to
$23.5 million in the first quarter of 2004. Earnings before interest, taxes,
depreciation and amortization (EBITDA) for the quarter were $31.5 million.
Operating income was 18.4% and EBITDA was 21.1% of net sales for the quarter,
compared with 17.8% and 20.6%, respectively, in the same period of 2004. First
quarter 2005 EBITDA is calculated by adding net income of $15.0 million, income
taxes of $7.1 million, net interest expense of $5.3 million, and depreciation
and amortization of approximately $4.1 million. First quarter 2004 EBITDA of
$27.1 million is calculated by adding net income of $11.9 million, income taxes
of $5.9 million, other expense (including interest expense) of $5.6 million,
and depreciation and amortization of approximately $3.7 million.
Sybron's effective tax rate in the first quarter of fiscal 2005 was 32%, a
decrease of 1% from the first quarter of fiscal 2004. The effective tax rate
of 32% is based on current assumptions regarding the income contributions from
our various operations around the world. Should the income contributions from
territories with higher tax rates exceed our expectations, then our effective
tax rate could be higher than 32%.
Net trade receivables were $97.7 million and days sales outstanding (DSOs) were
61.7 days at December 31, 2004, which compares with 61.1 days at December 31,
2003. The Company typically experiences an increase in DSOs during its first
fiscal quarter due to delays in payments caused by the holiday season.
Net inventory was $104.7 million at the end of the first quarter and inventory
days were 149 days, which compares to 130 days at December 31, 2003 and 133
days at September 30, 2004. The increase in inventory days from September 30,
2004 is primarily attributable to the addition of Innova LifeSciences, which
maintains a higher level of inventory days than Sybron, as well as the
continued inventory build ahead of the expiration of the Company's current
contract with union members at its Romulus, Michigan facility.
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 $3.4 million in the first quarter of fiscal 2005,
compared with $2.7 million in the same period of the previous year.
The average debt outstanding for the quarter was $249.0 million with an average
interest rate of 7.8%. Total debt outstanding at December 31, 2004 was $245.3
million. Total debt outstanding increased during the quarter due to the $44.5
million in borrowings used to finance the acquisition of Innova LifeSciences,
which was partially offset by $19.7 million in debt repayments during the
quarter.
Sybron's cash and cash equivalents balance increased to $49.6 million at
December 31, 2004 from $40.6 million at September 30, 2004. The Company is
currently evaluating the impact of the American Jobs Creation Act of 2004,
which allows for the repatriation of foreign earnings at favorable tax rates.
Sybron's capital structure was 42.0% debt and 58.0% equity at December 31,
2004. This compares with 53.6% debt and 46.4% equity at December 31, 2003.
OUTLOOK
As part of the Company's continuing efforts to enhance efficiencies and
optimize capacity utilization throughout its manufacturing facilities, Sybron
has implemented a plan to close Kerr's Demetron facility, which develops and
manufactures curing lights, and transfer production to Kerr's Orascoptic
facility, which develops and manufactures magnification devices for dental
procedures. When the closure is completed, the Company expects that the
facility rationalization will result in annual savings of $0.5 million, which
will positively impact the Company's gross margins. Over the next three
quarters, the Company expects to record $1.4 million in expenses related to
this closure.
Sybron expects the plant closure will result in the following expenses and cost
savings in each quarter:
Expenses Cost Savings Pre-Tax Impact
Q2 2005 $979,000 $0 $(979,000)
Q3 2005 $292,000 $63,000 $(229,000)
Q4 2005 $108,000 $111,000 $3,000
The Company continues to explore other opportunities to increase capacity
utilization and believes it can further consolidate its facilities to yield
positive gross margin benefits.
In the second quarter of fiscal 2005, Sybron also expects to record a $1.4
million charge related to the retirement of the Company's Chief Financial
Officer, Gregory D. Waller, who has announced his intention to retire in 2005.
Approximately $1.0 million of this charge (non-cash) relates to the extension
of the expiration date for Mr. Waller's stock options, and will only be
triggered if Mr. Waller has not exercised his stock options before his
retirement date.
For the second quarter of fiscal 2005, Sybron expects revenue to range from
$160 million to $167 million, and diluted earnings per share to range from
$0.44 to $0.47, which reflects the one-time charges for the Demetron facility
closure, the retirement transition package for Mr. Waller and an effective tax
rate of 32%.
Sybron also reaffirmed its revenue guidance for the full fiscal year 2005.
Sybron continues to expect revenue to range from $620 million to $630 million
(with organic revenue growth at the high end of the Company's historical 4%-6%
growth rate). The Company now expects diluted earnings per share to range from
$1.68 to $1.78 for the full fiscal year 2005, which reflects the one-time
charges for the Demetron facility closure, the retirement transition package
for Mr. Waller and an effective tax rate of 32%.
Commenting on the outlook for Sybron, Mr. Pickrell said, "We are very pleased
that many of our new products are driving the level of growth that we
projected. We are just beginning to penetrate the market with products like
the Damon 3 bracket, MaxCem, and the Elements Obturation device, and we have
excellent opportunities to continue to increase the sales of these products.
Combined with the enhanced efficiencies that are driving improvement in our
gross and operating margins, we expect fiscal 2005 to be a strong year of
profitable growth for Sybron."
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 principals
(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, January 25th at 10:00 a.m.
Pacific Standard Time to review the information in this press release and
respond to questions. The dial-in number for the call is (877) 209-0397 for
domestic callers and (612) 332-0923 for international callers.
A recorded replay of the conference call will be offered beginning at 1:30 p.m.
Pacific Standard Time on Tuesday, January 25th 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 765273 for domestic callers and (320)
365-3844, passcode 765273 for international callers. The telephone replay will
be available through 11:59 p.m. Pacific Standard Time on January 28th, 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; organic growth; the demand for its products; the introduction and sales
of new products; the success of its self ligating orthodontic brackets; the
benefits it will realize from the closing of its Demetron facility; the
elimination of certain operating expenses; and its ability to maintain the
improvements in its operating margins 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. 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 a
comprehensive line of consumable general dental and specialty products for the
orthodontic, endodontic, implant and infection prevention markets worldwide.
SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
December 31,
2004 2003
Net sales $149,040 $131,857
Cost of sales 63,673 59,899
Gross profit 85,367 71,958
Selling, general and administrative expenses 57,488 48,193
Amortization of intangible assets 497 309
Total selling, general and
administrative expenses 57,985 48,502
Operating income 27,382 23,456
Other expense:
Interest expense (4,995) (5,160)
Amortization of deferred financing fees (415) (407)
Other, net 144 (54)
Income before income taxes 22,116 17,835
Income taxes 7,077 5,886
Net income $15,039 $11,949
Earnings per share:
Basic earnings per share $0.38 $0.31
Diluted earnings per share $0.37 $0.30
Weighted average basic shares outstanding 39,479 38,310
Weighted average diluted shares outstanding 41,068 39,897
SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
December 31, September 30,
2004 2004
ASSETS
Current assets:
Cash and cash equivalents $49,647 $40,602
Accounts receivable (less allowance
for doubtful receivables of $2,803 and
$2,094 at December 31, 2004 and
September 30, 2004, respectively) 97,662 104,148
Inventories 104,721 93,689
Deferred income taxes 3,356 3,293
Prepaid expenses and other current assets 12,215 12,975
Total current assets 267,601 254,707
Property, plant and equipment, net of
accumulated depreciation of $107,546 and
$101,934 at December 31, 2004
and September 30, 2004, respectively 87,506 83,121
Goodwill 299,022 268,768
Intangible assets, net 35,077 16,178
Other assets 24,565 23,784
Total assets $713,771 $646,558
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $19,371 $19,512
Current portion of long-term debt 898 882
Income taxes payable 14,985 17,089
Accrued payroll and employee benefits 25,959 29,712
Restructuring reserve 711 711
Accrued rebates 11,249 9,475
Accrued interest 936 3,620
Other current liabilities 13,925 12,291
Total current liabilities 88,034 93,292
Long-term debt 94,372 69,589
Senior subordinated notes 150,000 150,000
Deferred income taxes 8,873 12,266
Other liabilities 33,264 22,639
Total liabilities 374,543 347,786
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, 39,894 and
39,307 shares issued and outstanding
at December 31, 2004 and
September 30, 2004, respectively 399 393
Additional paid-in capital 106,478 93,817
Retained earnings 203,195 188,156
Accumulated other comprehensive income 29,156 16,406
Total stockholders' equity 339,228 298,772
Total liabilities and stockholders'
equity $713,771 $646,558
SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
December 31,
2004 2003
Cash flows from operating activities:
Net income $15,039 $11,949
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 3,635 3,355
Amortization of intangible assets 497 309
Amortization of deferred financing fees 415 407
(Gain)/loss on sales of property,
plant and equipment 93 (5)
Provision for losses on doubtful receivables 483 197
Inventory provisions 1,377 1,069
Deferred income taxes (525) (1,673)
Tax benefit from issuance of stock under
employee stock option plan 4,051 278
Changes in assets and liabilities, net of
effects of businesses acquired:
Decrease in accounts receivable 8,707 16,757
Increase in inventories (7,616) (1,910)
(Increase)/decrease in prepaid expenses
and other current assets 1,149 (766)
Decrease in accounts payable (926) (4,165)
Decrease in income taxes payable (3,112) (370)
Decrease in accrued payroll and
employee benefits (3,753) (6,052)
Increase in accrued rebates 1,774 1,840
Decrease in restructuring reserve -- (23)
Decrease in accrued interest (2,684) (3,170)
Decrease in other current liabilities (1,093) (2,511)
Net change in other assets and liabilities 2,295 4,790
Net cash provided by operating activities 19,806 20,306
Cash flows from investing activities:
Capital expenditures (3,398) (2,679)
Proceeds from sales of property,
plant, and equipment 146 118
Net payments for businesses acquired (45,975) --
Payments for intangibles (274) (232)
Net cash used in investing activities (49,501) (2,793)
Cash flows from financing activities:
Proceeds from credit facility 59,000 33,500
Principal payments on credit facility (34,160) (51,210)
Proceeds from long-term debt -- 818
Principal payments on long-term debt (219) (2,030)
Cash received from exercise of stock options 7,868 1,142
Cash received from employee stock purchase plan 748 522
Net cash provided by (used in) financing
activities 33,237 (17,258)
Effect of exchange rate changes on
cash and cash equivalents 5,503 (76)
Net increase in cash
and cash equivalents 9,045 179
Cash and cash equivalents at
beginning of period 40,602 22,868
Cash and cash equivalents at end of period $49,647 $23,047
SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES
INTERNAL GROWTH
For period ended December 31, 2004
Professional Specialty Total
Dental Products SDS
Quarter 3.3% 10.4% 6.7%
Total SDS
Foreign Domestic
Quarter 1.5% 11.5%
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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/