Sybron Dental Specialties, Inc. Reports Financial Results for Second Quarter of Fiscal 2006

NEWPORT BEACH, Calif., May 9  /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 second fiscal quarter ended March 31, 2006.

SECOND Quarter Results

Net sales for the second quarter of fiscal 2006 totaled $182.8 million, an increase of 10.7% over the $165.1 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 12.4% in the second quarter over the same period of the prior year.  The internal net sales growth rate of the Company's consumable products was 11.9%.  The sales of these products accounted for approximately 96% of the Company's total net sales in the quarter.  The attached table provides a reconciliation of the Company's internal net sales growth to net sales growth calculated according to generally accepted accounting principles (GAAP).

Net income for the second quarter of fiscal 2006 was $18.7 million, a decrease of 3.9% over net income of $19.4 million in the same period of the prior year.  Fully diluted earnings per share were $0.44 in the second quarter of fiscal 2006, which compares to fully diluted earnings per share of $0.47 in the same period of the previous year.  Excluding stock compensation expense, which was not recognized in prior years, non-GAAP fully diluted earnings per share were $0.50 in the second quarter of fiscal 2006.  The attached table provides a reconciliation of the Company's non-GAAP fully diluted earnings per share excluding stock compensation expense to fully diluted earnings per share calculated according to GAAP.

Results for the second quarter of fiscal 2006 included a $1.9 million pre-tax charge ($1.3 million after-tax) due to the write-off of a portion of the remaining unamortized deferred financing fees related to Sybron's previous credit facility (as previously announced, Sybron Dental entered into a new credit facility on March 23, 2006).  The deferred financing fee charge decreased fully diluted earnings per share by $0.03 while the impact of unfavorable currency exchange rates, when compared to the second quarter of fiscal 2005, decreased fully diluted earnings per share by $0.05.  During the second quarter of fiscal 2006, Sybron pledged to make a charitable contribution of $1.0 million to the National Children's Dental Foundation. Although the contribution is payable over the next five years, the entire amount of the contribution was expensed during the second quarter of fiscal 2006.  The contribution decreased fully diluted earnings per share by $0.02 during the quarter.

In the second quarter of fiscal 2006, Sybron generated $24.9 million in cash flows from operating activities.  This compares with cash flows from operating activities of $16.6 million in the second quarter of fiscal 2005.

SEGMENT SALES HIGHLIGHTS

In the second quarter, internal net sales of the Company's Professional Dental segment increased 13.9% over the same period in the prior year. Internal net sales of Professional Dental consumable products increased 11.6%. Net sales in the quarter were positively impacted by strong sales across numerous product areas including infection prevention, composites, curing lights, burs and cements.

During the second quarter, internal net sales of the Company's Specialty Products segment grew 10.8% over the same period in the prior year.  Total net sales were positively impacted by an increased ability to produce the Damon 3 metal bracket in higher volumes and the highest level of dental implant sales since Sybron entered this market.

SECOND QUARTER FINANCIAL HIGHLIGHTS

Gross margin in the second quarter of fiscal 2006 was 57.3%, compared with 56.5% in the same period of the prior year.  The increase in gross margin was primarily attributable to the leveraging of fixed costs on higher volumes as well as product mix.  This was partially offset by the negative impact of foreign currency exchange rates which reduced gross margin by approximately 70 basis points when compared to the second quarter of fiscal 2005.

Selling, general and administrative expenses (SG&A) were $70.2 million, or 38.4% of net sales, in the second quarter of fiscal 2006, compared with $60.3 million, or 36.5% of net sales, in the same period of the prior year. In the second quarter of fiscal 2006, SG&A included $3.6 million in stock compensation expense, which was not recognized in prior years.  Excluding stock compensation expense, SG&A was 36.4% of net sales in the second quarter of fiscal 2006.  The attached table provides a reconciliation of the Company's SG&A expense excluding stock compensation expense to SG&A expense according to GAAP.

Research and development expenditures were $3.5 million in the second quarter of 2006, an increase of 4.7% over $3.4 million of expenditures in the same period of the prior year.

Operating income for the second quarter of fiscal 2006 was $34.5 million, or 18.9% of net sales, compared to $32.9 million, or 20.0% of net sales, in the second quarter of fiscal 2005.  Excluding stock compensation expense, operating income was 20.9% of net sales in the second quarter of fiscal 2006. The attached table provides a reconciliation of the Company's operating income excluding stock compensation expense to operating income according to GAAP.

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter of fiscal 2006 were $41.4 million, or 22.7% of net sales, compared with EBITDA of $37.6 million, or 22.8%, in the second quarter of fiscal 2005.  Second quarter 2006 EBITDA was calculated by adding net income of $18.7 million, income taxes of $9.6 million, net interest expense of $4.1 million, and depreciation and amortization of approximately $9.0 million. Amortization charges in the second quarter of fiscal 2006 include a $1.9 million write-off of a portion of the remaining unamortized deferred financing fees related to Sybron's previous credit facility.  Second quarter 2005 EBITDA was calculated by adding net income of $19.4 million, income taxes of $9.1 million, net interest expense of $4.4 million, and depreciation and amortization of approximately $4.7 million.

Sybron's effective tax rate in the second quarter of fiscal 2006 was 33.9%, compared with 32.0% in the second quarter of fiscal 2005.  The higher tax rate is attributable to a greater percentage of taxable income being generated in higher tax rate jurisdictions, non-deductible foreign stock-based compensation and discrete adjustments.  The effective tax rate during the second quarter of fiscal 2006, excluding discrete adjustments, was determined to be 33.1%.  The discrete adjustments related to the reversal of a tax contingency reserve and an adjustment of deferred tax liabilities which netted to a negative $0.2 million impact.  The quarterly rate, excluding discrete adjustments, was calculated by taking income taxes reported for the second quarter of fiscal 2006 of $9.6 million, subtracting discrete items of $0.2 million and then dividing the remainder by the Company's second quarter fiscal 2006 reported income before taxes of $28.3 million.

Net trade receivables were $116.8 million and days sales outstanding (DSOs) were 53.5 days at March 31, 2006, compared to 56.3 days at March 31, 2005.

Net inventory was $96.4 million at March 31, 2006 and inventory days were 121 days, compared to 145 days at March 31, 2005 and 119 days at December 31, 2005.

Please refer to the supplemental schedules, provided on the Financial Reports section of Sybron's Investor Relations web site, for a calculation of the Company's DSOs and inventory days http://investors.sybrondental.com/phoenix.zhtml?c=124926&p=irol-reportsOther

During the second quarter of fiscal 2006, capital expenditures totaled $5.6 million compared to $2.9 million of capital expenditures during the corresponding period of fiscal 2005.

The average debt outstanding for the quarter was $200.0 million with an average interest rate of 8.7%.  The Company paid down $6.6 million in debt during the quarter, leaving total debt outstanding at March 31, 2006 of $203.1 million.

Sybron's cash and cash equivalents balance was $75.8 million at March 31, 2006, compared with $70.6 million at December 31, 2005.

Sybron's capital structure was 31.3% debt and 68.7% equity at March 31, 2006.  As of March 31, 2005, Sybron's capital structure was 39.2% debt and 60.8% equity.

DANAHER CORPORATION TENDER OFFER

On April 12, 2006, Sybron announced a definitive agreement to merge with a subsidiary of Danaher Corporation, a leading manufacturer of professional instrumentation, industrial technologies, and tools and components headquartered in Washington, D.C.  Pursuant to the merger agreement, the transaction is structured as a cash tender offer for $47.00 per share of Sybron stock, for an aggregate price of approximately $2.0 billion, including transaction costs and net of cash acquired, to be followed by a merger at the offer price.  The transaction is expected to close in the quarter ended June 30, 2006, pending the satisfaction of customary conditions, including tender of a majority of the outstanding shares into the offer and the absence of a material adverse change with respect to SDS.  There can be no assurance that the transaction will be consummated.

Statements about the expected effects, timing and completion of the proposed transaction and all other statements in this release other than historical facts, constitute forward-looking statements.  Forward-looking statements can be identified by contain words such as "believes," "expects," "may," "will," "would," "should," "seeks," "approximately," "intends," "plans," "estimates," or "anticipates" or similar expressions which concern future strategies, plans or intentions.  These statements are based on current expectations and involve risks and uncertainties relating to, among other things, whether the conditions to the tender offer will be satisfied, general economic factors, business and capital market conditions, general industry trends, changes in tax law requirements and government regulation.  These factors are among the factors that could cause actual results to differ materially from the expectations described in the forward looking statements.

  CONFERENCE CALL
  Sybron Dental Specialties will not hold a conference call this quarter.

  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   Six Months Ended
                                         March 31,           March 31,

                                       2006      2005      2006      2005

  Net sales                          $182,786  $165,056  $340,817  $314,096
  Cost of sales
    Cost of products sold              78,141    71,787   146,172   135,460
    Restructuring charges                  --        84        10        84
      Total Cost of sales              78,141    71,871   146,182   135,544
  Gross profit                        104,645    93,185   194,635   178,552
    Selling, general and
     administrative expenses           68,866    59,207   130,120   116,695
    Restructuring charges                   1       488        17       488
    Amortization of intangible
     assets                             1,299       559     4,113     1,056
      Total selling, general and
       administrative expenses         70,166    60,254   134,250   118,239
  Operating income                     34,479    32,931    60,385    60,313
  Other income (expense)
       Interest expense, net           (4,106)   (4,420)   (7,963)   (9,237)
       Amortization of deferred
        financing fees                 (2,346)     (416)   (2,759)     (831)
       Other, net                         226       490       273       456
  Income before income taxes           28,253    28,585    49,936    50,701
  Income taxes                          9,567     9,147    16,722    16,224
       Net income                     $18,686   $19,438   $33,214   $34,477

  Earnings per share:
       Basic earnings per share         $0.46     $0.49     $0.82     $0.87
       Diluted earnings per share       $0.44     $0.47     $0.79     $0.84

  Weighted average basic shares
   outstanding                         40,518    39,986    40,463    39,732

  Weighted average diluted shares
   outstanding                         42,029    41,485    42,029    41,276



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

                                                 March 31,     September 30,
                                                   2006            2005
                                   ASSETS
  Current assets:
       Cash and cash equivalents                 $75,796           $58,572
       Accounts receivable (less
        allowance for doubtful
        receivables of $3,154 and
        $3,007 at March 31, 2006
        and September 30,
        2005, respectively)                      116,820           112,500
       Inventories                                96,361            92,840
       Deferred income taxes                       4,167             7,788
       Prepaid expenses and other
        current assets                            22,547            12,261
                 Total current assets            315,691           283,961
  Property, plant and equipment, net of
   accumulated depreciation of $125,858
   and $117,252 at March 31, 2006 and
   September 30, 2005, respectively               86,545            87,762
  Goodwill                                       290,069           295,306
  Intangible assets, net                          63,694            50,882
  Other assets                                    29,893            32,507
                 Total assets                   $785,892          $750,418


                    LIABILITIES AND STOCKHOLDERS' EQUITY
  Current liabilities:
       Accounts payable                          $19,497           $20,135
       Current portion of long-term debt             143               733
       Income taxes payable                       15,221            11,822
       Accrued payroll and employee benefits      29,747            31,537
       Accrued rebates                             6,298             9,336
       Accrued interest                            3,661             3,519
       Other current liabilities                  18,977            15,412
                 Total current liabilities        93,544            92,494
  Long-term debt                                  52,952            61,099
  Senior subordinated notes                      150,000           150,000
  Deferred income taxes                           22,423            16,405
  Other non-current liabilities                   20,808            28,267
     Total liabilities                           339,727           348,265
  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,
             40,553 and 40,395 shares issued
             and outstanding at March 31,
             2006 and September 30, 2005,
             respectively                            406               404
  Additional paid-in capital                     128,730           118,448
  Retained earnings                              298,055           264,841
  Accumulated other comprehensive income          18,974            18,460
                 Total stockholders' equity      446,165           402,153
                 Total liabilities and
                  stockholders' equity          $785,892          $750,418



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

                                                 Six Months Ended March 31,
                                                   2006              2005
  Cash flows from operating activities:
       Net income                                 $33,214           $34,477
       Adjustments to reconcile net
        income to net cash provided by
        operating activities:
          Depreciation and amortization             9,446             7,264
          Amortization of intangible assets         4,113             1,056
          Amortization of deferred
           financing fees                           2,759               831
          Loss on sales of property,
           plant and equipment                         13                84
          Provision for losses on
           doubtful receivables                       415               431
          Inventory provisions                      2,097             3,203
       Deferred income taxes                         (662)             (557)
       Income tax benefit from issuance
        of stock under employee stock option
        plan and stock options exercised              887             4,736
       Changes in assets and liabilities,
        net of effects of businesses acquired:
          Increase in accounts receivable          (4,467)           (1,554)
          Increase in inventories                  (5,082)           (5,843)
          Increase in prepaid expenses
           and other current assets                (2,379)             (429)
          Decrease in accounts payable               (638)           (3,766)
          Increase (decrease) in income
           taxes payable                            2,897            (2,519)
          Increase (decrease) in
           accrued payroll and employee
           benefits                                (1,790)               54
          Decrease in accrued rebates              (3,038)           (2,840)
          Increase in accrued interest                142               164
          Increase in other current
           liabilities                              3,565               914
          Net change in other assets
           and liabilities                          8,101               721
            Net cash provided by
             operating activities                  49,593            36,427
  Cash flows from investing activities:
       Capital expenditures                        (8,329)           (6,342)
       Proceeds from sales of property,
        plant, and equipment                            7               938
       Net payments for businesses acquired            --           (46,049)
       Acquisition escrow deposit                  (7,907)               --
       Payments for intangibles                      (386)             (849)
            Net cash used in investing
             activities                           (16,615)          (52,302)
  Cash flows from financing activities:
       Proceeds from credit facility              137,100            86,000
       Principal payments on credit facility     (145,710)          (75,607)
       Settlement of derivative
        instruments                                (8,384)               --
       Principal payments on long-term debt          (127)             (292)
       Payment of deferred financing fees          (1,164)
       Proceeds from exercise of stock options      1,984            10,254
       Proceeds received from employee
        stock purchase plan                         1,149               771
           Net cash provided by (used
            in) financing activities              (15,152)           21,126
  Effect of exchange rate changes on
   cash and cash equivalents                         (602)            1,774
  Net increase in cash and cash equivalents        17,224             7,025
  Cash and cash equivalents at beginning of year   58,572            40,602
  Cash and cash equivalents at end of period      $75,796           $47,627



     Reconciliation of Second Quarter 2006 Internal Net Sales Growth
                              (in millions)
                               (unaudited)

                                          Professional  Specialty
                                            Dental       Products      SDS

  Net sales growth                           10.8%       10.6%        10.7%

  Add: sales decrease due to currency         3.1%        3.7%         3.3%

  Less: non-organic increase due to
   acquisitions made in the previous
   twelve months                              0.0%        3.5%         1.6%

  Internal net sales growth                  13.9%       10.8%        12.4%

  Less: impact of equipment sales on
   internal net sales growth                  2.3%       -1.4%         0.5%

  Internal net sales growth of
   consumable products                       11.6%       12.2%        11.9%


  Domestic and international sales by
   segment
  Domestic                                   $55.1       $41.5        $96.6
  International                               42.0        44.2         86.2
  Total sales                                $97.1       $85.7       $182.8

  Internal net sales growth
  Foreign                                                             13.6%
  Domestic                                                            11.3%
  Total                                                               12.4%

                      Totals may not add due to rounding



Internal net sales growth is a non-GAAP measure and should not be considered a replacement for GAAP results.

Our management uses internal net sales growth to evaluate the underlying results and trends in the business. We also use internal net sales growth as a metric for evaluating the performance of members of senior management in the operating units. The difference between reported net sales growth (the most comparable GAAP measure) and internal net sales growth (the non-GAAP measure) consists of the impact of foreign currency and the non-organic growth related to acquisitions. Organic growth in acquisitions includes only the pro-forma growth which would have been realized if we had owned the acquired business in the prior period.

Internal net sales growth is a useful measure of our performance because it excludes items that: i) are not completely under management's control, such as the impact of foreign currency exchange; or ii) do not reflect our underlying growth, such as acquisitions. The limitation of this measure is that it excludes items that have an impact on our sales. This limitation is best addressed by using internal net sales growth in combination with the GAAP numbers.

 Reconciliation of Second Quarter 2006 and Second Quarter 2005 EBITDA and
                                Net Income
                              (in millions)
                               (unaudited)

                                                  Q2 2006            Q2 2005

  Net income                                       $18.7              $19.4

  Add: income taxes                                  9.6                9.1

  Add: net interest expense                          4.1                4.4

  Add: depreciation and amortization                 9.0                4.7

  Earnings before interest taxes
   depreciation & amortization                     $41.4              $37.6




We view EBITDA as an operating performance measure, and as such we believe that the GAAP financial measure most directly comparable to it is net income or net loss.  In calculating EBITDA, we exclude from net income or net loss the financial items that we believe have less significance to the day-to-day operation of our business.  We have outlined below the type and scope of these exclusions and the limitations on the use of this non-GAAP financial measure as a result of these exclusions.  EBITDA is not an alternative to net income, operating income or cash flows from operating activities as calculated and presented in accordance with GAAP.  Investors and potential investors in our securities should not rely on EBITDA as a substitute for any GAAP financial measure.  In addition, our calculation of EBITDA may or may not be consistent with that of other companies.  We strongly urge investors and potential investors in our securities to review the reconciliation of EBITDA to the comparable GAAP financial measures that are included in this press release and our financial statements, including the notes thereto, and the other financial information contained in our SEC filings and not to rely on any single financial measure to evaluate our business.

Our management uses EBITDA as a supplemental financial measure to evaluate the performance of our business that, when viewed with our GAAP results and the accompanying reconciliations, we believe provides a more complete understanding of factors and trends affecting our business than the GAAP results alone.  We also regularly communicate our EBITDA to the public through our earnings releases because it is the financial measure commonly used by analysts that cover our industry and our investor base to evaluate our performance.  We understand that analysts and investors regularly rely on non-GAAP financial measures, such as EBITDA, to provide a financial measure by which to compare a company's assessment of its operating performance against that of other companies in the same industry.  This non-GAAP financial measure is helpful in more clearly reflecting the sales of our products and services, as well as highlighting trends in our core businesses that may not otherwise be apparent when relying solely on GAAP financial measures, because this non-GAAP financial measure eliminates from earnings financial items that have less bearing on our performance.

The term EBITDA as used in this press release refers to, for any period, net income (loss) before interest, taxes, depreciation, amortization, loss (gain) on disposition of assets, minority interest in (income) loss of subsidiaries and income from equity investments.

Set forth below are descriptions of the financial items that have been excluded from our net loss to calculate EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to the use of the most directly comparable GAAP financial measure:

  *  The amount of interest expense we incur is significant and reduces the
     amount of funds otherwise available to use in our business and,
     therefore, is important for investors to consider.  However, management
     does not consider the amount of net interest expense when evaluating
     our core operating performance.

  *  Management does not consider income taxes when considering the
     profitability of our core operations.  Nevertheless, the amount of
     income taxes we are required to pay reduces the amount of funds
     otherwise available for use in our business and thus may be useful for
     an investor to consider.

  *  Depreciation and amortization are important for investors to consider,
     even though they are non-cash charges, because they represent generally
     the wear and tear on our property, plant and equipment, which produce
     our revenue.  We do not believe these charges are indicative of our
     core operating performance.

  *  (Loss) gain on the disposition of assets may increase or decrease the
     cash available to us and thus may be important for an investor to
     consider.  We are not in the business of acquiring or disposing of
     assets and, therefore, the effect of the disposition of assets may not
     be comparable from year-to-year.  We believe such gains or losses
     recorded on the disposition of an asset do not reflect the core
     operating performance of our business.



Management compensates for the above-described limitations of using a non- GAAP financial measure by using this non-GAAP financial measure only to supplement our GAAP results to provide a more complete understanding of the factors and trends affecting our business.

     Reconciliation of Second Quarter 2006 GAAP and Non-GAAP Results
                 (in millions, except per share amounts)
                               (unaudited)

                                             GAAP        Stock     Non-GAAP
                                            Results    Comp Exp     Results

  Net sales                                  $182.8                  $182.8

  Cost of goods sold                           78.1       (0.1)        78.0
   Cost of goods sold as a percent of
    net sales                                 42.7%                   42.7%

  Gross profit                                104.6        0.1        104.7
   Gross profit as a percent of net sales     57.3%                   57.3%

  Selling, general and administrative          70.2       (3.6)        66.6
   Selling, general and administrative
    as a percent of net sales                 38.4%                   36.4%

  Operating income                             34.5        3.7         38.2
   Operating income as a percent of net
    sales                                     18.9%                   20.9%

  Net income                                  $18.7       $2.5        $21.1

  Diluted Earnings per share                  $0.44                   $0.50

  Shares used in computing fully
   diluted earnings per share                  42.0                    42.0

                      Totals may not add due to rounding



Operating income before stock compensation expense is a non-GAAP measure and should not be considered a replacement for GAAP results.

Operating income before stock compensation expense is a financial measure we use to evaluate the underlying results and operating performance of the businesses.  The difference between operating income (the most comparable GAAP measure) and operating income before stock compensation expense (the non-GAAP measure) reflects the impact of applying SFAS 123R to the current period. The limitation of this measure is that it excludes an item that impacts the company's current period operating income.  This limitation is best addressed by using this measure in combination with operating income (the most comparable GAAP measure) because operating income before stock compensation expense does not reflect the impact of adopting SFAS 123R and may be higher than operating income (the most comparable GAAP measure).  We believe operating income before stock compensation expense is a useful measure that allows investors to draw comparisons between operating results reported prior to adoption of SFAS 123R and the current period, which may mask underlying trends and make it difficult to give investors perspective on underlying business results. 

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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