Sybron Dental (NYSE:SYD)
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Sybron Dental Specialties, Inc. Reports Fourth Quarter and Fiscal
Year 2004 Results
ORANGE, Calif., Nov. 15 /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, implants and infection prevention, announced today its
financial results for its fourth fiscal quarter and fiscal year ended September
30, 2004.
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FOURTH QUARTER RESULTS
Net sales for the fourth quarter of fiscal 2004 totaled $145.7 million, an
increase of 5.8% over the $137.7 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 2.4% for the fourth
quarter. The Company's consumable products, which represented approximately
97% of total net sales in the fourth quarter of fiscal 2004, had an internal
net sales growth rate of 4.2%. As expected, equipment sales declined by
approximately 33.6% from the prior year period, which benefited from the
introduction of the Company's LED curing light in fiscal 2003.
Net income for the fourth quarter of fiscal 2004 was $16.1 million, or $0.40
per diluted share, compared with net income of $17.3 million, or $0.43 per
diluted share, in the same period of the previous year. A one-time tax benefit
contributed approximately $0.02 per diluted share to the Company's net income
in the fourth quarter of fiscal 2003.
In the fourth quarter of fiscal 2004, Sybron generated $19.5 million in free
cash flow, defined as cash flows from operating activities of $25.0 million
minus capital expenditures of $5.5 million. This compares with free cash flow
of $30.8 million in the same period of the previous year (cash flows from
operating activities of $34.6 million minus capital expenditures of $3.8
million).
"We had a very strong sales performance in the fourth quarter that was driven
by three new products that will be important to our future growth: the Damon 3
self-ligating bracket, our Premise nanocomposite, and the Elements Obturation
device for endodontic procedures," said Floyd W. Pickrell, Jr., Chief Executive
Officer of Sybron Dental Specialties. "Each of these products is meeting or
exceeding our sales expectations, and has excellent momentum going into fiscal
2005.
"We took a very aggressive sales and marketing approach to launching the Damon
3 bracket and Elements Obturation device in September, as well as preparing for
the introduction of our new resin cement, MaxCem, including more extensive
advertising and promotional mailings than we have historically utilized. These
efforts temporarily increased our expense levels, but they generated broad
awareness for these products that we will be able to leverage in the future.
As the initial expenses related to the launch of these products decline, we
expect to see solid improvement in our bottom-line results," said Mr. Pickrell.
ORMCO AND KERR HIGHLIGHTS
During the fourth quarter, the internal net sales of the Company's Ormco
subsidiary grew 13.2%. Sales in the quarter were positively impacted by
continued strong demand for the Damon 2 self-ligating bracket and our Inspire
Ice(TM) clear-ceramic bracket, and the introduction of both the Damon 3 bracket
and the Elements Obturation device. The Company had stronger than expected
sales for the Damon 2 bracket during the fourth quarter, as most customers
maintained their typical ordering patterns prior to the introduction of the
Damon 3 bracket.
The Company's high-end brackets -- consisting of the Damon brackets, Inspire
Ice, and Titanium Orthos brackets -- have been highly effective in gaining
market share. According to the Orthodontics Manufacturer's Association, for
the twelve months ended June 30, 2004, Sybron's global market share in
orthodontics increased by almost two percentage points.
During the fourth quarter, internal net sales of the Company's Kerr subsidiary
decreased by 5.1%. The negative internal net sales growth is primarily
attributable to two factors:
* A very strong internal net sales growth rate of 15.1% experienced in
the fourth quarter of 2003, which was partially driven by significant
dealer purchases ahead of price increases taking effect in the first
quarter of fiscal 2004.
* A decline in equipment sales following the launch of the popular LED
curing light in fiscal 2003. Internal net sales of Kerr's consumable
products, which exclude equipment sales, decreased 1.7% in the fourth
quarter.
Strong sales of our Premise nanocomposite, as well as a pickup in sales for its
StandOut(TM) impression material, helped to offset the difficult comparison
with the previous year period.
FOURTH QUARTER FINANCIAL HIGHLIGHTS
Gross margins in the fourth quarter of 2004 were 54.8%, compared with 56.3% in
the same period of the previous year. The decline in overall gross margin is
primarily attributable to a lower gross margin at Kerr resulting from a higher
percentage of sales of infection prevention products and dental burs in the
fourth quarter of fiscal 2004, which carry lower gross margins.
Selling, general and administrative expenses (SG&A) were $51.0 million, or
35.0% of net sales, in the fourth quarter of 2004, compared with $46.3 million,
or 33.6% 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 higher marketing expenses to support the launch of the Damon 3
self-ligating bracket, the Elements Obturation device, and MaxCem resin cement.
Research and development expenditures were $2.9 million in the fourth quarter
of 2004, an increase of 13.6% from the $2.5 million of expenditures in the same
period of the prior year.
Operating income for the fourth quarter of 2004 was $28.9 million, compared to
$31.2 million in the fourth quarter of 2003. Earnings before interest, taxes,
depreciation and amortization (EBITDA) for the quarter were $32.7 million.
Operating income was 19.8% and EBITDA was 22.5% of net sales for the quarter.
Fourth quarter 2004 EBITDA is calculated by adding net income of $16.1 million,
income taxes of $7.9 million, net interest expense of $4.8 million, and
depreciation and amortization of approximately $3.9 million.
Sybron's effective tax rate in the fourth quarter of fiscal 2004 was 33%,
compared to a pro forma tax rate of 36% in the same period of the prior year,
which excludes a one-time benefit of a tax settlement in Canada. The 36% pro
forma tax rate for the fourth quarter of fiscal 2003 is calculated by adding
the GAAP effective tax rate of 32.4% to the one-time benefit of the tax benefit
in Canada of 3.6% of income before taxes. 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 $104.1 million and days sales outstanding (DSOs)
were 58.8 days at September 30, 2004, which compares with 60.1 days at
September 30, 2003. Net inventory was $93.7 million at the end of the fourth
quarter and inventory days were 133 days, which compares to 130 days at
September 30, 2003 and 123 days at June 30, 2004. The increase in inventory
days from June 30, 2004 is primarily attributable to inventory builds related
to the Damon 3 and Elements Obturation device product launches, as well as the
introduction of the MaxCem self-adhesive cement in the first quarter of fiscal
2005. In addition, while the Company does not presently anticipate any
potential work stoppage, inventory has been built 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 $5.5 million in the fourth quarter of fiscal 2004,
compared with $3.8 million in the same period of the previous year.
The average debt outstanding for the quarter was approximately $230.3 million
with an average interest rate of 8.0%. The Company paid down $12.5 million of
debt in the fourth quarter, leaving total debt outstanding of approximately
$220.5 million at September 30, 2004.
FULL YEAR 2004 FINANCIAL HIGHLIGHTS
The following is a summary of the key financial highlights in fiscal 2004:
* Net sales totaled $574.0 million, compared to $526.4 million in fiscal
2003, an increase of 9.0%.
* Net income was $62.1 million, or $1.54 per diluted share, compared
with net income of $57.5 million, or $1.46 per diluted share, for
fiscal 2003.
* The effective tax rate was reduced to 33% from 36% in fiscal 2003.
* $57.3 million of debt was retired, and cash increased to $40.6 million
from $22.9 million at September 30, 2003.
* Free cash flow was $63.5 million, defined as cash flows from
operating activities of $77.5 million minus capital expenditures of
$14.0 million.
* Sybron's capital structure was 42.5% debt and 57.5% equity at
September 30, 2004, as compared to 57.2% debt and 42.8% equity at
September 30, 2003.
CFO GREGORY D. WALLER TO RETIRE IN 2005
The Company also announced that Gregory D. Waller, Chief Financial Officer,
intends to retire in 2005. Mr. Waller will remain as CFO until at least April
1, 2005, and possibly longer depending on the progress of the Company's search
for his replacement. Subsequent to his retirement, Mr. Waller will remain as a
consultant to the Company for a period of at least one year.
"Greg has been an exceptional asset to the Company for more than 30 years, and
we deeply appreciate all of his efforts to help build Sybron into one of the
leading companies in the dental industry," said Mr. Pickrell. "We wish Greg a
very long and happy retirement."
OUTLOOK
For the first quarter of fiscal 2005, Sybron expects revenue to range from $140
million to $144 million, and diluted earnings per share to range from $0.31 to
$0.35.
For the full fiscal year 2005, Sybron expects 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), and diluted earnings per share to
range from $1.70 to $1.80, an increase of 10-17% over fiscal 2004.
In support of its outlook for fiscal 2005, the Company cited the following
catalysts for the anticipated growth in revenue and earnings:
* Healthy end-user demand in all of its markets
* The continued roll-out of the Damon 3 self-ligating bracket, and the
introduction of products such as Damon wires and other high value
peripheral products
* The positive impact of recently introduced products such as Premise
nanocomposite, Elements Obturation device, and MaxCem self-adhesive
cement
* The positive impact on gross margin from the facility rationalizations
in Tijuana and Eastern Europe during fiscal 2004
* A reduction of operating expenses as a percentage of sales for the
core business to approximately 34.5% for the full year, as many
near-term expenses related to patent litigation and failed mergers and
acquisitions are expected to decline. However, the investments being
made in expanding the sales force of recent acquisition, Innova
LifeSciences, will result in total operating expenses in the
mid-35% range.
* A new mandate to improve operating margins at each subsidiary
* The contribution from the recent acquisitions of Innova LifeSciences
and the Bioplant synthetic bone regeneration product line
Commenting on the outlook for Sybron, Mr. Pickrell said, "We are very excited
about the outlook for 2005 and beyond. We believe the current line-up of new
consumable product offerings at both Ormco and Kerr is the strongest we have
ever had. We are gaining market share in some of the largest and fastest
growing categories in dentistry -- such as composites and brackets -- and also
gaining exposure to new market areas such as periodontists and oral surgeons
through our recent acquisitions. We believe the combination of these factors
position us well to improve upon the overall organic growth rate we experienced
in fiscal 2004.
"We also took a major step in our strategy to increase our exposure to faster
growing areas of dentistry, with the acquisition of Innova LifeSciences, a well
established player in the global dental implant industry. The worldwide dental
implant market is growing at more than 15% annually, and we expect this
acquisition will have a positive impact on our overall organic growth rate in
the years ahead.
"We believe we have good operating leverage following the efforts we have made
throughout 2004 to streamline our operations. As a result, we expect our
bottom-line growth will significantly outpace our revenue growth, and help us
generate improved returns for our shareholders," said Mr. Pickrell.
NON-GAAP FINANCIAL MEASURES
The Company has included information concerning EBITDA, free cash flow, and pro
forma tax rate 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. Pro forma tax rate should
not be considered as an alternative to, or more meaningful than, the Company's
effective tax rate. EBITDA, free cash flow, and pro forma tax rate have not
been prepared in accordance with generally accepted accounting principals
(GAAP). EBITDA, free cash flow, and pro forma tax rate, 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, November 16th 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 (888) 273-9885 for
domestic callers and (612) 332-0634 for international callers.
A recorded replay of the conference call will be offered beginning at 1:30 p.m.
Pacific Standard Time on Tuesday, November 16th 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 751151 for domestic callers and (320)
365-3844, passcode 751151 for international callers. The telephone replay will
be available through 11:59 p.m. Pacific Standard Time on November 19th, 2004.
The website replay may be accessed in the Investor Relations section of Sybron
Dental's website athttp://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 Tijuana and Eastern European
facilities; the elimination of certain operating expenses; its ability to
achieve improvements in its operating margins; and the contribution from its
acquisitions 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
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, implant and endodontic products worldwide.
SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
(unaudited)
Three Months Ended Twelve Months Ended
September 30, September 30,
2004 2003 2004 2003
Net sales $145,680 $137,743 $573,976 $526,391
Cost of sales 65,921 60,261 256,191 235,602
Restructuring charge (143) -- 1,471 --
Total cost of sales 65,778 60,261 257,662 235,602
Gross profit 79,902 77,482 316,314 290,789
Selling, general and
administrative expenses 50,747 45,972 201,716 177,545
Amortization of intangible assets 294 335 1,232 1,274
Total selling, general and
administrative expenses 51,041 46,307 202,948 178,819
Operating income 28,861 31,175 113,366 111,970
Other expense:
Interest expense (4,709) (5,157) (19,487) (21,554)
Amortization of deferred
financing fees (415) (408) (1,625) (1,645)
Other, net 331 (21) 451 804
Income before income taxes 24,068 25,589 92,705 89,575
Income taxes 7,943 8,288 30,593 32,123
Net income $16,125 $17,301 $62,112 $57,452
Earnings per share:
Basic earnings per share $0.41 $0.45 $1.61 $1.51
Diluted earnings per share $0.40 $0.43 $1.54 $1.46
Weighted average basic shares
outstanding 39,045 38,250 38,637 38,106
Weighted average diluted shares
outstanding 40,584 40,407 40,253 39,328
SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except per share amounts)
(unaudited)
September 30, September 30,
2004 2003
ASSETS
Current assets:
Cash and cash equivalents $40,602 $22,868
Accounts receivable (less allowance
for doubtful receivables of $2,094
and $2,247 at September 30, 2004
and 2003, respectively) 104,148 103,565
Inventories 93,689 84,239
Deferred income taxes 3,293 4,896
Prepaid expenses and other current
assets 12,975 11,624
Total current assets 254,707 227,192
Property, plant and equipment, net of
accumulated depreciation of $101,934
and $92,273 at September 30, 2004 and
2003, respectively 83,121 80,750
Goodwill 268,768 258,590
Intangible assets, net 16,178 16,455
Other assets 23,784 28,672
Total assets $646,558 $611,659
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $19,512 $19,620
Current portion of long-term debt 882 3,714
Income taxes payable 17,089 16,274
Accrued payroll and employee benefits 29,712 28,712
Restructuring reserve 711 1,486
Accrued rebates 9,475 9,872
Accrued interest 3,620 3,901
Other current liabilities 12,291 10,917
Total current liabilities 93,292 94,496
Long-term debt 69,589 124,008
Senior subordinated notes 150,000 150,000
Deferred income taxes 12,266 13,748
Other liabilities 22,639 21,422
Total liabilities 347,786 403,674
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,
39,307 issued and 38,285 shares
issued and outstanding at
September 30, 2004 and 2003,
respectively 393 383
Additional paid-in capital 93,817 74,934
Retained earnings 188,156 126,044
Accumulated other comprehensive income 16,406 6,624
Total stockholders' equity 298,772 207,985
Total liabilities and
stockholders' equity $646,558 $611,659
SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Twelve Months Ended
September 30,
2004 2003
Cash flows from operating activities:
Net income $62,112 $57,452
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 13,361 11,336
Amortization of intangible assets 1,232 1,274
Amortization of deferred financing fees 1,625 1,645
Gain on sales of property, plant and equipment (253) (365)
Provision for losses on doubtful receivables 916 400
Inventory provisions 4,406 3,776
Deferred income taxes (950) 3,232
Tax benefit from issuance of stock under
employee stock option plan 4,749 604
Changes in assets and liabilities, net of
effects of businesses acquired:
Increase in accounts receivable (356) (21,548)
(Increase)/decrease in inventories (9,880) 7,737
(Increase)/decrease in prepaid expenses
and other current assets (1,299) 2,997
Increase/(decrease) in accounts payable (115) 4,110
Increase in income taxes payable 815 12,701
Increase in accrued payroll and employee
benefits 1,474 8,804
Increase/(decrease) in accrued rebates (397) 4,246
Decrease in restructuring reserve (775) (2,644)
Decrease in accrued interest (281) (704)
Increase in other current liabilities 1,374 1,226
Net change in other assets and liabilities (194) (9,114)
Net cash provided by operating activities 77,564 87,165
Cash flows from investing activities:
Capital expenditures (14,037) (9,153)
Proceeds from sales of property, plant,
and equipment 333 5,359
Net payments for businesses acquired (6,702) (16,237)
Payments for intangibles (960) (1,418)
Net cash used in investing activities (21,366) (21,449)
Cash flows from financing activities:
Proceeds from credit facility 135,000 163,000
Principal payments on credit facility (185,715) (226,361)
Proceeds from long-term debt 2,614 4,063
Principal payments on long-term debt (9,366) (4,477)
Payment of deferred financing fees -- (473)
Cash received from exercise of stock options 12,972 4,004
Cash received from ESP Plan 1,172 --
Net cash used in financing activities (43,323) (60,244)
Effect of exchange rate changes on cash and
cash equivalents 4,859 4,744
Net increase in cash and cash equivalents 17,734 10,216
Cash and cash equivalents at beginning of period 22,868 12,652
Cash and cash equivalents at end of period $40,602 $22,868
SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES
INTERNAL GROWTH
For periods ended September 30, 2004
Professional Total
Dental Orthodontics SDS
Quarter -5.1% 13.2% 2.4%
Year to date -2.5% 10.8% 3.1%
Total SDS
Foreign Domestic
Quarter -3.5% 6.8%
Year to date 2.2% 3.8%
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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/investors/index.html
Web site: http://www.sybrondental.com/