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. (Logo:
http://www.newscom.com/cgi-bin/prnh/20001204/SDSLOGO) 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 (800)
288-8967 for domestic callers and (612) 332-0228 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
(800) 475-6701, passcode 788912 for domestic callers and (320)
365-3844, 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
http://www.newscom.com/cgi-bin/prnh/20001204/SDSLOGO
http://photoarchive.ap.org/ DATASOURCE: Sybron Dental Specialties,
Inc. CONTACT: Bernard J. Pitz, Chief Financial Officer of Sybron
Dental Specialties, Inc., +1-714-516-7400 Web site:
http://www.sybrondental.com/
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