NEWPORT BEACH, Calif., May 9 /PRNewswire-FirstCall/ -- Sybron Dental Specialties, Inc. , 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) be
