Sirona Reports Fiscal 2008 Fourth Quarter and Full Year 2008 Results

LONG ISLAND CITY, N.Y.--(BUSINESS WIRE)--Sirona (Nasdaq: SIRO), a leading global manufacturer of technologically advanced, high quality dental equipment, today reported its financial results for the quarter and fiscal year ended September 30, 2008.

Chairman, President & CEO, Jost Fischer commented: “We are pleased to report another year of solid performance for Sirona in fiscal 2008, with revenues at the upper end of guidance, and operating income excluding amortization exceeding our guidance. As we anticipated, in the fourth quarter of 2008, our US revenues declined compared to prior year, due to the successful MCXL milling unit trade-in program in 2007.”

Fourth Quarter Fiscal 2008 vs. Fourth Quarter Fiscal 2007 Financial Results

Revenue was $180.6 million, an increase of $2.7 million or 1.5% (down 5.2% on a constant currency basis), with growth rates for the Company's business segments as follows: Instruments increased 16% (up 6% constant currency); Treatment Centers increased 10% (flat constant currency); Imaging Systems increased 6% (up 1% constant currency); and Dental CAD/CAM Systems decreased 15% (down 19% constant currency). Revenue in the United States declined by 12%, driven by lower CAD/CAM Systems segment sales, as the prior year period benefited substantially from the MC XL trade-in program. Outside the United States, revenue increased 7% (down 3% constant currency).

Gross profit was $81.4 million, down $1.3 million compared to prior year. Gross profit margin was 45.1% in the fourth quarter of 2008 compared to 46.5% in the prior year quarter. The gross profit margin decline resulted from increased amortization expense in the fourth quarter of 2008.

Fourth quarter 2008 operating income excluding amortization expense declined 10% to $33.1 million (operating income of $10.1 million plus amortization expense of $22.9 million). This compares to fourth quarter 2007 operating income excluding amortization expense of $36.9 million (operating income of $16.7 million plus amortization expense of $20.2 million).

Net loss for the fourth quarter of 2008 was $5.2 million, or ($0.09) per diluted share, compared to a gain of $51.8 million, or $0.93 per diluted share, for the fourth quarter of 2007. Fourth quarter 2008 earnings per share included $0.38 of amortization and depreciation expense attributable to the write-up in value of assets due to purchase accounting, a loss of $0.11 related to the revaluation of the Patterson exclusivity fee, and a loss of $0.08 resulting from the revaluation of short-term intra-group loans. Fourth quarter 2008 results were impacted by a favorable tax rate adjustment for the full fiscal year. The 2008 effective tax rate was 24%.

For the fourth quarter of 2007, earnings per share included $0.23 of amortization and depreciation expense attributable to the write-up in value of assets due to purchase accounting, a gain of $0.058 related to the revaluation of the Patterson exclusivity fee, a $0.046 gain resulting from the revaluation of short-term intragroup loans and an $0.82 one-time benefit due to the revaluation of deferred tax assets and liabilities resulting from a reduction in the German tax rate.

At September 30, 2008, the Company had cash and cash equivalents of $149.7 million and total debt of $553.4 million, resulting in net debt of $403.8 million. This compares to net debt of $463.3 million at September 30, 2007. The reduction in net debt was driven by the Company’s cash flow during the 2008 fiscal year.

Fiscal 2008 vs. Fiscal 2007 Financial Results

Revenue was $757.1 million, an increase of $97.2 million, or 14.7% (up 5.6% constant currency) with growth rates for the Company's business segments as follows: Treatment Centers increased 18% (up 5% constant currency); Instruments increased 17% (up 4% constant currency); Dental CAD/CAM systems increased 14% (up 7% constant currency); and Imaging Systems increased 12% (up 5% constant currency). Revenue in the United States increased 2%. Outside the United States, revenue increased 21% (up 7% constant currency) as international revenues benefited from Sirona’s expanded presence in Japan, Australia, Spain and Italy, as well as strong sales in Russia and France.

Gross profit increased by $41.1 million to $345.6 million, up 14%. Gross profit margins of 45.7% were down slightly compared to the prior year level.

2008 operating income excluding amortization expense was $155.4 million (operating income of $63.8 million plus amortization expense of $91.6 million). This compares to 2007 operating income excluding amortization expense of $132.9 million (operating income of $53.9 million plus amortization expense of $79.0 million).

Fiscal 2009 Guidance

Jost Fischer said: “The weakened global economy has resulted in a challenging dental equipment environment. Consequently, we are anticipating that in fiscal 2009 both revenues on a constant currency basis, and operating income excluding amortization will be flat as compared to fiscal 2008. With our continuing investment in research and development, best-in-class product offerings, and excellent relationships with our dealer partners, we remain confident in the long term prospects for our business.”

Conference Call/Webcast Information

Sirona will hold a conference call to discuss its financial results at 9:00 a.m. Eastern Time on December 4, 2008. The teleconference can be accessed by calling +1 888.680.0869 (domestic) or +1 617.213.4854 (international) using passcode # 89325893. The webcast will be available via the Internet at www.sirona.com. A replay of the conference call will be available through December 11, 2008 by calling +1 888.286.8010 (domestic) or +1 617.801.6888 (international) using passcode # 89173468. A web archive will be available for 30 days at www.sirona.com.

About Sirona Dental Systems, Inc.

Recognized as a leading global manufacturer of technologically advanced, high quality dental equipment, Sirona has served equipment dealers and dentists worldwide for more than 125 years. Sirona develops, manufactures, and markets a complete line of dental products, including the CAD/CAM restoration equipment (CEREC), digital and film-based intra-oral, panoramic and cephalometric X-ray imaging systems, dental treatment centers and handpieces. Visit http://www.sirona.com for more information about Sirona and its products.

This press release and any attachment thereto contains forward-looking information about Sirona Dental Systems, Inc.’s financial results, guidance and estimates, business prospects, and products and services that involve substantial risks and uncertainties or other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. You can identify these statements by the use of words such as "may," "could," "estimate," "will," "believe," "anticipate," "think," "intend," "expect," "project," "plan," "target," "forecast", and similar words and expressions which identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not guarantees of future performance and involve known and unknown risks and uncertainties, and other factors. Readers are cautioned not to place undue reliance on such statements, which speak only as of the date hereof. For a discussion of such risks, uncertainties and other matters that could cause actual results to differ materially, including risks relating to, among other factors, the market for dental product and services, pricing, future sales volume of the Company's products, the possibility of changing economic, market and competitive conditions, dependence on products, dependence on key personnel, technological developments, intense competition, market uncertainties, dependence on distributors, ability to manage growth, dependence on key suppliers, dependence on key members of management, government regulation, acquisitions and affiliations, readers are urged to carefully review and consider various disclosures made by the Company in its Annual Report on Form 10-K and in its reports on Forms 10-Q and 8-K filed with the U.S. Securities and Exchange Commission. The Company assumes no obligation to update any forward-looking statements contained in this document or the attachments to reflect new information or future events or developments after the date any such statement is made.

SIRONA DENTAL SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENT
			Three Months Ended				Three Months Ended						Year ended				Year ended
			September 30,				September 30,						September 30,				September 30,
			2008				2007						2008				2007
		$'000 (except per share amounts)
Revenue		$	180,606			$	177,941			$		$	757,111			$	659,949
Cost of sales			99,203				95,233						411,489				355,475
Gross profit			81,403				82,708						345,622				304,474
Selling, general and administrative expense			62,055				53,586						242,293				203,597
Research and development			11,240				12,800						48,744				46,945
Provision for doubtful accounts and notes receivable			469				(112	)					824				217
Net other operating (income)/expense			(2,500	)			(264	)					(10,000	)			(162	)
Operating income			10,139				16,698						63,761				53,877
Foreign currency transactions (gain), net			6,297				(6,982	)					(8,935	)			(16,794	)
Loss/(gain) on derivative instruments			7,596				2,385						6,660				169
Interest expense, net			6,749				7,231						26,795				28,166
Loss on debt extinguishment			-				-						-				21,145
Other expense/(income)			-				(586	)					305				(586	)
Income before taxes and minority interest			(10,503	)			14,650						38,936				21,777
Income tax provision/(benefit)			(5,495	)			(37,372	)					9,337				(34,877	)
Minority interest			177				202						160				185
Net income		$	(5,185	)		$	51,820			$		$	29,439			$	56,469
Income per share
- Basic		$	(0.09	)			0.95					$	0.54				1.03
- Diluted		$	(0.09	)			0.93					$	0.53				1.02
Weighted average shares - basic			54,829,393				54,756,709						54,797,493				54,701,997
Weighted average shares - diluted			55,299,802				55,520,640						55,287,095				55,538,462

SIRONA DENTAL SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
			September 30,				September 30,
			2008				2007
ASSETS
Current assets
Cash and cash equivalents		$	149,663			$	99,842
Restricted cash			934				908
Accounts receivable, net of allowance for doubtful accounts
of $1,741 and $1,475, respectively			80,319				87,074
Inventories, net			77,733				74,834
Deferred tax assets			12,199				9,040
Prepaid expenses and other current assets			21,407				18,801
Income tax receivable			12,505				3,758
Total current assets			354,760				294,257
Property, plant and equipment, net of accumulated depreciation
and amortization of $47,992 and $31,037, respectively			100,134				80,523
Goodwill			683,075				677,506
Investments			1,584				1,254
Intangible assets, net of accumulated amortization of
$246,539 and $156,776, respectively			514,601				597,302
Other non-current assets			3,661				4,407
Deferred tax assets			1,190				2,494
Total assets			1,659,005				1,657,743
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable		$	39,803			$	46,190
Short-term debt and current portion of long-term debt			9,093				23,041
Income taxes payable			4,544				5,543
Deferred tax liabilities			1,650				3,264
Accrued liabilities and deferred income			85,309				84,348
Total current liabilities			140,399				162,386
Long-term debt			544,350				540,143
Deferred tax liabilities			174,420				192,808
Other non-current liabilities			11,489				13,406
Pension related provisions			47,378				49,450
Deferred income			80,000				90,000
Total liabilities			998,036				1,048,193
Minority interest			626				484
Shareholders' equity
Preferred stock ($0.01 par value; 5,000,000 shares authorized;
none issued and outstanding)							-
Common stock ($0.01 par value; 95,000,000 shares authorized:
54,865,995 and 54,765,285 shares issued and outstanding)			549				548
Additional paid-in capital			620,732				603,570
Excess of purchase price over predecessor basis			(49,103	)			(49,103	)
Retained earnings/(accumulated deficit)			38,502				9,063
Accumulated other comprehensive income			49,663				44,988
Total shareholders' equity			660,343				609,066
Total liabilities, minority interest and shareholders' equity		$	1,659,005			$	1,657,743

SIRONA DENTAL SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
			Year ended				Year ended
			September 30,				September 30,
			2008				2007
			$'000s
Cash flows from operating activities
Net income		$	29,439			$	56,469
Adjustments to reconcile net income/(loss) to net cash used in operating activities
Minority interest			138				183
Depreciation and amortization			106,042				96,378
Loss/(gain) on disposal of property, plant and equipment			57				157
Loss/(gain) on derivate instruments			6,660				169
Foreign currency transactions (gain)			(8,935	)			(16,794	)
Deferred income taxes			(23,561	)			(72,683	)
Amortization of debt issuance cost			1,270				4,405
Loss on debt extinguishment			-				19,964
Compensation expense from stock options			15,556				14,400
Changes in assets and liabilities
Accounts receivable			7,906				(7,656	)
Inventories			(2,091	)			(7,133	)
Prepaid expenses and other current assets			(2,216	)			11,907
Restricted Cash			(16	)			152
Other non-current assets			(361	)			(4,544	)
Trade accounts payable			(7,290	)			14,186
Accreted interest on long term debt			(4,314	)			13,983
Accrued liabilities and deferred Income			(9,567	)			(24,196	)
Other non-current liabilities			(4,658	)			(11,913	)
Income taxes receivable			(8,320	)			(2,198	)
Income taxes payable			(1,054	)			(6,061	)
Net cash provided by operating activities			94,685				79,175
Cash flows from investing activities
Investment in property, plant and equipment			(36,074	)			(26,878	)
Proceeds from sale of property, plant and equipment			154				577
Purchase of intangible assets			(544	)			(260	)
Purchase of long-term investments			(330	)			(504	)
Acquisition of businesses, net of cash acquired			-				(10,466	)
Net cash used in investing activities			(36,794	)			(37,531	)
Cash flows from financing activities
Repayments of long-term debt			(10,121	)			(559,294	)
Proceeds from borrowings			-				529,747
Debt issuance cost			-				(5,591	)
Common shares issued on share based compensation
plans			1,024				1,394
Tax effect of common shares exercised under share based
compensation plans			559				4,156
Net cash used in financing activities			(8,538	)			(29,588	)
Change in cash and cash equivalents			49,353				12,056
Effect of exchange rate change on cash & cash equivalents			468				7,226
Cash and cash equivalents at beginning of period			99,842				80,560
Cash and cash equivalents at end of period		$	149,663			$	99,842

Other Financial Data (unaudited)
			Three months								Twelve Months
			ended								ended
			June 30,								June 30,
			2008				2007				2008			2007
			$'000s								$'000s
Net income		$	(5,187	)		$	51,820			$	29,439		$	56,469
Net interest expense			6,749				7,231				26,795			28,166
Provision/(benefit) for income taxes			(5,495	)			(37,372	)			9,337			(34,877	)
Depreciation			4,967				5,091				17,744			14,646
Amortization			22,933				20,160				91,649			78,994
EBITDA		$	23,967			$	46,930			$	174,964		$	143,398

Supplemental Information
			Three months							Year
			ended							ended
			September 30							September 30
			2008			2007				2008				2007
			$'000s							$'000s
Loss on debt extinguishment		$	-		$	-			$	-			$	21,145
Share-based compensation			4,090			3,803				15,556				14,400
Unrealized, non-cash (gain) on revaluation of the carrying value of the $-denominated exclusivity fee			8,797			(4,937	)			(1,424	)			(11,274	)
Foreign currency exchange (gain) on the early extinguishment of $-denominated bank debt			-			-				-				(3,885	)
Unrealized, non-cash (gain) on revaluation of the carrying value of short-term intra-group loans			5,982			(3,968	)			(565	)			(6,572	)
		$	18,869		$	(5,102	)		$	13,567			$	13,814

Notes to Tables Above

EBITDA is a non-GAAP financial measure that is reconciled to net income, its most directly comparable GAAP measure, in the accompanying financial tables. EBITDA is defined as net earnings before interest, taxes, depreciation and amortization. Sirona’s management utilizes EBITDA as an operating performance measure in conjunction with GAAP measures, such as net income and gross margin calculated in conformity with GAAP. EBITDA should not be considered in isolation or as a substitute for net income prepared in conformity with GAAP. There are material limitations associated with making adjustments to Sirona's earnings to calculate EBITDA and using this non-GAAP financial measure as compared to the most directly comparable GAAP financial measure. For instance, EBITDA does not include:

• interest expense, and because Sirona has borrowed money in order to finance its operations, interest expense is a necessary element of its costs and ability to generate revenue;

• depreciation and amortization expense, and because Sirona uses capital assets, depreciation and amortization expense is a necessary element of its costs and ability to generate revenue; and

• tax expense, and because the payment of taxes is part of Sirona’s operations, tax expense is a necessary element of costs and impacts Sirona’s ability to operate.

In addition, other companies may define EBITDA differently. EBITDA, as well as the other information in this filing, should be read in conjunction with Sirona’s financial statements and footnotes contained in the documents that Sirona files with the U.S. Securities and Exchange Commission.

In addition to EBITDA, the accompanying financial tables also set forth certain supplementary information that Sirona believes is useful for investors in evaluating Sirona’s underlying operations. This supplemental information includes gains/losses recorded in the periods presented relating to early extinguishment of debt, stock option grants, revaluation of the carrying value of the dollar-denominated exclusivity payment and borrowings where the functional currency is Euro, and the Schick acquisition. Sirona’s management believes that these items are either nonrecurring or noncash in nature, and should be considered by investors in assessing Sirona’s financial condition, operating performance and underlying strength.

Sirona’s management uses EBITDA together with this supplemental information as an integral part of its reporting and planning processes and as one of the primary measures to, among other things:

(i) monitor and evaluate the performance of Sirona’s business operations;

(ii) facilitate management’s internal comparisons of the historical operating performance of Sirona’s business operations;

(iii) facilitate management's external comparisons of the results of Sirona’s overall business to the historical operating performance of other companies that may have different capital structures and debt levels;

(iv) analyze and evaluate financial and strategic planning decisions regarding future operating investments; and

(v) plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.

Sirona’s management believes that EBITDA and the supplemental information provided is useful to investors as it provides them with disclosure of Sirona’s operating results on the same basis as that used by Sirona’s management.

Constant Currency: We have included certain revenue information in this press release on a constant currency basis. This information is a non-GAAP financial measure. We supplementally present revenue on a constant currency basis because we believe it facilitates a comparison of our operating results from period to period without regard to changes resulting solely from fluctuations in currency rates. Sirona calculates constant currency revenue growth by comparing current period revenues to prior period revenues with both periods converted at the Euro/U.S. $ average foreign exchange rate for the current period.

The exchange rates used in converting Euro denominated revenues into U.S. $ in the Company's financial statements prepared in accordance with U.S. GAAP were: $1.50671 and $1.37417 for the three months ended September 30, 2008 and 2007, respectively, and $1.50244 and $1.33129 for the years ended September 30, 2008 and 2007, respectively.