Sirona Reports Record Fiscal 2013 First Quarter Results

* Non-GAAP adjusted EPS and constant currency growth and results are non-GAAP financial measures that exclude certain items. Please refer to ”Reconciliation of GAAP and non-GAAP Information (unaudited)” in the attached exhibits for a description of these items.

SIRONA DENTAL SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
							Three months ended
							December 31,
							2012		2011
							$'000s (except per share amounts)
Revenue						$	272,404	$	258,116
Cost of sales							120,533		119,333
Gross profit							151,871		138,783
Selling, general and administrative expense							85,783		73,646
Research and development							14,095		13,286
Provision for doubtful accounts and notes receivable							70		39
Net other operating income							(6,914)		(2,500)
Operating income							58,837		54,312
(Gain)/loss on foreign currency transactions, net							4,580		2,230
(Gain)/loss on derivative instruments							(1,346)		436
Interest expense, net							970		903
Other expense/(income)							340		262
Income before taxes							54,293		50,481
Income tax provision							15,226		11,611
Net income							39,067		38,870
Less: Net income attributable to noncontrolling interests							765		593
Net income attributable to Sirona Dental Systems, Inc.						$	38,302	$	38,277
Income per share (attributable to Sirona Dental Systems, Inc. common shareholders):
- Basic						$	0.70	$	0.69
- Diluted						$	0.68	$	0.67
Weighted average shares - basic							55,004,471		55,783,648
Weighted average shares - diluted							56,327,927		57,121,505

SIRONA DENTAL SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
									December 31,			September 30,
									2012			2012
									(unaudited)
									$'000s (except per share amounts)
ASSETS
Current assets
Cash and cash equivalents								$	124,170		$	151,088
Accounts receivable, net of allowance for doubtful accounts
of $1,290 and $1,408, respectively									145,569			132,569
Inventories, net									92,124			81,007
Deferred tax assets									27,942			24,781
Prepaid expenses and other current assets									24,242			17,622
Income tax receivable									2,291			2,213
Total current assets									416,338			409,280
Property, plant and equipment, net of accumulated depreciation and amortization of $135,418 and $125,706, respectively									147,400			143,351
Goodwill									659,533			631,077
Investments									25			14
Intangible assets, net of accumulated amortization of
$463,164 and $446,447, respectively									326,837			288,556
Other non-current assets									4,642			9,368
Deferred tax assets									13,051			12,888
Total assets								$	1,567,826		$	1,494,534
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable								$	61,838		$	51,961
Short-term debt and current portion of long-term debt									419			478
Income taxes payable									19,155			14,906
Deferred tax liabilities									499			817
Accrued liabilities and deferred income									111,329			118,075
Total current liabilities									193,240			186,237
Long-term debt									75,000			75,000
Deferred tax liabilities									136,959			122,441
Other non-current liabilities									24,336			16,852
Pension related provisions									62,977			61,629
Deferred income									37,500			40,000
Total liabilities									530,012			502,159
Shareholders' equity
Preferred stock ($0.01 par value; 5,000,000 shares authorized;
none issued and outstanding)									0			0
Common stock ($0.01 par value; 95,000,000 shares authorized;
56,776,626 shares issued and 54,946,874 shares outstanding at Dec. 31, 2012; 56,598,045 shares issued and 55,051,673 shares outstanding at Sept. 30, 2012									567			566
Additional paid-in capital									706,745			699,279
Treasury stock (at cost)
1,829,752 shares held at cost at Dec. 31, 2012; 1,546,372 shares held at cost at Sept. 30, 2012									(86,230)			(69,058)
Excess of purchase price over predecessor basis									(49,103)			(49,103)
Retained earnings									475,773			437,471
Accumulated other comprehensive income/(loss)									(13,332)			(29,797)
Total Sirona Dental Systems, Inc. shareholders' equity									1,034,420			989,358
Noncontrolling interests									3,394			3,017
Total shareholders' equity									1,037,814			992,375
Total liabilities and shareholders' equity								$	1,567,826		$	1,494,534

SIRONA DENTAL SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
		Three months ended
		December 31,
		2012			2011
		$'000s
Cash flows from operating activities
Net income	$	39,067		$	38,870
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		17,912			19,255
(Gain)/loss on disposal of property, plant and equipment		(30)			-
(Gain)/loss on derivative instruments		(1,346)			436
(Gain)/loss on foreign currency transactions		4,580			2,230
Deferred income taxes		8,815			(4,428)
Amortization of debt issuance cost		138			199
Share-based compensation expense		6,097			2,093
Changes in assets and liabilities
Accounts receivable		(12,753)			(28,626)
Inventories		(10,589)			2,129
Prepaid expenses and other current assets		(6,054)			5,022
Restricted cash		-			646
Other non-current assets		(81)			(273)
Trade accounts payable		9,078			(10,478)
Accrued liabilities and deferred income		(26,908)			(17,060)
Other non-current liabilities		1,873			193
Income taxes receivable		(41)			1,741
Income taxes payable		3,932			4,389
Net cash provided by operating activities		33,690			16,338
Cash flows from investing activities
Investment in property, plant and equipment		(10,347)			(7,875)
Proceeds from sale of property, plant and equipment		83			-
Purchase of intangible assets		(12)			(66)
Acquisition of business, net of cash acquired		(35,019)			-
Net cash used in investing activities		(45,295)			(7,941)
		Three months ended
		December 31,
		2012			2011
		$'000s
Cash flows from financing activities
Repayments of short-term and long-term debt		(98)			(366,646)
Proceeds from borrowings		-			129,209
Purchase of treasury stock		(17,172)			(7,020)
Debt issuance cost		-			(2,289)
Dividend distributions to noncontrolling interest		(434)			(1,689)
Common shares issued under share based
compensation plans		2,790			464
Tax effect of common shares issued under share based
compensation plans		(1,910)			(639)
Net cash used in financing activities		(16,824)			(248,610)
Change in cash and cash equivalents		(28,429)			(240,213)
Effect of exchange rate change on cash and cash equivalents		1,511			33
Cash and cash equivalents at beginning of period		151,088			345,859
Cash and cash equivalents at end of period	$	124,170		$	105,679
Supplemental information
Interest paid	$	684		$	241
Interest capitalized		29			102
Income taxes paid		14,379			9,579
Acquisition of business
Current assets	$	5,185		$	-
Non-current assets		61,237			-
Current liabilities		(7,835)			-
Non-current liabilities		(11,951)			-
		46,636			-
Cash paid		(36,673)
Settlement of balances		(4,544)
Fair value of liabilities incurred	$	5,419		$	-

Reconciliation of GAAP and Non-GAAP Information (unaudited)
HISTORICAL
Non-GAAP Adjusted Net Income Financial Measures (unaudited)
					GAAP Reconciliation to Non-GAAP
					Three months ended December 31, 2012
					Pre Tax				Tax Impact*				After Tax					Per Diluted Share
					$'000s, except per share amount
GAAP net income attributable to Sirona Dental Systems, Inc. shareholders													$	38,302			$	0.68
	Adjustments
	Amortization and depreciation expense resulting from the step-up to fair values of intangible assets related to past business combinations				$	9,633			$	2,312				7,321
	(Gain)/loss on foreign currency transactions, net					4,580				1,099				3,481
	(Gain)/loss on derivative instruments					(1,346)				(323)				(1,023)
	Other items:
	Non-cash remeasurement of deferred tax assets and liabilities due to an increase in German trade tax rate					2,196								2,196
	Non-cash compensation charge for the revaluation of share based compensation in connection with the Transition Agreement for the departing CEO and Chairman					3,764				903				2,861
Non-GAAP adjusted net income attributable to Sirona Dental Systems, Inc. shareholders													$	53,137			$	0.94
* tax impact calculated using estimated effective tax rate of 24%
					GAAP Reconciliation to Non-GAAP
					Three months ended December 31, 2011
					Pre Tax				Tax Impact*				After Tax					Per Diluted Share
					$'000s, except per share amount
GAAP net income attributable to Sirona Dental Systems, Inc. shareholders													$	38,277			$	0.67
	Adjustments
	Amortization and depreciation expense resulting from the step-up to fair values of intangible assets related to past business combinations				$	11,958			$	2,750				9,208
	(Gain)/loss on foreign currency transactions, net					2,230				513				1,717
	(Gain)/loss on derivative instruments					436				100				336
Non-GAAP adjusted net income attributable to Sirona Dental Systems, Inc. shareholders													$	49,538			$	0.87
** tax impact calculated using estimated effective tax rate of 23%

	FORWARD-LOOKING
	Non-GAAP Adjusted EPS Guidance (unaudited)
						Low End of Guidance
						Pre Tax				Tax Impact				After Tax			Per Diluted Share
						$ millions, except per share amount
	GAAP net income attributable to Sirona Dental Systems, Inc. Shareholders													$	155		$	2.73
		Adjustments
		Amortization and depreciation expense resulting from the step-up to fair values of intangible assets related to past business combinations
						$	38			$	9			$	29
		(Gain)/loss Foreign Currency Transactions, net**					-				-				-
		(Gain)/loss on derivative instruments, net**					-				-				-
		Non-cash remeasurement of deferred tax assets and liabilities due to an increase in German trade tax rate					2								2
		Non-cash compensation charge for the revaluation of share based compensation in connection with the Transition Agreement for the departing CEO and Chairman					4				1				3
	Non-GAAP adjusted net income attributable to Sirona Dental Systems, Inc. shareholders													$	189		$	3.33
						High End of Guidance
						Pre Tax				Tax Impact				After Tax			Per Diluted Share
						$ millions, except per share amount
	GAAP net income attributable to Sirona Dental Systems, Inc. shareholders													$	161		$	2.84
		Adjustments
		Amortization and depreciation expense resulting from the step-up to fair values of intangible assets related to past business combinations
							38			$	9			$	29
		(Gain)/loss Foreign Currency Transactions, net**				$	-				-			$	-
		(Gain)/loss on derivative instruments, net**					-				-				-
		Non-cash remeasurement of deferred tax assets and liabilities due to an increase in German trade tax rate					2								2
		Non-cash compensation charge for the revaluation of share based compensation in connection with the Transition Agreement for the departing CEO and Chairman					4				1				3
	Non-GAAP adjusted net income attributable to Sirona Dental Systems, Inc. shareholders													$	195		$	3.43
	**We are unable to provide estimates for these items because we are unable to predict the 2013 and long-term impact of foreign exchange due to unpredictability of future changes in foreign exchange rates.

To supplement our consolidated financial statements and our business outlook, we use the following non-GAAP financial measures: (i) non-GAAP adjusted net income, and (ii) non-GAAP adjusted earnings per diluted share, which exclude, as applicable, amortization and depreciation expense resulting from the step-up to fair values of intangible and tangible assets related to past business combinations, gain/loss on foreign currency transactions, gain/loss on derivative instruments and any related tax effects and to the extent relevant in a particular period, any other cash or non-cash items that management does not view as indicative of its on-going operating performance. Also set forth above under the heading “FORWARD-LOOKING” are reconciliations of forward-looking non-GAAP financial measures to the most directly comparable GAAP financial measures.

Management recognizes that the use of these non-GAAP measures has limitations, including the fact that they might not be comparable with similar non-GAAP measures used by other companies and that management must exercise judgment in determining which types of charges and other items should be excluded from its non-GAAP financial measures. Management currently compensates for these limitations by providing full disclosure of each non-GAAP financial measure and a reconciliation to the most directly comparable GAAP measure. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our "core operating performance". Management believes that "core operating performance" represents Sirona’s operating performance in the ordinary, ongoing and customary course of its operations. Accordingly, management excludes from "core operating performance" the impact of acquisition-related intangible depreciation and amortization in order to compare our underlying financial performance to prior periods, certain charges related to currency revaluation of assets and liabilities that do not reflect our period-to-period core operating performance, and to the extent relevant in a particular period, any other cash or non-cash items that management does not view as indicative of its on-going operating performance. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate management's internal evaluation of period-to-period comparisons. We believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision making and (2) they are provided to and used by our institutional investors and the analyst community to facilitate comparisons with prior and subsequent reporting periods.

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 additionally 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 U.S. Dollar/Euro average foreign exchange rate for each month of the current period. The average exchange rate for the three months ended December 31, 2012, was $1.29708 and varied from $1.28296 to $1.31075. For the three months ended December 31, 2011, an average exchange rate converting Euro denominated revenues into U.S. Dollars of $1.34934 was applied.

Our forecasted 2013 constant currency net revenue guidance excludes the impact of foreign exchange. We are unable to reconcile our projected 2013 constant currency net revenue growth to our full-year projected 2013 net revenue growth because we are unable to predict the 2013 and long-term impact of foreign exchange due to the unpredictability of future changes in foreign exchange rates. Therefore, we are unable to provide a reconciliation of these measures.

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