##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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(MARK ONE)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2005



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



FOR THE TRANSITION PERIOD FROM              TO



COMMISSION FILE NUMBER: 1-16057



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SYBRON DENTAL SPECIALTIES, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 33-0920985                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



100 BAYVIEW CIRCLE,
STE. 6000, NEWPORT BEACH, CA 92660

(Address of principal executive offices) (Zip Code)



(949) 255-8700

(Registrants telephone number, including area code)



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Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.
(Check one):



|                           |  |                    |  |                       
|-------------------------- |  | ------------------ |  | ----------------------
|Large accelerated filer  x |  | Accelerated filer ̈ |  | Non-accelerated filer ̈



Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x



At February 6, 2006, there were 40,493,106 shares of the Registrants Common Stock outstanding.



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##### Table of Contents

SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES



|              |  |                       |  |                                                                                       |  |     
|------------- |  | --------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|              |  |                       |  |                                                                                       |  | PAGE
|PART I -      |  | FINANCIAL INFORMATION |  |                                                                                      
|              |  |                       | 
|              |  | Item 1.               |  | Financial Statements                                                                  |  |     
|              |  |                       |  | Condensed Consolidated Balance Sheets                                                 |  | 3   
|              |  |                       |  | Condensed Consolidated Statements of Income                                           |  | 4   
|              |  |                       |  | Condensed Consolidated Statement of Stockholders Equity and Comprehensive Income     |  | 5   
|              |  |                       |  | Condensed Consolidated Statements of Cash Flows                                       |  | 6   
|              |  |                       |  | Notes to Unaudited Condensed Consolidated Financial Statements                        |  | 7   
|              |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 20  
|              |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 31  
|              |  | Item 4.               |  | Controls and Procedures                                                               |  | 32  
|              |  |                      
|PART II -     |  | OTHER INFORMATION     |  |                                                                                      
|              |  |                       | 
|              |  | Item 6.               |  | Exhibits                                                                              |  | 33  
|Signature     |  | 34                   
|Exhibit Index |  | 35                   



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##### Table of Contents

PART I - FINANCIAL INFORMATION



ITEM 1.Financial Statements



SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



|                                                                                                                                                                    |  |                                          |         |                    |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | ------------------ | - | -------
|                                                                                                                                                                    |  | December 31, 2005                        |         | September 30, 2005
|                                                                                                                                                                    |  | (in thousands, except per share amounts)
|ASSETS                                                                                                                                                              |  |                                          |         |                    |   |        
|Current assets:                                                                                                                                                     |  |                                          |         |                    |   |        
|Cash and cash equivalents                                                                                                                                           |  | $                                        | 70,609  |                    | $ | 58,572 
|Accounts receivable (less allowance for doubtful receivables of $2,946 and $3,007 at December 31, 2005 and September 30, 2005,
respectively)                        |  |                                          | 97,630  |                    |   | 112,500
|Inventories                                                                                                                                                         |  |                                          | 95,162  |                    |   | 92,840 
|Deferred income taxes                                                                                                                                               |  |                                          | 6,572   |                    |   | 7,788  
|Prepaid expenses and other current assets                                                                                                                           |  |                                          | 11,123  |                    |   | 12,261 
|                                                                                                                                                                    |  |                                          |         |                    |   |        
|Total current assets                                                                                                                                                |  |                                          | 281,096 |                    |   | 283,961
|Property, plant and equipment, net of accumulated depreciation of $120,441 and $117,252 at December 31, 2005 and September 30, 2005,
respectively                   |  |                                          | 85,863  |                    |   | 87,762 
|Goodwill                                                                                                                                                            |  |                                          | 293,433 |                    |   | 295,306
|Intangible assets, net                                                                                                                                              |  |                                          | 59,169  |                    |   | 50,882 
|Other assets                                                                                                                                                        |  |                                          | 32,852  |                    |   | 32,507 
|                                                                                                                                                                    |  |                                          |         |                    |   |        
|Total assets                                                                                                                                                        |  | $                                        | 752,413 |                    | $ | 750,418
|                                                                                                                                                                    |  |                                          |         |                    |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                |  |                                          |         |                    |   |        
|Current liabilities:                                                                                                                                                |  |                                          |         |                    |   |        
|Accounts payable                                                                                                                                                    |  | $                                        | 19,566  |                    | $ | 20,135 
|Current portion of long-term debt                                                                                                                                   |  |                                          | 607     |                    |   | 733    
|Income taxes payable                                                                                                                                                |  |                                          | 12,547  |                    |   | 11,822 
|Accrued payroll and employee benefits                                                                                                                               |  |                                          | 19,657  |                    |   | 31,537 
|Accrued rebates                                                                                                                                                     |  |                                          | 9,696   |                    |   | 9,336  
|Accrued interest                                                                                                                                                    |  |                                          | 609     |                    |   | 3,519  
|Other current liabilities                                                                                                                                           |  |                                          | 13,148  |                    |   | 15,412 
|                                                                                                                                                                    |  |                                          |         |                    |   |        
|Total current liabilities                                                                                                                                           |  |                                          | 75,830  |                    |   | 92,494 
|Long-term debt                                                                                                                                                      |  |                                          | 59,105  |                    |   | 61,099 
|Senior subordinated notes                                                                                                                                           |  |                                          | 150,000 |                    |   | 150,000
|Deferred income taxes                                                                                                                                               |  |                                          | 29,166  |                    |   | 16,405 
|Other non-current liabilities                                                                                                                                       |  |                                          | 19,253  |                    |   | 28,267 
|                                                                                                                                                                    |  |                                          |         |                    |   |        
|Total liabilities                                                                                                                                                   |  |                                          | 333,354 |                    |   | 348,265
|Stockholders equity                                                                                                                                                |  |                                          |         |                    |   |        
|Preferred stock, $0.01 par value; authorized 20,000 shares, no shares outstanding                                                                                   |  |                                          |        |                    |   |       
|Common stock, $0.01 par value; authorized 250,000 shares, 40,490 and 40,395 shares issued and outstanding at December 31, 2005 and
September 30, 2005, respectively |  |                                          | 405     |                    |   | 404    
|Additional paid-in capital                                                                                                                                          |  |                                          | 123,637 |                    |   | 118,448
|Retained earnings                                                                                                                                                   |  |                                          | 279,369 |                    |   | 264,841
|Accumulated other comprehensive income                                                                                                                              |  |                                          | 15,648  |                    |   | 18,460 
|                                                                                                                                                                    |  |                                          |         |                    |   |        
|Total stockholders equity                                                                                                                                          |  |                                          | 419,059 |                    |   | 402,153
|                                                                                                                                                                    |  |                                          |         |                    |   |        
|Total liabilities and stockholders equity                                                                                                                          |  | $                                        | 752,413 |                    | $ | 750,418
|                                                                                                                                                                    |  |                                          |         |                    |   |        



See accompanying Notes
to Unaudited Condensed Consolidated Financial Statements.



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SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)



|                                                   |  |                                              |         |   |      |   |         |  
|-------------------------------------------------- |  | -------------------------------------------- | ------- | - | ---- | - | ------- | -
|                                                   |  | Three Months EndedDecember 31,               |        
|                                                   |  | 2005                                         |         |   | 2004 |  
|                                                   |  | (in thousands, except for per share amounts) |        
|Net sales                                          |  | $                                            | 158,031 |   |      | $ | 149,040 |  
|Cost of sales                                      |  |                                              | 68,041  |   |      |   | 63,673  |  
|                                                   |  |                                              |         |   |      |   |         |  
|Gross profit                                       |  |                                              | 89,990  |   |      |   | 85,367  |  
|Selling, general and administrative expenses       |  |                                              | 61,270  |   |      |   | 57,488  |  
|Amortization of intangibles                        |  |                                              | 2,814   |   |      |   | 497     |  
|                                                   |  |                                              |         |   |      |   |         |  
|Total selling, general and administrative expenses |  |                                              | 64,084  |   |      |   | 57,985  |  
|                                                   |  |                                              |         |   |      |   |         |  
|Operating income                                   |  |                                              | 25,906  |   |      |   | 27,382  |  
|Other income (expense):                            |  |                                              |         |   |      |   |         |  
|Interest expense, net                              |  |                                              | (3,857  | ) |      |   | (4,817  | )
|Amortization of deferred financing fees            |  |                                              | (413    | ) |      |   | (415    | )
|Other, net                                         |  |                                              | 47      |   |      |   | (34     | )
|                                                   |  |                                              |         |   |      |   |         |  
|Income before income taxes                         |  |                                              | 21,683  |   |      |   | 22,116  |  
|Income taxes                                       |  |                                              | 7,155   |   |      |   | 7,077   |  
|                                                   |  |                                              |         |   |      |   |         |  
|Net income                                         |  | $                                            | 14,528  |   |      | $ | 15,039  |  
|                                                   |  |                                              |         |   |      |   |         |  
|Basic earnings per share                           |  | $                                            | 0.36    |   |      | $ | 0.38    |  
|                                                   |  |                                              |         |   |      |   |         |  
|Diluted earnings per share                         |  | $                                            | 0.35    |   |      | $ | 0.37    |  
|                                                   |  |                                              |         |   |      |   |         |  
|Weighted average shares outstanding:               |  |                                              |         |   |      |   |         |  
|Basic                                              |  |                                              | 40,407  |   |      |   | 39,479  |  
|                                                   |  |                                              |         |   |      |   |         |  
|Diluted                                            |  |                                              | 42,029  |   |      |   | 41,068  |  
|                                                   |  |                                              |         |   |      |   |         |  



See accompanying Notes
to Unaudited Condensed Consolidated Financial Statements.



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SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME

FOR THE
THREE MONTHS ENDED DECEMBER 31, 2005

(UNAUDITED)



|                                                           |  |                 |  |           |     |                          |   |                  |  |                                      |         |  |                          |        |   |                          |   |         |   |  |   |        |  
|---------------------------------------------------------- |  | --------------- |  | --------- | --- | ------------------------ | - | ---------------- |  | ------------------------------------ | ------- |  | ------------------------ | ------ | - | ------------------------ | - | ------- | - |  | - | ------ | -
|                                                           |  | Common Stock    |  |           |     |                          |   |                  |  |                                      |         |  |                          |        |  
|                                                           |  | Number ofShares |  | Par Value |     | AdditionalPaid-inCapital |   | RetainedEarnings |  | Accumulated OtherComprehensiveIncome |         |  | TotalStockholdersEquity |        |   | TotalComprehensiveIncome |  
|                                                           |  | (in thousands)  | 
|Balance at September 30, 2005                              |  | 40,395          |  | $         | 404 |                          | $ | 118,448          |  | $                                    | 264,841 |  | $                        | 18,460 |   |                          | $ | 402,153 |   |  |   |        |  
|Comprehensive income:                                      |  |                 |  |           |     |                          |   |                  |  |                                      |         |  |                          |        |   |                          |   |         |   |  |   |        |  
|Net income                                                 |  |                |  |           |    |                          |   |                 |  |                                      | 14,528  |  |                          |       |   |                          |   | 14,528  |   |  | $ | 14,528 |  
|Translation adjustment                                     |  |                |  |           |    |                          |   |                 |  |                                      |        |  |                          | (3,591 | ) |                          |   | (3,591  | ) |  |   | (3,591 | )
|Unrealized gain on derivative instruments                  |  |                |  |           |    |                          |   |                 |  |                                      |        |  |                          | 779    |   |                          |   | 779     |   |  |   | 779    |  
|                                                           |  |                 |  |           |     |                          |   |                  |  |                                      |         |  |                          |        |   |                          |   |         |   |  |   |        |  
|Total comprehensive income                                 |  |                |  |           |    |                          |   |                 |  |                                      | 14,528  |  |                          | (2,812 | ) |                          |   |         |   |  | $ | 11,716 |  
|                                                           |  |                 |  |           |     |                          |   |                  |  |                                      |         |  |                          |        |   |                          |   |         |   |  |   |        |  
|Issuance of common stock from stock options exercised      |  | 59              |  |           | 1   |                          |   | 1,031            |  |                                      |        |  |                          |       |   |                          |   | 1,032   |   |  |   |        |  
|Stock compensation expense                                 |  |                |  |           |    |                          |   | 2,590            |  |                                      |        |  |                          |       |   |                          |   | 2,590   |   |  |   |        |  
|Income tax benefit from stock options exercised            |  |                |  |           |    |                          |   | 419              |  |                                      |        |  |                          |       |   |                          |   | 419     |   |  |   |        |  
|Issuance of common stock from Employee Stock Purchase Plan |  | 36              |  |           |    |                          |   | 1,149            |  |                                      |        |  |                          |       |   |                          |   | 1,149   |   |  |   |        |  
|                                                           |  |                 |  |           |     |                          |   |                  |  |                                      |         |  |                          |        |   |                          |   |         |   |  |   |        |  
|Balance at December 31, 2005                               |  | 40,490          |  | $         | 405 |                          | $ | 123,637          |  | $                                    | 279,369 |  | $                        | 15,648 |   |                          | $ | 419,059 |   |  |   |        |  
|                                                           |  |                 |  |           |     |                          |   |                  |  |                                      |         |  |                          |        |   |                          |   |         |   |  |   |        |  



See accompanying Notes
to Unaudited Condensed Consolidated Financial Statements.



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SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



|                                                                                  |  |                                 |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Three Months Ended December 31, |        
|                                                                                  |  | 2005                            |         |   | 2004 |  
|                                                                                  |  | (in thousands)                  |        
|Cash flows from operating activities:                                             |  |                                 |         |   |      |   |         |  
|Net income                                                                        |  | $                               | 14,528  |   |      | $ | 15,039  |  
|                                                                                  |  |                                
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                 |         |   |      |   |         |  
|Depreciation and amortization                                                     |  |                                 | 4,043   |   |      |   | 3,635   |  
|Amortization of intangible assets                                                 |  |                                 | 2,814   |   |      |   | 497     |  
|Amortization of deferred financing fees                                           |  |                                 | 413     |   |      |   | 415     |  
|Loss on sales of property, plant and equipment                                    |  |                                 | 6       |   |      |   | 93      |  
|Provision for losses on doubtful receivables                                      |  |                                 | 193     |   |      |   | 483     |  
|Inventory write downs                                                             |  |                                 | 635     |   |      |   | 1,377   |  
|Deferred income taxes                                                             |  |                                 | 4,158   |   |      |   | (525    | )
|Tax benefit from issuance of stock under employee stock plan                      |  |                                 | 419     |   |      |   | 4,051   |  
|Changes in assets and liabilities, net of effects of businesses acquired:         |  |                                 |         |   |      |   |         |  
|Decrease in accounts receivable                                                   |  |                                 | 14,931  |   |      |   | 8,707   |  
|Increase in inventories                                                           |  |                                 | (2,736  | ) |      |   | (7,616  | )
|Decrease in prepaid expenses and other current assets                             |  |                                 | 1,138   |   |      |   | 1,149   |  
|Decrease in accounts payable                                                      |  |                                 | (569    | ) |      |   | (926    | )
|Increase/(decrease) in income taxes payable                                       |  |                                 | 409     |   |      |   | (3,112  | )
|Decrease in accrued payroll and employee benefits                                 |  |                                 | (11,880 | ) |      |   | (3,753  | )
|Increase in accrued rebates                                                       |  |                                 | 360     |   |      |   | 1,774   |  
|Decrease in accrued interest                                                      |  |                                 | (2,910  | ) |      |   | (2,684  | )
|Decrease in other current liabilities                                             |  |                                 | (2,264  | ) |      |   | (1,093  | )
|Net change in other assets and liabilities                                        |  |                                 | 994     |   |      |   | 2,295   |  
|                                                                                  |  |                                 |         |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                                 | 24,682  |   |      |   | 19,806  |  
|Cash flows from investing activities:                                             |  |                                 |         |   |      |   |         |  
|Capital expenditures                                                              |  |                                 | (2,713  | ) |      |   | (3,398  | )
|Proceeds from sales of property, plant and equipment                              |  |                                 | 7       |   |      |   | 146     |  
|Net payments for businesses acquired                                              |  |                                 |        |   |      |   | (45,975 | )
|Payments for intangibles                                                          |  |                                 | (201    | ) |      |   | (274    | )
|                                                                                  |  |                                 |         |   |      |   |         |  
|Net cash used in investing activities                                             |  |                                 | (2,907  | ) |      |   | (49,501 | )
|Cash flows from financing activities:                                             |  |                                 |         |   |      |   |         |  
|Proceeds from credit facility                                                     |  |                                 | 48,700  |   |      |   | 59,000  |  
|Principal payments on credit facility                                             |  |                                 | (50,758 | ) |      |   | (34,160 | )
|Principal payments on long-term debt                                              |  |                                 | (62     | ) |      |   | (219    | )
|Settlement of derivative instruments                                              |  |                                 | (8,384  | ) |      |   |        |  
|Proceeds from exercise of stock options                                           |  |                                 | 1,032   |   |      |   | 7,868   |  
|Proceeds from employee stock purchase plan                                        |  |                                 | 1,149   |   |      |   | 748     |  
|                                                                                  |  |                                 |         |   |      |   |         |  
|Net cash provided by/(used in) financing activities                               |  |                                 | (8,323  | ) |      |   | 33,237  |  
|Effect of exchange rate changes on cash and cash equivalents                      |  |                                 | (1,415  | ) |      |   | 5,503   |  
|                                                                                  |  |                                 |         |   |      |   |         |  
|Net increase in cash and cash equivalents                                         |  |                                 | 12,037  |   |      |   | 9,045   |  
|Cash and cash equivalents at beginning of period                                  |  |                                 | 58,572  |   |      |   | 40,602  |  
|                                                                                  |  |                                 |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                        |  | $                               | 70,609  |   |      | $ | 49,647  |  
|                                                                                  |  |                                 |         |   |      |   |         |  
|Supplemental disclosures of cash flow information:                                |  |                                 |         |   |      |   |         |  
|Cash paid during the period for interest                                          |  | $                               | 7,372   |   |      | $ | 7,732   |  
|                                                                                  |  |                                 |         |   |      |   |         |  
|Cash paid during the period for income taxes                                      |  | $                               | 2,830   |   |      | $ | 4,942   |  
|                                                                                  |  |                                 |         |   |      |   |         |  



See accompanying Notes
to Unaudited Condensed Consolidated Financial Statements.



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SYBRON DENTAL SPECIALTIES, INC. AND SUBSIDIARIES



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)



1. OVERVIEW AND BASIS OF PRESENTATION



We are a leading manufacturer 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 dental and medical professions. Our fiscal year ends on September 30. The
quarters ended December 31, 2005 and 2004 are the first quarters of our fiscal years 2006 and 2005, respectively.



When we use the terms SDS, we, us, Company, or our in our consolidated financial statements,
unless the context requires otherwise, we are referring to Sybron Dental Specialties, Inc. and its subsidiaries.



We have prepared the condensed consolidated financial statements presented herein following the requirements of the Securities and Exchange Commission
(SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America (GAAP) have
been condensed or omitted. In the opinion of management, all adjustments, which are necessary for a fair presentation of the results for the interim periods presented, have been included. All such adjustments were of a normal recurring nature. All
significant intercompany balances and transactions have been eliminated in consolidation.



The results and trends in these interim financial statements are not necessarily representative of those for the full year, as revenues, expenses, assets and liabilities can vary during each quarter of the year. The
information included in this Quarterly Report on Form 10-Q should only be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended September 30, 2005.



Certain amounts in the prior year condensed consolidated financial statements have been reclassified to conform to the
current year presentation.



2. INVENTORIES



Inventories at December 31, 2005 and September 30, 2005 are
presented below.



|                           |  |                   |        |                    |   |       
|-------------------------- |  | ----------------- | ------ | ------------------ | - | ------
|                           |  | December 31, 2005 |        | September 30, 2005
|Raw materials and supplies |  | $                 | 24,347 |                    | $ | 22,912
|Work in process            |  |                   | 22,851 |                    |   | 23,412
|Finished goods             |  |                   | 47,964 |                    |   | 46,516
|                           |  |                   |        |                    |   |       
|                           |  | $                 | 95,162 |                    | $ | 92,840
|                           |  |                   |        |                    |   |       



3. GOODWILL AND INTANGIBLE ASSETS



During the first quarter of fiscal 2006, we reviewed the
purchase price allocation for the acquisitions of certain assets from Surgical Acuity, Inc. (Surgical Acuity) in fiscal 2002 and the stock of SpofaDental a.s. (SpofaDental) in fiscal 2003. We determined that a portion of the
amount that was allocated to goodwill in fact related to intangible assets, some of which require amortization. Further, upon reviewing the estimated useful life for some of the intangible assets associated with the Innova LifeSciences Corporation
(Innova) acquisition in fiscal 2005, we determined that the estimated useful life should be reduced. As a result of these determinations, we have recorded in the quarter ended December 31, 2005 a non-cash charge of $2,125 to amortization
of intangible assets, $1,898 of which related to prior periods. We also identified other errors in the accounting for differences between the assigned values and tax bases of the assets and liabilities recognized in the acquisitions of Innova and
Oraltronics Dental Implant Technology GmbH (Oraltronics) in fiscal 2005 and SpofaDental in fiscal 2003, which required adjustments to increase goodwill and deferred tax liabilities. All of the above errors occurred over multiple
quarters. We have concluded that the effect of the errors, individually and in the aggregate, was not material to any of the prior periods in which they occurred and that the correcting entries were not material to the first quarter of fiscal 2006.



Goodwill



We perform an annual impairment test of goodwill in the first quarter of
each fiscal year, or more frequently if indicators of potential impairment exist, to determine if the recorded goodwill is impaired. To perform this assessment, we



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identify our reporting units and determine the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to those reporting units. We then determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit. We have determined that none of our
goodwill was impaired as of December 31, 2005 and September 30, 2005.



The following table details the balances of the goodwill assets by business segment as of the dates indicated:



|                    |  |                   |         |                    |   |        
|------------------- |  | ----------------- | ------- | ------------------ | - | -------
|                    |  | December 31, 2005 |         | September 30, 2005
|Professional Dental |  | $                 | 187,651 |                    | $ | 187,772
|Specialty Products  |  |                   | 105,782 |                    |   | 107,534
|                    |  |                   |         |                    |   |        
|Total               |  | $                 | 293,433 |                    | $ | 295,306
|                    |  |                   |         |                    |   |        



The decrease in the
amount of goodwill in the first quarter of fiscal 2006 from the prior quarter was due to an unfavorable foreign currency fluctuation of $1,328 and $563 of net corrections related to the aforementioned adjustments to the Surgical Acuity and
SpofaDental purchase price allocations, partially offset by an adjustment of $18 to the Oraltronics purchase price allocation. We expect to finalize the allocation of the Oraltronics purchase price by March 2006. We reclassified $11,210 from
goodwill to intangible assets to account for certain intangible assets that should have been recognized apart from goodwill in prior period business combinations. We also increased goodwill by $10,647 and recognized a deferred tax liability in the
same amount to account for differences between the assigned values and tax bases of the assets and liabilities recognized in prior period business combinations.



Intangible Assets



Finite lived intangible assets are recorded at cost and are amortized over their estimated useful lives using the straight-line method. Indefinite lived
intangible assets are not amortized but rather are tested for impairment annually. The following table details the balances of the intangible assets as of December 31, 2005:



|                                               |  |                      |        |                          |   |                    |  |   |       
|---------------------------------------------- |  | -------------------- | ------ | ------------------------ | - | ------------------ |  | - | ------
|                                               |  | Gross CarryingAmount |        | Accumulated Amortization |   | Net CarryingAmount
|Intangible Assets Subject to Amortization:     |  |                      |        |                          |   |                    |  |   |       
|Proprietary technology                         |  | $                    | 29,688 |                          | $ | 2,540              |  | $ | 27,148
|Patents                                        |  |                      | 9,004  |                          |   | 3,619              |  |   | 5,385 
|Non-compete agreements                         |  |                      | 1,673  |                          |   | 1,286              |  |   | 387   
|License agreements                             |  |                      | 1,932  |                          |   | 1,896              |  |   | 36    
|Customer relationships                         |  |                      | 7,337  |                          |   | 1,393              |  |   | 5,944 
|                                               |  |                      |        |                          |   |                    |  |   |       
|Total                                          |  | $                    | 49,634 |                          | $ | 10,734             |  |   | 38,900
|                                               |  |                      |        |                          |   |                    |  |   |       
|Intangible Assets Not Subject to Amortization: |  |                      |        |                          |   |                    |  |   |       
|Trademarks                                     |  |                      |        |                          |   |                    |  |   | 20,269
|                                               |  |                      |        |                          |   |                    |  |   |       
|Total Intangible Assets                        |  |                      |        |                          |   |                    |  | $ | 59,169
|                                               |  |                      |        |                          |   |                    |  |   |       



The following table
details the balances of the intangible assets as of September 30, 2005:



|                                               |  |                      |        |                         |   |                    |  |   |       
|---------------------------------------------- |  | -------------------- | ------ | ----------------------- | - | ------------------ |  | - | ------
|                                               |  | Gross CarryingAmount |        | AccumulatedAmortization |   | Net CarryingAmount
|Intangible Assets Subject to Amortization:     |  |                      |        |                         |   |                    |  |   |       
|Proprietary technology                         |  | $                    | 28,827 |                         | $ | 1,166              |  | $ | 27,661
|Patents                                        |  |                      | 8,820  |                         |   | 3,418              |  |   | 5,402 
|Non-compete agreements                         |  |                      | 1,673  |                         |   | 1,273              |  |   | 400   
|License agreements                             |  |                      | 1,932  |                         |   | 1,886              |  |   | 46    
|Customer relationships                         |  |                      | 2,142  |                         |   | 177                |  |   | 1,965 
|                                               |  |                      |        |                         |   |                    |  |   |       
|Total                                          |  | $                    | 43,394 |                         | $ | 7,920              |  |   | 35,474
|                                               |  |                      |        |                         |   |                    |  |   |       
|Intangible Assets Not Subject to Amortization: |  |                      |        |                         |   |                    |  |   |       
|Trademarks                                     |  |                      |        |                         |   |                    |  |   | 15,408
|                                               |  |                      |        |                         |   |                    |  |   |       
|Total Intangible Assets                        |  |                      |        |                         |   |                    |  | $ | 50,882
|                                               |  |                      |        |                         |   |                    |  |   |       



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The gross carrying amount of intangible assets subject to amortization increased by $6,240 during the
first quarter of fiscal 2006. The increase was due to $6,310 reclassified from goodwill to intangible assets subject to amortization (as a result of the prior period corrections mentioned above) and added patents of $184, partially offset by an
unfavorable foreign currency fluctuation of $254.



The gross
carrying amount of our trademarks, which are not subject to amortization, increased by $4,861 during the first quarter of fiscal 2006. The increase was due to $4,900 reclassified from goodwill to trademarks as a result of the correction of prior
period accounting errors, partially offset by an unfavorable foreign currency fluctuation of $39.



Amortization expense for the quarters ended December 31, 2005 and September 30, 2005 was $2,814 and $789, respectively. For the remainder of
fiscal 2006, our amortization expense will increase by approximately $227 each quarter due to the aforementioned adjustments to the purchase price accounting for Surgical Acuity and SpofaDental, as well as the adjustments made to the useful lives of
certain Innova intangible assets. Amortization of intangible assets is included as a component of total selling, general and administrative expenses. The following table displays the estimated amortization (calculated as of December 31, 2005)
for each of the fiscal years indicated:



|                                  |  |                                 |       |      |   |       |  |      |       |      |   |       |  |   |      
|--------------------------------- |  | ------------------------------- | ----- | ---- | - | ----- |  | ---- | ----- | ---- | - | ----- |  | - | -----
|                                  |  | Fiscal year ended September 30,
|                                  |  | 2006                            |       | 2007 |   | 2008  |  | 2009 |       | 2010
|Amortization of intangible assets |  | $                               | 3,105 |      | $ | 3,077 |  | $    | 3,048 |      | $ | 3,007 |  | $ | 2,968



4. EMPLOYEE BENEFIT PLANS



Pension and Other Postretirement Benefits:We
sponsor various defined benefit pension plans covering substantially all of our U.S. and Canadian employees. The benefits are generally based on various formulas, the principal factors of which are years of service and compensation. Plan assets are
invested primarily in U.S. stocks, bonds and international stocks. In addition to the defined benefit pension plans, we provide certain health care benefits for certain U.S. employees, which are funded as costs are incurred. Certain salaried
employees who reached age 55 prior to January 1, 1996 became eligible for postretirement health care benefits, if they reached retirement age while working for SDS. Our contributions to the cost of the postretirement health care plans for these
employees are frozen at a fixed amount for each participant, except where early retirement agreements prohibit such a freeze. In addition, under the current collective bargaining agreement between Kerr Corporation and the United Auto Workers, the
bargaining unit employees qualify for postretirement health care benefits. We accrue, as current costs, the future lifetime retirement benefits for all qualifying active and retired employees.



The following table provides the components of net periodic benefit cost:



|                                   |  |                                                 |        |   |                                                               |   |        |      |  |   |      |   |  |   |    
|---------------------------------- |  | ----------------------------------------------- | ------ | - | ------------------------------------------------------------- | - | ------ | ---- |  | - | ---- | - |  | - | ---
|                                   |  | Pension Benefits Three Months EndedDecember 31, |        |   | Other Postretirement Benefits Three Months Ended December 31,
|                                   |  | 2005                                            |        |   | 2004                                                          |   |        | 2005 |  |   | 2004
|Service cost                       |  | $                                               | 1,517  |   |                                                               | $ | 1,094  |      |  | $ | 145  |   |  | $ | 149
|Interest cost                      |  |                                                 | 1,135  |   |                                                               |   | 972    |      |  |   | 234  |   |  |   | 253
|Expected return on plan assets     |  |                                                 | (1,416 | ) |                                                               |   | (1,108 | )    |  |   |     |   |  |   |   
|Amortization of prior service cost |  |                                                 | 28     |   |                                                               |   | 24     |      |  |   | (86  | ) |  |   |   
|Amortization of actuarial loss     |  |                                                 | 475    |   |                                                               |   | 241    |      |  |   | 239  |   |  |   | 153
|                                   |  |                                                 |        |   |                                                               |   |        |      |  |   |      |   |  |   |    
|Net periodic benefit cost          |  | $                                               | 1,739  |   |                                                               | $ | 1,223  |      |  | $ | 532  |   |  | $ | 555
|                                   |  |                                                 |        |   |                                                               |   |        |      |  |   |      |   |  |   |    



Our funding policy is
to generally make annual contributions in excess of both the minimum contributions required by applicable regulations and the amount needed in order to avoid any Pension Benefit Guarantee Corporation (PBGC) variable premium payments, and
to not have any additional minimum liability under SFAS No. 87, Employers Accounting for Pensions. We expect to contribute approximately $1,098 to our pension plan assets in fiscal 2006. We made approximately $550 in contributions
in the quarter ended December 31, 2005.



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5. RESTRUCTURING CHARGES



In fiscal 2005, we implemented and completed a plan to consolidate our Demetron and Orascoptic operations into one facility. As a result of this plan,
we recorded a restructuring charge of $1,204 ($819 after tax) in the fiscal year ended September 30, 2005. The $1,204 restructuring charge was comprised of approximately $616 of cash charges related to severance and termination costs associated
with the employees whose employment we terminated or plan to terminate as a result of the consolidation, an approximate $314 cash charge related to lease termination, storage and moving costs, and approximately $274 of cash charges related to
miscellaneous consolidation costs. Approximately $588 of the costs was recorded as a component of costs of goods sold, and $616 of the costs was recorded in selling, general and administrative expense. A balance of $85 remains in our accrued
liabilities, which is expected to be paid by the end of fiscal 2006.



In fiscal 2004, we implemented and completed a plan to close our facility in Tijuana, Mexico by the end of the first quarter of fiscal 2005. As a result of this plan, we recorded a restructuring charge of $1,471 ($986 after tax) in the
fiscal year ended September 30, 2004. The charge was comprised of severance and termination costs associated with the 246 employees whose employment we terminated as a result of the closure and recorded as a component of cost of goods sold in
the fiscal year. The 2004 restructuring was completed in the first quarter of fiscal 2005, and all severance was paid.



In September 2002, we recorded a restructuring charge of approximately $3,666 ($2,353 after tax). The charge was primarily comprised of severance and
termination costs associated with the 71 employees whose employment we terminated as a result of the consolidation of several of our European facilities into our Hawe Neos facility in Switzerland. Of the $3,666 restructuring charge, approximately
$3,064 was related to cash payments for severance and contractual obligations; $300 was for the cash payment of tax liabilities included in income taxes payable; and the balance of approximately $302 related to non-cash charges. We completed the
2002 restructuring in fiscal 2004 and made an adjustment to restructuring charges of approximately $200, primarily for over accruals for anticipated costs associated with severance and related costs. A balance of $300 will remain in our accrued tax
liability until it is remitted.



6. SEGMENT INFORMATION



We are a leading manufacturer 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 dental and medical professions. Our subsidiaries operate in two business
segments: Professional Dental and Specialty Products.



Our
corporate office general and administrative expenses have been allocated to the segments on the basis of their net sales.



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The following table presents the results of operations for these business segments for the three month
periods ended December 31, 2005 and 2004:



|                                             |  |                    |        |                   |   |              |  |   |        |   |  |   |        
|-------------------------------------------- |  | ------------------ | ------ | ----------------- | - | ------------ |  | - | ------ | - |  | - | -------
|Three Months Ended December 31,              |  | ProfessionalDental |        | SpecialtyProducts |   | Eliminations |  |   | Total 
|2005                                         |  |                    |        |                   |   |              |  |   |        |   |  |   |        
|Revenues:                                    |  |                    |        |                   |   |              |  |   |        |   |  |   |        
|External customer                            |  | $                  | 79,184 |                   | $ | 78,847       |  | $ |       |   |  | $ | 158,031
|Intersegment                                 |  |                    | 778    |                   |   | 655          |  |   | (1,433 | ) |  |   |       
|                                             |  |                    |        |                   |   |              |  |   |        |   |  |   |        
|Total revenues                               |  | $                  | 79,962 |                   | $ | 79,502       |  | $ | (1,433 | ) |  | $ | 158,031
|                                             |  |                    |        |                  
|Gross profit                                 |  | $                  | 43,163 |                   | $ | 46,827       |  | $ |       |   |  | $ | 89,990 
|Selling, general and administrative expenses |  |                    | 31,366 |                   |   | 32,718       |  |   |       |   |  |   | 64,084 
|                                             |  |                    |        |                   |   |              |  |   |        |   |  |   |        
|Operating income                             |  | $                  | 11,797 |                   | $ | 14,109       |  | $ |       |   |  | $ | 25,906 
|                                             |  |                    |        |                  
|2004                                         |  |                    |        |                   |   |              |  |   |        |   |  |   |        
|Revenues:                                    |  |                    |        |                   |   |              |  |   |        |   |  |   |        
|External customer                            |  | $                  | 75,887 |                   | $ | 73,153       |  | $ |       |   |  | $ | 149,040
|Intersegment                                 |  |                    | 844    |                   |   | 832          |  |   | (1,676 | ) |  |   |       
|                                             |  |                    |        |                   |   |              |  |   |        |   |  |   |        
|Total revenues                               |  | $                  | 76,731 |                   | $ | 73,985       |  | $ | (1,676 | ) |  | $ | 149,040
|                                             |  |                    |        |                  
|Gross profit                                 |  | $                  | 41,558 |                   | $ | 43,809       |  | $ |       |   |  | $ | 85,367 
|Selling, general and administrative expenses |  |                    | 29,986 |                   |   | 27,999       |  |   |       |   |  |   | 57,985 
|                                             |  |                    |        |                   |   |              |  |   |        |   |  |   |        
|Operating income                             |  | $                  | 11,572 |                   | $ | 15,810       |  | $ |       |   |  | $ | 27,382 



The following table
presents the segment assets as of December 31, 2005 compared to the prior fiscal year end:



|                   |  |                    |         |                   |   |         |  |   |        
|------------------ |  | ------------------ | ------- | ----------------- | - | ------- |  | - | -------
|                   |  | ProfessionalDental |         | SpecialtyProducts |   | Total  
|December 31, 2005  |  | $                  | 497,608 |                   | $ | 254,805 |  | $ | 752,413
|September 30, 2005 |  | $                  | 489,278 |                   | $ | 261,140 |  | $ | 750,418



7. EARNINGS PER SHARE



Basic earnings per common share is computed by dividing
net income by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per common share is computed by dividing net income by the combination of dilutive common share equivalents, comprised of shares
issuable under our stock-based compensation plans, and the weighted average number of common shares outstanding during the reporting period. The table below reflects the potential dilutive effect on shares outstanding, which is calculated using the
treasury stock method, of additional common shares that are issuable upon exercise of outstanding stock options.



|                                            |  |                                |  |       
|------------------------------------------- |  | ------------------------------ |  | ------
|                                            |  | Three Months EndedDecember 31,
|                                            |  | 2005                           |  | 2004  
|Basic shares outstanding (weighted average) |  | 40,407                         |  | 39,479
|Effect of dilutive securities               |  | 1,622                          |  | 1,589 
|                                            |  |                                |  |       
|Diluted shares outstanding                  |  | 42,029                         |  | 41,068



Weighted average
options outstanding during the three month period ended December 31, 2005 to purchase approximately 3,248 shares of common stock were not included in the computation of dilutive securities because inclusion would be anti-dilutive. No options to
purchase shares of common stock were excluded from the computation of dilutive securities during the three months ended December 31, 2004.



8. STOCK-BASED COMPENSATION



Effective October 1, 2005, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share Based Payment(SFAS
No. 123R). SFAS No. 123R establishes the financial accounting and reporting standards for stock-based compensation plans. As required by SFAS No. 123R, we recognized the cost resulting from all stock-based payment



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transactions including shares issued under our stock option plans and Employee Stock Purchase Plan (ESPP) in
the financial statements. As a result of adopting SFAS No. 123R, our net income for the three months ended December 31, 2005 was $1,736 lower, net of taxes, than if we had continued to account for stock-based compensation under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and its related interpretations (APB Opinion No. 25). At December 31, 2005, there was $48,483 of total unrecognized compensation costs
related to unvested stock-based compensation arrangements granted under the Plans. That cost is expected to be amortized on a straight-line basis over a weighted average period of 4.3 years less any stock options forfeited prior to vesting. During
the quarters ended December 31, 2005 and 2004, $103 and $0, respectively, of stock compensation cost was capitalized as inventory and expensed through cost of goods sold.



Prior to October 1, 2005, we accounted for stock-based employee compensation plans (including shares issued under our
stock option plans and ESPP) in accordance with APB Opinion No. 25 and followed the pro forma net income, pro forma income per share, and stock-based compensation plan disclosure requirements set forth in the Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123).



The following table sets forth the computation of basic and diluted income per share for the three months ended December 31, 2004 and illustrates the
effect on net income and earnings per share as if we had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation (dollars in thousands, except per share amounts):



|                                                                                                                                            |  |                               |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ------ | -
|                                                                                                                                            |  | Quarter EndedDecember 31,2004 |       
|Net income, as reported                                                                                                                     |  | $                             | 15,039 |  
|Add: Stock-based employee compensation expense included in reported net income, net of related tax effects                                  |  |                               |       |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                               | (913   | )
|                                                                                                                                            |  |                               |        |  
|Pro forma net income                                                                                                                        |  | $                             | 14,126 |  
|                                                                                                                                            | 
|Earnings per share:                                                                                                                         |  |                               |        |  
|Basic  as reported                                                                                                                         |  | $                             | 0.38   |  
|                                                                                                                                            |  |                               |        |  
|pro forma                                                                                                                                   |  | $                             | 0.36   |  
|                                                                                                                                            |  |                               |        |  
|Diluted  as reported                                                                                                                       |  | $                             | 0.37   |  
|                                                                                                                                            |  |                               |        |  
|pro forma                                                                                                                                   |  | $                             | 0.34   |  
|                                                                                                                                            |  |                               |        |  



Fair Value Disclosures



Prior to April 1, 2005, we used the Black-Scholes
option-pricing model to estimate a valuation for stock options. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no restrictions and are fully transferable and negotiable in a free
trading market. This model does not consider the employment, transfer or vesting restrictions that are inherent in our employee stock options or purchase rights granted pursuant to the ESPP. During fiscal 2005, we conducted an evaluation of the
benefits of using a binomial-lattice model rather than the Black-Scholes model. A binomial-lattice model considers historical patterns of employee exercise behavior and stock price volatility to project an appropriate array of future exercise
behaviors. As a result of the evaluation, we concluded that a binomial-lattice model provides a more accurate estimated valuation for stock options and have adopted a binomial-lattice model to estimate the fair value of stock options granted
subsequent to March 31, 2005.



Weighted average expected
volatility for stock options granted prior to March 31, 2005 was based on historical experience of employees stock option exercise behavior. Weighted average expected volatility for stock options granted subsequent to March 31, 2005
was based on several components in accordance with our modified prospective adoption of SFAS No. 123R, on October 1, 2005. Components to the weighted average expected volatility for stock options granted subsequent to March 31, 2005
include historical volatility of the stock price, expected life of the option, and length of time shares have been publicly traded. Implied volatility of actively traded option contracts on our common stock was excluded from the calculation. As
options of our stock are not actively traded on the open market, sufficient data for an accurate measure of implied volatility was not available.



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During the periods that the Black-Scholes stock option pricing model was used to value our stock option
grants, the risk free interest rate reflected the yield on zero coupon U.S. treasuries at the date of grant, based on the median time the options granted are expected to be outstanding. During the period that the binomial-lattice model was used to
value our stock option grants, the risk-free interest rate was determined using the U.S. Treasury yield curve in effect at the time of grant for periods within the contractual life of the option.



Expected dividend yield is based on historical dividend payments and expected
future dividend payments.



We use historical data to estimate
option exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected life for each award granted is derived
from the output of the valuation model and represents the median time that options granted are expected to be outstanding.



Stock Options



Our employee stock option plans are part of a broad-based, long term retention program to promote success, and enhance the value of the Company by linking
personal interests of the participants to those of our stockholders, and by providing participants with an incentive for outstanding performance.



We currently have three long-term incentive plans including the 2000 Long-Term Incentive Plan (the 2000 Stock Plan), the 2001 Long-Term
Incentive Plan (the 2001 Stock Plan), and the 2005 Long-Term Incentive Plan (the 2005 Stock Plan). The 2005 Stock Plan was approved at the 2005 Annual Meeting of Stockholders. Under the 2000 and 2005 Stock Plans, incentive
stock options and nonqualified stock options may be granted to employees, including employees who are members of the Board of Directors, but excluding any director who is not an employee. Under the 2001 Stock Plan, incentive stock options and
nonqualified stock options may be granted to employees, other than employees who are officers (as that term is defined in Rule 16a-1(f) under the Exchange Act) or directors. Subject to the terms and provisions of the plans, options may be
granted to eligible employees selected by the Compensation Committee of the Board of Directors, which administers the plans. The Compensation Committee has the discretion to determine the number of shares subject to options granted and the terms and
conditions of the option grants. The exercise price of an option granted under the plans is determined by the Compensation Committee, but may not be less than 100% of the fair market value of our underlying common stock on the date of grant.



The total number of shares of our common stock authorized for
issuance under the 2000, 2001, and 2005 Stock Plans is 5,450,000, 1,000,000, and 4,000,000 respectively. Shares available for an award under the 2000, 2001, and 2005 Stock Plans may be either authorized but unissued or reacquired shares. If any
award cancels, terminates, expires or lapses for any reason, any shares subject to such award shall again be available under the appropriate Stock Plan, subject to such requirements as may be promulgated by the Compensation Committee.



Options granted under the 2000, the 2001, and 2005 Stock Plans are
exercisable up to ten years from date of grant. Stock options vest under the plans subject to the restrictions and conditions that the Compensation Committee approves. Typically the vesting schedule is 25% per year based on the date of grant
for the 2000 Stock Plan and the 2001 Stock Plan, and 5 year cliff vesting for the 2005 Stock Plan.



We currently have two Outside Directors plansthe 2000 Outside Directors Stock Option Plan (the 2000 Directors Plan)
and the 2005 Outside Directors Stock Plan (the 2005 Directors Plan). The 2005 Directors Plan was approved at our 2005 Annual Meeting of Stockholders. A maximum of 300,000 and 350,000 shares of our common stock may be
issued pursuant to the exercise of nonqualified stock options granted under the 2000 and 2005 Directors Plans, respectively. If any award cancels, terminates, expires or lapses for any reason, any shares subject to such award shall again be
available under the appropriate Directors Plan, subject to such requirements as may be promulgated by the Compensation Committee. These options are exercisable up to ten years from date of grant and vest on the date of grant.



The granting of options is automatic under the 2000 and 2005 Directors
Plans. Upon the first meeting of the Board of Directors following the Annual Meeting of Stockholders in 2001 through 2005 under the 2000 Directors Plan and 2006 through 2010 under the 2005 Directors Plan, each person then serving as a
member of the Board of Directors who is not one of our full-time employees shall automatically be granted an option to purchase 10,000 shares of our common stock (subject to appropriate adjustment for stock splits and other changes affecting the
common stock). If there is not a sufficient number



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of remaining available shares under the 2000 or 2005 Directors Plans to grant each outside director an option to
purchase the number of shares specified, each outside director shall receive an option to purchase an equal number of the remaining available shares, determined by dividing the remaining available shares by the number of outside directors. The
exercise price at which shares may be purchased under each option shall be 100% of the fair market value of our common stock on the date the option is granted.



At December 31, 2005, 1,644,340 shares of common stock were reserved for future stock option grants under the above plans.



During the quarters ended December 31, 2005 and 2004 no stock options
were granted. Shares issued under the ESPP during the quarters ended December 31, 2005 and 2004 were based on the following weighted average assumptions:



|                                               |  |                                                        |       |   |      |   |       |  
|---------------------------------------------- |  | ------------------------------------------------------ | ----- | - | ---- | - | ----- | -
|                                               |  | Employee Stock Purchase PlanQuarter ended December 31, |      
|                                               |  | 2005                                                   |       |   | 2004 |  
|Expected life (years)                          |  |                                                        | 0.5   |   |      |   | 0.5   |  
|Weighted-average volatility                    |  |                                                        | 24.84 | % |      |   | 19.57 | %
|Risk free interest rate                        |  |                                                        | 3.19  | % |      |   | 2.52  | %
|Expected dividend yield                        |  |                                                        | 0.00  | % |      |   | 0.00  | %
|Weighted average fair value of options granted |  | $                                                      | 8.46  |   |      | $ | 9.58  |  



The following is a
summary of the stock option activity for the quarter ended December 31, 2005:



|                                          |  |                  |   |  |                                |        |   |                          |      |                         |   |           
|----------------------------------------- |  | ---------------- | - |  | ------------------------------ | ------ | - | ------------------------ | ---- | ----------------------- | - | ----------
|                                          |  | Number ofOptions |   |  | Weighted AverageExercise Price |        |   | RemainingContractualTerm |      | AggregateIntrinsicValue
|Options outstanding at September 30, 2005 |  | 6,976,079        |   |  | $                              | 26.50  |   |                          |      |                         |   |           
|Granted                                   |  |                 |   |  |                                |       |   |                          |      |                         |   |           
|Exercised                                 |  | (58,676          | ) |  |                                | (17.59 | ) |                          |      |                         |   |           
|Canceled                                  |  | (42,764          | ) |  |                                | (34.50 | ) |                          |      |                         |   |           
|                                          |  |                  |   |  |                                |        |   |                          |      |                         |   |           
|Options outstanding at December 31, 2005  |  | 6,874,639        |   |  | $                              | 26.52  |   |                          | 7.04 |                         | $ | 91,345,479
|                                          |  |                  |   |  |                                |        |   |                          |      |                         |   |           
|Options exercisable at December 31, 2005  |  | 3,335,538        |   |  | $                              | 16.02  |   |                          | 4.76 |                         | $ | 79,366,518
|                                          |  |                  |   |  |                                |        |   |                          |      |                         |   |           



The following table
summarizes information regarding options outstanding and options exercisable at December 31, 2005:



|                         |  |                                 |  |                                           |  |                                |       |                                 |           |                                |   |      
|------------------------ |  | ------------------------------- |  | ----------------------------------------- |  | ------------------------------ | ----- | ------------------------------- | --------- | ------------------------------ | - | -----
|                         |  | Options outstanding             |  | Options exercisable                      
|Range of exercise prices |  | Outstanding atSeptember 30,2005 |  | Weighted-averageremainingcontractual life |  | Weighted-averageexercise price |       | Exercisable atSeptember 30,2005 |           | Weighted-averageexercise price
|$ 3.94 to $ 7.88         |  | 13,163                          |  | 0.1                                       |  | $                              | 6.54  |                                 | 13,163    |                                | $ | 6.54 
|$ 7.88 to $ 11.82        |  | 77,831                          |  | 0.9                                       |  |                                | 8.46  |                                 | 77,831    |                                |   | 8.46 
|$11.82 to $ 15.76        |  | 2,877,973                       |  | 4.6                                       |  |                                | 15.00 |                                 | 2,777,972 |                                |   | 15.00
|$15.76 to $ 19.70        |  | 202,176                         |  | 5.7                                       |  |                                | 18.98 |                                 | 202,176   |                                |   | 18.98
|$19.70 to $ 23.64        |  | 350,107                         |  | 7.6                                       |  |                                | 23.56 |                                 | 166,396   |                                |   | 23.56
|$23.64 to $ 27.58        |  | 16,000                          |  | 7.7                                       |  |                                | 25.83 |                                 | 8,000     |                                |   | 25.83
|$27.58 to $ 31.52        |  | 40,000                          |  | 8.1                                       |  |                                | 28.93 |                                 | 40,000    |                                |   | 28.93
|$35.47 to $ 39.41        |  | 3,297,389                       |  | 9.4                                       |  |                                | 37.84 |                                 | 50,000    |                                |   | 37.65
|                         |  |                                 |  |                                           |  |                                |       |                                 |           |                                |   |      
|                         |  | 6,874,639                       |  | 7.0                                       |  | $                              | 26.52 |                                 | 3,335,538 |                                | $ | 16.02
|                         |  |                                 |  |                                           |  |                                |       |                                 |           |                                |   |      



The aggregate
intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock for those awards that have an exercise price currently below the quoted price. During the three months ended
December 31, 2005 and December 31, 2004, the aggregate intrinsic value of options exercised under the stock option plans was $1,324 and $11,225, respectively, determined as of the date of exercise.



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##### Table of Contents

Cash received from option exercises under all stock-based payment arrangements for the quarters ended
December 31, 2005 and 2004 was $1,032 and $7,868, respectively. The actual tax benefit realized from the tax deductions for options exercised totaled $419 and $4,051, respectively, for the quarters ended December 31, 2005 and 2004. For
purposes of satisfying stock option exercises, we have a policy of issuing new shares to fulfill exercises during the year.



Employee Stock Purchase Plan



The ESPP was approved by stockholders at the 2003 Annual Meeting of Stockholders. Under the terms of the ESPP, 500,000 shares of common stock were
reserved for issuance to our employees, nearly all of whom are eligible to participate. As of December 31, 2005, 350,397 shares remain available for issuance to our employees. Under the terms of the ESPP, employees can choose each year to have
one to ten percent of their base pay withheld, not to exceed amounts allowed by the Internal Revenue Code, to purchase our common stock. The purchase price of the stock is 85 percent of the lower of its price at the beginning or end of each six
month offering period. During quarters ended December 31, 2005 and 2004, 36,013 and 30,479 shares of common stock were purchased at an average price of $31.91 and $25.32 per share, respectively.



9. DERIVATIVES



During the first quarter of fiscal 2006, we settled all of the five outstanding cross currency debt swap contracts used to
hedge our foreign currency exposure because these instruments were getting close to maturity. The settlement of the cross currency debt swaps generated interest income of approximately $411 and a loss of $8,948 ($5,548 net of income tax) in the
currency translation adjustment account in equity during the first quarter of fiscal 2006. At December 31, 2005, a total of $10,527 realized loss ($6,511 net of income tax), including the realized loss of $1,579 ($963 net of income tax) as a
result of cash-settling a cross currency swap with Wachovia in 2002, was included in the currency translation adjustment account in equity. This realized loss will remain in the currency translation adjustment account in equity until we dispose of
the net investments.



10. CONDENSED CONSOLIDATING FINANCIAL INFORMATION



Our domestic subsidiaries are guarantors of our 81/8% Senior Subordinated Notes due 2012, on an unsecured senior subordinated basis. Except to the extent necessary to
avoid a fraudulent conveyance, the note guarantees are full and unconditional. The notes and the subsidiary guarantees are unsecured and subordinated to our and to all of our guarantor subsidiaries existing and future unsubordinated debt,
including debt under the Credit Facility entered into on June 6, 2002.



Below are the unaudited condensed consolidating balance sheets as of December 31, 2005 and September 30, 2005, statements of operations for the three months ended December 31, 2005 and 2004, and
statements of cash flows for the three months ended December 31, 2005 and 2004, of Sybron Dental Specialties, Inc. and its subsidiaries, reflecting the subsidiary guarantors of the Senior Subordinated Notes.



Certain general corporate expenses have been allocated to the subsidiaries.
As a matter of course, we retain certain assets and liabilities at the corporate level that are not allocated to the subsidiaries including, but not limited to, certain employee benefit, insurance and tax liabilities. Intercompany balances include
receivables/payables incurred in the normal course of business in addition to investments and loans transacted by subsidiaries with other subsidiaries or with us.



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Condensed Consolidating Balance Sheets



|                                               |  |                          |         |   |                       |   |                          |  |              |         |  |              |            |   |  |   |        
|---------------------------------------------- |  | ------------------------ | ------- | - | --------------------- | - | ------------------------ |  | ------------ | ------- |  | ------------ | ---------- | - |  | - | -------
|                                               |  | As of December 31, 2005 
|                                               |  | Sybron DentalSpecialties |         |   | GuarantorSubsidiaries |   | NonGuarantorSubsidiaries |  | Eliminations |         |  | Consolidated
|ASSETS                                         |  |                          |         |   |                       |   |                          |  |              |         |  |              |            |   |  |   |        
|Current assets:                                |  |                          |         |   |                       |   |                          |  |              |         |  |              |            |   |  |   |        
|Cash and cash equivalents                      |  | $                        | 850     |   |                       | $ | 499                      |  | $            | 69,260  |  | $            |           |   |  | $ | 70,609 
|Accounts receivable, net                       |  |                          | (25     | ) |                       |   | 53,965                   |  |              | 43,690  |  |              |           |   |  |   | 97,630 
|Inventories                                    |  |                          |        |   |                       |   | 60,991                   |  |              | 34,171  |  |              |           |   |  |   | 95,162 
|Other current assets                           |  |                          | 9,039   |   |                       |   | 2,998                    |  |              | 5,658   |  |              |           |   |  |   | 17,695 
|                                               |  |                          |         |   |                       |   |                          |  |              |         |  |              |            |   |  |   |        
|Total current assets                           |  |                          | 9,864   |   |                       |   | 118,453                  |  |              | 152,779 |  |              |           |   |  |   | 281,096
|Property, plant and equipment, net             |  |                          | 8,664   |   |                       |   | 32,464                   |  |              | 44,735  |  |              |           |   |  |   | 85,863 
|Goodwill                                       |  |                          |        |   |                       |   | 193,045                  |  |              | 100,388 |  |              |           |   |  |   | 293,433
|Intangible assets, net                         |  |                          |        |   |                       |   | 19,286                   |  |              | 39,883  |  |              |           |   |  |   | 59,169 
|Investment in subsidiaries                     |  |                          | 928,344 |   |                       |   |                         |  |              |        |  |              | (928,344   | ) |  |   |       
|Intercompany balances                          |  |                          |        |   |                       |   | 224,989                  |  |              | 125,534 |  |              | (350,523   | ) |  |   |       
|Other assets                                   |  |                          | 22,300  |   |                       |   | 7,493                    |  |              | 3,059   |  |              |           |   |  |   | 32,852 
|                                               |  |                          |         |   |                       |   |                          |  |              |         |  |              |            |   |  |   |        
|Total assets                                   |  | $                        | 969,172 |   |                       | $ | 595,730                  |  | $            | 466,378 |  | $            | (1,278,867 | ) |  | $ | 752,413
|                                               |  |                          |         |   |                       |   |                          |  |              |         |  |              |            |   |  |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY           |  |                          |         |   |                       |   |                          |  |              |         |  |              |            |   |  |   |        
|Current liabilities:                           |  |                          |         |   |                       |   |                          |  |              |         |  |              |            |   |  |   |        
|Accounts payable                               |  | $                        | 637     |   |                       | $ | 12,480                   |  | $            | 6,449   |  | $            |           |   |  | $ | 19,566 
|Current portion of long-term debt              |  |                          | 21      |   |                       |   | 586                      |  |              |        |  |              |           |   |  |   | 607    
|Income taxes payable                           |  |                          | 1,940   |   |                       |   | 2,728                    |  |              | 7,879   |  |              |           |   |  |   | 12,547 
|Accrued expenses and other current liabilities |  |                          | 3,946   |   |                       |   | 21,289                   |  |              | 17,875  |  |              |           |   |  |   | 43,110 
|                                               |  |                          |         |   |                       |   |                          |  |              |         |  |              |            |   |  |   |        
|Total current liabilities                      |  |                          | 6,544   |   |                       |   | 37,083                   |  |              | 32,203  |  |              |           |   |  |   | 75,830 
|Long-term debt                                 |  |                          | 10,250  |   |                       |   | 48,855                   |  |              |        |  |              |           |   |  |   | 59,105 
|Senior subordinated notes                      |  |                          | 150,000 |   |                       |   |                         |  |              |        |  |              |           |   |  |   | 150,000
|Deferred income taxes                          |  |                          | 19,741  |   |                       |   |                         |  |              | 9,425   |  |              |           |   |  |   | 29,166 
|Other liabilities                              |  |                          | 13,055  |   |                       |   | 364                      |  |              | 5,834   |  |              |           |   |  |   | 19,253 
|Intercompany balances                          |  |                          | 350,523 |   |                       |   |                         |  |              |        |  |              | (350,523   | ) |  |   |       
|                                               |  |                          |         |   |                       |   |                          |  |              |         |  |              |            |   |  |   |        
|Total liabilities                              |  |                          | 550,113 |   |                       |   | 86,302                   |  |              | 47,462  |  |              | (350,523   | ) |  |   | 333,354
|Stockholders equity:                          |  |                          |         |   |                       |   |                          |  |              |         |  |              |            |   |  |   |        
|Preferred stock                                |  |                          |        |   |                       |   |                         |  |              |        |  |              |           |   |  |   |       
|Common stock                                   |  |                          | 405     |   |                       |   | 3,091                    |  |              | 16,667  |  |              | (19,758    | ) |  |   | 405    
|Additional paid-in capital                     |  |                          | 123,637 |   |                       |   | 309,670                  |  |              | 254,545 |  |              | (564,215   | ) |  |   | 123,637
|Retained earnings                              |  |                          | 279,369 |   |                       |   | 180,474                  |  |              | 132,565 |  |              | (313,039   | ) |  |   | 279,369
|Accumulated other comprehensive income         |  |                          | 15,648  |   |                       |   | 16,193                   |  |              | 15,139  |  |              | (31,332    | ) |  |   | 15,648 
|                                               |  |                          |         |   |                       |   |                          |  |              |         |  |              |            |   |  |   |        
|Total stockholders equity                     |  |                          | 419,059 |   |                       |   | 509,428                  |  |              | 418,916 |  |              | (928,344   | ) |  |   | 419,059
|                                               |  |                          |         |   |                       |   |                          |  |              |         |  |              |            |   |  |   |        
|Total liabilities and stockholders equity     |  | $                        | 969,172 |   |                       | $ | 595,730                  |  | $            | 466,378 |  | $            | (1,278,867 | ) |  | $ | 752,413
|                                               |  |                          |         |   |                       |   |                          |  |              |         |  |              |            |   |  |   |        



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##### Table of Contents

Condensed Consolidating Balance Sheets



|                                               |  |                          |         |   |                       |   |         |                          |  |   |              |   |  |              |            |   |  |   |        
|---------------------------------------------- |  | ------------------------ | ------- | - | --------------------- | - | ------- | ------------------------ |  | - | ------------ | - |  | ------------ | ---------- | - |  | - | -------
|                                               |  | As of September 30, 2005
|                                               |  | Sybron DentalSpecialties |         |   | GuarantorSubsidiaries |   |         | NonGuarantorSubsidiaries |  |   | Eliminations |   |  | Consolidated
|ASSETS                                         |  |                          |         |   |                       |   |         |                          |  |   |              |   |  |              |            |   |  |   |        
|Current assets:                                |  |                          |         |   |                       |   |         |                          |  |   |              |   |  |              |            |   |  |   |        
|Cash and cash equivalents                      |  | $                        | (1,494  | ) |                       | $ | (2,154  | )                        |  | $ | 62,220       |   |  | $            |           |   |  | $ | 58,572 
|Accounts receivable, net                       |  |                          | (1      | ) |                       |   | 59,412  |                          |  |   | 53,089       |   |  |              |           |   |  |   | 112,500
|Inventories                                    |  |                          |        |   |                       |   | 60,396  |                          |  |   | 32,444       |   |  |              |           |   |  |   | 92,840 
|Other current assets                           |  |                          | 11,550  |   |                       |   | 3,164   |                          |  |   | 5,335        |   |  |              |           |   |  |   | 20,049 
|                                               |  |                          |         |   |                       |   |         |                          |  |   |              |   |  |              |            |   |  |   |        
|Total current assets                           |  |                          | 10,055  |   |                       |   | 120,818 |                          |  |   | 153,088      |   |  |              |           |   |  |   | 283,961
|Property, plant and equipment, net             |  |                          | 8,922   |   |                       |   | 32,304  |                          |  |   | 46,536       |   |  |              |           |   |  |   | 87,762 
|Goodwill                                       |  |                          |        |   |                       |   | 197,756 |                          |  |   | 97,550       |   |  |              |           |   |  |   | 295,306
|Intangible assets, net                         |  |                          |        |   |                       |   | 15,553  |                          |  |   | 35,329       |   |  |              |           |   |  |   | 50,882 
|Investment in subsidiaries                     |  |                          | 917,199 |   |                       |   |        |                          |  |   |             |   |  |              | (917,199   | ) |  |   |       
|Intercompany balances                          |  |                          |        |   |                       |   | 213,578 |                          |  |   | 123,540      |   |  |              | (337,118   | ) |  |   |       
|Other assets                                   |  |                          | 21,857  |   |                       |   | 7,930   |                          |  |   | 2,720        |   |  |              |           |   |  |   | 32,507 
|                                               |  |                          |         |   |                       |   |         |                          |  |   |              |   |  |              |            |   |  |   |        
|Total assets                                   |  | $                        | 958,033 |   |                       | $ | 587,939 |                          |  | $ | 458,763      |   |  | $            | (1,254,317 | ) |  | $ | 750,418
|                                               |  |                          |         |   |                       |   |         |                          |  |   |              |   |  |              |            |   |  |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY           |  |                          |         |   |                       |   |         |                          |  |   |              |   |  |              |            |   |  |   |        
|Current liabilities:                           |  |                          |         |   |                       |   |         |                          |  |   |              |   |  |              |            |   |  |   |        
|Accounts payable                               |  | $                        | 659     |   |                       | $ | 11,040  |                          |  | $ | 8,436        |   |  | $            |           |   |  | $ | 20,135 
|Current portion of long-term debt              |  |                          | 51      |   |                       |   | 682     |                          |  |   |             |   |  |              |           |   |  |   | 733    
|Income taxes payable                           |  |                          | 8,727   |   |                       |   | (4,744  | )                        |  |   | 7,839        |   |  |              |           |   |  |   | 11,822 
|Accrued expenses and other current liabilities |  |                          | 13,437  |   |                       |   | 25,445  |                          |  |   | 20,922       |   |  |              |           |   |  |   | 59,804 
|                                               |  |                          |         |   |                       |   |         |                          |  |   |              |   |  |              |            |   |  |   |        
|Total current liabilities                      |  |                          | 22,874  |   |                       |   | 32,423  |                          |  |   | 37,197       |   |  |              |           |   |  |   | 92,494 
|Long-term debt                                 |  |                          | 7,200   |   |                       |   | 53,899  |                          |  |   |             |   |  |              |           |   |  |   | 61,099 
|Senior subordinated notes                      |  |                          | 150,000 |   |                       |   |        |                          |  |   |             |   |  |              |           |   |  |   | 150,000
|Deferred income taxes                          |  |                          | 16,601  |   |                       |   |        |                          |  |   | (196         | ) |  |              |           |   |  |   | 16,405 
|Other liabilities                              |  |                          | 22,087  |   |                       |   | 345     |                          |  |   | 5,835        |   |  |              |           |   |  |   | 28,267 
|Intercompany balances                          |  |                          | 337,118 |   |                       |   |        |                          |  |   |             |   |  |              | (337,118   | ) |  |   |       
|                                               |  |                          |         |   |                       |   |         |                          |  |   |              |   |  |              |            |   |  |   |        
|Total liabilities                              |  |                          | 555,880 |   |                       |   | 86,667  |                          |  |   | 42,836       |   |  |              | (337,118   | ) |  |   | 348,265
|Stockholders equity:                          |  |                          |         |   |                       |   |         |                          |  |   |              |   |  |              |            |   |  |   |        
|Preferred stock                                |  |                          |        |   |                       |   |        |                          |  |   |             |   |  |              |           |   |  |   |       
|Common stock                                   |  |                          | 404     |   |                       |   | 3,446   |                          |  |   | 16,312       |   |  |              | (19,758    | ) |  |   | 404    
|Additional paid-in capital                     |  |                          | 118,448 |   |                       |   | 311,378 |                          |  |   | 252,837      |   |  |              | (564,215   | ) |  |   | 118,448
|Retained earnings                              |  |                          | 264,841 |   |                       |   | 170,656 |                          |  |   | 127,855      |   |  |              | (298,511   | ) |  |   | 264,841
|Accumulated other comprehensive income         |  |                          | 18,460  |   |                       |   | 15,792  |                          |  |   | 18,923       |   |  |              | (34,715    | ) |  |   | 18,460 
|                                               |  |                          |         |   |                       |   |         |                          |  |   |              |   |  |              |            |   |  |   |        
|Total stockholders equity                     |  |                          | 402,153 |   |                       |   | 501,272 |                          |  |   | 415,927      |   |  |              | (917,199   | ) |  |   | 402,153
|                                               |  |                          |         |   |                       |   |         |                          |  |   |              |   |  |              |            |   |  |   |        
|Total liabilities and stockholders equity     |  | $                        | 958,033 |   |                       | $ | 587,939 |                          |  | $ | 458,763      |   |  | $            | (1,254,317 | ) |  | $ | 750,418
|                                               |  |                          |         |   |                       |   |         |                          |  |   |              |   |  |              |            |   |  |   |        



17



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##### Table of Contents

Condensed Consolidating Statements of Income



|                                             |  |                                              |        |   |                       |   |        |                          |  |   |              |   |  |              |         |   |  |   |         |  
|-------------------------------------------- |  | -------------------------------------------- | ------ | - | --------------------- | - | ------ | ------------------------ |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                             |  | For The Three Months Ended December 31, 2005 |       
|                                             |  | Sybron DentalSpecialties                     |        |   | GuarantorSubsidiaries |   |        | NonGuarantorSubsidiaries |  |   | Eliminations |   |  | Consolidated |        
|Net sales                                    |  | $                                            |       |   |                       | $ | 85,482 |                          |  | $ | 73,982       |   |  | $            | (1,433  | ) |  | $ | 158,031 |  
|Cost of sales                                |  |                                              | 278    |   |                       |   | 27,667 |                          |  |   | 41,529       |   |  |              | (1,433  | ) |  |   | 68,041  |  
|                                             |  |                                              |        |   |                       |   |        |                          |  |   |              |   |  |              |         |   |  |   |         |  
|Gross profit                                 |  |                                              | (278   | ) |                       |   | 57,815 |                          |  |   | 32,453       |   |  |              |        |   |  |   | 89,990  |  
|Selling, general and administrative expenses |  |                                              | 7,779  |   |                       |   | 32,266 |                          |  |   | 24,039       |   |  |              |        |   |  |   | 64,084  |  
|                                             |  |                                              |        |   |                       |   |        |                          |  |   |              |   |  |              |         |   |  |   |         |  
|Operating income (loss)                      |  |                                              | (8,057 | ) |                       |   | 25,549 |                          |  |   | 8,414        |   |  |              |        |   |  |   | 25,906  |  
|Other income (expense):                      |  |                                              |        |   |                       |   |        |                          |  |   |              |   |  |              |         |   |  |   |         |  
|Interest expense, net                        |  |                                              | (3,292 | ) |                       |   | (645   | )                        |  |   | 80           |   |  |              |        |   |  |   | (3,857  | )
|Amortization of deferred financing fees      |  |                                              |       |   |                       |   | (413   | )                        |  |   |             |   |  |              |        |   |  |   | (413    | )
|Income from subsidiaries                     |  |                                              | 14,528 |   |                       |   |       |                          |  |   |             |   |  |              | (14,528 | ) |  |   |        |  
|Other, net                                   |  |                                              | 11,349 |   |                       |   | (9,373 | )                        |  |   | (1,929       | ) |  |              |        |   |  |   | 47      |  
|                                             |  |                                              |        |   |                       |   |        |                          |  |   |              |   |  |              |         |   |  |   |         |  
|Income before income taxes                   |  |                                              | 14,528 |   |                       |   | 15,118 |                          |  |   | 6,565        |   |  |              | (14,528 | ) |  |   | 21,683  |  
|Income taxes                                 |  |                                              |       |   |                       |   | 6,652  |                          |  |   | 503          |   |  |              |        |   |  |   | 7,155   |  
|                                             |  |                                              |        |   |                       |   |        |                          |  |   |              |   |  |              |         |   |  |   |         |  
|Net income                                   |  | $                                            | 14,528 |   |                       | $ | 8,466  |                          |  | $ | 6,062        |   |  | $            | (14,528 | ) |  | $ | 14,528  |  
|                                             |  |                                              |        |   |                       |   |        |                          |  |   |              |   |  |              |         |   |  |   |         |  



|                                             |  |                                              |        |   |                       |   |        |                          |  |   |              |   |  |              |         |   |  |   |         |  
|-------------------------------------------- |  | -------------------------------------------- | ------ | - | --------------------- | - | ------ | ------------------------ |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                             |  | For The Three Months Ended December 31, 2004 |       
|                                             |  | Sybron DentalSpecialties                     |        |   | GuarantorSubsidiaries |   |        | NonGuarantorSubsidiaries |  |   | Eliminations |   |  | Consolidated |        
|Net sales                                    |  | $                                            |       |   |                       | $ | 78,291 |                          |  | $ | 72,425       |   |  | $            | (1,676  | ) |  | $ | 149,040 |  
|Cost of sales                                |  |                                              | 293    |   |                       |   | 25,376 |                          |  |   | 39,680       |   |  |              | (1,676  | ) |  |   | 63,673  |  
|                                             |  |                                              |        |   |                       |   |        |                          |  |   |              |   |  |              |         |   |  |   |         |  
|Gross profit                                 |  |                                              | (293   | ) |                       |   | 52,915 |                          |  |   | 32,745       |   |  |              |        |   |  |   | 85,367  |  
|Selling, general and administrative expenses |  |                                              | 6,732  |   |                       |   | 30,033 |                          |  |   | 21,220       |   |  |              |        |   |  |   | 57,985  |  
|                                             |  |                                              |        |   |                       |   |        |                          |  |   |              |   |  |              |         |   |  |   |         |  
|Operating income (loss)                      |  |                                              | (7,025 | ) |                       |   | 22,882 |                          |  |   | 11,525       |   |  |              |        |   |  |   | 27,382  |  
|Other income (expense):                      |  |                                              |        |   |                       |   |        |                          |  |   |              |   |  |              |         |   |  |   |         |  
|Interest expense, net                        |  |                                              | (3,598 | ) |                       |   | (1,348 | )                        |  |   | 129          |   |  |              |        |   |  |   | (4,817  | )
|Amortization of deferred financing fees      |  |                                              |       |   |                       |   | (415   | )                        |  |   |             |   |  |              |        |   |  |   | (415    | )
|Income from subsidiaries                     |  |                                              | 15,039 |   |                       |   |       |                          |  |   |             |   |  |              | (15,039 | ) |  |   |        |  
|Other, net                                   |  |                                              | 10,623 |   |                       |   | (8,922 | )                        |  |   | (1,735       | ) |  |              |        |   |  |   | (34     | )
|                                             |  |                                              |        |   |                       |   |        |                          |  |   |              |   |  |              |         |   |  |   |         |  
|Income before income taxes                   |  |                                              | 15,039 |   |                       |   | 12,197 |                          |  |   | 9,919        |   |  |              | (15,039 | ) |  |   | 22,116  |  
|Income taxes                                 |  |                                              |       |   |                       |   | 4,560  |                          |  |   | 2,517        |   |  |              |        |   |  |   | 7,077   |  
|                                             |  |                                              |        |   |                       |   |        |                          |  |   |              |   |  |              |         |   |  |   |         |  
|Net income                                   |  | $                                            | 15,039 |   |                       | $ | 7,637  |                          |  | $ | 7,402        |   |  | $            | (15,039 | ) |  | $ | 15,039  |  
|                                             |  |                                              |        |   |                       |   |        |                          |  |   |              |   |  |              |         |   |  |   |         |  



18



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##### Table of Contents

Condensed Consolidating Statements of Cash Flows



|                                                             |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  
|------------------------------------------------------------ |  | -------------------------------------------- | ------- | - | --------------------- | - | ------- | ------------------------ |  | - | ------------ | - | ------------ | - | - |  | - | ------- | -
|                                                             |  | For The Three Months Ended December 31, 2005 |        
|                                                             |  | Sybron DentalSpecialties                     |         |   | GuarantorSubsidiaries |   |         | NonGuarantorSubsidiaries |  |   | Eliminations |   | Consolidated |  
|Cash flows provided by (used in) operating activities        |  | $                                            | (7,649  | ) |                       | $ | 21,714  |                          |  | $ | 10,617       |   |              | $ |  |  | $ | 24,682  |  
|Cash flows from investing activities:                        |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  
|Capital expenditures                                         |  |                                              | (545    | ) |                       |   | (1,832  | )                        |  |   | (336         | ) |              |   |  |  |   | (2,713  | )
|Proceeds from sales of property, plant and equipment         |  |                                              |        |   |                       |   |        |                          |  |   | 7            |   |              |   |  |  |   | 7       |  
|Payments for intangibles                                     |  |                                              |        |   |                       |   | (201    | )                        |  |   |             |   |              |   |  |  |   | (201    | )
|                                                             |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  
|Net cash used in investing activities                        |  |                                              | (545    | ) |                       |   | (2,033  | )                        |  |   | (329         | ) |              |   |  |  |   | (2,907  | )
|Cash flows from financing activities:                        |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  
|Proceeds from credit facility                                |  |                                              | 48,700  |   |                       |   |        |                          |  |   |             |   |              |   |  |  |   | 48,700  |  
|Principal payments on credit facility                        |  |                                              | (45,650 | ) |                       |   | (5,108  | )                        |  |   |             |   |              |   |  |  |   | (50,758 | )
|Principal payments on long-term debt                         |  |                                              | (31     | ) |                       |   | (31     | )                        |  |   |             |   |              |   |  |  |   | (62     | )
|Settlement of derivative instruments                         |  |                                              | (8,384  | ) |                       |   |        |                          |  |   |             |   |              |   |  |  |   | (8,384  | )
|Proceeds from exercise of stock options                      |  |                                              | 1,032   |   |                       |   |        |                          |  |   |             |   |              |   |  |  |   | 1,032   |  
|Proceeds from employee stock purchase plan                   |  |                                              | 1,149   |   |                       |   |        |                          |  |   |             |   |              |   |  |  |   | 1,149   |  
|                                                             |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  
|Net cash used in financing activities                        |  |                                              | (3,184  | ) |                       |   | (5,139  | )                        |  |   |             |   |              |   |  |  |   | (8,323  | )
|Effect of exchange rate changes on cash and cash equivalents |  |                                              | 317     |   |                       |   | (123    | )                        |  |   | (1,609       | ) |              |   |  |  |   | (1,415  | )
|Net change in intercompany balances                          |  |                                              | 13,405  |   |                       |   | (11,766 | )                        |  |   | (1,639       | ) |              |   |  |  |   |        |  
|                                                             |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  
|Net increase in cash and cash equivalents                    |  |                                              | 2,344   |   |                       |   | 2,653   |                          |  |   | 7,040        |   |              |   |  |  |   | 12,037  |  
|Cash and cash equivalents at beginning of period             |  |                                              | (1,494  | ) |                       |   | (2,154  | )                        |  |   | 62,220       |   |              |   |  |  |   | 58,572  |  
|                                                             |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  
|Cash and cash equivalents at end of period                   |  | $                                            | 850     |   |                       | $ | 499     |                          |  | $ | 69,260       |   |              | $ |  |  | $ | 70,609  |  
|                                                             |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  
|Supplemental cash flow information:                          |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  
|Cash paid during the period for interest                     |  | $                                            | 6,348   |   |                       | $ | 1,024   |                          |  | $ |             |   |              | $ |  |  | $ | 7,372   |  
|                                                             |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  
|Cash paid during the period for income taxes                 |  | $                                            | 524     |   |                       | $ |        |                          |  | $ | 2,306        |   |              | $ |  |  | $ | 2,830   |  
|                                                             |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  



|                                                             |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  
|------------------------------------------------------------ |  | -------------------------------------------- | ------- | - | --------------------- | - | ------- | ------------------------ |  | - | ------------ | - | ------------ | - | - |  | - | ------- | -
|                                                             |  | For The Three Months Ended December 31, 2004 |        
|                                                             |  | Sybron DentalSpecialties                     |         |   | GuarantorSubsidiaries |   |         | NonGuarantorSubsidiaries |  |   | Eliminations |   | Consolidated |  
|Cash flows provided by (used in) operating activities        |  | $                                            | (51,367 | ) |                       | $ | 48,140  |                          |  | $ | 23,033       |   |              | $ |  |  | $ | 19,806  |  
|Cash flows from investing activities:                        |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  
|Capital expenditures                                         |  |                                              | (1,362  | ) |                       |   | (1,138  | )                        |  |   | (898         | ) |              |   |  |  |   | (3,398  | )
|Proceeds from sales of property, plant and equipment         |  |                                              |        |   |                       |   | 15      |                          |  |   | 131          |   |              |   |  |  |   | 146     |  
|Net payments for businesses acquired                         |  |                                              |        |   |                       |   |        |                          |  |   | (45,975      | ) |              |   |  |  |   | (45,975 | )
|Payments for intangibles                                     |  |                                              |        |   |                       |   | (274    | )                        |  |   |             |   |              |   |  |  |   | (274    | )
|                                                             |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  
|Net cash used in investing activities                        |  |                                              | (1,362  | ) |                       |   | (1,397  | )                        |  |   | (46,742      | ) |              |   |  |  |   | (49,501 | )
|Cash flows from financing activities:                        |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  
|Proceeds from credit facility                                |  |                                              | 59,000  |   |                       |   |        |                          |  |   |             |   |              |   |  |  |   | 59,000  |  
|Principal payments on credit facility                        |  |                                              | (34,000 | ) |                       |   | (160    | )                        |  |   |             |   |              |   |  |  |   | (34,160 | )
|Principal payments on long-term debt                         |  |                                              | (10     | ) |                       |   | (209    | )                        |  |   |             |   |              |   |  |  |   | (219    | )
|Proceeds from exercise of stock options                      |  |                                              | 7,868   |   |                       |   |        |                          |  |   |             |   |              |   |  |  |   | 7,868   |  
|Proceeds from employee stock purchase plan                   |  |                                              | 748     |   |                       |   |        |                          |  |   |             |   |              |   |  |  |   | 748     |  
|                                                             |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  
|Net cash provided by (used in) financing activities          |  |                                              | 33,606  |   |                       |   | (369    | )                        |  |   |             |   |              |   |  |  |   | 33,237  |  
|Effect of exchange rate changes on cash and cash equivalents |  |                                              | (1,064  | ) |                       |   | 3,599   |                          |  |   | 2,968        |   |              |   |  |  |   | 5,503   |  
|Net change in intercompany balances                          |  |                                              | 16,158  |   |                       |   | (45,924 | )                        |  |   | 29,766       |   |              |   |  |  |   |        |  
|                                                             |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  
|Net increase (decrease) in cash and cash equivalents         |  |                                              | (4,029  | ) |                       |   | 4,049   |                          |  |   | 9,025        |   |              |   |  |  |   | 9,045   |  
|Cash and cash equivalents at beginning of period             |  |                                              | 7,402   |   |                       |   | (1,801  | )                        |  |   | 35,001       |   |              |   |  |  |   | 40,602  |  
|                                                             |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  
|Cash and cash equivalents at end of period                   |  | $                                            | 3,373   |   |                       | $ | 2,248   |                          |  | $ | 44,026       |   |              | $ |  |  | $ | 49,647  |  
|                                                             |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  
|Supplemental cash flow information:                          |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  
|Cash paid during the period for interest                     |  | $                                            | 6,432   |   |                       | $ | 1,300   |                          |  | $ |             |   |              | $ |  |  | $ | 7,732   |  
|                                                             |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  
|Cash paid during the period for income taxes                 |  | $                                            | 2,372   |   |                       | $ |        |                          |  | $ | 2,570        |   |              | $ |  |  | $ | 4,942   |  
|                                                             |  |                                              |         |   |                       |   |         |                          |  |   |              |   |              |   |   |  |   |         |  



19



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##### Table of Contents

ITEM 2.Managements Discussion and Analysis of Financial Condition and Results of Operations



When we use the terms SDS, we, us, Company, or our in this report, unless the context requires
otherwise, we are referring to Sybron Dental Specialties, Inc. and its subsidiaries. Our fiscal year ends on September 30 and, accordingly, all references to quarters refer to our fiscal quarters. The quarters ended December 31, 2005 and
2004 refer to the first quarters of fiscal 2006 and 2005, respectively.



Our Business



We are a leading
manufacturer 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 dental and medical
professions. Our subsidiaries operate in two business segments:



| |  |  | Professional Dental. We develop and manufacture a variety of branded dental consumable products, small non-consumable equipment and consumable infection prevention products
sold through independent distributors to the dental industry worldwide, as well as to medical markets; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Specialty Products.We develop, manufacture, and market an array of consumable orthodontic, endodontic and implant products, as well as small non-consumable dental products,
to orthodontists, endodontic specialists, oral surgeons, prosthodontists, and periodontists worldwide.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our primary subsidiaries in each of our business segments are as follows:



|                            |  |                                           
|--------------------------- |  | ------------------------------------------
|Professional Dental         |  | Specialty Products                        
|Kerr Corporation            |  | Ormco Corporation                         
|Kerr Italia S.p.A           |  | Ormco B.V.                                
|Sybron Canada Limited       |  | Ormodent Group                            
|Pinnacle Products, Inc.     |  | Allesee Orthodontic Appliances, Inc.      
|KerrHawe S.A.               |  | Innova LifeSciences Corporation           
|Metrex Research Corporation |  | Oraltronics Dental Implant Technology GmbH
|SpofaDental a.s.            |  |                                           



Our Business
Environment



Based upon available information, we
estimate the growth of the worldwide dental market for the type of products we sell to be between 4% and 6%, with the domestic market growing at the upper end of the range. We believe that the factors contributing most to the markets growth
are, among other things:



| |  |  | Consumer Demand.Consumers increasingly desire to retain and improve the appearance of their natural teeth, which increases the demand for endodontic, periodontic,
orthodontic, cosmetic and other specialized procedures. In addition, the baby-boomer segment of the population is aging, and we think they are more likely to require repair and reconstructive dental procedures, such as root canals and the placement
of crowns or bridges.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Technological Advances. Technological advances in dental products are reducing both patient discomfort and treatment time, thereby attracting more patients and increasing
demand for dental products and services.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Increasing Number of Patients. The increasing worldwide population along with the expected growth in per capita discretionary incomes in emerging nations are creating more dental
patients while making healthcare, including dental services, a greater priority.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In monitoring our growth, we rely on a number of benchmarks, including internal net sales growth in our domestic and foreign markets, growth from new products and the impact of currency exchange rates.



First Quarter Fiscal 2006 Overview



In the first quarter of fiscal 2006, our net sales were $158.0 million, an
increase of $9.0 million, or 6.0%, from net sales of $149.0 million in the first quarter of fiscal 2005. Our increase in net sales during the first quarter of fiscal 2006 was comprised of internal net sales growth of 6.8%, a 2.8% decrease from
currency exchange rates, and a 2.1% increase from sales associated with acquisitions made in the preceding twelve-month period. We define internal net sales as total net sales excluding foreign currency fluctuations and including only the organic
growth of acquisitions made in the preceding twelve months.



20



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##### Table of Contents

Internal net sales growth is a non-GAAP measure and should not be considered a replacement for GAAP
results. The following table reconciles reported net sales growth (the most comparable GAAP measure) to internal net sales growth (the non-GAAP measure) for the quarter ended December 31, 2005:



|                                                                                  |  |                    |      |   |                   |   |      |     |  |   |       |  
|--------------------------------------------------------------------------------- |  | ------------------ | ---- | - | ----------------- | - | ---- | --- |  | - | ----- | -
|                                                                                  |  | ProfessionalDental |      |   | SpecialtyProducts |   |      | SDS | 
|Net sales growth                                                                  |  |                    | 4.3  | % |                   |   | 7.8  | %   |  |   | 6.0   | %
|Add: sales decrease due to currency                                               |  |                    | 2.4  | % |                   |   | 3.2  | %   |  |   | 2.8   | %
|Less: non-organic increase due to acquisitions made in the previous twelve months |  |                    | 0.0  | % |                   |   | 4.2  | %   |  |   | 2.1   | %
|                                                                                  |  |                    |      |   |                   |   |      |     |  |   |       |  
|Internal net sales growth                                                         |  |                    | 6.8  | % |                   |   | 6.7  | %   |  |   | 6.8   | %
|                                                                                  |  |                    |      |   |                   |   |      |     |  |   |       |  
|Less: impact of equipment sales on internal net sales growth                      |  |                    | 1.1  | % |                   |   | -1.6 | %   |  |   | -0.2  | %
|                                                                                  |  |                    |      |   |                   |   |      |     |  |   |       |  
|Internal net sales growth of consumable products                                  |  |                    | 5.6  | % |                   |   | 8.3  | %   |  |   | 7.0   | %
|                                                                                  |  |                    |      |   |                   |   |      |     |  |   |       |  
|Domestic and international sales by segment                                       |  |                    |      |   |                   |   |      |     |  |   |       |  
|Domestic                                                                          |  | $                  | 46.4 |   |                   | $ | 36.1 |     |  | $ | 82.4  |  
|International                                                                     |  |                    | 32.8 |   |                   |   | 42.8 |     |  |   | 75.6  |  
|                                                                                  |  |                    |      |   |                   |   |      |     |  |   |       |  
|Total sales                                                                       |  | $                  | 79.2 |   |                   | $ | 78.8 |     |  | $ | 158.0 |  
|                                                                                  |  |                    |      |   |                   |   |      |     |  |   |       |  
|Internal net sales growth                                                         |  |                    |      |   |                   |   |      |     |  |   |       |  
|Foreign                                                                           |  |                    |      |   |                   |   |      |     |  |   | 7.5   | %
|Domestic                                                                          |  |                    |      |   |                   |   |      |     |  |   | 6.1   | %
|                                                                                  |  |                    |      |   |                   |   |      |     |  |   |       |  
|Total                                                                             |  |                    |      |   |                   |   |      |     |  |   | 6.8   | %
|                                                                                  |  |                    |      |   |                   |   |      |     |  |   |       |  



(some totals may not
add due to rounding)



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.



Our internal net sales growth rate of 6.8% in the first quarter of fiscal 2006 was greater than the 6.7% internal net sales growth rate in the corresponding prior year period. In our Professional Dental segment, internal net sales growth
was driven by sales of our infection prevention line of products; MaxCem, a self-adhesive cement; Optibond®, our dual-core bonding agent; and sales of new products, such as our Demetron® LED II curing light, our portable Orascoptic® LED light source and our replacement for alginate impression material, AlgiNot. In our Specialty Products segment, we continued to experience double-digit growth from sales of our Damon 3 self-ligating bracket system and our Inspire Ice line of aesthetic brackets. A weaker euro versus the Unites States dollar was
primarily responsible for currency exchange rates that decreased our net sales by approximately 2.8% from the first quarter of fiscal 2005.



Operating income in the first quarter of fiscal 2006 was $25.9 million, or 16.4% of net sales, compared to operating income of $27.4 million, or 18.4% of
net sales, in the same period of the prior year. The decline in our operating income as a percent of net sales was primarily attributable to an increase in total selling, general and administrative expenses as a percent of net sales, which increased
from 38.9% in the first quarter of fiscal 2005 to 40.6% in the first quarter of fiscal 2006. This increase was driven by our adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS No.
123R) during the first quarter of fiscal 2006, which resulted in a $2.5 million increase in selling, general and administrative expenses and $0.1 million increase in cost of goods sold. Selling, general, and administrative expenses also
increased from a $2.1 million, non-cash amortization charge and unfavorable currency exchange rates that increased selling, general, and administrative expenses as a percent of net sales by approximately 80 basis points. Collectively, these items
offset meaningful progress we have made in controlling operating expense.



Gross profit as a percent of net sales decreased slightly from 57.3% in the first quarter of fiscal 2005 to 56.9% in the first quarter of fiscal 2006. The decrease in gross profit as a percent of net sales is
primarily attributable to unfavorable currency exchange rates, which affected gross margins by 60 basis points when compared to the first quarter of fiscal 2005. These factors were partially offset by the addition of Oraltronics Dental Implant
Technology GmbH (Oraltronics), a dental implant subsidiary that we acquired during the third quarter of fiscal 2005 and that generates higher gross margins than our other lines of products, our continued improvements in manufacturing
processes and movement of labor-intensive production processes to facilities with lower labor rates.



Our second quarter results will include a one-time charge between $1.1 million and $1.3 million related to the stock compensation expense for options
granted to our Board of Directors. The options granted to our directors vest immediately, which results in the fair value of the expense to be recognized at the time of the grant. This expense will not recur in the last two fiscal quarters of fiscal
2006.



Our net interest expense in the first quarter of fiscal
2006 was $3.9 million compared to net interest expense of $4.8 million in the comparable prior year period.



Taxes on income in the first quarter of fiscal 2006 were $7.2 million, or 33.0% of income before taxes, an increase of $0.1 million from the first quarter
of fiscal 2005 when taxes on income were $7.1 million, or 32.0% of income before taxes.



During the first quarter of fiscal 2006, we reviewed the purchase price allocation for the acquisitions of certain assets from Surgical Acuity, Inc. in fiscal 2002 and the stock of SpofaDental a.s. in fiscal 2003. We
determined that a portion of the amount that was allocated to goodwill in fact related to intangible assets, some of which require amortization. Further, upon reviewing the estimated useful life for some of the intangible assets associated with the
Innova LifeSciences Corporation (Innova) acquisition in fiscal 2005, we determined that the amortizable life should be reduced. As a result of these discoveries, we have recorded in the quarter ended December 31, 2005 a non-cash charge
of $2.1 million to amortization of intangible assets, $1.9 million of which related to prior periods. We also identified other errors in the accounting for differences between the assigned values and tax bases of the assets and liabilities
recognized in the acquisitions of Innova and Oraltronics in fiscal 2005 and SpofaDental in fiscal 2003, which required adjustments to increase goodwill and deferred tax liabilities. All of the above errors occurred over multiple quarters. We have
concluded that the effect of the errors, individually and in the aggregate, was not material to any of the prior periods in which they occurred and that the correcting entries were not material to the first quarter of fiscal 2006. Please see Note 3
to our Unaudited Condensed Consolidated Financial Statements of this Quarterly Report for a more complete description of the prior period accounting errors.



Quarter Ended December 31, 2005 Compared to the Quarter Ended December 31, 2004



Net Sales



|                    |  |                |         |             |   |        
|------------------- |  | -------------- | ------- | ----------- | - | -------
|                    |  | Fiscal 2006    |         | Fiscal 2005
|                    |  | (in thousands)
|Professional Dental |  | $              | 79,184  |             | $ | 75,887 
|Specialty Products  |  |                | 78,847  |             |   | 73,153 
|                    |  |                |         |             |   |        
|Total Net Sales     |  | $              | 158,031 |             | $ | 149,040
|                    |  |                |         |             |   |        



Overall Company.Net sales for the quarter ended December 31, 2005 increased by $9.0 million, or 6.0%, from the corresponding fiscal 2005 quarter.



Professional Dental.For the first quarter of fiscal 2006, net sales in the Professional Dental segment increased $3.3 million or 4.3% over the
same period of the prior year. The increase in net sales was comprised of internal net sales growth of



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6.8%, while currency exchange rates decreased net sales by 2.5%. The Professional Dental segments internal net
sales growth rate improved from 3.3% in the first quarter of fiscal 2005. In the first quarter of fiscal 2006, internal net sales growth of consumable products was 5.6%, versus 6.4% in the first quarter of fiscal 2005. Domestic internal net sales
growth was 4.2% in the first quarter of fiscal 2006, compared to 7.8% in the same period of the prior year. Internal net sales growth in the segments international markets in the first quarter of fiscal 2006 was 10.5% compared to a decrease of
2.4% in the first quarter of fiscal 2005. The increase in internal net sales growth in international markets is primarily attributable to our decision in the first quarter of fiscal 2005 to stop selling through distributors who were selling our
products on the gray market and our decision to raise prices in the developing world in order to better harmonize worldwide pricing.



The overall net sales growth of the Professional Dental segment is primarily attributable to an increase in the net sales of its infection prevention line
of products; MaxCem, a self-adhesive cement; sales of Optibond, a bonding agent; and AlgiNot, a replacement for alginate impression material. Also contributing to the overall net sales growth of the Professional Dental segment was an increase in net
sales of non-consumable products such as the Demetron LED II curing light and the new portable Orascoptic LED light source which the segment launched during the fourth quarter of fiscal 2005 and the first quarter of fiscal 2006, respectively. These
products have a life span of four to five years and generate less recurring sales than consumable products.



We anticipate that internal net sales for our Professional Dental segment will continue to grow within the historical range of 4% to 6% during the
remainder of fiscal 2006. We expect that growth will be driven by the sales of its infection prevention line of products, Premise nanocomposite, MaxCem self-adhesive cement, the Demetron LED II curing light, the Orascoptic portable LED light source, and AlgiNot.



Specialty Products.During the first quarter of fiscal 2006, net sales
in the Specialty Products segment increased $5.7 million or 7.8% over the same period of the prior year. The increase in net sales was comprised of internal net sales growth of 6.7%, a decline in sales from currency exchange rates of 3.2%, and sales
from acquired companies of 4.2%. The products that significantly contributed to the increase in net sales for the Specialty Product segment include the family of Damon products, the Inspire Ice line of brackets and nickel-titanium
(Ni-Ti) endodontic files. We plan to continue to focus our selling efforts on the Damon self-ligating bracket system, Inspire Ice line of brackets, dental implant products and Ni-Ti endodontic files, as we believe these product lines
have the greatest potential for increasing the sales of our Specialty Products segment over the next twelve months.



Sales growth during the first quarter of fiscal 2006 was down at our endodontics business, while growth was flat at our dental implant business. We have a
solid pipeline of new products for the endodontics business that should stimulate additional sales, but the launches are more weighted towards the back half of the year. These new products combined with our nickel titanium files that continue to
grow at a robust pace lead us to believe that the contribution of our endodontic business should improve in the next few quarters. At our dental implant business, we believe that we will see an improvement in sales growth as a result of the broader
product line we now have to offer due to the Oraltronics acquisition. Oraltronics provides us with an experienced sales force in Europe, as well as a threaded implant design that is an excellent complement to Innovas product line. We just
received market clearance from the FDA to begin domestic sales of the threaded implant design from Oraltronics, and we are just now beginning to sell the Innova product line in Germany.



We anticipate that internal net sales growth for our Specialty Products segment will continue to grow within the historical
range of 5% to 7% during the remainder of fiscal 2006. We expect that sales growth will be driven by the development of additional manufacturing capacity for our Damon line of brackets, and the continued strength in sales of our Inspire Ice brackets
and Ni-Ti endodontic files.



Gross Profit



|                    |  |                                    |        |                     |      |   |            |   |                     |  |      |  
|------------------- |  | ---------------------------------- | ------ | ------------------- | ---- | - | ---------- | - | ------------------- |  | ---- | -
|                    |  | Fiscal2006                         |        | Percent ofNet Sales |      |   | Fiscal2005 |   | Percent ofNet Sales | 
|                    |  | (in thousands, except percentages) |       
|Professional Dental |  | $                                  | 43,163 |                     | 54.5 | % |            | $ | 41,558              |  | 54.8 | %
|Specialty Products  |  |                                    | 46,827 |                     | 59.4 | % |            |   | 43,809              |  | 59.9 | %
|                    |  |                                    |        |                     |      |   |            |   |                     |  |      |  
|Total Gross Profit  |  | $                                  | 89,990 |                     | 56.9 | % |            | $ | 85,367              |  | 57.3 | %
|                    |  |                                    |        |                     |      |   |            |   |                     |  |      |  



Overall Company.Gross profit for the quarter ended December 31, 2005 increased by $4.6 million or 5.4% from the corresponding fiscal 2005 quarter.



Professional Dental.During the first quarter of fiscal 2006, gross profit as a percent of net sales in the Professional Dental segment was 54.5%
versus 54.8% during the same period of the prior year. The decline in gross profit as a percent of net sales in the Professional Dental segment resulted from unfavorable changes in currency exchange rates which lowered gross margins on products sold
in currencies different from the currency of the country where they were manufactured. The impact of currency was partially offset by savings realized from the consolidation of our Demetron and Orascoptic manufacturing facilities which was completed
in the fourth quarter of fiscal 2005 and continued improvements in our manufacturing processes and purchasing.



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Specialty Products. During the first quarter of fiscal 2006, gross profit as a percent of net
sales in the Specialty Products segment was 59.4% versus 59.9% in the same period of the prior year. Gross profit as a percent of net sales at the Specialty Products segment declined due to unfavorable changes in the currency exchange rates, which
lowered gross profit as a percent of net sales by approximately 110 basis points. The impact of unfavorable currency exchange rates was partially offset by the addition of Oraltronics, a dental implant subsidiary which we acquired during the third
quarter of fiscal 2005. Oraltronics, along with the rest of our implant business, generates higher gross margins than our other lines of products. The Specialty Products segment also benefited from the continued movement of labor-intensive
production processes to facilities with lower labor rates.



Selling, General and Administrative Expenses



|                                                   |  |                                    |        |                     |      |   |            |   |                     |  |      |  
|-------------------------------------------------- |  | ---------------------------------- | ------ | ------------------- | ---- | - | ---------- | - | ------------------- |  | ---- | -
|                                                   |  | Fiscal2006                         |        | Percent ofNet Sales |      |   | Fiscal2005 |   | Percent ofNet Sales | 
|                                                   |  | (in thousands, except percentages) |       
|Professional Dental                                |  | $                                  | 31,366 |                     | 39.6 | % |            | $ | 29,986              |  | 39.5 | %
|Specialty Products                                 |  |                                    | 32,718 |                     | 41.5 | % |            |   | 27,999              |  | 38.3 | %
|                                                   |  |                                    |        |                     |      |   |            |   |                     |  |      |  
|Total Selling, General and Administrative Expenses |  | $                                  | 64,084 |                     | 40.6 | % |            | $ | 57,985              |  | 38.9 | %
|                                                   |  |                                    |        |                     |      |   |            |   |                     |  |      |  



Overall Company.Selling, general and administrative expenses for the quarter ended December 31, 2005 increased by $6.1 million or 10.5% from the corresponding fiscal 2005 quarter. All corporate general and administrative expenses are allocated to our
business segments in proportion to each segments net sales, regardless of the extent to which a particular expense may relate to one segment or the other.



Professional Dental. During the first quarter of fiscal 2006, selling, general and administrative expenses in the Professional Dental segment
increased $1.4 million or 4.6% from the first quarter of fiscal 2005. As a percent of net sales, selling, general and administrative expenses in the Professional Dental segment increased to 39.6% of net sales in the first quarter of 2006 from 39.5%
in the same period of fiscal 2005. The increase in selling, general and administrative expenses as a percent of net sales was primarily attributable to a $1.7 million non-cash amortization charge that resulted from the correction of the purchase
price allocation for two acquisitions made in prior years. The $1.7 million charge is the aggregate amortization that should have been recorded since the date of the acquisitions. The $1.7 million charge recorded in the quarter includes
approximately $1.6 million related to prior periods and approximately $0.1 million related to the current quarter. Selling, general and administrative expenses were also increased by the recognition of stock compensation expense, which was
recognized for the first time during the quarter in accordance with our adoption of SFAS No. 123R. These additional charges were partially offset by our cost control initiatives.



Specialty Products. During the first quarter of fiscal 2006, selling, general and administrative expenses in the
Specialty Products Segment increased $4.7 million or 16.9% over the first quarter of fiscal 2005. Selling, general and administrative expenses increased as a percent of sales increased due to the cost of developing our dental implant sales force,
our adoption of SFAS No. 123R during the first quarter of fiscal 2006 and a $0.4 million non-cash amortization charge related to a change in the estimated useful lives of intangibles related to the acquisition of Innova in October 2005, $0.3
million of which related to prior periods. As a result of the correction of the useful lives of intangible assets, we expect to incur an additional $0.1 million in amortization expense per quarter going forward. These charges were partially offset
by reductions in advertising and promotion expense, as well as decreased incentive compensation expenses.



Operating Income



|                       |  |                                    |        |                     |      |   |            |   |                     |  |      |  
|---------------------- |  | ---------------------------------- | ------ | ------------------- | ---- | - | ---------- | - | ------------------- |  | ---- | -
|                       |  | Fiscal2006                         |        | Percent ofNet Sales |      |   | Fiscal2005 |   | Percent ofNet Sales | 
|                       |  | (in thousands, except percentages) |       
|Professional Dental    |  | $                                  | 11,797 |                     | 14.9 | % |            | $ | 11,572              |  | 15.2 | %
|Specialty Products     |  |                                    | 14,109 |                     | 17.9 | % |            |   | 15,810              |  | 21.6 | %
|                       |  |                                    |        |                     |      |   |            |   |                     |  |      |  
|Total Operating Income |  | $                                  | 25,906 |                     | 16.4 | % |            | $ | 27,382              |  | 18.4 | %
|                       |  |                                    |        |                     |      |   |            |   |                     |  |      |  



As a result of the
foregoing, operating income for the quarter ended December 31, 2005 decreased by 5.4% or $1.5 million from operating income in the corresponding quarter of fiscal 2005 and decreased as a percent of net sales by 2.0%.



Operating income as a percent of net sales was negatively impacted by:



| |  |  | the adoption of SFAS No. 123R, which reduced operating income as a percent of net sales by 160 basis points;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | the cumulative amortization charge during the quarter, which reduced operating income as a percent of net sales by 140 basis points; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | unfavorable currency exchange rates, which reduced operating income as percent of net sales by 140 basis points compared to the first quarter of fiscal 2005.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



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Interest Expense, Net



Net interest expense was $3.9 million in the first quarter of fiscal 2006, a decrease of $1.0 million from the corresponding
2005 period. The decrease in net interest expense resulted from the reduction of our average debt balances from $249.0 million in the first quarter of fiscal 2005 to $208.5 million in the first quarter of fiscal 2006 and the settlement of cross
currency debt swaps during the first quarter of fiscal 2006. The settlement of the cross currency debt swaps generated interest income of approximately $0.4 million. We expect interest expense to continue to decline in fiscal 2006 as we continue to
pay down our adjustable rate debt. Debt is expected to decline throughout fiscal 2006 unless we make any significant acquisitions.



Our average interest rate on our debt increased from 7.8% in the first quarter of fiscal 2005 to 8.4% in the first quarter of fiscal 2006. The debt repaid
throughout fiscal 2005 and the first quarter of fiscal 2006 was adjustable rate debt with a lower interest rate than the remaining debt. We expect the average interest rate on our debt to increase slightly during the remainder of fiscal 2006 due to
the continued repayment of our adjustable rate debt and the absence of our cross currency debt swaps, which have traditionally lowered our average interest rate.



Income Taxes



Taxes on income in the first quarter of fiscal 2006 were $7.2 million, or 33.0% of income before taxes, an increase of $0.1 million from the first quarter
of fiscal 2005 when taxes on income were $7.1 million, or 32.0% of income before taxes. The increase in our effective tax rate was primarily driven by lower extraterritorial income exclusion benefit and a greater percentage of our taxable income
being generated in higher tax rate jurisdictions. We expect the annual effective tax rate, including any potential discrete adjustments to be approximately 32% to 34%. Discrete adjustments could include the reversal of tax contingency reserves due
to the expiration of statutory limitations as well as certain foreign tax exposures. Further, we are evaluating the amount of foreign earnings to repatriate under the American Jobs Creation Act of 2004, which allows companies to repatriate cash into
the United States at a special, temporary effective tax rate of 5.25 percent. Our current analysis indicates that between $10.0 million and $60.0 million may be repatriated with a potential tax effect between $2.0 million and $5.0 million. This
expense is not included in our estimate of our annual effective tax rate. We expect to be in a position to finalize our assessment later this year.



Critical Accounting Estimates Update



Refer to our Annual Report on Form 10-K for the year ended September 30, 2005 for a discussion of critical accounting estimates. During the three
months ended December 31, 2005, there was one material change to these policies, as described below.



Stock-Based Compensation. We grant options to purchase common stock to our employees and directors under our stock option plans. Eligible employees
can also purchase shares of our common stock at 85% of the lower of the fair market value on the first or last day of each six-month offering period under our Employee Stock Purchase Plan. The benefits provided under these plans are stock-based
payments subject to the provisions of SFAS No. 123R. Effective October 1, 2005, we use the fair value method to apply the provisions of SFAS No. 123R with a modified prospective method of adoption. The valuation provisions of SFAS
No. 123R apply to new awards and to awards that are outstanding on the effective date and subsequently modified or canceled. Under the modified prospective application, prior periods are not revised for comparative purposes. Total stock-based
employee compensation expense determined under the fair value based method for all awards, net of related tax effects for the quarter ended December 31, 2005, was $1.7 million. As of December 31, 2005, there was $48.5 million of total
unrecognized compensation costs related to unvested stock-based compensation arrangements granted under the Plans. That cost is expected to be recognized net of related tax effects over a weighted average period of 4.3 years less any stock options
forfeited prior to vesting.



Prior to April 1, 2005, we
used the Black-Scholes option-pricing model to estimate a valuation for stock options. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no restrictions and are fully transferable
and negotiable in a free trading market. This model does not consider the employment, transfer or vesting restrictions that are inherent in our employee stock options or purchase rights granted pursuant to the Employee Stock Purchase Plan. During
fiscal 2005 we conducted an evaluation of the benefits of using a binomial-lattice model rather than the Black-Scholes model. A binomial-lattice model considers historical patterns of employee exercise behavior and stock price volatility to project
an appropriate array of future exercise behaviors, while the Black-Scholes model uses weighted average assumptions about option characteristics. As a result of the evaluation, we concluded that a binomial-lattice model provides a more accurate
estimated valuation for stock options and have adopted a binomial-lattice model to estimate the fair value of stock options granted subsequent to March 31, 2005.



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If factors change and we employ different assumptions in the application of SFAS No. 123R in future
periods, the compensation expense that we record under SFAS No. 123R may differ significantly from what we have recorded in the current period. Therefore, we believe it is important for investors to be aware of the high degree of subjectivity
involved when using option pricing models to estimate stock-based compensation under SFAS No. 123R. Option pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions, are fully
transferable and do not cause dilution. Because our stock-based payments have characteristics significantly different from those of freely traded options, and because changes in the subjective input assumptions can materially affect our estimates of
the fair values, in our opinion, existing valuation models, including Black-Scholes and binomial-lattice models, may not provide reliable measures of the fair values of our stock-based compensation. Consequently, there is a risk that our estimates
of the fair values of our stock-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination or forfeiture of those stock-based payments in the future.
Certain stock-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements.
Alternatively, value may be realized from these instruments that are significantly in excess of the fair values originally estimated on the grant date and reported in our financial statements. Currently there is not a market-based mechanism or other
practical application to verify the reliability and accuracy of the estimates stemming from these valuation models, nor is there a means to compare and adjust the estimates to actual values. Although the fair value of employee stock-based awards is
determined in accordance with SFAS No. 123R and the Securities and Exchange Commission Staff Accounting Bulletin No. 107 (SAB No. 107) using an option-pricing model, that value may not be indicative of the fair value
observed in a willing buyer/ willing seller market transaction.



Liquidity
and Capital Resources



Our main source of liquidity is
cash generated by operating activities, existing cash and, to a lesser extent, borrowings under our credit facility (Credit Facility). The borrowings under our Credit Facility are made from our $150.0 million revolving credit facility,
which is part of our $350.0 million syndicated credit facility. As of December 31, 2005, $135.0 million of the $150.0 million revolving credit facility was available for borrowing.



We are currently negotiating the refinancing of our Credit Facility. As of December 31, 2005, we have $3.9 million of
unamortized deferred financing fees, of which approximately $0.1 million is amortized per month. The remaining unamortized balance of deferred financing fees would likely be expensed upon the refinancing of our Credit Facility. We do not anticipate
any difficulty with the refinancing of our Credit Facility. However, there can be no assurance that will be the case. To the extent that funds from these sources are not available or are insufficient, we would have to raise additional capital in
another manner.



Working capital increased from $191.5 million
at September 30, 2005 to $205.3 million at December 31, 2005. The current ratio increased from 3.1 at September 30, 2005 to 3.7 at December 31, 2005. The current ratio increased as a result of decreases in accrued payroll and
employee benefits as fiscal 2005 incentive payments were made in the first fiscal quarter of 2006. The increase in cash was primarily at our offshore entities. Cash increased from $58.6 million at September 30, 2005 to $70.6 million at
December 31, 2005, an increase of $12.0 million. Net cash provided by operating activities was $24.7 million, offset by net cash used by financing activities of $8.3 million and net cash used in investing activities of $2.9 million.



Cash provided by operations was $24.7 million in the quarter ended
December 31, 2005 and $19.8 million in the quarter ended December 31, 2004, an increase of $4.9 million. Increases in net income excluding amortization of intangible assets, changes in deferred income tax balances, a decrease in accounts
receivable, and a lower increase in inventory balances, offset by a decrease in accrued payroll and employee benefits led to the increase in net cash provided by operating activities. Days sales outstanding increased from 54.5 at September 30,
2005, to 57.9 at December 31, 2005. Inventory days on hand increased from 118 as of September 30, 2005 to 119 as of December 31, 2005.



Capital expenditures for property, plant and equipment were $2.7 million and $3.4 million for the quarters ended December 31, 2005 and 2004,
respectively. We expect capital expenditures for fiscal 2006 to be between $23.0 and $26.0 million.



Net cash used in financing activities for the quarter ended December 31, 2005 was $8.3 million, as compared to net cash provided by financing
activities of $33.2 million for the same period in fiscal 2005. Net debt repayments were $2.1 million, and $8.4 million of cash was used to settle derivative instruments; which was offset by cash received from the exercise of stock options and the
Employee Stock Purchase Plan of $2.2 million in the quarter ended December 31, 2005. We had net debt proceeds in the quarter ended December 31, 2004 of $24.6 million, primarily used to fund the purchase of Innova, and cash received from
the exercise of stock options and the Employee Stock Purchase Plan of $8.6 million.



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Our ability to meet our debt service requirements and to comply with our debt covenants is dependent upon
our future performance, which is subject to financial, economic, competitive and other factors affecting us, many of which are beyond our control. We were in compliance with all such covenants as of December 31, 2005.



New Accounting Pronouncements



There are no recently issued accounting standards that are reasonably likely
to materially affect our consolidated financial statements.



Off-Balance
Sheet Arrangements



None.



Contractual Obligations



There have been no material changes to our contractual obligations outside the ordinary course of our business from those
disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2005.



Cautionary Factors



This report contains, and other disclosures that we make from time to time may contain, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as anticipate,
believe, continue, estimate, expect, goal, objective, outlook, could, intend, may, might, plan,
potential, predict, should, or will or the negative of these terms or other comparable terminology signify forward-looking statements. You should read statements that contain these words carefully
because they discuss our future expectations; contain projections of our future results of operations or our financial conditions; or state other forward-looking information.



Forward-looking statements involve known and unknown risks, uncertainties, and 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 any forward-looking statements. Although we believe the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results. In addition to the assumptions and other factors referenced specifically in connection with such statements, the following factors could impact our business and financial prospects and affect our
future results of operations and financial condition:



We
are a holding company and are dependent upon dividends, interest income and loans from our subsidiaries to meet our debt service obligations.



We are a United States holding company and conduct substantially all of our operations through our subsidiaries, some of which are located in other
countries. Our ability to meet our debt service obligations will therefore be dependent on receipt of dividends, interest income and loans from our direct and indirect subsidiaries. Our subsidiaries may be limited in the amounts they are permitted
to pay as dividends to us on their capital stock as a result of statutory and other contractual restrictions. In particular, there are significant tax and other legal restrictions on the ability of non-U.S. subsidiaries to remit money to us. As a
result, some or all of our subsidiaries may not be able to pay dividends to us. If they do not, we may not be able to make debt service payments on our debt instruments.



We operate in a highly competitive industry and we cannot be certain that we will be able to compete effectively.



Numerous competitors participate in our business segments,
some of which have substantially greater financial and other resources than we do. Our principal competitors in the Professional Dental business segment include Dentsply International Inc., 3M ESPE (an affiliate of 3M Company), GC, Ivoclar Vivadent
Group, and Heraeus Kulzer; and in the Specialty Products business segment, our principal competitors include 3M Unitek, (an affiliate of 3M Company), GAC International (a subsidiary of Dentsply), Align Technology Inc., American Orthodontics,
Micro-Mega, Tulsa Dental, Nobel Biocare, ITA Straumann, and Orthoclear. Some of the companies have a larger sales force and invest more heavily in research, product development and product marketing than we do. As a result, we may not be able to
achieve or maintain adequate market share or margins, or compete effectively, against these companies.



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We rely heavily on manufacturing operations to produce the products we sell, and we could be injured
by disruptions of our manufacturing operations.



We rely
upon our manufacturing operations to produce most of the products we sell. While we do not presently anticipate any significant disruption of those operations, should a disruption occur, for any reason, such as strikes, labor disputes, or other
labor unrest, power interruptions, fire, war, or other force majuere, could adversely affect our sales and customer relationships and therefore adversely affect our business. In particular, we rely upon our facilities in Mexico to manufacture a
substantial portion of our orthodontic products. Any disruption in our ability to import those products into the United States could severely impact our orthodontics sales. Although most of our raw materials are available from a number of potential
suppliers, our operations also depend upon our ability to obtain raw materials at reasonable prices.



In the United States, the Professional Dental segments 159 hourly employees at the Romulus, Michigan facility are members of the United Auto Workers
Union. Our current labor contracts relating to that facility will expire on January 31, 2008. A work stoppage could adversely affect our ability to manufacture and ship products.



We rely upon others to assist in the development, education and promotion of our products, and the loss of the
participation of these individuals could adversely affect our net sales.



We work with various dental clinicians to educate the dental community on the features and benefits of our products. Some clinicians, such as Dr. Dwight Damon, are a key component to our strategy for growing our
sales. The inability or unwillingness of one or more of these clinicians to continue to assist us could negatively impact our ability to increase the sales of certain significant products.



Future exchange rate fluctuations or inflation may adversely affect our
results of operations.



We manufacture many of our
products, including those in our Professional Dental business segment, in our facilities in Mexico, Canada, Switzerland, Czech Republic and Italy. These products are supported by our sales offices in Europe, Japan, Australia, South America and
Mexico. In fiscal 2005, our foreign facilities selling, general and administrative expenses represented approximately 36% of our consolidated selling, general and administrative expenses while our foreign sales represented approximately 46% of
our total net sales.



We measure our financial position and
results of operations from substantially all of our international operations, other than most U.S. export sales, using local currency of the countries in which we conduct such operations and then translate them into U.S. dollars.



The reported income of our foreign subsidiaries will be impacted by a
weakening or strengthening of the U.S. dollar in relation to a particular local currency. Our U.S. export sales may also be affected by foreign currency fluctuations relative to the value of the U.S. dollar as foreign customers may adjust their
level of purchases according to the weakness or strength of their respective currencies versus the U.S. dollar. In addition, any future increases in the inflation rate in any country where we have operations may negatively affect our results of
operations. To the extent these local currencies depreciate against the U.S. dollar, our business, financial condition and results of operations could be adversely affected.



We have engaged in currency hedges to mitigate the impact of foreign currency fluctuations. If we are unable to, or elect
not to continue to employ currency hedges, it could have a material adverse effect on our net sales and profitability. As we expand our international presence, these risks may increase.



Our substantial level of indebtedness could adversely affect our financial condition.



We presently have, and will continue to have, a substantial amount of
indebtedness which requires significant interest payments. As of December 31, 2005, we had $209.7 million in total long-term borrowings (including current portion) and $419.1 million in stockholders equity. In addition, subject to
restrictions in the indenture for our Senior Subordinated Notes and our Credit Facility, we may incur additional indebtedness.



Our substantial level of indebtedness could have important consequences, which include the following:



| |  |  | our ability to obtain additional financing for working capital, capital expenditures, acquisitions, or general corporate purposes may be impaired;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | we must use a substantial portion of our cash flow from operations to service on our Senior Subordinated Notes and other indebtedness, which will reduce the funds available to us
for other purposes such as potential acquisitions and capital expenditures;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we are exposed to fluctuations in interest rates, to the extent our borrowings bear variable rates of interest, including through interest rate swap agreements;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we have a higher level of indebtedness than some of our competitors, which may put us at a competitive disadvantage and reduce our flexibility in planning for, or responding to,
changing conditions in our industry, including increased competition; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we are more vulnerable to general economic downturns and adverse developments in our business.
| | - |  | ----------------------------------------------------------------------------------------------



From time to time we have engaged in interest rate hedges to mitigate the impact of interest rate fluctuations. If we are
unable to, or elect not to employ interest rate hedges, it could have a material adverse effect on our profitability.



In addition, our Credit Facility contains numerous restrictive operating and financial covenants, which could limit our operating flexibility. Our ability
to pay or refinance our indebtedness will depend upon our future operating performance, which will be affected by general economic, financial, competitive, legislative, regulatory, and other factors beyond our control. Increases in interest rates
would adversely affect our cash flows and therefore our results of operations. In addition, the terms of any additional debt or equity financing that we may incur could restrict our operational flexibility and prevent us from pursuing business
opportunities of value to our stockholders.



We may incur
impairment charges on our intangible assets with indefinite lives that would reduce our earnings.



On October 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets, which requires that goodwill and intangible
assets that have an indefinite useful life be tested at least annually for impairment. Goodwill and other intangible assets with indefinite lives must also be tested for impairment between the annual test if an event occurs that would more likely
than not reduce the fair value of the asset below its carrying amount. As of December 31, 2005, goodwill and other intangible assets with indefinite lives represented approximately 41.7% of our total assets. If during the testing an impairment
is determined, our financial results for the relevant period will be reduced by the amount of the impairment, net of income tax effects, if any.



Acquisitions have been and continue to be an important part of our growth strategy; failure to consummate strategic acquisitions could limit our growth
and failure to successfully integrate acquisitions could adversely impact our results.



Our business strategy includes continued growth through strategic acquisitions, which depends upon the availability of suitable acquisition candidates at reasonable prices and our ability to quickly resolve
transitional challenges. Failure to consummate appropriate acquisitions would adversely impact our growth and failure to successfully integrate them would adversely affect our results. These challenges include integration of product lines, sales
forces and manufacturing facilities and decisions regarding divestitures, cost reductions, and realizing other synergies. Also, these challenges involve risks of employee turnover, disruption in product cycles and the loss of sales momentum. We
cannot be certain that we will successfully manage them in the future. Also, our Credit Facility and the indenture for the Senior Subordinated Notes limit our ability to consummate acquisitions by imposing various conditions which must be satisfied.



Our profitability may be affected by factors outside our
control.



Our ability to increase sales, and to profitably
distribute and sell our products, is subject to a number of risks, including changes in our business relationships with our principal distributors, competitive risks such as the entrance of additional competitors into our markets, pricing and
technological competition, risks associated with the development and marketing of new products in order to remain competitive and risks associated with changes in demand for dental services which can be affected by economic conditions, health care
reform, government regulation, and more stringent limits on expenditures by dental insurance providers or governmental programs.



We strive to increase our margins by controlling our costs and by improving our manufacturing efficiencies. There can be no assurance, however, that our
efforts will continue to be successful. Margins can be affected by many factors, including competition, product mix, and the effect of acquisitions.



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If we are unable to successfully manage growth and retain qualified personnel, we may not be able to
compete effectively and our revenues may drop significantly.



We intend to continue to expand our business over time into new geographic regions and additional products and services, subject to the sufficiency of our cash resources and our ability to comply with the covenants in our various debt
instruments. Our future performance will depend, in large part, upon our ability to implement and manage our growth effectively. Our growth in the future will continue to place a significant strain on our administrative, operational, and financial
resources. We anticipate that, if we are successful in expanding our business, we will be required to recruit and hire a substantial number of new managerial, finance, accounting, and support personnel. Failure to retain and attract additional
management personnel who can manage our growth effectively would have a material adverse effect on our performance. To manage our growth successfully, we will also have to continue to improve and upgrade operational, financial and accounting
systems, controls and infrastructure as well as expand, train and manage our employees. Our failure to manage the future expansion of our business could have a material adverse effect on our revenues and profitability.



Our ability to hire and retain competent employees is also subject to a
number of risks, including unionization of our non-union employees and changes in relationships with our unionized employees. In particular, many of our non-management employees in Europe are subject to national labor contracts, which are negotiated
from time to time at the national level between the national labor union and the employees council. There is a risk of strikes or other labor disputes at our locations which are unionized or are subject to national contracts which could affect
our operations.



We rely heavily upon key distributors, and
we could lose sales if any of them stop doing business with us.



In fiscal 2005, approximately 24.2% of our sales were made through our top five independent distributors. Mergers and consolidation of our distributors have temporarily slowed sales of our products in the past and may do so in the future.
We believe that the loss of either one of our top two distributors, the only distributors who account for more than 5% of our consolidated net sales and who sell primarily to the Professional Dental segment, could have a material adverse effect on
our results of operations or financial condition until we find alternative means to distribute our products.



We are subject to product liability litigation and related risks which could adversely affect our business.



Because many of our products are designed for use in and around a
patients mouth, and because many of these products contain chemicals, metals, and other materials, we are subject to claims and litigation brought by patients or dental professionals alleging harm caused by the use of or exposure to our
products. We may need to devote substantial amounts of time and attention to defending ourselves and may also be required to pay large amounts in settlement or upon judgment. We may also be required to or may voluntarily recall products, which would
require substantial effort and cost. Litigation or a product recall could divert significant amounts of our managements time from other important matters. Our business could also be adversely affected by public perceptions about the safety of
our products, whether or not any such concerns are justified.



Our business is subject to quarterly variations in operating results due to factors outside of our control.



Our business is subject to quarterly variations in operating results caused by a number of factors, including business and industry conditions, the timing
of acquisitions, distribution chain issues, and other factors beyond our control. All these factors make it difficult to predict operating results for any particular period. We may be subject to risks arising from other business and investment
considerations that may be disclosed from time to time in our Securities and Exchange Commission filings or in other publicly written documents.



Changes in international trade laws and in the business, political and regulatory environment abroad could materially adversely affect our business.



Our foreign operations include manufacturing facilities in
Canada, Switzerland, Italy, Germany, the Czech Republic and Mexico. Accordingly, an event that has a material adverse impact on our foreign operations may materially adversely affect our operations as a whole. The business, regulatory and political
environments in countries where we have operations differ from those in the United States and our foreign operations are exposed to a number of inherent risks, including, but not limited to:



| |  |  | changes in international trade laws, such as the North American Free Trade Agreement, or NAFTA, affecting our activities in Mexico and Canada;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | changes in local labor laws and regulations affecting our ability to hire and retain local employees;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | currency exchange restrictions and fluctuations in the value of foreign currency;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | potentially adverse tax consequences;
| | - |  | -------------------------------------



| |  |  | longer payment cycles;
| | - |  | ----------------------



| |  |  | greater difficulties in collecting accounts receivable;
| | - |  | -------------------------------------------------------



| |  |  | political conditions in countries where we have operations;
| | - |  | -----------------------------------------------------------



| |  |  | unexpected changes in the regulatory environment; and
| | - |  | -----------------------------------------------------



| |  |  | changes in general economic conditions in countries, such as Italy and Mexico, that have historically been less stable than the United States.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



If any of the events described were to occur, it could have a material
adverse effect on our business, financial condition and results of operations.



If we incur more indebtedness and greater interest expense, we may not be able to maintain our level of investment in research and development.



The indenture relating to our Senior Subordinated Notes and our Credit Facility permit us to incur significant amounts of
additional debt. If we incur additional debt, our interest expense will rise. We may find we do not have enough available cash to pay for the increased interest expense and other budgeted expenses. We may need to reduce our discretionary expenses,
including research and development, which could reduce or delay the introduction of new products. We may not be able to maintain our level of investment in research and development as we incur more indebtedness and greater interest expense.



Certain of our products and manufacturing facilities are
subject to regulation, and our failure to obtain or maintain the required regulatory approvals for these products could hinder or prevent their sale and increase our costs of regulatory compliance.



Our ability to continue manufacturing and selling those of our products that
are subject to regulation by the United States Food and Drug Administration, state laws or other domestic or foreign governments or agencies is subject to a number of risks, including the promulgation of stricter laws or regulations,
reclassification of our products into categories subject to more stringent requirements, or the withdrawal of the approval needed to sell one or more of our products. The costs of complying with these regulations and the delays in receiving required
regulatory approvals or the enactment of new adverse regulations or regulatory requirements may force us to cut back our operations, recall products, increase our costs of regulatory compliance, prevent us from selling a product or hinder our
growth.



We may be required to satisfy certain
indemnification obligations to Apogent Technologies Inc. (Apogent), or may not be able to collect on indemnification rights from Apogent.



Prior to December of 2000 we were a wholly owned subsidiary of Apogent. We became an independent, publicly traded company when Apogent distributed to its
shareholders, by a means of a pro rata distribution, all of our outstanding common stock together with related preferred stock purchase rights (the spin-off). In order to effect the spin-off, we entered into a number of interrelated
agreements with Apogent. Pursuant to the terms of the agreements, we and our U.S. subsidiaries, in general, indemnify Apogent and its subsidiaries and affiliates against liabilities, litigation and claims actually or allegedly arising out of the
dental business, including discontinued operations relating to our business. Similarly, Apogent and its U.S. subsidiaries indemnify us and our subsidiaries and affiliates against liabilities, litigation and claims actually or allegedly arising out
of Apogents business, including discontinued operations related to the laboratory business, and other operations and assets not transferred to us. These indemnification obligations could be significant. The availability of these indemnities
will depend upon the future financial strength of each of the companies. We cannot determine whether we will have substantial indemnification obligations to Apogent and its affiliates in the future. We also cannot assure you that, if Apogent has
substantial indemnification obligations to us and our affiliates, Apogent will have the ability to satisfy those obligations.



Except as may be required by applicable securities laws or regulations, we undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.



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ITEM 3.Quantitative and Qualitative Disclosures about Market Risk.



Foreign Exchange Currency Risk Management



We operate internationally; therefore, our earnings, cash flows, and financial position are exposed to foreign currency risk from foreign currency
denominated receivables and payables, sales transactions, as well as net investments in certain foreign operations. These items are denominated in foreign currencies, including but not limited to the euro, Japanese yen, Swiss franc, British pound,
Mexican peso, Canadian dollar, Czech koruna and the Australian dollar.



For fiscal year 2006, our projected total foreign currency exposure is estimated to be approximately 73.1 million euros, 916.8 million Japanese yen, 18.1 million Swiss francs, 1.2 million British pounds,
70.0 million Mexican pesos, 32.7 million Canadian dollars, 49.9 million Czech koruna, and 18.1 million Australian dollars. We have put in place a strategy to manage our forecasted euro, Japanese yen, and Australian dollar
denominated intercompany cash flow exposures through the use of zero cost collar contracts. There were no such contracts in place for the Canadian dollar, British pound, Mexican peso, Czech koruna and Swiss franc at December 31, 2005.



At December 31, 2005, an unrealized gain of $2.1 million
(net of income tax), representing the fair value of the zero cost collars, is included in accumulated other comprehensive income. In addition, none of the foreign currency cash flow hedges have been discontinued.



Zero cost collar contracts in place as of December 31, 2005 are as
follows (in thousands, except rates):



|         |  |            |  |           |  |           |  |                       |  |            |  |             
|-------- |  | ---------- |  | --------- |  | --------- |  | --------------------- |  | ---------- |  | ------------
|Currency |  | Trade Date |  | Effective |  | Maturity  |  | Local Currency Amount |  | Floor Rate |  | Ceiling Rate
|Euro     |  | 12/23/2004 |  | 1/17/2006 |  | 3/15/2006 |  | 9,000                 |  | 1.3300     |  | 1.3944      
|Euro     |  | 3/18/2005  |  | 4/17/2006 |  | 6/15/2006 |  | 9,000                 |  | 1.3300     |  | 1.3720      
|Euro     |  | 9/9/2005   |  | 7/14/2006 |  | 9/15/2006 |  | 7,500                 |  | 1.2400     |  | 1.2880      
|Yen      |  | 12/23/2004 |  | 1/17/2006 |  | 3/15/2006 |  | 150,000               |  | 104.0000   |  | 94.8000     
|Yen      |  | 3/18/2005  |  | 4/17/2006 |  | 6/15/2006 |  | 120,000               |  | 104.0000   |  | 95.3300     
|Yen      |  | 9/9/2005   |  | 7/14/2006 |  | 9/15/2006 |  | 135,000               |  | 107.0000   |  | 104.5500    
|Aud      |  | 12/23/2004 |  | 1/17/2006 |  | 3/15/2006 |  | 1,800                 |  | 0.7400     |  | 0.7519      
|Aud      |  | 3/18/2005  |  | 4/17/2006 |  | 6/15/2006 |  | 1,800                 |  | 0.7500     |  | 0.7950      
|Aud      |  | 9/9/2005   |  | 7/14/2006 |  | 9/15/2006 |  | 2,100                 |  | 0.7400     |  | 0.7861      



Subsequent to
December 31, 2005, we entered into additional zero cost collar contracts as follows (in thousands, except rates):



|         |  |            |  |            |  |            |  |                      |  |            |  |             
|-------- |  | ---------- |  | ---------- |  | ---------- |  | -------------------- |  | ---------- |  | ------------
|Currency |  | Trade Date |  | Effective  |  | Maturity   |  | Local CurrencyAmount |  | Floor Rate |  | Ceiling Rate
|Euro     |  | 1/11/2006  |  | 10/16/2006 |  | 12/15/2006 |  | 8,250                |  | 1.1800     |  | 1.2845      
|Yen      |  | 1/11/2006  |  | 10/16/2006 |  | 12/15/2006 |  | 150,000              |  | 118.0000   |  | 99.9500     
|Aud      |  | 1/11/2006  |  | 10/16/2006 |  | 12/15/2006 |  | 3,000                |  | 0.7100     |  | 0.7803      



In June 2002, we
entered into four cross currency debt swap transactions to hedge our net investment in Hawe Neos and one cross currency debt swap transaction to hedge our net investment in SDS Japan. The agreements have effective dates of June 27,
2002, June 28, 2002, and July 1, 2002, and are contracts to exchange U.S. dollar principal aggregating a total amount of $45.0 million in exchange for a Swiss franc principal aggregating a total amount of 67.5 million and U.S.
dollar principal amount of $4.0 million in exchange for a Japanese yen amount of 486.0 million. Both the Swiss franc contracts and the Japanese yen contract mature on June 15, 2007. The mechanics of the agreements are similar to the original
cross currency debt swap terminated on June 6, 2002. However, the fixed interest rate to be paid to us on the U.S. dollar leg of the agreements is a rate equal to the Senior Subordinated Notes rate of 81/8%; the fixed interest rate to be paid by us on the Swiss franc leg of the agreements ranges from 6.39% to 6.45%;
and the Japanese yen leg of the agreements is 3.65%, with the interest payments due semi-annually.



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During the first quarter of fiscal 2006, we settled all of the five outstanding cross currency debt swap
contracts used to hedge our foreign currency exposure because these instruments were getting close to maturity. The settlement of the cross currency debt swaps generated interest income of approximately $0.4 million and a loss of $8.9 million ($5.5
million net of income tax) in the currency translation adjustment account in equity during the first quarter of fiscal 2006. At December 31, 2005, a total of $10.5 million realized loss ($6.5 million net of income tax), including the realized loss
of $1.5 million ($1.0 million net of income tax) as a result of cash-settling a cross currency swap with Wachovia in 2002, was included in the currency translation adjustment account in equity. This realized loss will remain in the currency
translation adjustment account in equity until we dispose of the net investments.



Interest Rate Exposure - Interest Rate Risk Management



We use our Credit Facility and Senior Subordinated Notes to finance our operations. The Credit Facility exposes us to variability in interest payments due to changes in interest rates. If interest rates increase, our interest expense
increases. Conversely, if interest rates decrease, our interest expense also decreases. We entered into interest rate swap agreements to manage fluctuations in cash flows resulting from interest rate risk. These interest rate swaps change a portion
of our variable-rate cash flow exposure to fixed-rate cash flows. We continue to assess our exposure to interest rate risk on an ongoing basis.



The table below provides information about our debt obligations that are sensitive to changes in interest rates as of December 31, 2005. For these
debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. Weighted average variable rates are based on implied forward 3-month LIBOR rates in the yield curve at the reporting
date. The information is presented in U.S. dollar equivalents.



|                      |  |                                    |       |   |      |   |        |      |  |   |       |   |  |      |        |   |            |   |       |            |  |   |         |   |  |   |        
|--------------------- |  | ---------------------------------- | ----- | - | ---- | - | ------ | ---- |  | - | ----- | - |  | ---- | ------ | - | ---------- | - | ----- | ---------- |  | - | ------- | - |  | - | -------
|                      |  | Twelve Months Ending December 31,  |       |   |      |   |        |     
|Liabilities           |  | 2006                               |       |   | 2007 |   |        | 2008 |  |   | 2009  |   |  | 2010 |        |   | Thereafter |   |       | Fair Value
|                      |  | (in thousands, except percentages)
|Long-Term Debt:       |  |                                    |       |   |      |   |        |      |  |   |       |   |  |      |        |   |            |   |       |            |  |   |         |   |  |   |        
|Fixed Rate Debt       |  | $                                  |      |   |      | $ |       |      |  | $ |      |   |  | $    |       |   |            | $ |      |            |  | $ | 150,000 |   |  | $ | 157,500
|Average Interest Rate |  |                                    | 8.125 | % |      |   | 8.125  | %    |  |   | 8.125 | % |  |      | 8.125  | % |            |   | 8.125 | %          |  |   | 8.125   | % |  |   |        
|Variable Rate Debt    |  | $                                  | 607   |   |      | $ | 10,848 |      |  | $ | 5,612 |   |  | $    | 23,178 |   |            | $ | 515   |            |  | $ | 18,952  |   |  | $ | 59,712 
|Average Interest Rate |  |                                    | 6.319 | % |      |   | 6.214  | %    |  |   | 6.269 | % |  |      | 6.374  | % |            |   | 6.469 | %          |  |   | 6.544   | % |  |   |        



For the quarter ended
December 31, 2005, the total net cost of converting from floating rate (3-month LIBOR) to fixed rate from a portion of the interest payments under our long-term debt obligations was approximately $0.1 million. At December 31, 2005, an
unrealized loss of $0.1 million (net of income tax) is included in accumulated other comprehensive income. Below is a table listing the interest expense exposure detail and the fair value of the interest rate swap agreements as of December 31,
2005 (in thousands):



|        |  |                |        |      |         |       |          |           |           |          |           |                                   |   |                     |  |   |      |  
|------- |  | -------------- | ------ | ---- | ------- | ----- | -------- | --------- | --------- | -------- | --------- | --------------------------------- | - | ------------------- |  | - | ---- | -
|Loan    |  | NotionalAmount |        | Term |         | Trade |          | Effective |           | Maturity |           | Three MonthsEndedDecember 31,2005 |   | Fair Value(Pre-tax) | 
|Ormco B |  |                | 25,345 |      | 5 years |       | 1/2/2001 |           | 3/30/2001 |          | 6/30/2006 |                                   |   | 5                   |  |   | (115 | )
|        |  |                |        |      |         |       |          |           |           |          |           |                                   |   |                     |  |   |      |  
|Total   |  | $              | 25,345 |      |         |       |          |           |           |          |           |                                   | $ | 5                   |  | $ | (115 | )
|        |  |                |        |      |         |       |          |           |           |          |           |                                   |   |                     |  |   |      |  



The fair value of
interest rate swap agreements designated as hedging instruments against the variability of cash flows associated with floating-rate, long-term debt obligations are reported in accumulated other comprehensive income. These amounts subsequently are
reclassified into interest expense as a yield adjustment in the same period in which the related interest on the floating-rate debt obligations affects earnings.



ITEM 4.Controls and Procedures



Evaluation of Disclosure Controls and Procedures: Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on such evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms.



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Changes in Internal Control Over Financial Reporting:There were no changes in internal control
over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



PART II - OTHER INFORMATION



ITEM 6.Exhibits



See the Exhibit Index included on the last page in this report, which is incorporated herein by reference.



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SIGNATURE



Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                       |  |                                             
|---------------------- |  | --------------------------------------------
|                       |  | SYBRON DENTAL SPECIALTIES, INC. (Registrant)
|                       | 
|Date: February 9, 2006 |  | /s/ BERNARD J. PITZ                         
|                       |  | Bernard J. Pitz, Vice President - Finance,  
|                       |  | Chief Financial Officer & Treasurer*        

---

|* | executing as both the principal financial officer and a duly authorized officer of the Company.
|- | -----------------------------------------------------------------------------------------------



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SYBRON DENTAL SPECIALTIES, INC.

(THE REGISTRANT)

(COMMISSION FILE NO. 1-16057)

EXHIBIT INDEX

TO

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2005



|               |  |                                                                                                                                                                      |  |                                                                                                                                                             |  |               
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------
|Exhibit Number |  | Description                                                                                                                                                          |  | Incorporated Herein By Reference To                                                                                                                         |  | FiledHere with
|3.1            |  | (a) Restated Certificate of Incorporation of the Registrant                                                                                                          |  | Exhibit 3.1 to Amendment No. 2 to the Registrants Registration Statement on Form 10/A filed on November 9, 2000 (File No. 1-16057) (the Form 10/A No. 2) |  |               
|               |  |                                                                                                                                                                      | 
|               |  | (b) Certificate of Designation, Preferences and Rights of Series A Preferred Stock                                                                                   |  | Exhibit 3.1(b) to the Registrants Form 10-K for the fiscal year ended September 30, 2000                                                                   |  |               
|               |  |                                                                                                                                                                      | 
|3.2            |  | Bylaws of the Registrant                                                                                                                                             |  | Exhibit 3.2 to the Form 10/A No. 2                                                                                                                          |  |               
|               |  |                                                                                                                                                                      | 
|4.1            |  | Third Amendment to Credit Agreement dated as of January 26, 2006                                                                                                     |  |                                                                                                                                                             |  | X             
|               |  |                                                                                                                                                                      | 
|31.1           |  | Chief Executive Officers Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002           |  |                                                                                                                                                             |  | X             
|               |  |                                                                                                                                                                      | 
|31.2           |  | Chief Financial Officers Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002           |  |                                                                                                                                                             |  | X             
|               |  |                                                                                                                                                                      | 
|32             |  | Chief Executive and Chief Financial Officers certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |  |                                                                                                                                                             |  | X             



35