**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-Q**

**(Mark One)**

**x**                              QuarterlyReport Pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934

**Forthe quarterly period ended June 30, 2007**

**or**

**o**                                 TransitionReport pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934

**Forthe transition period from                    to                    **

**Commissionfile number 000-22673**

**Sirona Dental Systems, Inc.**

(Exact name of registrantas specified in charter)

| **Delaware**                                                                |   | **11-3374812**                        |
|-----------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization)            |   | (I.R.S. Employer  Identification No.) |
| **30-30 47****th Avenue, Suite 500,  Long Island City, New York** |   | **11101**                             |
| (Address of  principal executive offices)                                   |   | (Zip Code)                            |

 

Registrant’s telephonenumber, including area code: **(718) 937-5765**

**Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13or 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 suchreports), and (2) has been subject to such filing requirements for thepast 90 days.**

**Yes **x No o

**Indicateby check mark whether the registrant is a large accelerated filer, an acceleratedfiler, or a non-accelerated filer. See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act. (Checkone):**

**Largeaccelerated filer **o                 Accelerated filer x                 Non-accelerated filer o

**Indicate by check mark whether theregistrant is a shell company (as defined in Rule 12b-2 of the Act).**

**Yes **o No x

Asof August 1, 2007, the number of shares outstanding of the Registrant’sCommon Stock, par value $.01 per share, was 54,755,917.

 

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**SIRONADENTAL SYSTEMS, INC.**

**FORM 10-Q**

**FOR THE THREE ANDNINE MONTHS ENDED JUNE 30, 2007**

**Index**
|                | ** **        | ** ** | ** **                                                                                                        | ** ** | **Page** | ** ** |
|----------------|-------------------|------------|-------------------------------------------------------------------------------------------------------------------|------------|----------|------------|
| ** **     | **Part I.**  | ** ** | **Financial Information  (Unaudited)**                                                                            |       |     | 1          |   |   |
|           | Item 1.           |       | Financial Statements                                                                                              |       |     | 1          |   |   |
|           |              |       | Condensed Consolidated  Balance Sheets as of June 30, 2007 and  September 30, 2006                      |       |     | 1          |   |   |
|           |              |       | Condensed Consolidated  Statements of Operations for the three and nine months ended June 30,  2007 and 2006 |       |     | 2          |   |   |
|           |              |       | Condensed Consolidated  Statements of Cash Flows for the nine months ended June 30, 2007 and  2006           |       |     | 3          |   |   |
|           |              |       | Notes to the Condensed Consolidated Financial Statements                                                          |       |     | 4          |   |   |
|           | Item 2.           |       | Management’s Discussion and  Analysis of Financial Condition and Results of Operations                       |       |     | 13         |   |   |
|           | Item 3.           |       | Quantitative and Qualitative  Disclosures About Market Risk                                                       |       |     | 25         |   |   |
|           | Item 4.           |       | Controls and Procedures                                                                                           |       |     | 25         |   |   |
| ** **     | **Part II.** | ** ** | **Other Information**                                                                                             |       |     | 26         |   |   |
|           | Item 1.           |       | Legal Proceedings                                                                                                 |       |     | 26         |   |   |
|           | Item 1A.          |       | Risk Factors                                                                                                      |       |     | 26         |   |   |
|           | Item 2.           |       | Unregistered Sales of Equity  Securities and Use of Proceeds                                                      |       |     | 26         |   |   |
|           | Item 3.           |       | Defaults upon Senior  Securities                                                                                  |       |     | 26         |   |   |
|           | Item 4.           |       | Submission of Matters to a  Vote of Security Holders                                                              |       |     | 26         |   |   |
|           | Item 5.           |       | Other Information                                                                                                 |       |     | 26         |   |   |
|           | Item 6.           |       | Exhibits                                                                                                          |       |     | 26         |   |   |
| Signatures     |              |       | 27                                                                                                                |       |     |
| Certifications |              |       |                                                                                                              |       |     |

 

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**PART I**                      FINANCIALINFORMATION (UNAUDITED)

**ITEM 1.**                FINANCIALSTATEMENTS

**SIRONA DENTAL SYSTEMS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS**

| ** **                                                                                                                            | ** ** | **June 30,**                                     | ** **    | **September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|---------------|------------------------|------------|
| ** **                                                                                                                            | ** ** | **2007**                                              | ** **    | **2006**               | ** ** |
| ** **                                                                                                                            | ** ** | **(unaudited)**                                       | ** **    | ** **             | ** ** |
| ** **                                                                                                                            | ** ** | **$’000s (except share amounts)** | ** **    |
| **ASSETS**                                                                                                                            | ** ** |                                                  | * *      |                   |       |   | * * |   |   |
| **Current assets**                                                                                                                    | ** ** |                                                  |          |                   |       |   |   |   |   |
| Cash and cash  equivalents                                                                                                            |       |                                                  | $             | 58,491                 |       |   |   | $ | 80,560 |   |   |
| Restricted cash                                                                                                                       |       |                                                  | 1,051         |                   |       |   | 953 |   |   |
| Accounts  receivable, net of allowance for doubtful accounts of $1,078 and $837,  respectively                                        |       |                                                  | 83,707        |                   |       |   | 66,090 |   |   |
| Inventories, net                                                                                                                      |       |                                                  | 73,237        |                   |       |   | 57,303 |   |   |
| Deferred tax  assets                                                                                                                  |       |                                                  | 7,812         |                   |       |   | 4,671 |   |   |
| Prepaid expenses  and other current assets                                                                                            |       |                                                  | 18,288        |                   |       |   | 16,074 |   |   |
| Income tax  receivable                                                                                                                |       |                                                  | 1,669         |                   |       |   | — |   |   |
| **Total  current assets**                                                                                                             | ** ** | ** **                                            | **244,255**   |                   | ** ** | ** ** | **225,651** |   |   |
| Property, plant  and equipment, net of accumulated depreciation and amortization of $25,865 and  $18,139, respectively           |       |                                                  | 71,709        |                   |       |   | 61,042 |   |   |
| Goodwill                                                                                                                              |       |                                                  | 648,875       |                   |       |   | 613,549 |   |   |
| Investments                                                                                                                           |       |                                                  | 1,152         |                   |       |   | 750 |   |   |
| Intangible assets,  net of accumulated amortization of $130,475 and $66,242, respectively                                             |       |                                                  | 589,617       |                   |       |   | 618,993 |   |   |
| Other non-current  assets                                                                                                             |       |                                                  | 4,785         |                   |       |   | 17,370 |   |   |
| Deferred tax  assets                                                                                                                  |       |                                                  | 4,598         |                   |       |   | 3,649 |   |   |
| **Total  assets**                                                                                                                     | ** ** | ** **                                            | **$**         | **1,564,991**          |       | ** ** | ** ** | **$** | **1,541,004** |   |   |
| **LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’  EQUITY**                                                                     |       |                                                  |          |                   |       |   |   |   |   |
| **Current liabilities**                                                                                                               | ** ** |                                                  |          |                   |       |   |   |   |   |
| Trade accounts  payable                                                                                                               |       |                                                  | $             | 31,493                 |       |   |   | $ | 30,303 |   |   |
| Short-term debt  and current portion of long-term debt                                                                                |       |                                                  | 13,882        |                   |       |   | 14,738 |   |   |
| Income taxes  payable                                                                                                                 |       |                                                  | 2,879         |                   |       |   | 10,434 |   |   |
| Deferred tax  liabilities                                                                                                             |       |                                                  | 4,016         |                   |       |   | 3,208 |   |   |
| Accrued  liabilities and deferred income                                                                                              |       |                                                  | 76,959        |                   |       |   | 65,203 |   |   |
| **Total  current liabilities**                                                                                                        | ** ** | ** **                                            | **129,229**   |                   | ** ** | ** ** | **123,886** |   |   |
| Long-term debt                                                                                                                        |       |                                                  | 521,223       |                   |       |   | 518,634 |   |   |
| Deferred tax  liabilities                                                                                                             |       |                                                  | 229,469       |                   |       |   | 243,491 |   |   |
| Other non-current  liabilities                                                                                                        |       |                                                  | 13,152        |                   |       |   | 18,128 |   |   |
| Pension related  provisions                                                                                                           |       |                                                  | 52,705        |                   |       |   | 48,167 |   |   |
| Deferred income                                                                                                                       |       |                                                  | 92,500        |                   |       |   | 100,589 |   |   |
| **Total  liabilities**                                                                                                                | ** ** | ** **                                            | **1,038,278** |                   | ** ** | ** ** | **1,052,895** |   |   |
| **Minority  interest**                                                                                                                | ** ** | ** **                                            | **263**       |                   | ** ** | ** ** | **263** |   |   |
| **Shareholders’ equity**                                                                                                         |       |                                                  |          |                   |       |   |   |   |   |
| Preferred stock  ($0.01 par value; 5,000,000 shares authorized; none issued and outstanding)                                          |       |                                                  | —        |                   |       |   | — |   |   |
| Common stock  ($0.01 par value; 95,000,000 shares authorized; 54,755,917 and 54,608,134  shares issued and outstanding, respectively) |       |                                                  | 548           |                   |       |   | 546 |   |   |
| Additional paid-in  capital                                                                                                           |       |                                                  | 596,896       |                   |       |   | 582,447 |   |   |
| Excess of purchase  price over predecessor basis                                                                                      |       |                                                  | (49,103       | )                      |       |   | (49,103 | ) |   |
| Accumulated  deficit                                                                                                                  |       |                                                  | (42,757       | )                      |       |   | (47,406 | ) |   |
| Accumulated other  comprehensive income                                                                                               |       |                                                  | 20,866        |                   |       |   | 1,362 |   |   |
| **Total  shareholders’ equity**                                                                                                  | ** ** | ** **                                            | **526,450**   |                   | ** ** | ** ** | **487,846** |   |   |
| **Total  liabilities, minority interest and shareholders’ equity**                                                               | ** ** | ** **                                            | **$**         | **1,564,991**          |       | ** ** | ** ** | **$** | **1,541,004** |   |   |

 

The accompanying notes are an integral part of these financial statements.

1

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**SIRONA DENTALSYSTEMS, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(UNAUDITED)**

| ** **                                                           | ** ** | **Three months ended June 30,**                                          | ** **  | **Nine months ended June 30,** | ** ** |
|----------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|-------------|------------------------------------------|------------|
| ** **                                                           | ** ** | **2007**                                                                           | ** **  | **2006**                                 | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                           | ** ** | **$’000s (except share and per share amounts)** | ** **  |
| **Revenue**                                                          | ** ** | **$**                                                                              | **157,041** | ** **                               | **$**      | **117,337** | ** ** | **$** | **482,008** | ** ** | **$** | **385,062** | ** ** |
| Cost of sales                                                        |       | 89,893                                                                             |        | 65,565                                   |       | 260,242 |   | 202,045 |   |
| **Gross profit**                                                     | ** ** | **67,148**                                                                         |        | **51,772**                               |       | **221,766** |   | **183,017** | ** ** |
| Selling, general and administrative expense                          |       | 49,633                                                                             |        | 33,470                                   |       | 150,011 |   | 101,112 |   |
| Research and  development                                            |       | 11,811                                                                             |        | 8,166                                    |       | 34,145 |   | 23,139 |   |
| Provision/(benefit)  for doubtful accounts and notes receivable |       | 96                                                                                 |        | (138                                     | )          | 329 |   | 44 |   |
| Write off of  in-process research and development                    |       | —                                                                             |        | 6,000                                    |       | — |   | 6,000 |   |
| Net other  operating expense                                         |       | 130                                                                                |        | 622                                      |       | 102 |   | 2,306 |   |
| **Operating income**                                                 | ** ** | **5,478**                                                                          | ** **  | **3,652**                                | ** ** | **37,179** | ** ** | **50,416** | ** ** |
| Foreign currency transactions gain, net                              |       | (857                                                                               | )           | (11,361                                  | )          | (9,812 | ) | (9,481 | ) |
| Gain on  derivative instruments                                      |       | (2,636                                                                             | )           | (2,397                                   | )          | (2,216 | ) | (3,769 | ) |
| Interest expense,  net                                               |       | 5,769                                                                              |        | 14,893                                   |       | 20,935 |   | 43,893 |   |
| Loss on debt  extinguishment                                         |       | —                                                                             |        | —                                   |       | 21,145 |   | — |   |
| **Income before taxes and minority interest**                        | ** ** | **3,202**                                                                          | ** **  | **2,517**                                | ** ** | **7,127** | ** ** | **19,773** | ** ** |
| Income tax provision                                                 |       | 1,121                                                                              |        | 7,983                                    |       | 2,495 |   | 17,463 |   |
| Minority interest                                                    |       | 100                                                                                |        | 45                                       |       | (17 | ) | 67 |   |
| **Net income/(loss)**                                                | ** ** | **$**                                                                              | **1,981**   | ** **                               | **$**      | **(5,511** | **)** | **$** | **4,649** | ** ** | **$** | **2,243** | ** ** |
| Income/(loss) per  share                                             |       |                                                                               |        |                                     |       |   |   |   |   |
| —Basic                                                          |       | $                                                                                  | 0.04        |                                     | $          | (0.14 | ) | $ | 0.09 |   | $ | 0.06 |   |
| —Diluted                                                        |       | $                                                                                  | 0.04        |                                     | $          | (0.14 | ) | $ | 0.08 |   | $ | 0.06 |   |
| Weighted average  shares—basic                                  |       | 54,746,515                                                                         |        | 38,908,289                               |       | 54,683,876 |   | 37,617,750 |   |
| Weighted average shares—diluted                                 |       | 54,880,563                                                                         |        | 38,908,289                               |       | 54,843,488 |   | 38,085,232 |   |

 

The accompanying notes are an integral part of these financial statements.

2

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**SIRONA DENTAL SYSTEMS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)**

| ** **                                                                        | ** ** | **Nine months ended** | ** ** |
|-----------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                        | ** ** | **June 30,**               | ** ** |
| ** **                                                                        | ** ** | **2007**                        | ** ** | **2006** | ** ** |
| ** **                                                                        | ** ** | **$’000s**                 | ** ** |
| **Cash flows from operating activities**                                          | ** ** | ** **                      |       | ** ** | ** ** |
| **Net  income**                                                                   | ** ** | **$**                           | **4,649**  | ** ** | **$** | **2,243** | ** ** |
| **Adjustments to reconcile net income to net cash  used in operating activities** | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Minority interest                                                                 |       | (20                             | )          | — |   |
| Depreciation and  amortization                                                    |       | 68,583                          |       | 45,967 |   |
| Loss on disposal  of property, plant and equipment                                |       | 97                              |       | 2 |   |
| Gain on derivate  instruments                                                     |       | (2,216                          | )          | (3,769 | ) |
| Gain on foreign  currency transactions                                            |       | (9,812                          | )          | (9,481 | ) |
| Accreted interest  on long term debt                                              |       | 5,350                           |       | 15,317 |   |
| Deferred income  taxes                                                            |       | (25,494                         | )          | (3,817 | ) |
| Write off of  in-process research and development                                 |       | —                          |       | 6,000 |   |
| Amortization of  debt issuance cost                                               |       | 2,916                           |       | 5,283 |   |
| Loss on debt  extinguishment                                                      |       | 19,964                          |       | — |   |
| Compensation  expense from stock options                                          |       | 10,598                          |       | 347 |   |
| **Changes in assets and liabilities, net of  business acquired**                  |       |                            |       |   |   |
| Accounts  receivable                                                              |       | (13,944                         | )          | (4,798 | ) |
| Inventories                                                                       |       | (12,989                         | )          | (4,039 | ) |
| Prepaid expenses  and other current assets                                        |       | 6,293                           |       | 13,029 |   |
| Restricted cash                                                                   |       | (37                             | )          | 103 |   |
| Other non-current  assets                                                         |       | (4,866                          | )          | 8,853 |   |
| Trade accounts  payable                                                           |       | (78                             | )          | (4,200 | ) |
| Accrued  liabilities and deferred income                                          |       | (6,396                          | )          | (11,357 | ) |
| Other non-current  liabilities                                                    |       | (4,713                          | )          | 6,740 |   |
| Income taxes  receivable                                                          |       | (1,645                          | )          | — |   |
| Income taxes  payable                                                             |       | (6,881                          | )          | 15,014 |   |
| **Net cash  provided by operating activities**                                    | ** ** | **29,359**                      |       | **77,437** | ** ** |
| **Cash flows from investing activities**                                          |       |                            |       |   |   |
| Investment in  property, plant and equipment                                      |       | (16,870                         | )          | (10,184 | ) |
| Proceeds from sale  of property, plant and equipment                              |       | 471                             |       | 700 |   |
| Restricted short  term investments/securities                                     |       | —                          |       | 753 |   |
| Purchase of  intangible assets                                                    |       | (97                             | )          | (1,469 | ) |
| Purchase of  long-term investments                                                |       | (402                            | )          | — |   |
| Acquisition of businesses,  net of cash acquired                                  |       | (5,573                          | )          | 14,279 |   |
| **Net cash  (used in)/provided by investing activities**                          | ** ** | **(22,471**                     | **)**      | **4,079** | ** ** |
| **Cash flows from financing activities**                                          |       |                            |       |   |   |
| Repayments of  long-term debt                                                     |       | (559,294                        | )          | (73,962 | ) |
| Proceeds from  borrowings                                                         |       | 529,747                         |       | — |   |
| Debt issuance cost                                                                |       | (5,419                          | )          | — |   |
| Common shares  issued under share based compensation plans                        |       | 1,308                           |       | — |   |
| Tax effect of  common shares exercised under share based compensation plans       |       | 1,373                           |       | — |   |
| **Net cash  used in financing activities**                                        | ** ** | **(32,285**                     | **)**      | **(73,962** | **)** |
| Change in cash and  cash equivalents                                              |       | (25,397                         | )          | 7,554 |   |
| Effect of exchange  rate change on cash and cash equivalents                      |       | 3,327                           |       | 2,190 |   |
| Cash and cash  equivalents at beginning of period                                 |       | 80,561                          |       | 65,941 |   |
| **Cash and  cash equivalents at end of period**                                   | ** ** | **$**                           | **58,491** | ** ** | **$** | **75,685** | ** ** |
| **Supplemental information**                                                      |       |                            |       |   |   |
| Interest paid                                                                     |       | $                               | 30,385     |   | $ | 23,420 |   |
| —thereof accreted  interest paid on repayment of long-term debt              |       | 8,594                           |       | — |   |
| Interest  capitalized                                                             |       | 242                             |       | 122 |   |
| Income taxes paid                                                                 |       | 33,102                          |       | 4,744 |   |
| **Acquisition of businesses, net of cash acquired**                               |       |                            |       |   |   |
| Current assets                                                                    |       | $                               | 2,920      |   | $ | 19,450 |   |
| Property, plant  and equipment                                                    |       | 129                             |       | 207,961 |   |
| Goodwill, licenses  and other non-current assets                                  |       | 6,679                           |       | 289,412 |   |
| Current  liabilities                                                              |       | (3,992                          | )          | (75,579 | ) |
| Non-current  liabilities                                                          |       | (163                            | )          | — |   |
| Shares and options  exchanged                                                     |       | —                          |       | (455,523 | ) |
|                                                                              | ** ** | **$**                           | **5,573**  | ** ** | **$** | **(14,279** | **)** |

 

The accompanying notes are an integral part of these financial statements.

3

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**SIRONA DENTAL SYSTEMS, INC. AND SUBSIDIARIESNOTES TO THE CONDENSED CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED)**

**1.**                 General

**The Company and itsOperations**

Sirona Dental Systems, Inc.and its subsidiaries (“Sirona” or the “Company”) manufacture high quality,technologically advanced dental equipment and systems solutions for the globaldental equipment market. Sirona offers a broad range of products across allmajor segments of the dental equipment market including CEREC CAD/CAM systems,digital and film based intra-oral and panoramic imaging systems, treatmentcenters and instruments. In June 2006 Sirona acquired Schick TechnologiesInc. (“Schick”), which further expanded Sirona’s global presence and productofferings and strengthened its research and development capabilities (the “Exchange”).Sirona has served equipment dealers and dentists worldwide for more than 128years. Sirona’s headquarters are located in Long Island City, New York with asignificant facility located in Bensheim, Germany. Sirona maintainsmanufacturing and assembling facilities in the U.S. and Germany as well assales and service facilities throughout the world.

**Basis ofPresentation**

These unaudited interim condensed consolidatedfinancial statements have been prepared in accordance with U.S. generallyaccepted accounting principles (“U.S. GAAP”). Preparation of the interimfinancial statements in conformity with U.S. GAAP requires management to makeestimates and assumptions related to the reported amounts of assets andliabilities and the disclosure of contingent assets and liabilities as at thereporting date and the reported amounts of revenues and expenses for theinterim period. Actual results could differ from those estimates. Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with U.S. GAAP have been condensed or omitted pursuantto such rules and regulations. However, the Company believes that thedisclosures are adequate to make the information not misleading. The year-endcondensed consolidated balance sheet data was derived from the auditedconsolidated financial statements, but does not include all disclosuresrequired by U.S. GAAP. These consolidated financial statements should be readin conjunction with the Consolidated Financial Statements and the Notes theretoincluded in the Company’s Annual Report on Form 10-K for the fiscalyear ended September 30, 2006.

In the opinion of management, all adjustments(consisting of those of a normal recurring nature) considered necessary topresent fairly the Company’s financial position as of June 30, 2007 and September 30,2006 and the results of operations for the three months and nine months andcash flows for the nine months ended June 30, 2007 and June 30, 2006,as applicable, have been made. The results of operations for the three monthsand nine months ended June 30, 2007 are not necessarily indicative of theoperating results for the full fiscal year or future periods.

All amounts are reportedin thousands of U.S. dollars ($), except per share amounts or as otherwisedisclosed.

***Fiscal year***

The Company’s fiscal yearis October 1 to September 30.

4

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***Principles of consolidation***

The consolidated financial statements include, aftereliminating inter-company transactions and balances, the accounts of SironaDental Systems, Inc. and its subsidiaries.

Certain prior periodamounts have been reclassified to conform to current period presentation.

**2.**                 RecentlyIssued Accounting Pronouncements

In September 2006, the Financial Accounting StandardsBoard (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157,“Fair Value Measurements.” Among other requirements, SFAS 157 defines fairvalue and establishes a framework for measuring fair value and also expandsdisclosure about the use of fair value to measure assets and liabilities. SFAS157 prescribes a single definition of fair value as the price that would bereceived to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date. SFAS 157 iseffective beginning the first fiscal year that begins after November 15,2007. The Company is still determining the effect SFAS 157 will have on itsconsolidated financial statements, but it currently does not expect the effectto be material.

In September 2006, the FASB issued SFAS No. 158,“Employers’ Accounting for Defined Benefit Pension and Other PostretirementPlans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)”. SFAS158 requires an employer to: (a) recognize in its statement offinancial position an asset for a plan’s overfunded status or a liability for aplan’s under-funded status; (b) measure a plan’s assets and itsobligations that determine its funded status as of the end of the employer’sfiscal year (with limited exceptions); and (c) recognize changes in thefunded status of a defined benefit postretirement plan in the year in which thechanges occur. Those changes will be reported in comprehensive income of afor-profit business entity. The requirement to recognize the funded statusof a benefit plan and the disclosure requirements are effective for the Companyfor the fiscal year ending on September 30, 2007. The Company alreadymeasures plan assets and benefit obligations as of the date of its fiscalyear-end. The Company will initially recognize the funded status of its definedbenefit plans and provide the required disclosures as of the end of the fiscalyear 2007. The Company is still determining the effect SFAS 158 will haveon its consolidated financial statements.

In February 2007, the FASB issued SFAS 159, “TheFair Value Option for Financial Assets and Financial Liabilities.”SFAS 159 permits measurement of recognized financial assets andliabilities at fair value with some certain exceptions such as investments insubsidiaries, obligations for pension or other postretirement benefits, andfinancial assets and financial liabilities recognized under leases. Changes inthe fair value of items for which the fair value option is elected should berecognized in income or loss. The election to measure eligible items at fairvalue is irrevocable and can only be made at defined election dates or events,generally on an instrument by instrument basis. Items for which the fair valueoption is elected should be separately presented or parenthetically bedisclosed in the statement of financial position. SFAS 159 also requiressignificant new disclosures that apply for interim and annual financialstatements. SFAS 159 shall be effective for fiscal years beginning after November 15,2007 with earlier adoption permitted, if certain conditions are met. The effectof the first remeasurement to fair value of eligible items existing will bereported as an adjustment to the opening balance of retained earnings as of thedate of adoption. The Company is currently evaluating SFAS 159 and determiningwhether to elect the fair value option for certain financial assets andliabilities.

In July 2006, the FASB issued FASB InterpretationNo. 48 (“FIN 48”), *“Accounting forUncertainty in Income Taxes”* which is an interpretation of FASBStatement 109, *“Accounting for Income Taxes.”*FIN 48 requires management to perform a two-step evaluation of all taxpositions, ensuring that these tax return positions meet the “more-likely thannot” recognition threshold and can be measured with sufficient precision todetermine the benefit recognized in the financial statements. These evaluationsprovide 

5

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management with acomprehensive model for how a company should recognize, measure, present, anddisclose in its financial statements certain tax positions that the Company hastaken or expects to take on income tax returns. FIN 48 is effective for theCompany’s fiscal year ending September 30, 2008. The Company is stilldetermining the effect FIN 48 will have on its consolidated financialstatements.

In September 2006,the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”)No. 108, “Considering the Effects of Prior Year Misstatements WhenQuantifying Misstatements in Current Year Financial Statements”, which providesinterpretive guidance on how the effects of the carryover or reversal of prioryear misstatements should be considered in quantifying a current yearmisstatement. The guidancein SAB 108 must be applied to annual financial statements for fiscal yearsending after November 15, 2006. The Company is still determining theeffect SAB 108 will have on its consolidated financial statements.

**3.**                 EmployeeShare-Based Compensation

The total stock compensation expense for the Company’sstock option plans amounted to $3,886 for the three months and $10,598 for thenine months ended June 30, 2007. These expenses include the impact of thenew stock option plan discussed below.

On December 13, 2006, the Company granted 525,000stock options under a new Equity Incentive Plan (the “New Plan”). The stockoptions vest over a period of four years and expire ten years after the date ofthe grant. The exercise price of such options may not be less than 100% of thefair market value of a share of the Company’s common stock as determined by theclosing price as of the date of the grant. The New Plan provides for grantingin total up to 2,275,000 stock options to employees. The New Plan receivedstockholder approval at the Company’s Annual Meeting of Stockholders held on February 27,2007.

Thefair values of the stock options granted under the New Plan were estimatedusing the Black-Scholes option pricing model and the assumptions set forth inthe following table. The exercise price is equal to the fair market value ofSirona’s stock at the grant date. The expected volatility is determined basedon the Company’s historical stock volatility. The risk-free rate is based onthe U.S. Treasury yield curve in effect at the time of the grant and has a termequal to the expected life of the options. The expected life represents theperiod of time the options are expected to be outstanding based on anticipatedemployee behavior. The expected dividend yield is based on the Company’shistory of not paying regular dividends in the past and the Company’s currentintention not to pay dividends in the foreseeable future.

| Exercise price        |   | $          | 39.46  |   |
|-----------------------|--------|------------|--------|--------|
| Expected  volatility  |   | 44         | %      |
| Risk-free rate        |   | 4.47       | %      |
| Expected life         |   | 6.25 years |   |
| Expected  dividends   |   | —     |   |
| Grant date fair value |   | $          | 19.70  |   |

 

**4.**                 ComprehensiveIncome

| ** **                  | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|-----------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                  | ** ** | **June 30,**                | ** ** | **June 30,**               | ** ** |
| ** **                  | ** ** | **2007**                         | ** ** | **2006**                        | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                  | ** ** | **$’000s**                  | ** ** | **$’000s**                 | ** ** |
| Net Income                  |       | $                                | 1,981      |                            | $          | (5,511 | ) | $ | 4,649 |   | $ | 2,243 |   |
| Other  Comprehensive Income |       | 5,559                            |       | 1,799                           |       | 19,504 |   | 1,259 |   |
| Total Comprehensive  Income |       | $                                | 7,540      |                            | $          | (3,712 | ) | $ | 24,153 |   | $ | 3,502 |   |

 

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Other comprehensive incomerelates to the cumulative translation adjustment. The adjustment includes gainson intra-group foreign currency transactions of a long-term investment naturebetween entities consolidated in these financial statements in the amount of$4,244 for the three months and $14,914 for the nine months ended June 30,2007.

**5.**                 Inventories, Net

| ** **        | ** ** | **June 30,** | ** ** | **September 30,** | ** ** |
|-------------------|------------|-------------------|------------|------------------------|------------|
| ** **        | ** ** | **2007**          | ** ** | **2006**               | ** ** |
| ** **        | ** ** | **$’000s**   | ** ** |
| Finished goods    |       | $                 | 36,552     |                   |       | $ | 28,382 |   |   |
| Work in progress  |       | 13,970            |       |                   | 11,688     |   |   |
| Raw materials     |       | 32,946            |       |                   | 25,630     |   |   |
|              | ** ** | **83,468**        | ** ** | ** **             | **65,700** |   |   |
| Inventory reserve |       | (10,231           | )          |                   | (8,397     | ) |   |
|              | ** ** | **$**             | **73,237** | ** **             | ** ** | **$** | **57,303** |   |   |

 

**6**.                 IntangibleAssets and Goodwill

| ** **                             | ** ** | ** **      | ** **    | **Accumulated**  | ** ** | ** ** | ** **  |
|----------------------------------------|------------|-----------------|---------------|------------------|------------|------------|-------------|
| ** **                             | ** ** | **Gross**       | ** **    | **amortization** | ** ** | **Net**    | ** **  |
| ** **                             | ** ** | **$’000s** | ** **    |
| **As of  June 30, 2007**          |       |            |          |             |       |       |        |   |   |
| Patents &  licenses           |       | $               | 141,062       |             |       | $          | 27,788      |   |   | $ | 113,274 |   |
| Trademarks                             |       | 130,721         |          |             | 103        |       |        | 130,618 |   |
| Technologies and  dealer relationships |       | 448,062         |          |             | 102,584    |       |        | 345,478 |   |
| Prepayments for  intangible assets     |       | 247             |          |             | —     |       |        | 247 |   |
|                                   |       | 720,092         |          |             | 130,475    |       |        | 589,617 |   |
| Goodwill                               |       | 648,875         |          |             | —     |       |        | 648,875 |   |
| **Total  intangible assets**           | ** ** | **$**           | **1,368,967** | ** **       | ** ** | **$**      | **130,475** |   | ** ** | **$** | **1,238,492** | ** ** |

 

| ** **                             | ** ** | ** **      | ** **    | **Accumulated**  | ** ** | ** ** | ** ** |
|----------------------------------------|------------|-----------------|---------------|------------------|------------|------------|------------|
| ** **                             | ** ** | **Gross**       | ** **    | **amortization** | ** ** | **Net**    | ** ** |
| ** **                             | ** ** | **$’000s** | ** **    |
| **As of  September 30, 2006**     |       |            |          |             |       |       |       |   |   |
| Patents &  licenses           |       | $               | 132,736       |             |       | $          | 17,168     |   |   | $ | 115,568 |   |
| Trademarks                             |       | 124,282         |          |             | 28         |       |       | 124,254 |   |
| Technologies and  dealer relationships |       | 428,217         |          |             | 49,046     |       |       | 379,171 |   |
|                                   |       | 685,235         |          |             | 66,242     |       |       | 618,993 |   |
| Goodwill                               |       | 613,549         |          |             | —     |       |       | 613,549 |   |
| **Total  intangible assets**           | ** ** | **$**           | **1,298,784** | ** **       | ** ** | **$**      | **66,242** |   | ** ** | **$** | **1,232,542** | ** ** |

 

The change in the value of goodwill from September 30,2006 to June 30, 2007 includes changes in exchange rates totaling $31,873,an addition of $6,679 due to the acquisition of an imaging manufacturer, whichis based on a preliminary purchase price allocation and is therefore subject tochange, and ($3,226) relating to the accounting for income tax benefits fromthe exercise of employee stock options.

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**7.**                 Short-TermDebt and Current Portion of Long-Term Debt

Short-term debt relates tothe Company’s revolving credit facility utilized in the amount of Euro 7million ($9.5 million) as of June 30, 2007, as well as the current portionof long-term debt, other short-term debt and accrued interest on long-term debttotaling $4.4 million and $14.7 million, as of June 30, 2007 and September 30,2006, respectively.

**8.**                 Long-Term Debt

| ** **                                                                                                                            | ** ** | **June 30,** | ** **  | **September 30,** | ** **  |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|------------------------|-------------|
| ** **                                                                                                                            | ** ** | **2007**          | ** **  | **2006**               | ** **  |
| ** **                                                                                                                            | ** ** | **$’000s**   | ** **  |
| Senior syndicated loan, Tranche A                                                                                                     |       | $                 | —      |                   |        | $ | 118,013 |   |   |
| Senior syndicated  loan, Tranche B                                                                                                    |       | —            |        |                   | 158,587     |   |   |
| Senior syndicated  loan, Tranche C                                                                                                    |       | —            |        |                   | 139,574     |   |   |
| Mezzanine loan                                                                                                                        |       | —            |        |                   | 115,344     |   |   |
| Senior term loan,  Tranche A1, variable rate repayable in annual installments starting November 2009  through November 2011 |       | 150,657           |        |                   |        |   |   |
| Senior term loan,  Tranche A2, variable rate repayable in annual installments starting November 2009  through November 2011 |       | 372,811           |        |                   |        |   |   |
| Other debt                                                                                                                            |       | 1,852             |        |                   | 1,854       |   |   |
|                                                                                                                                  | ** ** | **525,320**       |        | ** **             | **533,372** |   |   |
| Less current  portion                                                                                                                 |       | 4,097             |        |                   | 14,738      |   |   |
|                                                                                                                                  | ** ** | **$**             | **521,223** | ** **             | ** **  | **$** | **518,634** |   |   |

 

**Senior Term Loans**

On November 22, 2006, Sirona Dental Systems, Inc.entered into a new senior credit facility (the “Senior Facilities Agreement”)as original guarantor, with Schick Technologies, Inc., a New York companyand wholly owned subsidiary of Sirona (“Schick NY”), as original borrower andoriginal guarantor, with Sirona Dental Systems GmbH, as original borrower andoriginal guarantor, with Sirona Dental Services GmbH, as original borrower andoriginal guarantor and with Sirona Dental Systems LLC, Sirona Holding GmbH andwith Sirona Immobilien GmbH as original guarantors. Initial borrowings underthe Senior Facilities Agreement plus excess cash were used to retire theoutstanding borrowings under the Company’s previous credit facilities.

The Senior Facilities Agreement includes: (1) aterm loan A1 in an aggregate principal amount of $150 million (the “tranche A1term loan”) available to Sirona’s subsidiary, Schick NY, as borrower; (2) aterm loan A2 in an aggregate principal amount of Euro 275 million (the “trancheA2 term loan”) available to Sirona’s subsidiary, Sirona Dental Services GmbH,as borrower; and (3) a $150 million revolving credit facility available toSirona Dental Systems GmbH, Schick NY and Sirona Dental Services GmbH, asinitial borrowers. The revolving credit facility is available forborrowing in Euro, U.S. dollar, Yen or any other freely available currencyagreed to by the facility agent. The facilities are made available on anunsecured basis. Subject to certain limitations, each European guarantorguarantees the performance of each European borrower, except itself, and eachU.S. guarantor guarantees the performance of each U.S. borrower, except itself.There are no cross-border guarantees since all guarantees are by entities thathave the same functional currency as the currency in which the respectiveguaranteed borrowing is denominated.

Each of the senior term loans has a five year maturityand is to be repaid in three annual installments beginning on November 24,2009 and ending on November 24, 2011. Of the amounts borrowed under theterm loan facilities, 15% is due on November 24, 2009, 15% is due on November 24,2010 and 70% is due 

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on November 24, 2011.At the Company’s current leverage multiples, the new facilities bear interestat a margin of 75 basis points plus, in the case of Euro-denominated loans,EURIBOR and, in the case of other loans, LIBOR.

The Senior Facilities Agreement contains a marginratchet. Pursuant to this provision, which applies from November 24, 2007onwards, the applicable margin will vary between 90 basis points and 45 basispoints per annum according to our leverage multiple (i.e. the ratio ofconsolidated total net debt to consolidated adjusted EBITDA as defined in theSenior Facilities Agreement). Interest rate swaps have been established for66.6% of the interest until March 2010. The interest rate swaps fix theLIBOR or EURIBOR element of interest payable on 66.6% of the principal amountof the loans for defined twelve and thirteen month interest periods over thelifetime of the swaps, respectively. The defined interest rates fixed for eachtwelve or thirteen month interest period range from 3.50% to 5.35%. Settlementof the swaps is required on a quarterly basis.

The Senior Facilities Agreement contains restrictivecovenants that limit Sirona’s ability to make loans, make investments(including in joint ventures), incur additional indebtedness, make acquisitionsor pay dividends, subject to agreed-upon exceptions. The Company has agreed tocertain financial debt covenants in relation to the financing. The covenantsstipulate that the Company must maintain certain ratios in respect of interestpayments and defined earnings measures. If the Company breaches any of thecovenants, the loans will be become repayable on demand.

Debt issuance costs of$5.4 million were incurred in relation to the new financing and werecapitalized as deferred charges.

**Debt Extinguishment**

The retirement of theborrowings under the Company’s previous credit facilities, the seniorsyndicated loan tranches A, B and C and the mezzanine loan facility, wasaccounted for as a debt extinguishment in accordance with SFAS 140, “Accountingfor Transfers and Servicing of Financial Assets and Extinguishment ofLiabilities”. The unscheduled repayment of the mezzanine facility by theCompany resulted in a prepayment fee of Euro 0.9 million ($1.2 million).In addition, $19.9 million of unamortized debt issuance costs relating to theprevious credit facilities were written off in the period. As a result, a losson debt extinguishment totaling $21.1 million was recognized in the nine monthsended June 30, 2007.

**9.**                 IncomeTaxes

For fiscal year 2007, anestimated effective tax rate of 35% has been applied, which is positivelyimpacted by structural changes as a result of the refinancing. This compares toan effective tax rate of 88.3% for fiscal year 2006, which was adverselyimpacted by foreign income for which no foreign tax credit was available andthe non-tax deductible charge related to the write-off of IPR&D inconnection with the Exchange.

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**10.**          IncomePer Share

Thecomputation of basic and diluted income per share is as follows:

| ** **                                        | ** ** | **Three months ended June 30,**                                     | ** ** | **Nine months ended June 30,**                                      | ** ** |
|---------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|
| ** **                                        | ** ** | **2007**                                                                                | ** ** | **2006**                                                                                | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                        | ** ** | **$’000s (except for share  and per share amounts)** | ** ** | **$’000s (except for share  and per share amounts)** | ** ** |
| Net income                                        |       | $                                                                                       | 1,981      |                                                                                    | $          | (5,511 | ) | $ | 4,649 |   | $ | 2,243 |   |
| Weighted average  shares outstanding—basic   |       | 54,746,515                                                                              |       | 38,908,289                                                                              |       | 54,683,876 |   | 37,617,750 |   |
| Dilutive effect  of stock options                 |       | 134,048                                                                                 |       | —                                                                                  |       | 159,612 |   | 467,482 |   |
| Weighted average  shares outstanding—diluted |       | 54,880,563                                                                              |       | 38,908,289                                                                              |       | 54,843,488 |   | 38,085,232 |   |
| Income per share                                  |       |                                                                                    |       |                                                                                    |       |   |   |   |   |
| Basic                                             |       | $                                                                                       | 0.04       |                                                                                    | $          | (0.14 | ) | $ | 0.09 |   | $ | 0.06 |   |
| Diluted                                           |       | $                                                                                       | 0.04       |                                                                                    | $          | (0.14 | ) | $ | 0.08 |   | $ | 0.06 |   |

 

Income per share information for the three-month andnine-month periods ended June 30, 2007 is based on the number of shareswhich were issued in connection with the Exchange. Because the Company did notgrant stock options prior to the Exchange, basic and diluted income per sharefor periods prior to the Exchange is the same.

Options to acquire 585,000shares of common stock have been excluded from the computation of dilutedincome per share because the option price exceeds the average share priceduring the period.

**11.**          ProductWarranty

Thefollowing table provides the changes in the product warranty accrual for thethree months and nine months ended June 30, 2007 and June 30, 2006:

| ** **                                       | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **                                       | ** ** | **June 30,**           | ** ** | **June 30,**          | ** ** |
| ** **                                       | ** ** | **2007**                    | ** ** | **2006**                   | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                       | ** ** | **$’000s**             | ** ** | **$’000s**            | ** ** |
| Balance at beginning of the period               |       | $                           | 12,601     |                       | $          | 11,287 |   | $ | 10,879 |   | $ | 9,276 |   |
| Accruals for warranties issued during the period |       | 6,049                       |       | 3,389                      |       | 15,301 |   | 11,410 |   |
| Warranty  settlements made during the period     |       | (5,893                      | )          | (3,163                     | )          | (13,987 | ) | (9,215 | ) |
| Translation  adjustment                          |       | 174                         |       | 549                        |       | 738 |   | 591 |   |
| Balance at the  end of the period                | ** ** | **$**                       | **12,931** | ** **                 | **$**      | **12,062** | ** ** | **$** | **12,931** | ** ** | **$** | **12,062** | ** ** |

 

**12.**          PensionPlans

Componentsof net periodic benefit costs are as follows:

| ** **                 | ** ** | **Three months ended**                         | ** ** | **Nine months ended**                          | ** ** |
|----------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                 | ** ** | **June 30,**                                        | ** ** | **June 30,**                                        | ** ** |
| ** **                 | ** ** | **    2007    ** | ** ** | **    2006    ** | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                 | ** ** | **$’000s**                                          | ** ** | **$’000s**                                          | ** ** |
| Service cost               |       |                                                     | $          | 100                                                      |       |   |   | $ | 77 |   |   | $ | 292 |   | $ | 224 |   |
| Interest cost              |       |                                                     | 560        |                                                     |       |   | 495 |   |   | 1,641 |   | 1,439 |   |
| Net periodic  benefit cost | ** ** | ** **                                               | **$**      | **660**                                                  |       | ** ** | ** ** | **$** | **572** |   | ** ** | **$** | **1,933** | ** ** | **$** | **1,663** | ** ** |

 

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**13.**          SegmentReporting

Thefollowing tables show the results of the Company’s reportable segments underthe Company’s management reporting system. The segment performance measure usedto monitor segment performance is gross profit excluding the impact of theacquisition of control of the Sirona business by Sirona Holdings Luxco S.C.A. (“Luxco”),a Luxembourg-based holding entity owned by funds managed by Madison DearbornPartners (“MDP”), Beecken Petty O’Keefe and management of Sirona, through aleveraged buyout transaction on June 30, 2005 (“MDP Transaction”) and theExchange. This measure is considered by management to better reflect theperformance of each segment as it eliminates the need to allocate centrallyincurred costs and significant purchase accounting effects that the Companydoes not believe to be representative of the performance of the segments.Furthermore, the Company monitors performance geographically by region. As theCompany manages its business on both a product and a geographical basis, U.S.GAAP requires segmental disclosure based on product information.

| ** **                                | ** ** | **Three months ended** | ** **  | **Nine months ended** | ** ** |
|-------------------------------------------|------------|----------------------------------|-------------|---------------------------------|------------|
| ** **                                | ** ** | **June 30,**                | ** **  | **June 30,**               | ** ** |
| ** **                                | ** ** | **2007**                         | ** **  | **2006**                        | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                | ** ** | **$’000s**                  | ** **  | **$’000s**                 | ** ** |
| **Revenue External**                      |       |                             |        |                            |       |   |   |   |   |
| Dental CAD/CAM Systems                    |       | $                                | 51,458      |                            | $          | 38,291 |   | $ | 151,129 |   | $ | 149,767 |   |
| Imaging Systems                           |       | 54,523                           |        | 28,806                          |       | 166,259 |   | 85,924 |   |
| Treatment Centers                         |       | 31,039                           |        | 29,440                          |       | 101,026 |   | 92,448 |   |
| Instruments                               |       | 20,011                           |        | 18,709                          |       | 63,563 |   | 54,856 |   |
| **Total**                                 | ** ** | **$**                            | **157,031** | ** **                      | **$**      | **115,247** | ** ** | **$** | **481,977** | ** ** | **$** | **382,995** | ** ** |
| **Revenue Internal**                      |       |                             |        |                            |       |   |   |   |   |
| Dental CAD/CAM Systems                    |       | $                                | —      |                            | $          | — |   | $ | — |   | $ | — |   |
| Imaging Systems                           |       | 21                               |        | 12                              |       | 95 |   | 50 |   |
| Treatment Centers                         |       | 3                                |        | 14                              |       | 9 |   | 50 |   |
| Instruments                               |       | 1,919                            |        | 2,577                           |       | 7,896 |   | 8,423 |   |
| Intercompany elimination                  |       | (1,943                           | )           | (2,603                          | )          | (8,000 | ) | (8,523 | ) |
| **Total**                                 | ** ** | **$**                            | **—**  | ** **                      | **$**      | **—** | ** ** | **$** | **—** | ** ** | **$** | **—** | ** ** |
| **Revenue Total**                         |       |                             |        |                            |       |   |   |   |   |
| Dental CAD/CAM Systems                    |       | $                                | 51,458      |                            | $          | 38,291 |   | $ | 151,129 |   | $ | 149,767 |   |
| Imaging Systems                           |       | 54,544                           |        | 28,817                          |       | 166,354 |   | 85,974 |   |
| Treatment Centers                         |       | 31,042                           |        | 29,454                          |       | 101,035 |   | 92,498 |   |
| Instruments                               |       | 21,930                           |        | 21,286                          |       | 71,459 |   | 63,280 |   |
| **Total**                                 | ** ** | **$**                            | **158,974** | ** **                      | **$**      | **117,849** | ** ** | **$** | **489,977** | ** ** | **$** | **391,519** | ** ** |
| **Segment Performance Measure**           |       |                             |        |                            |       |   |   |   |   |
| Dental CAD/CAM Systems                    |       | $                                | 33,297      |                            | $          | 28,056 |   | $ | 104,654 |   | $ | 112,075 |   |
| Imaging Systems                           |       | 31,589                           |        | 13,939                          |       | 97,992 |   | 40,967 |   |
| Treatment Centers                         |       | 11,652                           |        | 11,536                          |       | 39,851 |   | 34,891 |   |
| Instruments                               |       | 8,243                            |        | 9,145                           |       | 28,870 |   | 27,922 |   |
| **Total**                                 | ** ** | **$**                            | **84,781**  | ** **                      | **$**      | **62,676** | ** ** | **$** | **271,367** | ** ** | **$** | **215,855** | ** ** |
| **Depreciation and Amortization Expense** |       |                             |        |                            |       |   |   |   |   |
| Dental CAD/CAM Systems                    |       | $                                | 788         |                            | $          | 495 |   | $ | 1,631 |   | $ | 1,439 |   |
| Imaging Systems                           |       | 1,310                            |        | 673                             |       | 3,231 |   | 1,918 |   |
| Treatment Centers                         |       | 678                              |        | 564                             |       | 1,820 |   | 1,767 |   |
| Instruments                               |       | 719                              |        | 686                             |       | 1,879 |   | 1,865 |   |
| **Total**                                 | ** ** | **$**                            | **3,495**   | ** **                      | **$**      | **2,417** | ** ** | **$** | **8,561** | ** ** | **$** | **6,989** | ** ** |

 

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***Reconciliation ofthe results of the segment performance measure to the consolidated statementsof operations***

The following table and discussion provide areconciliation of the total results of operations of the Company’s businesssegments under management reporting to the consolidated financial statements.As of October 1, 2006, the Company changed the basis of accounting for itsmanagement reporting from statutory German accounting standards to U.S. GAAP,the basis used to prepare the consolidated financial statements. As a result,the differences shown between management reporting and U.S. GAAP for the three-and nine-month periods ended June 30, 2007, are mainly due to the impactof purchase accounting. Purchase accounting effects are not included in grossprofit as the Company does not believe these to be representative of theperformance of each segment.

Inter-segmenttransactions are based on amounts which management believes are approximate tothe amounts of transactions with unrelated third parties. 

| ** **                                                      | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|-----------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                      | ** ** | **June 30,**                | ** ** | **June 30,**               | ** ** |
| ** **                                                      | ** ** | **2007**                         | ** ** | **2006**                        | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                      | ** ** | **$’000s**                  | ** ** | **$’000s**                 | ** ** |
| **Revenue**                                                     |       |                             |       |                            |       |   |   |   |   |
| Total segments                                                  |       | $                                | 157,031    |                            | $          | 115,247 |   | $ | 481,977 |   | $ | 382,995 |   |
| Electronic center and corporate                                 |       | 10                               |       | 138                             |       | 31 |   | 169 |   |
| Differences management reporting vs U.S. GAAP                   |       | —                           |       | 1,952                           |       | — |   | 1,898 |   |
| Consolidated revenue                                            | ** ** | **157,041**                      |       | **117,337**                     |       | **482,008** |   | **385,062** | ** ** |
| **Depreciation  and Amortization**                              |       |                             |       |                            |       |   |   |   |   |
| Total segments                                                  |       | 3,495                            |       | 2,417                           |       | 8,561 |   | 6,988 |   |
| Electronic center and corporate                                 |       | 459                              |       | 461                             |       | 1,355 |   | 1,362 |   |
| Differences management reporting vs. U.S. GAAP                  |       | 19,613                           |       | 13,054                          |       | 58,472 |   | 37,617 |   |
| Consolidated depreciation and amortization                      | ** ** | **23,567**                       |       | **15,932**                      |       | **68,388** |   | **45,967** | ** ** |
| **Segment  Performance Measure**                                |       |                             |       |                            |       |   |   |   |   |
| Total segments                                                  |       | 84,781                           |       | 62,676                          |       | 271,367 |   | 215,855 |   |
| Electronic center and corporate                                 |       | (150                             | )          | 719                             |       | 1,742 |   | 1,495 |   |
| Differences management reporting vs. U.S. GAAP                  |       | (17,483                          | )          | (11,623                         | )          | (51,343 | ) | (34,333 | ) |
| Consolidated gross profit                                       | ** ** | **67,148**                       |       | **51,772**                      |       | **221,766** |   | **183,017** | ** ** |
| Selling, general and administrative expense                     |       | 49,633                           |       | 33,470                          |       | 150,011 |   | 101,112 |   |
| Research and  development                                       |       | 11,811                           |       | 8,166                           |       | 34,145 |   | 23,139 |   |
| Provision/(benefit)  for doubtful accounts and notes receivable |       | 96                               |       | (138                            | )          | 329 |   | 44 |   |
| Write off of  in-process research and development               |       | —                           |       | 6,000                           |       | — |   | 6,000 |   |
| Net other  operating loss                                       |       | 130                              |       | 622                             |       | 102 |   | 2,306 |   |
| Foreign currency  transactions gain, net                        |       | (857                             | )          | (11,361                         | )          | (9,812 | ) | (9,481 | ) |
| Gain on derivative  instruments                                 |       | (2,636                           | )          | (2,397                          | )          | (2,216 | ) | (3,769 | ) |
| Interest expense,  net                                          |       | 5,769                            |       | 14,893                          |       | 20,935 |   | 43,893 |   |
| Loss on debt  extinguishment                                    |       | —                           |       | —                          |       | 21,145 |   | — |   |
| **Income  Before Income Taxes and Minority Interest**           | ** ** | **$**                            | **3,202**  | ** **                      | **$**      | **2,517** | ** ** | **$** | **7,127** | ** ** | **$** | **19,773** | ** ** |

 

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**ITEM2.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussionand Analysis of Financial Condition and Results of Operations (MD&A) shouldbe read in conjunction with the Condensed Consolidated Financial Statementsincluded elsewhere in this report and the MD&A included in our AnnualReport on Form 10-K for the fiscal year ended September 30,2006.

All amounts are reportedin thousands of U.S. dollars ($), except as otherwise disclosed.

This report containsforward-looking statements that involve risk and uncertainties. All statements,other than statements of historical facts, included in this report regardingthe Company, its financial position, products, business strategy and plans andobjectives of management of the Company for future operations, areforward-looking statements. When used in this report, words such as “anticipate,”“believe,” “estimate,” “expect,” “intend,” “objectives,” “plans” and similarexpressions, or the negatives thereof or variations thereon or comparableterminology as they relate to the Company, its products or its management,identify forward-looking statements. Such forward-looking statements are basedon the beliefs of the Company’s management, as well as assumptions made by andinformation currently available to the Company’s management. Actual resultscould differ materially from those contemplated by the forward-lookingstatements as a result of various factors, including, but not limited to, thosecontained in the “Risk Factors” set forth in Part I, Item 1A of our AnnualReport on Form 10-K for the fiscal year ended September 30,2006. All forward looking statements speak only as of the date of this reportand are expressly qualified in their entirety by the cautionary statementsincluded in this report. We undertake no obligation to update or reviseforward-looking statements which may be made to reflect events or circumstancesthat arise after the date made or to reflect the occurrence of unanticipatedevents other than required by law.

**Overview**

Sirona is a leadingmanufacturer of high-tech dental equipment. Sirona focuses on developinginnovative systems and solutions for dentists globally. Sirona has servedequipment dealers and dentists worldwide for more than 128 years. The Companyhas its headquarters in Long Island City, New York and in addition the Companyhas a significant facility in Bensheim, Germany. Sirona manages its business onboth a product and geographic basis and has four reporting segments: DentalCAD/CAM Systems, Imaging Systems, Treatment Centers and Instruments. Productsfrom each category are marketed in all geographical sales regions.

**Significant Factors that Affect Sirona’s Results ofOperations**

***Increased Focus onSirona’s Position in the U.S. Market and Further Global Expansion***

The U.S. market is thelargest individual market for Sirona. Over the last three fiscal years, from October 1,2003 to September 30, 2006, Sirona experienced strong revenue growth, withU.S. dollar revenue increasing on average by 31% annually. Bolstered by theExchange, which closed on June 20, 2006, this trend has continued infiscal year 2007. Several products have generated significant interest in theU.S. market, including, but not limited to, CEREC, Schick imaging products, theORTHOPHOS XG line, Galileos, inLab, inEos, C8 + and electrical handpieces andSIROlaser.

Sirona works together withlarge distributors, including Patterson Dental and Henry Schein, whichaccounted for 31% and 17%, respectively, of Sirona’s global revenues for thenine-month period ended June 30, 2007.

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In addition to increasedU.S. market penetration, Sirona has pursued expansion in the rest of the world.Over the last three fiscal years, sales in the rest of the world grew onaverage by 15% annually. To support this growth, Sirona expanded its localpresence and distribution channels by establishing new sales and servicelocations in Spain, France and the United Kingdom in 2004; in Japan andAustralia in 2005; and in China in 2006. This expansion has resulted inincreased sales, gross profit and selling, general and administrative(SG&A) expense.

***TransactionsAccounted for as Business Combinations***

The MDP Transaction andthe Exchange were accounted for as business combinations and are described indetail in the Company’s annual report on Form 10-K for fiscal year2006.

As a result of thesetransactions, Sirona’s cost of goods sold and SG&A expense have been andwill continue to be materially affected by (i) higher depreciation andamortization costs arising from the step-up of Sirona’s assets andliabilities to fair value; and (ii) accounting for the Company’s stockoption plans. Taxes, interest and net income have also been and will continueto be substantially impacted by the structural changes resulting from thesebusiness combinations.

IPR&D projectsacquired in connection with the Exchange and the MDP Transaction, with fairvalues of $6.0 million and $33.8 million, respectively, wereappraised and charged to the income statement at the respective dates ofacquisition. The projects primarily related to (i) 3D-Imaging, (ii) enhancementsto the CAD/CAM system’s hardware and software, (iii) the new treatmentcenter platform and (iv) intra-oral digital imaging. The fair value of$6.0 million in connection with the Exchange related primarily to theintra-oral digital imaging projects. As of June 30, 2007, the 3D-Imagingand the majority of the CAD/CAM system’s enhancements have been completed.

The remaining estimatedcosts to complete the significant projects at June 30, 2007 were (i) $0.7 millionfor an outstanding enhancement to the CAD/CAM system, (ii) $8.9 millionfor the new treatment center platform, and (iii) $0.3 million for theintra-oral digital imaging projects. The estimated percentages of completion ofthe significant projects as of June 30, 2007 were (i) 60%, (ii) 43%and (iii) 90%, respectively.

As of June 30, 2007, (i) theproject for enhancements to the CAD/CAM system’s hardware and software was morethan half way through the product development phase, with the remaining stepsprior to the project release phase being the finalization of projectdevelopment including working models, beta testing and regulatory approvals, (ii) thenew treatment center platform was in the product development phase with theremaining steps prior to the product release phase being the development ofworking models, beta testing and regulatory approvals, and (iii) theintra-oral digital imaging projects were close to completion as specified priorto the Exchange.

It is anticipated that theprojects will be completed in fiscal year 2008 and begin to generate cash inthe fiscal year following their completion. There are no specific risks anduncertainties associated with these projects; however, the general risks relatingto the Company as discussed under “Risk Factors” as set forth in our Form 10-Kfor the fiscal year ended September 30, 2006 may apply.

***Fluctuations inU.S. Dollar/Euro Exchange Rate***

Although the U.S. dollaris Sirona’s reporting currency, its functional currency varies depending on thecountry of operation. For the nine months ended June 30, 2007,approximately 50% of Sirona’s revenue and approximately 77% of its expenseswere denominated in Euros. During the periods under review, the U.S.dollar/Euro exchange rate has fluctuated significantly, thereby impactingSirona’s financial results. Between October 1, 2005 and June 30,2007, the U.S. dollar/Euro exchange rate used to calculate items included inSirona’s financial statements varied from a low of 1.1770 to a high of 1.3652and as of June 30, 2007 and September 30, 2006 were 1.3499 and1.2669, respectively. Although Sirona does not 

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applyhedge accounting, Sirona has entered into foreign exchange forward contracts tomanage foreign currency exposure. As of June 30, 2007, these contracts hadnotional amounts totalling $31.7 million. As these agreements are relativelyshort-term (generally six months), continued fluctuation in the U.S. dollarcould materially affect Sirona’s results of operations.

Certain revenueinformation under “Results of Operations” below is presented on a constantcurrency basis. This information is a non-GAAP financial measure. Sironasupplementally presents revenue on a constant currency basis because itbelieves this information facilitates a comparison of Sirona’s operatingresults from period to period without regard to changes resulting solely fromfluctuations in currency rates. Sirona calculates constant currency revenuegrowth by comparing current period revenues to prior period revenues with bothperiods converted at the U.S. dollar/Euro average foreign exchange rate for thecurrent period. The exchange rates used in converting Euro denominated revenuesinto U.S. dollar in the Company’s financial statements prepared in accordancewith U.S. GAAP were: $1.3483 and $1.2565 for the three months ended June 30,2007 and 2006, respectively, and $1.3153 and $1.2134 for the nine months ended June 30,2007 and 2006, respectively.

Loans made to Sirona underthe new senior credit facility entered into November 22, 2006 aredenominated in the functional currency of the respective borrowers. See “Liquidityand Capital Resources” for a discussion of our new senior credit facility.However, intercompany loans are denominated in the functional currency of onlyone of the parties to the loan agreements. Where intercompany loans are of along-term investment nature, the potential non-cash fluctuations in currencyexchange rates are reflected within other comprehensive income. Thesefluctuations may be significant in any period due to changes in the exchangerates between the Euro and the U.S. dollar.

***Fluctuations inQuarterly Operating Results***

Sirona’squarterly operating results have varied in the past and are likely to vary inthe future. These variations result from a number of factors, many of which aresubstantially outside its control, including:

·       thetiming of new product introductions by Sirona or its competitors;

·       thetiming of industry trade shows;

·       developmentsin government reimbursement policies;

·       changesin product mix;

·       Sirona’sability to supply products to meet customer demand;

·       fluctuationsin manufacturing costs;

·       incometax incentives; and

·       currencyfluctuation.

Due to the variationswhich Sirona has experienced in its quarterly operating results, it does notbelieve that period-to-period comparisons of results of operations of Sironaare necessarily meaningful or reliable as indicators of future performance.

**Taxes**

The German tax authorityis currently examining the Company’s tax returns for the years 2001 to 2004.The Company does not believe the results of the examination will have anadverse material effect on the Company’s financial position, results ofoperations or liquidity.

It is expected that a newtax law in Germany will be effective during Sirona’s fourth quarter of thecurrent fiscal year. If the new tax law is signed and enacted as expected, Sironaestimates that it will 

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significantlyreduce income tax expense in the fourth quarter due to remeasurement ofdeferred tax amounts.

**Results of Operations**

***Three Months Ended June 30,2007 Compared to Three Months Ended June 30, 2006***

Revenue for the threemonths ended June 30, 2007 was $157.0 million, an increase of $39.7million or 33.8%, as compared with the three-months ended June 30, 2006.On a constant currency basis, adjusting for the fluctuations in the U.S. dollar/Eurorate, total revenue increased by 27.1%. Growth rates were 89.3% (up 79.9% on aconstant currency basis) for the Imaging Systems segment, 34.4% (up 29.8% on aconstant currency basis) for the Dental CAD/CAM Systems segment, 7.0% (up 0.6%on a constant currency basis) for the Instruments segment and 5.4% (down 1.4%on a constant currency basis) for the Treatment Center segment. The positiveImaging Systems segment development in the three month period ended June 30,2007 was attributable to the inclusion of the Schick operations, the continuedadoption of digital radiography and the recently launched 3D digital panoramicimaging unit GALILEOS. While sales of the GALILEOS unit contributed to theincrease, the Company has experienced a longer than expected sales cycle, asnew product offerings entering the 3D digital marketplace have caused thedental community to take longer than expected to evaluate the availableoptions. The increase in the Dental CAD/CAM Systems segment was mainly drivenby the newly launched CAD/CAM milling unit MC-XL, while Sirona sold fewer MC3Systems than expected. On a constant currency basis, Instruments and TreatmentCenter segment revenues were generally flat year over year. Revenue changes inall segments were mainly volume driven, while prices in general remainedstable.

Revenue in the United Statesfor the three months ended June 30, 2007 increased by 58.5% compared tothe same period last year. This development was particularly attributable tothe inclusion of the Schick operations as well as the new product launchesGALILEOS (3D imaging) and the CAD/CAM milling unit MC-XL. Revenue growthoutside of the United States was 24.4% (up 16.0% on a constant currency basis)and was particularly robust in Germany, Australia and China. Growth was drivenby all segments, except for Treatment Centers, which were slightly below prioryear.

***Cost of Sales***

Cost of sales for thethree months ended June 30, 2007 was $89.9 million, an increase of $24.3million, or 37.1%, as compared with the three months ended June 30, 2006.Cost of sales included amortization and depreciation expense resulting from thestep-up to fair values of tangible and intangible assets, which was $19.4million for the three months ended June 30, 2007, compared with $14.2million for the three months ended June 30, 2006. The quarter-over-quarterincrease in amortization and depreciation expense mainly resulted from the fairvalue adjustments related to the Exchange. Excluding these amounts, costs ofsales as a percentage of revenue increased to 44.9% for the three months ended June 30,2007 compared with 43.8% for the three months ended June 30, 2006 andgross profit as a percentage of revenue decreased by 1.1 percentage points to 55.1%from 56.2%. Gross profit margin was positively impacted by the Schick productlines, the 3D imaging unit GALILEOS as well as robust German sales. Thesepositive developments were offset by higher manufacturing costs and start-upexpenses for the new CAD/CAM milling unit. The Company plans to address the elevatedcost structure, but expects that the higher manufacturing expenses willcontinue in the next few quarters. Gross profit margins were also negativelyimpacted by variations in the U.S. dollar/Euro rate as most of the expenses aredenominated in Euro.

***Selling, Generaland Administrative***

For the three months endedJune 30, 2007, SG&A expense was $49.6 million, an increase of$16.2 million, or 48.3%, as compared with the three months ended June 30,2006. SG&A expense included amortization and depreciation resulting fromthe step-up to fair values of tangible and intangible assets, as 

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well asnon-cash stock option expense in the amount of $4.7 million for the threemonths ended June 30, 2007, compared with $0.9 million for the threemonths ended June 30, 2006. The year-over-year increase in amortizationand depreciation expense reflects the step-up to the fair values of certainassets resulting from the Exchange. Excluding these amounts, as a percentage ofrevenue, SG&A expense increased to 28.6% for the three months ended June 30,2007 as compared with 27.8% for the three months ended June 30, 2006. Theincrease was primarily due to the inclusion of Schick, variations in the U.S.dollar/Euro exchange rates as most of the expenses were denominated in Euro, expensesassociated with major product launches, and the general growth in revenue andSirona’s expanded presence in various markets, including the United States,China and Japan.

***Research andDevelopment***

R&D expense for thethree months ended June 30, 2007 was $11.8 million, an increase of $3.6million, or 44.6%, as compared with the three months ended June 30, 2006.R&D expense included non-cash stock option expense in the amount of $0.5million for the three months ended June 30, 2007 whereas the three monthsended June 30, 2006 did not include any non-cash stock option expense.Excluding these amounts, as a percentage of revenue, R&D expense increasedto 7.2% for the three months ended June 30, 2007, compared with 7.0% forthe three months ended June 30, 2006. The quarter-over-quarter increasewas primarily driven by the inclusion of the Schick operations, variations inthe U.S. dollar/Euro exchange rates as most of the expenses were denominated inEuro and expenses relating to the development of the new treatment centerplatform.

***Write-off ofIn-process Research and Development***

Write-off of IPR&D forthe three months ended June 30, 2007 and 2006 was $0 and $ 6.0 million,respectively. The write-off was recorded as a result of the allocation of theacquisition purchase price for the Exchange. This was a one-time charge thatwill not have a continued impact on Sirona’s future results. IPR&D projectsincluded in the amount written off primarily relate to enhancements of theintra-oral sensor technology.

***Gain on ForeignCurrency Transactions***

Gain on foreign currencytransactions for the three months ended June 30, 2007 amounted to$0.9 million compared to a gain of $13.8 million for the three monthsended June 30, 2006. For the three months ended June 30, 2007 thegain included an unrealized non-cash foreign currency gain of $1.5 million onthe U.S. dollar denominated deferred income, resulting from the translationadjustment of Patterson’s exclusivity payment, as well as a non-cash foreigncurrency gain on U.S. dollar denominated short-term intra-group loans to Germanentities of $1.3 million. The gain for the three months ended June 30,2006 included an unrealized non-cash foreign currency gain resulting fromtranslation adjustments to the carrying value of the U.S. dollar denominatedbank debt of $6.1 million and a foreign currency gain of $4.9 million onthe U.S. dollar denominated deferred income, resulting from the translationadjustment of Patterson’s exclusivity payment.

***Gain on DerivativeInstruments***

Gain on derivativeinstruments for the three months ended June 30, 2007 amounted to $2.6million compared to a gain of $2.4 million for the three months endedJune 30, 2006. For the three months ended June 30, 2007 the gainincluded an unrealized non-cash gain of $2.8 million on interest swaps, as wellas a non-cash loss on foreign currency hedges of $0.2 million. The gain for thethree months ended June 30, 2006 included an unrealized non-cash gain of$1.2 million on interest swaps, as well as a non-cash gain on foreign currencyhedges of $1.2 million.

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***Interest Expense***

Net interest expense forthe three months ended June 30, 2007 was $5.8 million, compared to$14.9 million for the three months ended June 30, 2006. This decreasewas primarily due to the Company’s refinancing of its previous credit facilitieson November 24, 2006 on more favorable terms. In addition, interestexpense for the three months ended June 30, 2006 included interest of $3.2million on a shareholder loan which was subsequently transferred to a groupentity as consideration for the Exchange and was eliminated on consolidation asof June 20, 2006.

***Income TaxProvision***

The income tax provisionfor the three months ended June 30, 2007 was $1.1 million, compared to$8.0 million for the three months ended June 30, 2006. For fiscal year 2007,an estimated effective tax rate of 35% has been applied, which is positivelyimpacted by structural changes as a result of the refinancing. The income taxprovision for the third quarter of fiscal year 2006 was adversely impacted byforeign income for which no foreign tax credit was available and thenon-deductible charge for the write-off of IPR&D associated with theExchange in the amount of $6.0 million.

***Net Income***

Sirona’s net income forthe three months ended June 30, 2007 was $2.0 million, an increase of$7.5 million, as compared with the three months ended June 30, 2006.As described above, Sirona’s net income was significantly impacted by the MDPTransaction and the Exchange. For the three months ended June 30, 2007,amortization and depreciation expense resulting from the step-up to fair valuesof intangible and tangible assets related to the Exchange and the MDPTransaction amounted to $19.6 million ($12.7 million net of tax).Furthermore, unrealized, non-cash foreign currency gains on the deferred incomefrom the Patterson exclusivity payment and on short-term shareholder loansamounted to $2.7 million ($1.8 million net of tax) and option expense was$3.9 million ($2.5 million net of tax). Excluding these items, net incomeincreased due to higher revenue, partially offset by higher SG&A andR&D expenses.

***Nine Months Ended June 30,2007 Compared to Nine Months Ended June 30, 2006***

Revenue for the ninemonths ended June 30, 2007 was $482.0 million, an increase of $96.9million, or 25.2%, as compared with the nine months ended June 30, 2006.On a constant currency basis, adjusting for the fluctuations in the U.S.dollar/Euro rate, total revenue increased by 18.3%. Growth rates were 93.5% (up82.4% on a constant currency basis) for the Imaging Systems segment, 15.9% (up7.7% on a constant currency basis) for the Instruments segment, 9.3% (up 1.2%on a constant currency basis) for the Treatment Center segment and 0.9% (down2.6% on a constant currency basis) for the Dental CAD/CAM Systems segment. Thepositive Imaging Systems segment development in the nine months ending June 30,2007 was attributable to the inclusion of the Schick operations, the continuedadoption of digital radiography and the recently launched 3D digital panoramicimaging unit, GALILEOS. While sales of the GALILEOS unit contributed to theincrease, the Company has experienced a longer than expected sales cycle, asnew product offerings entering the 3D digital marketplace have caused thedental community to take longer than expected to evaluate the availableoptions. The Instruments segment revenue increase resulted, in part, from newproducts, such as endodontic applications, as well as from special volumeproduct offers for emerging markets. Treatment Center revenue was positivelyimpacted by strong revenues in Germany, China, the Middle East and Russia. Therelative decrease in revenue growth in the Dental CAD/CAM Systems segmentduring the nine months ended June 30, 2007 was due to (i) achallenging year-over-year comparison as revenues in the first six months offiscal year 2006 were very strong, (ii) investment caution by ourcustomers in the first half of the fiscal year as many of them appeared to beawaiting the launch and delivery of our new milling unit MC-XL, which wasoffset by the 

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start ofthe serial delivery of such units in March 2007, and (iii) fewer MC3Systems sold than exptected. Revenue changes in the segments were mainly volumedriven while prices in general remained stable.

Revenue in the UnitedStates for the nine months ended June 30, 2007 increased by 39.6% comparedto the same period last year. This development was particularly attributable tothe inclusion of the Schick operations and the continuing strong performance ofthe Imaging Systems segment which included deliveries of our new 3D imagingunit GALILEOS. Revenue growth outside of the United States was 18.8% (up 9.6%on a constant currency basis). All regions contributed to this development.Revenues were particularly robust in Germany, the Middle East, Russia andChina, whereas South Korean sales slowed down.

***Cost of Sales***

Cost of sales for the ninemonths ended June 30, 2007 was $260.2 million, an increase of $58.2million, or 28.8%, as compared with the nine months ended June 30, 2006.Cost of sales included amortization and depreciation expense resulting from thestep-up to fair values of tangible and intangible assets, which was $56.7million for the nine months ended June 30, 2007, compared with $38.2million for the nine months ended June 30, 2006. The year-over-yearincrease in amortization and depreciation expense for the nine months mainlyresulted from the fair value adjustments related to the Exchange. Excludingthese amounts, costs of sales as a percentage of revenue decreased to 42.2% forthe nine months ended June 30, 2007 compared with 42.5% for the ninemonths ended June 30, 2006 and gross profit as a percentage of revenueincreased by 0.3 percentage points to 57.8% from 57.5%. The gross profit margindevelopment was positively impacted by the Schick product lines, the 3D imagingunit GALILEOS as well as strong German sales and a favorable product mix in theTreatment Center segment. These positive developments were mainly offset byhigher manufacturing costs and start-up expenses for the new CAD/CAM millingunit. The Company plans to address the elevated cost structure, but expectsthat the higher manufacturing expenses will continue in the next few quarters.Gross profit margins were also negatively impacted by special volume productoffers for emerging markets for the Instruments segment and by variations inthe U.S. dollar/Euro rate as most of the expenses are denominated in Euro.

***Selling, Generaland Administrative***

For the nine months ended June 30,2007, SG&A expense was $150.0 million, an increase of $48.9 million,or 48.4%, as compared with the nine months ended June 30, 2006. SG&Aexpense included amortization and depreciation resulting from the step-up tofair values of tangible and intangible assets as well as non-cash optionexpense in the amount of $12.4 million for the nine months ended June 30,2007, compared with $1.1 million for the nine months ended June 30, 2006.The year-over-year increase in amortization and depreciation expense reflectsthe step-up to the fair values of certain assets resulting from the Exchange.Excluding these amounts, as a percentage of revenue, SG&A expense increasedto 28.5% for the nine months ended June 30, 2007 as compared with 26.0%for the nine months ended June 30, 2006. The increase was primarily due tothe inclusion of Schick, variations in the U.S. dollar/Euro exchange rates asmost of the expenses were denominated in Euros, expenses associated with thebi-annual International Trade Show, IDS, held in Cologne, Germany at the end ofMarch and expenses associated with the growth in revenue and with Sirona’sexpanded presence in various markets, including the United States, China andJapan. Furthermore, administration expenses for the nine months ended June 30,2007, include costs for the preparation and audit and review of U.S. GAAPaccounts as well as compliance with Sarbanes Oxley, which were not applicablefor the majority of the first six months of the nine months ended June 30,2006.

***Research andDevelopment***

R&D expense for thenine months ended June 30, 2007 was $34.1 million, an increase of $11.0million, or 47.6%, as compared with the nine months ended June 30, 2006.R&D expense included non-cash stock 

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optionexpense in the amount of $1.0 million for the nine months ended June 30,2007; the nine months ended June 30, 2006 did not include any non-cashstock option expense. Excluding this amount, as a percentage of revenue,R&D expense increased to 6.9% for the nine months ended June 30, 2007,compared to 6.0% for the nine months ended June 30, 2006. The increase wasprimarily driven by the inclusion of the Schick operations, variations in theU.S. dollar/Euro exchange rates as most of the expenses were denominated inEuro and expenses relating to the development of the new treatment centerplatform.

***Write-off ofIn-process Research and Development***

Write-off of IPR&D forthe nine months ended June 30, 2007 and 2006 was $0 and $ 6.0 million,respectively. The write-off was recorded as a result of the allocation of theacquisition purchase price for the Exchange. This was a one-time charge thatwill not have a continued impact on Sirona’s future results. IPR&D projectsincluded in the amount written off primarily relate to enhancements of theintra-oral sensor technology.

***Gain on ForeignCurrency Transactions***

Gain on foreign currencytransactions for the nine months ended June 30, 2007 amounted to$9.8 million compared to a gain of $9.4 million for the nine months ended June 30,2006. For the nine months ended June 30, 2007, the gain included foreigncurrency gains upon the repayment of the U.S. dollar denominated bank debt of$3.9 million, an unrealized non-cash foreign currency gain of $6.3 million onthe U.S. dollar denominated deferred income, from the translation adjustment ofPatterson’s exclusivity payment, as well as a non-cash foreign currency gain onthe U.S. dollar denominated bank loans and short term intra-group loans toGerman entities of $2.6 million. The gain for the nine months ended June 30,2006 included an unrealized non-cash foreign currency gain of $5.1 million onthe U.S. dollar denominated deferred income from the translation adjustment ofPatterson’s exclusivity payment and a non-cash foreign currency gain of $6.5million on the U.S. dollar denominated bank debt.

***Gain on DerivativeInstruments***

Gain on derivativeinstruments for the nine months ended June 30, 2007 amounted to $2.2million compared to a gain of $3.8 million for the nine months ended June 30,2006. For the nine months ended June 30, 2007, the gain included anunrealized non-cash gain of $1.9 million on interest swaps, as well as anon-cash gain on foreign currency hedges of $0.3 million. The gain for the ninemonths ended June 30, 2006 included an unrealized non-cash gain of $1.2million on interest swaps, as well as a non-cash gain on foreign currencyhedges of $2.5 million.

***Interest Expense***

Net interest expense forthe nine months ended June 30, 2007 was $20.9 million, compared to$43.9 million for the nine months ended June 30, 2006. This decreasewas primarily due to the Company’s refinancing of its previous creditfacilities on November 24, 2006 on more favorable terms. In addition,interest expense for the nine months ended June 30, 2006 included interestof $10.1 million on a shareholder loan which was subsequently transferred to agroup entity as consideration for the Exchange and was eliminated onconsolidation since June 20, 2006.

***Debt Extinguishment***

The retirement of theborrowings under the Company’s previous credit facilities, the seniorsyndicated loan tranches A, B and C and the mezzanine loan facility wasaccounted for as a debt extinguishment in accordance with SFAS 140, “Accountingfor Transfers and Servicing of Financial Assets and Extinguishment ofLiabilities”. The unscheduled repayment of the mezzanine facility by theCompany resulted in a prepayment fee of Euro 0.9 million ($1.2 million).In addition, $19.9 million of unamortized 

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debtissue costs relating to the previous credit facilities were written off in theperiod. As a result, a loss on debt extinguishment totaling $21.1 million wasrecognized in the nine months ended June 30, 2007.

***Income TaxProvision***

The income tax provisionfor the nine months ended June 30, 2007 was $2.5 million, compared to$17.5 million for the nine months ended June 30, 2006. For fiscal year2007 an estimated effective tax rate of 35% has been applied, which ispositively impacted by structural changes as a result of the refinancing. Theincome tax provision for the nine months ended June 30, 2006 was adverselyimpacted by foreign income for which no foreign tax credit was available andthe non-deductible charge for the write-off of IPR&D associated with theSchick acquisition in the amount of $6.0 million.

***Net Income***

Sirona’s net income forthe nine months ended June 30, 2007 was $4.6 million, an increase of$2.5 million, as compared with the nine months ended June 30, 2006.As described above, Sirona’s net income was significantly impacted by the MDP Transactionand the Exchange. For the nine months ended June 30, 2007, amortizationand depreciation expense resulting from the step-up to fair values ofintangible and tangible assets related to the Exchange and the MDP Transactiontotaled $58.5 million ($38.0 million, net of tax). In addition to this effect,losses of $21.1 million were recorded on debt extinguishment ($13.7 million,net of tax). Furthermore, foreign currency gains on the repayment of theTranche A U.S. dollar denominated bank debt, gains on the deferred income fromthe Patterson exclusivity payment and on short-term intra-group loans amountedto $12.8 million ($8.3 million, net of tax) and stock option expense was $10.6million ($6.9 million, net of tax). Excluding these items in both periods, netincome increased due to higher revenue, partially offset by higher SG&A andR&D expenses.

**Liquidity and Capital Resources**

Historically,Sirona’s principal uses of cash, apart from operating requirements, includingresearch and development expenses, have been for interest payments, debtrepayment and acquisitions. Operating capital expenditures are approximatelyequal to operating depreciation (excluding any effects from the increasedamortization and depreciation expense resulting from the step-up to fair valuesof Sirona’s and Schick’s assets and liabilities required under purchaseaccounting). Sirona’s management believes that Sirona’s working capital issufficient for its present requirements.

| ** **                                            | ** ** | **Nine months** | ** ** | **Nine months** | ** ** |
|-------------------------------------------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                            | ** ** | **ended**            | ** ** | **ended**            | ** ** |
| ** **                                            | ** ** | **June 30,**    | ** ** | **June 30,**    | ** ** |
| ** **                                            | ** ** | **2007**             | ** ** | **2006**             | ** ** |
| ** **                                            | ** ** | **$’000s**      | ** ** |
| Net cash provided by operating activities             |       |                 | $          | 29,359               |       |   |   | $ | 77,437 |   |   |
| Net cash (used  in)/ provided by investing activities |       |                 | (22,471    | )                    |       |   | 4,079 |   |   |
| Net cash (used  in) financing activities              |       |                 | (32,285    | )                    |       |   | (73,962 | ) |   |
| (Decrease)/Increase in  cash during the period        |       |                 | $          | (25,397              | )          |   |   | $ | 7,554 |   |   |

 

***Net Cash Providedby Operating Activities***

Net cash provided byoperating activities represents net cash from operations, returns oninvestments, and payments for interest and taxation.

Net cash provided byoperating activities was $29.4 million for the nine months ended June 30,2007 compared to $77.4 million for the nine months ended June 30, 2006.The primary contributing factors to the decrease in cash provided by operatingactivities were (i) income tax payments in the amount of $33,1 million forthe nine months ended June 30, 2007, compared to $4.7 million for the ninemonths ended June 30, 2006, (ii) accreted interest paid on therepayment of debt in connection with the 

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refinancingin November 2006 in the amount of $8.6 million, and (iii) theincrease of inventories and accounts receivable as a result of strong revenuesin June 2007. Inventory levels increased due to the ramp up for newproduct launches and the acquisition of an imaging products company. Income taxpayments in the nine months ended June 30, 2007 were made in relation totaxes for prior year periods, which had been accrued at the end of fiscal year2006, and for prepayments for the current fiscal year.

***Net Cash (Usedin)/Provided by Investing Activities***

Net cash used in investingactivities represents cash used for capital expenditures, financial investmentsand long-lived asset disposals. The primary contributors to the investing cashoutflow in the periods presented are capital expenditures in the course ofnormal operating activities and the cash effect from the acquisition of animaging products company and the Exchange.

Net cash used in investingactivities was $22.5 million for the nine months ended June 30, 2007,compared to a cash-inflow of $4.1 million for the nine months ended June 30,2006. The primary contributors to the investing cash outflow in the nine monthsending June 30, 2007 were (i) investments in special tools andsoftware related to new product launches, (ii) leasehold improvements forthe Company’s new office building in Bensheim, and (iii) the acquisitionof an imaging systems manufacturer. The primary contributor to the investingcash inflow in the nine months ended June 30, 2006 was the Exchangewith $14.3 million, offset by capital expenditures of $11.7 million primarilyrelated to property, plant and equipment and software developed for sale.

***Net Cash Used inFinancing Activities***

Net cash used in financingactivities was $32.3 million for the nine months ended June 30, 2007,compared to $73.9 million for the nine months ended June 30, 2006. Netcash used in financing activities in the nine months ended June 30, 2007reflected the refinancing of the Company’s prior credit facilities as of November 24,2006 and the utilization of the Company’s revolving credit facility in theperiod. Cash used in financing activities in the nine month period ended June 30,2006 comprised unscheduled prepayments of the Mezzanine loan (Euro 15.0 millionor $18.1 million) as well as Tranche C (Euro15.0 million or $18.1 million).

Sirona’s managementbelieves that Sirona’s operating cash flows and available cash (includingrestricted cash), together with its long-term borrowings, will be sufficient tofund its working capital needs, research and development expenses (includingbut not limited to the acquired in-process research and development),anticipated capital expenditure and debt service requirements for theforeseeable future.

***Capital Resources***

***Senior Term Loans***

On November 22, 2006,Sirona Dental Systems, Inc. entered into a new senior credit facility (the“Senior Facilities Agreement”) as original guarantor, with Schick Technologies, Inc.,a New York company and wholly owned subsidiary of Sirona (“Schick NY”), asoriginal borrower and original guarantor, with Sirona Dental Systems GmbH, asoriginal borrower and original guarantor, with Sirona Dental Services GmbH, asoriginal borrower and original guarantor and with Sirona Dental Systems LLC,Sirona Holding GmbH and with Sirona Immobilien GmbH as original guarantors.Initial borrowings under the Senior Facilities Agreement plus excess cash wereused to retire the outstanding borrowings under the Company’s previous creditfacilities.

The Senior Facilities Agreementincludes: (1) a term loan A1 in an aggregate principal amount of $150million (the “tranche A1 term loan”) available to Sirona’s subsidiary, SchickNY, as borrower; (2) a term loan A2 in an aggregate principal amount ofEuro 275 million (the “tranche A2 term loan”) available to Sirona’s subsidiary,Sirona Dental Services GmbH, as borrower; and (3) a $150 million revolvingcredit facility available to Sirona Dental Systems GmbH, Schick NY and SironaDental Services GmbH, as initial 

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borrowers. Therevolving credit facility is available for borrowing in Euro, U.S. dollars, Yenor any other freely available currency agreed to by the facilityagent. The facilities are made available on an unsecured basis. Subject tocertain limitations, each European guarantor guarantees the performance of eachEuropean borrower, except itself, and each U.S. guarantor guarantees theperformance of each U.S. borrower, except itself. There are no cross-borderguarantees since all guarantees are by entities that have the same functionalcurrency as the currency in which the respective guaranteed borrowing isdenominated.

Each of the senior termloans has a five year maturity and is to be repaid in three annual installmentsbeginning on November 24, 2009 and ending on November 24, 2011. Ofthe amounts borrowed under the term loan facilities, 15% is due on November 24,2009, 15% is due on November 24, 2010 and 70% is due on November 24,2011. At the Company’s current leverage multiples, the new facilities bearinterest at a margin of 75 basis points plus, in the case of Euro-denominatedloans, EURIBOR and, in the case of other loans, LIBOR.

The Senior FacilitiesAgreement contains a margin ratchet. Pursuant to this provision, which appliesfrom November 24, 2007 onwards, the applicable margin will vary between 90basis points and 45 basis points per annum according to the Company’s leveragemultiple (i.e. the ratio of consolidated total net debt to consolidatedadjusted EBITDA as defined in the Senior Facilities Agreement). Interest rateswaps have been established for 66.6% of the interest until March 2010.The interest rate swaps fix the LIBOR or EURIBOR element of interest payable on66.6% of the principal amount of the loans for defined twelve and thirteenmonth interest periods over the lifetime of the swaps, respectively. Thedefined interest rates fixed for each twelve or thirteen month interest periodrange from 3.50% to 5.35%. Settlement of the swaps is required on a quarterlybasis.

The Senior FacilitiesAgreement contains restrictive covenants that limit Sirona’s ability to makeloans, make investments (including in joint ventures), incur additionalindebtedness, make acquisitions or pay dividends, subject to agreed exceptions.The Company has agreed to certain financial debt covenants in relation to thefinancing. The covenants stipulate that the Company must maintain certainratios in respect of interest payments and defined earnings measures. If theCompany breaches any of the covenants, the loans will be become repayable ondemand.

Debt issuance costs of$5.4 million were incurred in relation to the new financing and werecapitalized as deferred charges.

**Other Financial Data (unaudited)**

| ** **                  | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|-----------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                  | ** ** | **June 30,**                | ** ** | **June 30.**               | ** ** |
| ** **                  | ** ** | **2007**                         | ** ** | **2006**                        | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                  | ** ** | **$’000s**                  | ** ** | **$’000s**                 | ** ** |
| Net income                  |       | $                                | 1,981      |                            | $          | (5,511 | ) | $ | 4,649 |   | $ | 2,243 |   |
| Net interest  expense       |       | 5,769                            |       | 14,893                          |       | 20,935 |   | 43,893 |   |
| Provision for  income taxes |       | 1,121                            |       | 7,983                           |       | 2,495 |   | 17,463 |   |
| Depreciation                |       | 3,822                            |       | 2,651                           |       | 9,555 |   | 9,570 |   |
| Amortization                |       | 19,745                           |       | 13,281                          |       | 58,833 |   | 36,397 |   |
| EBITDA                      |       | $                                | 32,438     |                            | $          | 33,297 |   | $ | 96,467 |   | $ | 109,566 |   |

 

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EBITDA is anon-GAAP financial measure that is reconciled to net income, its most directlycomparable U.S. GAAP measure, in the accompanying financial tables. EBITDA isdefined as net earnings before interest, taxes, depreciation, and amortization.Sirona’s management utilizes EBITDA as an operating performance measure inconjunction with U.S. GAAP measures, such as net income and gross margincalculated in conformity with U.S. GAAP. EBITDA should not be considered inisolation or as a substitute for net income prepared in accordance with U.S.GAAP. There are material limitations associated with making the adjustments toSirona’s earnings to calculate EBITDA and using this non-GAAP financialmeasure. For instance, EBITDA does not include:

·       interestexpense, and because Sirona has borrowed money in order to finance itsoperations, interest expense is a necessary element of its costs and ability togenerate revenue;

·       depreciationand amortization expense, and because Sirona uses capital and intangibleassets, depreciation and amortization expense is a necessary element of itscosts and ability to generate revenue; and

·       taxexpense, and because the payment of taxes is part of Sirona’s operations, taxexpense is a necessary element of costs and impacts Sirona’s ability tooperate.

In addition, other companies may define EBITDAdifferently. EBITDA, as well as the other information in this filing, should beread in conjunction with Sirona’s consolidated financial statements andfootnotes.

In addition to EBITDA, the accompanying financialtables also set forth certain supplementary information that Sirona believes isuseful for investors in evaluating Sirona’s underlying operations. Thissupplemental information includes gains/losses recorded in the periods presentedwhich relate to the early extinguishment of debt, share based compensation,revaluation of dollar-denominated exclusivity payment and borrowings where thefunctional currency is Euro, and the Exchange. Sirona’s management believesthat these items are either nonrecurring or noncash in nature, and should beconsidered by investors in assessing Sirona’s financial condition, operatingperformance and underlying strength.

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

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

(ii)   facilitatemanagement’s internal comparisons of the historical operating performance ofSirona’s business operations;

(iii)  facilitatemanagement’s external comparisons of the results of its overall business to thehistorical operating  performance ofother companies that may have different capital structures and debt levels;

(iv)  analyze andevaluate financial and strategic planning decisions regarding future operatinginvestments; and

(v)    plan forand prepare future annual operating budgets and determine appropriate levels ofoperating investments. 

Sirona’s management believesthat EBITDA and the supplemental information provided is useful to investors asit provides them with disclosures of Sirona’s operating results on the samebasis as that used by Sirona’s management.

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**Supplemental Information**

| ** **                                                                                                                      | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                      | ** ** | **June 30,**                | ** ** | **June 30,**               | ** ** |
| ** **                                                                                                                      | ** ** | **2007**                         | ** ** | **2006**                        | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                                                                      | ** ** | **$’000s**                  | ** ** | **$’000s**                 | ** ** |
| Write off of IPR&D                                                                                                          |       | —                           |       | 6,000                           |       |   |   | 6,000 |   |
| Fair value  increase in inventory                                                                                               |       | —                           |       | 441                             |       | — |   | 441 |   |
| Loss on debt  extinguishment                                                                                                    |       | —                           |       | —                          |       | 21,145 |   | — |   |
| Share-based  compensation                                                                                                       |       | 3,886                            |       | 279                             |       | 10,598 |   | 279 |   |
| Unrealized,  non-cash (gain) on revaluation of the carrying value of the $-denominated exclusivity  fee                         |       | (1,471                           | )          | (4,949                          | )          | (6,337 | ) | (5,123 | ) |
| Foreign currency  exchange (gain) on the early extinguishment of $-denominated bank debt                                        |       | —                           |       | —                          |       | (3,885 | ) | — |   |
| Unrealized,  non-cash (gain) on revaluation of the carrying value of $-denominated bank  loans and short-term shareholder loans |       | (1,251                           | )          | (6,053                          | )          | (2,604 | ) | (6,496 | ) |
|                                                                                                                            |       | $                                | 1,164      |                            | $          | (4,282 | ) | $ | 18,917 |   | $ | (4,899 | ) |
|                                                                                                                                 |            |                                  |            |                                 |            |  |  |  |  |  |  |  |  |

 

**Recent AccountingPronouncements Issued**

See note 2 to theunaudited condensed consolidated financial statements for discussion ofrecently issued accounting pronouncements.

**ITEM 3.**                QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been nomaterial changes to the Company’s market risk since September 30, 2006.

**ITEM 4.**                CONTROLSAND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with theparticipation of our chief executive officer and chief financial officer,evaluated the effectiveness of our disclosure controls and procedures (asdefined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934), as of June 30, 2007. Based upon thisevaluation, our chief executive officer and chief financial officer concludedthat, as of June 30, 2007, the Company’s disclosure controls andprocedures were effective. Our disclosure controls and procedures are designedto ensure that information relating to the Company, including our consolidatedsubsidiaries, that is required to be disclosed in the reports we file or submitunder the Securities Exchange Act of 1934 is recorded, processed, summarizedand reported within the time periods specified in Commission’s rules andforms.

Changes in Internal Control over Financial Reporting

No change in our internal control over financialreporting (as defined in rules 13a-15(f) and 15d-15(f) underthe Securities Exchange Act of 1934) occurred during the quarter ended June 30,2007 that has materially affected, or is reasonably likely to materially affect,our internal control over financial reporting.

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**PART II.**

**ITEM 1.**                LEGALPROCEEDINGS

There are currently nomaterial legal proceedings pending.

**ITEM 1A.**        RISKFACTORS

There are no materialchanges from risk factors as previously disclosed by the Company in Part I,Item IA of its 2006 Annual Report on Form 10-K.

**ITEM 2.**                UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

**ITEM 3.**                DEFAULTSUPON SENIOR SECURITIES

None.

**ITEM 4.**                SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

**ITEM 5.**                OTHERINFORMATION

None.

**ITEM 6.**                EXHIBITS

Thefollowing Exhibits are included in this report:

| Exhibit No. | ** ** | ** **                                                                                                      | ** ** | **Item Title** |
|------------------|------------|-----------------------------------------------------------------------------------------------------------------|------------|----------------|
| 31.1             |       | Certification of  Principal Executive Officer, pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002. |
| 31.2             |       | Certification of  Principal Financial Officer, pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002. |
| 32.1             |       | Section 1350  Certification of Chief Executive Officer.                                                    |
| 32.2             |       | Section 1350  Certification of Chief Financial Officer.                                                    |

 

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**SIGNATURE**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

Date: August 9,2007

|        | SIRONA DENTAL SYSTEMS, INC. |
|--------|----------------------------------|
|   | By:                              | /s/  SIMONE BLANK |
|   |                             | Simone Blank,*Executive Vice President and  Chief Financial Officer  (Principal Financial and Accounting Officer)  (Duly authorized signatory)* |

 

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