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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number 1-16057

Sybron Dental Specialties, Inc.

Registrant’s telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

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

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).     Yes þ          No o

      The aggregate market value of the Common Stock held by non-affiliates of the registrant, based upon the closing sale price of the registrant’s Common Stock on March 31, 2003, the last business day of our most recently completed second fiscal quarter, as reported on the New York Stock Exchange, was approximately $484,881,000. Shares of Common Stock held by each executive officer and director and by each person known to beneficially own more than 5% of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

      At December 10, 2003, there were 38,336,554 shares of the registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      Certain portions of the registrant’s Proxy Statement for its Annual Meeting of Stockholders to be held on February 6, 2004 have been incorporated by reference into Part III of this Form 10-K.

SYBRON DENTAL SPECIALTIES, INC.

TABLE OF CONTENTS

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PART I

General

Business and Products

      Sybron Dental Specialties, Inc. is a leading global manufacturer and marketer of a broad range of consumable dental products and related small equipment and a manufacturer and distributor of products for use in infection prevention in both the medical and dental markets. Our subsidiaries operate in two business segments:

	•	Professional Dental. We develop and manufacture a variety of branded dental consumable products and consumable infection prevention products sold through independent distributors to the dental industry worldwide, as well as to medical markets; and
	•	Orthodontics. We develop, manufacture, and market an array of consumable orthodontic products and endodontic products to orthodontic and endodontic specialists worldwide.

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

      We market our products in the United States and abroad under brand names such as Kerr®, Ormco®, Metrex®, Pinnacle®, Demetron®, KerrHawe®, AOA^TM, and SybronEndo^TM, which are well recognized in the dental and orthodontics industries.

History

      Sybron Dental Specialties, Inc. was incorporated in Delaware on July 17, 2000. At the time of our incorporation we were a wholly-owned subsidiary of Sybron International Corporation, which is now known as Apogent Technologies Inc. (“Apogent”). We were created to effect the spin-off by Apogent of its dental business. As a part of the spin-off, which occurred on December 11, 2000, Apogent transferred to us, along with certain other assets, all of the capital stock of Sybron Dental Management, Inc. (“SDM”), which owned, directly or indirectly, the stock or other equity interests in the subsidiaries that held substantially all of the assets and liabilities of Apogent’s then dental business. Apogent then distributed to its shareholders, by means of a pro rata distribution, all of our outstanding common stock together with related preferred stock purchase rights (the “spin-off”). As a result, we became an independent, publicly traded company.

Terms; Year References

      When we use the terms “SDS,” “we,” “us,” “Company,” or “our” in this report, unless the context requires otherwise, we are referring to Sybron Dental Specialties, Inc. and its subsidiaries and their respective predecessors that comprised Apogent’s dental business prior to the spin-off. Our fiscal year ends September 30. All references to a particular year mean the fiscal year ended September 30 of that year, unless we indicate otherwise.

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Business Strategy

      The key elements of our strategy to become a premier global supplier of high quality dental, infection prevention, orthodontic and endodontic products are:

	Develop Innovative Products. We strive to consistently develop and introduce innovative products. We believe that product innovation allows us to maintain our competitive position and helps fuel our internal growth. We also believe that our emphasis on new product development enables our sales force to remain effective in creating demand among dentists and orthodontists. Our dedicated research and development team regularly interacts with practicing dentists and orthodontists to understand and assess new product opportunities in the marketplace.
	Consistently Improve Our Efficiency. We continuously pursue opportunities to maximize cost savings. As a result, we regularly evaluate our manufacturing processes to determine optimal production strategies, and we will transfer production from one facility to another or rationalize higher-cost facilities when necessary. In addition, we consistently seek to rationalize manufacturing, warehousing and customer service operations to centralized facilities wherever possible. In Eastern Europe, we plan to consolidate three of SpofaDental’s facilities in fiscal 2004, and handle all of their manufacturing and distribution in Jicin, located in the Czech Republic.
	Increase Revenue Opportunities Within Existing Marketplace. We continuously seek to broaden our portfolio of product offerings to maximize the opportunities within our existing customer base. For example, through acquisitions, we acquired products such as chair covers, barrier products, infection prevention products and disposable air/water syringes and through our research and development efforts, we added products such as our new LEDemetron 1 curing light.
	Expand the Marketplace. We seek to expand the market for our products through product innovation. We believe that our technological leadership enables us to increase the number of uses and users of our products. For example, we believe our aesthetic brackets have increased the number of adults who are willing to undergo orthodontic treatment for functional or cosmetic reasons.
	Pursue Strategic Acquisitions. Although debt reduction is an important priority, we will continue to pursue selective strategic acquisitions. We have significant experience in acquiring and integrating companies. We pursue acquisition opportunities that:

	•	enhance our sales growth;
	•	offer complementary product lines;
	•	expand our geographic reach; or
	•	offer us access to new markets.

      Since 1993, we have made 28 acquisitions in the United States and abroad. Since the beginning of fiscal 2001, we have completed six acquisitions, the largest of which was the acquisition in May 2001 of Hawe Neos Holdings S.A. (“Hawe Neos”), a Swiss manufacturer and wholesaler of consumable dental products in the areas of prevention, restoration, and pharmaceuticals. In August 2003, we acquired SpofaDental a.s., a leading manufacturer of consumable dental supplies in Central and Eastern Europe.

      We have been able to use our existing distribution channels to market many of the product lines we have acquired and we have achieved other synergies, such as the elimination of duplicative administrative or other functions or the combining of manufacturing operations with some of these acquisitions.

Business Segments

      As of October 1, 2002, we consolidated our Infection Prevention business segment into our Professional Dental business segment to reduce costs and coordinate marketing efforts for our infection prevention products. As a result, we reduced the number of our business segments from three to two. Our two business

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      Professional Dental. Products in our Professional Dental business segment include light cured composite filling materials and bonding agents, amalgam alloy filling materials, dental burs, impression materials, magnification lenses, and curing lights used in general dentistry; waxes, specialty burs, investment and casting materials, equipment and accessories used in dental laboratories; and disposable infection prevention products for dental equipment and offices.

      Our Professional Dental products are primarily manufactured by Kerr Corporation and its affiliates, such as Sybron Canada Limited and KerrHawe. Kerr’s products, which are generally sold through independent dental distributors, are designed to help dentists deliver more effective and efficient treatment to their patients. Kerr has expanded its product line through new product development and through acquisitions.

      Expansion of products in this segment through acquisitions include the 1994 purchase of Demetron Research Corp., a manufacturer of lights used by dentists to cure composite filling materials applied to teeth. These products complemented Kerr’s line of composite filling materials, which it enhanced by acquiring E&D Dental Products, Inc. and its line of composites in 1996. Kerr added to its offering of dental lab products with the acquisition of belle de st.claire inc. in 1996. In 1997, it added diamond dental burs to the considerable line of dental burs manufactured by Sybron Canada Limited, with the acquisition of the assets of Precision Rotary Instruments, Inc. In 1999, Pinnacle Products, Inc. became a part of our organization, which enabled us to add dental disposable infection prevention products such as plastic coverings (barriers) for dental equipment and filters for evacuation units to this business segment. In the second quarter of 2000, we added Safe-Wave Products, Inc., a manufacturer of disposable tips and adapters for air/water syringes used in dental operatories. In the first quarter of 2001, we acquired certain assets of the dental division of Special Metals Corporation, a contract manufacturer and supplier of alloy powders used in Kerr’s Tytin® and Tytin® FC dental amalgams, assuring continued access to this technology. In the third quarter of 2001, we acquired all of the capital stock of Hawe Neos, a Swiss manufacturer and wholesaler of consumable dental products in the areas of prevention, restoration and pharmaceutical. In February 2002, we acquired certain assets of Surgical Acuity, Inc., a Wisconsin manufacturer of magnification lenses and fiberoptic lighting systems. In the fourth quarter of 2003, we acquired all of the capital stock of SpofaDental a.s., a leading manufacturer of consumable dental supplies in Central and Eastern Europe. For a more complete description of our acquisitions during fiscal years 2003, 2002 and 2001, please see Note 16 to our consolidated financial statements in Item 8 of this Annual Report.

      Products in the Professional Dental business segment, including dental related infection prevention products, are sold both domestically and internationally through dental distributors. Kerr has 85 sales personnel in the United States and 105 abroad dedicated to the Professional Dental business segment sales.

      Our Professional Dental companies are committed to increasing their market share through new product development and promotional activities. Their promotional activities create demand for their new products. The sales growth resulting from this demand is augmented by modest growth in the domestic market for traditional dental consumables. We believe opportunities for growth exist in international markets. As economies in the emerging markets of Eastern Europe, South America and the Far East continue to develop, the demand in those regions for dental products should grow. We also believe our Professional Dental companies are positioned to take advantage of such development due to their extensive experience in selling internationally and the quality of their existing international dealer network.

      The Professional Dental business segment accounted for approximately 58.4%, 61.2% and 59.4% of our consolidated net sales in 2003, 2002 and 2001, respectively.

      Orthodontics. Products in our Orthodontics business segment include a broad range of orthodontic appliances such as brackets, bands and buccal tubes, wires and elastomeric products as well as endodontic products. Brackets, bands, buccal tubes and wires are manufactured from a variety of metals to exacting specifications for standard use or to meet the custom specifications of a particular orthodontist. Elastomeric orthodontic products include rubber bands and power chains to consolidate space. Products in this area also

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      In 1995, we added endodontic products to the Orthodontics segment, which has a separate endodontic direct sales force, with the acquisition of Excellence in Endodontics, Inc., a manufacturer of products for endodontic procedures. We expanded our endodontic product offerings in this segment in 1996 when we acquired the assets of Analytic Technology Corporation, a manufacturer of endodontic equipment. In 1998, we added a line of nickel-titanium endodontic instruments with the acquisition of the dental business of Tycom Corporation. In 1999, we vertically integrated our Tycom product line in Europe with the purchase of Endo Direct Ltd., the exclusive European importer of Tycom’s endodontic products.

      Products in the Orthodontics business segment are marketed by 100 direct salespersons in the United States, Austria, Belgium, Canada, Australia, Germany, France, Ireland, Japan, Mexico, New Zealand, the Netherlands, Portugal, Spain, Switzerland and the United Kingdom, and by dealers and distributors in other parts of the world. Ormco’s direct sales force, dealers and distributors are supported by trade journal advertising, trade shows, seminars and telemarketing.

      The market for traditional orthodontics products is relatively mature domestically, and is experiencing modest growth. We expect the international market for orthodontics products to grow opportunity as interest in orthodontics for cosmetic reasons grows worldwide. We believe Ormco is well positioned to compete both domestically and internationally because its marketing philosophy is geared toward making orthodontic practices more efficient through product innovation and customer service.

      Ormco’s endodontic sales team sells our endodontic products both directly to end-users and through distributors (which had previously been handled primarily by our Professional Dental business segment). The endodontic team has 19 direct salespersons in the United States. The sales force markets our endodontic products directly to endodontic specialists in the United States and Canada and provides support to our dealers and helps sell products to the general dental community through a dealer network in those countries. In other parts of the world, our endodontic products are sold by dealers and distributors.

      The Orthodontics business segment accounted for approximately 41.6%, 38.8% and 40.6% of our consolidated net sales in 2003, 2002 and 2001, respectively.

      Financial information about our business segments is presented in Note 19 to our consolidated financial statements in Item 8 of this Annual Report.

      We believe we are well positioned to take advantage of the opportunities that exist to grow our business, such as the opportunities that we think will arise from the trends of an increasing worldwide population, growth in the population of people 65 and older, natural teeth being retained longer, and increased spending on dental health in developing nations.

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International

      In addition to the United States, products in our Professional Dental business segment are manufactured at facilities in Canada, Switzerland, Czech Republic, Italy and Mexico. These products are sold internationally through dealers, and supported by sales offices in Europe (including a major office in Switzerland), Japan and Australia.

      Domestic and international sales of our products by business segment are as follows:

      Our international businesses is subject to the risk of fluctuations in the exchange rates of various foreign currencies and other risks associated with foreign trade. For the years 2003, 2002 and 2001, our net sales outside the United States accounted for approximately 43%, 41%, and 39%, respectively, of consolidated net sales. See Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations “International Operations” and Item 7A — Quantitative and Qualitative Disclosures About Market Risk for further information concerning the possible effects of foreign currency fluctuations and currency hedges intended to mitigate their impact.

      We have included other financial information about our business segments and foreign operations in Note 19 to our consolidated financial statements in Item 8 of this Annual Report.

Competition

      We compete against numerous other companies in our business segments, some of which have substantially greater financial and other resources than us. We believe the breadth of our product lines and the strength of our long established brands provide us with a competitive advantage. Our widely recognized Kerr and Ormco brand names have been used for more than 100 years and 40 years, respectively. We believe these strong brands, our leading market positions and our programs to educate dental practitioners about techniques and products provide us with an excellent platform to pursue our growth initiatives. There can be no assurance, however, that we will maintain our competitive advantages or that we will not encounter increased competition in the future.

      Our principal competitors in the Professional Dental business segment are Dentsply International Inc., 3M ESPE, and Ivoclar Vivadent Group. In the Orthodontics business segment, we compete with more than 25 companies in the United States. We compete primarily on the basis of product quality, the level of customer service, price and new product offerings. Our competitors include 3M Unitek (a subsidiary of 3M Corporation), GAC International (a subsidiary of Dentsply) and American Orthodontics.

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Research and Development

      We have a number of research and development programs in our business segments, which we consider to be of importance in maintaining our market positions. We spent approximately $10.2 million, $10.4 million and $9.0 million on research and development in 2003, 2002 and 2001, respectively.

      Our research and development expenditures by business segment are as follows:

      Our business segments devote resources to the development and introduction of new products. These efforts are critical to meeting the needs of today’s dentists, endodontists and orthodontists. In the Professional Dental segment, product development requires diverse technical expertise and knowledge of various market trends, which we possess. Kerr takes advantage of its expertise and knowledge by working closely with dentists to develop new and improved products. The sales from recently introduced products, such as the LEDemetron 1 curing light, the OptiDisc polishing disc, CaviWipes disinfecting towelettes, and Toothprints dental ID for children, have contributed to Kerr’s total net sales. In the Orthodontics segment, Ormco’s sales force maintains direct contact with orthodontists to identify market trends. Ormco works closely with orthodontists to improve existing products and develop new products primarily through programs such as its Insider program in which selected orthodontists assist Ormco in designing, developing and ultimately educating users on new product and technique innovations. In recent years, Ormco has introduced a number of new products, which have contributed significantly to its sales. Examples of those products include the Damon^TM 2 brand self-ligating bracket, the Synthesis brand straight wire appliance, the Titanium Orthos® brand orthodontic bracket, and in the endodontic area, K-3 NiTi rotary files and Elements equipment series.

Employees

      Our companies employed approximately 4,200 people at September 30, 2003. In the United States, the Professional Dental segment’s 163 hourly employees at the Romulus, Michigan facility are members of the United Auto Workers Union. Our current labor contracts continue through January 31, 2005. Many of our non-management employees in Europe are subject to national labor contracts, which are negotiated from time to time at the national level between the national labor union and employees’ council. Once national contracts are set, further negotiation can take place at the local level. Such negotiations can affect local operations. We have had no work stoppages related to national contracts. We believe our relations with employees are generally good.

Patents, Trademarks and Licenses

      Our subsidiaries’ products are sold under a variety of trademarks and trade names. We own all of the trademarks and trade names we believe to be material to the operation of their businesses, including the Kerr®, Hawe®, Herculite^TM, Prodigy®, Tytin®, Demetron®, Ormco®, Straight-Wire®, inspire!®, AOA®, Damon^TM, Diamond®, Metrex® and Metricide^TM trademarks, each of which we believe to have widespread name brand recognition in their respective field and all of which we intend to continue to protect. Our subsidiaries also own various patents, employ various patented processes, and from time to time acquire licenses from owners of patents to apply patented processes to their operations or to sell patented products. Except for the trademarks referred to above, we do not believe any single patent, trademark or license is material to the operations of our business as a whole.

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Regulation

      Certain of our products are medical devices that are subject to regulation by the United States Food and Drug Administration (the “FDA”) and by the counterpart agencies of the foreign countries where our products are sold. Some of the regulatory requirements of these foreign countries are more stringent than those applicable in the United States. Our medical devices distributed in the European countries are CE marked per the European Medical Device Directives, 93/42/EEC. Products that are CE marked may move freely in the fifteen European Union States and the three European Economic Area States. Our worldwide facilities that are engaged in the manufacturing of Class IIa and Class IIb medical devices as defined by the European Medical Device Directives are ISO 13485 certified. Additionally, our medical devices distributed in Canada are licensed according to the Canadian Medical Device Regulations. Each facility manufacturing or distributing Class II and Class III medical devices holds a Certificate of Registration for a Quality Management System as defined in the Canadian Medical Devices Regulations. Pursuant to the Federal Food, Drug, and Cosmetic Act (the “FDCA”), the FDA regulates virtually all phases of the manufacture, sale, and distribution of medical devices, including their introduction into interstate commerce, manufacture, advertising, labeling, packaging, marketing, distribution and record keeping. Pursuant to the FDCA and FDA regulations, certain facilities of our operating subsidiaries are registered with the FDA as medical device manufacturing establishments. The FDA and our ISO Notified Bodies regularly inspect our registered and/or certified facilities.

      The FDA classifies medical devices into Class I, II, or III. Pursuant to section 510(k) of the FDCA, the manufacturer or initial distributor of a Class I or II device that is initially introduced commercially on or after May 28, 1976 must notify the FDA of its intent to commercially introduce the device through the submission of a premarket notification (a “510(k)”). Before commercial distribution can begin, the FDA must review the 510(k) and clear the device for commercial distribution. The FDA normally has 90 days to review the 510(k) and grant or deny clearance to market on the basis that it is or is not substantially equivalent to a device marketed before May 28, 1976. Alternatively, the FDA may postpone a final decision and require the submission of additional information, which may include clinical data. If additional information is required, review and clearance of a 510(k) may be significantly delayed. In order to clear a Class I or II device for marketing, the FDA must determine, from the information contained in the 510(k) and any additional information that is submitted, that the device is substantially equivalent to one or more Class I or II devices that are legally marketed in the United States. Certain Class I devices are exempt from the 510(k) premarket notification requirement and manufacturers of such products may proceed to market without any submission to the FDA. If a device is not considered “substantially equivalent,” it is regulated as a Class III medical device. In general, a Class III medical device must be expressly approved by the FDA for commercial distribution pursuant to the submission of a premarket approval application (“PMA”). A PMA must contain, among other information, substantial information about the manufacture of the device and data from adequate and well-controlled clinical trials that demonstrate that the device is both safe and effective. The PMA approval process is substantially more complex and lengthy than the 510(k) premarket notification process.

      A medical device, whether exempt from premarket notification, cleared for marketing under the 510(k) pathway, or cleared pursuant to a PMA approval, is subject to ongoing regulatory oversight by the FDA to ensure compliance with regulatory requirements, including, but not limited to, product labeling requirements and limitations, including those related to promotion and marketing efforts, current good manufacturing practices and quality system requirements, record keeping, and medical device (adverse event) reporting.

      All of our dental and orthodontic treatment products and high level disinfectants and sterilants, sold in the United States, are regulated as Class I or Class II medical devices by the FDA. In Canada, our high level disinfectants and sterilants, hard surface disinfectants and topical anti microbial infection prevention products, are regulated as drug products and are required to hold a Drug Identification Number (DIN) prior to sale. Our manufacturing facilities for these products are required to comply with the Good Manufacturing Practices for drug products as defined in Part C of the Canadian Food and Drug Regulations.

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      Dental mercury is currently regulated by the FDA as a Class I device (not exempt from the 510(k) premarket notification requirement), and amalgam alloy is regulated as a Class II device. On February 20, 2002, the FDA published for comment a guidance in which it proposes to regulate encapsulated mercury and amalgam alloy, like those sold by Kerr, as a single Class II device. It also proposed the reclassification of dental mercury as a Class II device, so as to conform to the Class II designation for amalgam alloy and to the proposed Class II designation for encapsulated mercury and amalgam alloy. As Class II devices, encapsulated mercury and amalgam alloy will be subject to special controls. The special controls may include, among other things, recommendations and guidance for the form and content of product labeling. The guidance document contains proposed recommendations regarding the handling and storage of encapsulated mercury and amalgam alloy, as well as warnings to be added to the labeling.

      All dental amalgam filling materials, including Kerr’s dental amalgam products, contain mercury. The use of mercury in various products, including dental amalgams, is being examined by various groups and U.S. and foreign governmental agencies as a part of an effort to reduce the amount of mercury to which individuals are exposed and that is discharged into the environment. We are aware of at least one foreign government agency that, as a result of a study it conducted, has proposed a plan that would discontinue the use of amalgams once a suitable alternative is found.

      Various groups, who have expressed concerns about the health effects allegedly caused by the mercury in amalgams, are active in lobbying state, federal and foreign lawmakers and regulators to pass laws or adopt regulatory changes or recommendations regarding the use of dental amalgams. To date, these efforts have resulted in restrictions on or recommendations against the use of amalgams in certain clinical situations in some states and countries. The actions have generally been taken to reduce human exposure to mercury where other safe and practical alternatives to dental amalgam exist.

      In the United States, the FDA’s Dental Devices Panel, the National Institute of Health and the United States Public Health Service have indicated that the use of amalgams does not cause verifiable adverse effects in patients who have amalgam fillings. All of these agencies have recommended further research on the subject and, in large part because of their initiatives, research with respect to potential health effects of dental amalgams is ongoing at various places around the world.

      Certain of our products, namely our topical antimicrobial infection prevention products, are subject to regulation by the FDA as over-the-counter drug products. In order to market a product as an over-the-counter drug, we are required to comply with current Good Manufacturing Practice regulations for drug products, which includes certain requirements relating to testing and labeling of these products. Each new product is listed with the FDA; however, there is no requirement for premarket submissions or approvals as long as the product is recognized as safe and effective by the FDA.

      Certain of our infection prevention products are classified as pesticides and are subject to regulation by the United States Environmental Protection Agency (“EPA”) under the Federal Insecticide, Fungicide and Rodenticide Act (“FIFRA”) and by various state environmental agencies under the laws of those states. Under FIFRA, no one may sell, distribute or use a pesticide unless it is registered with the EPA. Registration includes approval by the EPA of the product’s label, including the claims and instructions for use. The producer of a pesticide must provide data from tests performed according to EPA guidelines. These tests are designed to determine whether a pesticide has the potential to cause adverse effects on humans, wildlife, plants and possible ground or surface water contamination. Testing must also be submitted to support the claims on the product labeling. Separate registrations must be obtained from the EPA and each state in which the product is sold. Registrations must be renewed annually. The regulations also require producers to report adverse events associated with their products to the EPA. Failure to pay registration fees or provide necessary testing data, or evidence that the product is the cause of an adverse effect on humans or the environment, could result in fines and/or the cancellation of a FIFRA registration.

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      Our operations entail a number of environmentally sensitive production processes. Compliance with environmental laws and regulations, along with regulations relating to workplace safety, is a significant factor in our businesses. Our domestic facilities are subject to federal, state and local laws and regulations concerning, among other things, solid and hazardous waste disposal, air emissions and waste water discharge, and our foreign facilities are subject to their respective local laws and regulations regarding the environment. Our operations are also subject to regulation relating to workplace safety, both in the United States and abroad. Violations of any of these laws and regulations or the release of toxic or hazardous materials used in our operations into the environment could expose us to significant liability. Similarly, third party lawsuits relating to environmental and workplace safety issues could result in substantial liability.

Raw Materials

      We purchase a wide range of raw materials and supplies from a number of suppliers and do not rely on sole sources to any material extent. We do not foresee any significant difficulty in obtaining necessary materials or supplies.

Reliance on Key Distributors

      A substantial portion of our sales is made through major independent distributors. While one distributor, Henry Schein, Inc., accounted for more than 10% of our sales in 2003, we believe that the loss of either one of our top two distributors, the only distributors who account for more than 5% of our consolidated net sales and who sell primarily into the dental segment, could have a material adverse effect on our results of operations or financial condition until we find alternative means to distribute our products.

Transactions and Agreements Between Apogent and SDS

      In order to effect the spin-off, Apogent and SDS entered into a number of interrelated agreements. Certain of these agreements define the ongoing relationship between the parties after the spin-off and are briefly described below. Because these agreements were negotiated while we were a wholly owned subsidiary of Apogent, they are not the result of negotiations between independent parties. In the future, additional or modified agreements, arrangements and transactions may be entered into and such agreements and transactions will be determined through arm’s-length negotiations.

      Pursuant to the General Assignment, Assumption and Agreement Regarding Litigation, Claims and Other Liabilities, in general, we and our U.S. subsidiaries indemnify Apogent and its subsidiaries and affiliates against liabilities, litigation and claims actually or allegedly arising out of the dental business, including discontinued operations within those business segments. Similarly, Apogent and its U.S. subsidiaries indemnify us and our subsidiaries and affiliates against liabilities, litigation and claims actually or allegedly arising out of Apogent’s laboratory business, including discontinued operations within those business segments, and other items not transferred to us. In circumstances in which any liability of Apogent and SDS is joint, the parties will share responsibility for such liability on a mutually agreed basis consistent with the allocation of the business segments.

      An Insurance Matters Agreement governs the rights and obligations of Apogent and us with respect to various pre-existing contracts insuring Apogent and covering risks associated with, or arising out of, the dental business. The types of policies covered by the Insurance Matters Agreement include, without limitation, automobile liability, comprehensive and general liability. The Insurance Matters Agreement also establishes certain procedures for dealing with pending litigation, new litigation and the resolution of disputes between the parties concerning that agreement.

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Available Information

      Our Internet address is www.sybrondental.com. There we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonable practicable after we electronically file such material with, or furnish it to, the SEC. The information found on our website is not part of this or any other report we file with or furnish to the SEC.

Forward-Looking Statements

      All statements other than statements of historical facts included in this Annual Report, including without limitation, statements in Item 1 — Business, Item 3 — Legal Proceedings and Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report, and other statements located elsewhere in this Annual Report, in each case regarding the prospects of our industry and our prospects, plans, financial position, and business strategy, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “goal,” “objective,” “outlook,” “could,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “should,” or “will” or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully because they:

	•	discuss our future expectations;
	•	contain projections of our future results of operations or our financial condition; or
	•	state other forward-looking information.

      We believe it is important to communicate expectations to our investors. However, forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by any forward-looking statements. These factors include, among other things, those listed in Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations “Cautionary Factors.” Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results. Those statements, such as the one made in the immediately preceding section, “Business Strategy” regarding our intent to pursue our acquisition strategy, concern, among other things, our intent, belief or current expectations with respect to our operating and growth strategies, our capital expenditures, financing or other matters, regulatory matters pertaining to us specifically and the industry in general, industry trends, competition, risks attendant to foreign operations, reliance on key distributors, litigation, environmental matters, and other factors affecting our financial condition or results of operations. Such forward-looking statements involve certain risks and uncertainties, many of which are beyond our control, that could cause actual results to differ materially from those contemplated in the forward-looking statements.

      All subsequent forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements included in this document. These forward-looking statements speak only as of the date of this Annual Report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise and do not intend to update these statements unless the securities laws require us to do so.

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ITEM 2.     Properties

      We operate manufacturing facilities in the United States and certain foreign countries. The following table sets forth information regarding our principal properties by business segment. Properties with less than 20,000 square feet of building space have been omitted from this table.

      We consider our plants and equipment to be well maintained and suitable for their purposes. We review our manufacturing capacity periodically and make the determination as to our need to expand or, conversely, rationalize our facilities. We anticipate consolidating four of our Eastern European facilities into one site in fiscal 2004. In the event that we determine a need to expand our facilities, we expect to fund such expansions through internally generated funds or borrowings under our credit facility, which is described in Note 7 to our consolidated financial statements in Item 8 of this Annual Report. All of our owned domestic properties are encumbered under our credit facility. Our facility in Bioggio, Switzerland is encumbered by a mortgage given to the former shareholder of Hawe Neos as security for certain indemnification obligations we gave to the former shareholder of Hawe Neos.

ITEM 3.     Legal Proceedings

      We or our subsidiaries are at any one time parties to a number of lawsuits or subject to claims arising out of our respective operations, including products liability, patent and trademark, or other intellectual property infringement, contractual liability, workplace safety and environmental claims and cases, some of which involve claims for substantial damages. We or our subsidiaries are vigorously defending lawsuits and other claims against us. Pursuant to the agreements described above between Apogent and us relating to the spin-off, we will indemnify Apogent and its subsidiaries against costs and liabilities associated with past or future operations of the dental business, and Apogent will indemnify us and our subsidiaries against costs and liabilities associated with past or future operations of the laboratory business. See Note 18 to our consolidated financial statements in Item 8 of this Annual Report and Item 1 — Business “Transactions and Agreements Between Apogent and SDS.” We believe that any liabilities which might be reasonably expected to result from

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      None.

Executive Officers of the Registrant

      Set forth below are the names, ages, positions and experience of our executive officers. All executive officers hold office at the pleasure of the Board of Directors.

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PART II

      Shares of our common stock are traded on the New York Stock Exchange (“NYSE”) under the symbol “SYD.” The following table sets fourth the range of high and low sales prices per share of common stock as reported by the NYSE for each quarter of the two most recent fiscal years.

      Since our inception, we have not paid any dividends on our Common Stock and have no current intention to pay cash dividends on our Common Stock. See Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations “Liquidity and Capital Resources,” and Note 7 to our consolidated financial statements contained in Item 8 of this Annual Report, for a description of certain restrictions on our ability to pay dividends. Subject to such limitations, any future dividends will be at the discretion of our Board of Directors and will depend upon, among other factors, our earnings, financial condition and other requirements.

      As of December 4, 2003, there were 634 record holders of our common stock (excluding participants in securities position listings).

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      The following table sets forth our selected consolidated financial information for each of the five years in the period ended September 30, 2003. This selected financial information should be read in conjunction with Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations, and our consolidated financial statements and the notes thereto contained in Item 8 of this Annual Report.

(a)	Prior to our December 11, 2000 spin-off from Sybron International Corporation, which is now known as Apogent Technologies Inc., we were a wholly-owned subsidiary of Sybron International. Our results of operations prior to that time may not be indicative of the results we would have experienced had we been a stand alone company.
(b)	Represents an allocation of Apogent’s corporate office, general and administrative expenses.
(c)	On October 1, 2002, we adopted the provisions of the Statement of Accounting Financial Standards No. 142, and accordingly, discontinued amortizing goodwill and certain other intangible assets in fiscal 2003. Our fiscal 2003 results also include a $0.5 million (after tax) gain on the sale of our San Diego facility and a $0.9 million one-time benefit of a tax settlement in Canada. Includes refinancing expenses of approximately $13.0 million ($7.9 million after tax) associated with the refinancing of our credit facility and restructuring charges of approximately $3.7 million ($2.4 million after tax) in 2002 for the consolidation of our Professional Dental segment’s European operations into our Bioggio, Switzerland facility; a $2.4 million ($1.5 million after tax) restructuring charge related to the closing of Ormco’s San Diego, California facility in fiscal 2001; a restructuring charge of $9.3 million ($5.8 million after tax) in 2000 for the closing of Metrex’s Parker, Colorado facility, and the restructuring of Ormco’s operation in San Diego and Amersfort, as well as inventory and related charges for product exits in 2000 in all three of our then existing business segments; and a charge of $1.4 million ($0.9 million after tax) in 1999 for merger, transaction and integration expenses associated with the mergers with Pinnacle Products of Wisconsin, Inc. and LRS Acquisition Corp.
(d)	Earnings per share data for the years ended September 30, 1999 and 2000 was computed using 35,108,649 shares, the number of shares we had outstanding on December 11, 2000, the date of our spin-off, as the outstanding average number of shares for each year. Diluted earnings per share for the years ended September 30, 1999 and 2000 have been omitted, as no Sybron Dental Specialties, Inc. stock options existed prior to the date of the spin-off, making any calculation of diluted earnings per share for the years ended September 30, 1999 and 2000 meaningless.
(e)	The reduction in stockholders’ equity as of September 30, 2001 primarily reflects the payment of $67.9 million in cash dividends to Apogent as a result of the spin-off, and the settlement of all intercompany loans and advances with Apogent by way of a non-cash dividend of approximately $78.2 million as a result of the spin-off, partially offset by the net proceeds from the June 8, 2001 underwritten stock offering of approximately $50.0 million.

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General

      We are a leading global manufacturer and marketer of a broad range of consumable dental products and related small equipment, and a manufacturer and distributor of products for use in infection prevention in both the medical and dental markets. Prior to December 11, 2000, we were a wholly-owned subsidiary of Sybron International Corporation, which is now known as Apogent Technologies Inc. On December 11, 2000, Sybron International spun off its dental business by way of a pro rata distribution to its shareholders of all of our outstanding common stock together with related preferred stock purchase rights. As a result of the spin-off, we became an independent, publicly traded company.

      On October 1, 2002, we consolidated our Infection Prevention business segment into our Professional Dental business segment to reduce costs and coordinate marketing efforts for our infection prevention products thereby reducing the number of our business segments from three to two. Our two business segments are named Professional Dental and Orthodontics. In addition to re-aligning our business segments, at the commencement of the 2003 fiscal year we transferred the net sales of our stainless steel endodontic product line from the Professional Dental segment to the Orthodontics segment. While the costs for the sales and marketing of those products were handled during fiscal year 2002 by the Orthodontics segment, the net sales were reported in our Professional Dental business segment. As a result of this transfer, the operating results of the Professional Dental segment for fiscal year 2003 reflects the decrease of the sales of the endodontic product line from the prior year fiscal period, while the operating results of the Orthodontic segment reflects the increase in net sales in fiscal year 2003 from the prior year fiscal period. While the transfer impacted the respective results of operations we reported for the Professional Dental and Orthodontics segments for fiscal 2003, there was no impact on our reported consolidated results of operations for the fiscal year.

      All financial information presented in this annual report combines the historical information of the Infection Prevention and Professional Dental business segments into the Professional Dental reporting segment. We did not adjust the prior period information reported for our Professional Dental and Orthodontics segments to reflect the transfer of the endodontic product line.

      The following discussion should be read in conjunction with our consolidated financial statements and the accompanying notes contained in Item 8 of this Annual Report.

Results of Operations

      Net sales in 2003 and 2002 increased by 15.3% and 3.9%, respectively, from the corresponding prior year period. Included in the 15.3% increase in net sales for the year ended September 30, 2003 is internal growth of 8.4%, a favorable foreign currency translation of 4.7%, with the remaining sales increase predominately attributed to acquisitions. Included in the 3.9% net sales increase for the year ended September 30, 2002 was a 5.2% increase related to acquisitions, and a 0.1% increase due to favorable foreign currency fluctuations. The increase was partially offset by a negative 1.4% internal growth in fiscal 2002.

      Our domestic sales for the fiscal year ended September 30, 2003 were $299.5 million, representing an increase of $31.5 million or 11.8% over the comparable prior year period. International sales increased by $38.2 million, or 20.3%, to $226.9 million for the year ended September 30, 2003 compared to the same period in the prior year. Foreign currency fluctuations in the year ended September 30, 2003 represented $21.5 million of the increase in international sales over the comparable prior year period.

      We believe that our increase in revenue is a result, in part, of the changes we made throughout our organization in the second half of fiscal 2002, the introduction of our new LED curing light, the increase in our endodontic sales force and the increased average tenure of the sales force in the United States of our Orthodontics segment. We expect to see continued revenue growth in fiscal 2004; although we anticipate the revenue related to sales of our new LED curing light will decrease and we anticipate the weakening economy in Latin America and Asia, as well as reductions to regulatory health reimbursement programs in Germany, to

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      Overall Company. Net sales for the twelve months ended September 30, 2003 increased by $69.7 million, or 15.3%, from the corresponding 2002 fiscal year.

      Professional Dental. Increased net sales in the Professional Dental segment resulted primarily from: (a) net sales of new products (approximately $16.2 million), (b) favorable foreign currency fluctuations (approximately $12.6 million), (c) the net sales of products from acquired companies (approximately $6.9 million), (d) increased net sales of existing products (approximately $4.2 million) and (e) reduced rebate expense (approximately $0.7 million). The increase in net sales was offset by a decrease in net sales due to the transfer of the endodontic product sales to the Orthodontics segment, which contributed approximately $12.5 million in net sales to the Professional Dental segment in the comparable prior year period.

      Orthodontics. Increased net sales in the Orthodontics segment resulted primarily from: (a) increased net sales of existing products (approximately $22.6 million), (b) an increase in net sales due to the transfer of the endodontic product sales from the Professional Dental segment, which contributed approximately $11.1 million in net sales to the Orthodontics segment in fiscal 2003, (c) favorable foreign currency fluctuations (approximately $8.9 million) and (d) net sales of new products (approximately $4.6 million). The increase in net sales was offset by increased rebate expense (approximately $5.6 million).

      Overall Company. Gross profit for the twelve months ended September 30, 2003 increased by $35.0 million or 13.7% from the corresponding fiscal 2002 period.

      Professional Dental. Increased gross profit in the Professional Dental segment resulted primarily from: (a) unit volume relating to new products (approximately $9.0 million), (b) favorable foreign currency fluctuations (approximately $6.3 million), (c) margins relating to the net sales of products from acquired companies (approximately $4.2 million), (d) increased net sales of existing products (approximately $2.7 million) and (e) decreased rebate expense (approximately $0.7 million). The increase in gross profit was partially offset by: (a) decreased gross profit due to the transfer of the endodontic product line to the Orthodontics segment, which contributed approximately $7.8 million in gross profit to the Professional Dental segment in the comparable prior year period, (b) unfavorable manufacturing variances (approximately $2.2 million), (c) a change in product mix (approximately $1.2 million), (d) increased royalty expense

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      Orthodontics. Increased gross profit in the Orthodontics segment resulted primarily from: (a) increased net sales of existing products (approximately $12.0 million), (b) favorable foreign currency fluctuations (approximately $8.8 million), (c) increased gross profit due to the transfer of the endodontic product line from the Professional Dental segment, which contributed approximately $6.5 million in gross profit to the Orthodontics segment in fiscal 2003, (d) favorable manufacturing variances (approximately $2.8 million) and (e) unit volume relating to new products (approximately $2.8 million). The increase in gross profit was partially offset by: (a) increased rebate expense (approximately $5.6 million), (b) increased royalty expense (approximately $1.6 million), (c) inventory adjustments (approximately $1.1 million, of which approximately $0.5 million is due to physical inventory adjustments, an increase in obsolescence of approximately $0.4 million and standard cost revisions of approximately $0.2 million) and (d) a change in product mix (approximately $0.4 million).

      Overall Company. Selling, general and administrative expenses for the fiscal year ended September 30, 2003 increased by $15.2 million or 9.3% from the corresponding fiscal 2002 period.

      Professional Dental. Increased selling, general and administrative expenses in the Professional Dental segment resulted primarily from: (a) increased general and administrative expenses of approximately $6.9 million primarily attributable to higher incentive compensation related to the improved performance in fiscal 2003 over fiscal 2002, (b) an increase in expenses relating to foreign currency fluctuations (approximately $3.9 million) and (c) expenses of acquired companies (approximately $3.0 million). The increase in selling, general and administrative expenses was partially offset by: (a)  decreased amortization expense of goodwill and other intangible assets (approximately $6.3 million), (b) the absence of restructuring charges in fiscal 2003 (approximately $3.3 million), (c) decreased research and development expenses (approximately $0.3 million) and (d) decreased selling and marketing expenses (approximately $0.1 million).

      Orthodontics. Increased selling, general and administrative expenses in the Orthodontics segment resulted primarily from: (a) increased selling and marketing expenses (approximately $6.2 million), consistent with the increase in sales, (b) increased general and administrative expenses of approximately $6.0 million primarily attributable to higher incentive compensation related to the improved performance in fiscal 2003 over fiscal 2002 and (c) increased expenses related to foreign currency fluctuations (approximately $2.0 million). The increase in selling, general and administrative expenses was partially offset by: (a) a decrease in amortization expense of goodwill and other intangible assets (approximately $2.6 million) and (b) decreased research and development expenses (approximately $0.2 million).

      Included in other, net for the fiscal year ended September 30, 2003 is a gain from the sale of our San Diego facility for approximately $0.8 million.

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      Depreciation and amortization of goodwill (prior to October 1, 2002) and other intangible assets is allocated among the cost of sales, selling, general and administrative expenses and other expense. Amortization of goodwill and certain other intangible assets decreased $8.9 million in fiscal 2003 compared to the same period in the prior year primarily due to our discontinuing the amortization of goodwill and certain other intangible assets in accordance with SFAS No. 142. Depreciation increased by $0.6 million compared to the same period in the prior year.

      As a result of the foregoing, operating income for the fiscal year ended September 30, 2003 increased by 21.4% or $19.8 million from operating income for the corresponding 2002 period.

      Interest expense was $21.6 million in 2003, a decrease of $4.3 million from the corresponding 2002 period. The decrease resulted from reduced average debt balances from $334.8 million in fiscal 2002 to $300.9 million in fiscal 2003, and reduced average interest rates from 7.0% in fiscal 2002 to 6.4% in fiscal 2003 on our credit facility.

      Taxes on income in 2003 were $32.1 million, or 35.9% of income before taxes, an increase of $11.4 million from the prior year taxes on income of $20.7 million, or 39.0% of income before taxes. Excluding a one-time benefit of a tax settlement in Canada of $0.9 million, the taxes on income were $33.0 million in 2003. The increase in taxes was primarily due to higher taxable earnings, partially offset by the decrease in our effective tax rate due to lower foreign tax rates. We expect our tax rate to decrease in fiscal year 2004, due to our European restructuring.

      As a result of the foregoing, we had net income of $57.5 million in 2003, as compared to net income of $31.6 million in the corresponding 2002 period.

      Basic earnings per share for 2003 were $1.51 per share, while diluted earnings per share were $1.46 per share. For 2002, basic earnings per share were $0.83, while diluted earnings per share were $0.81 per share.

Year Ended September 30, 2002 Compared to the Year Ended September 30, 2001

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      Overall Company. Net sales for the twelve months ended September 30, 2002 increased by $17.1 million or 3.9% from the corresponding 2001 fiscal year.

      Professional Dental. Increased net sales in the Professional Dental segment resulted primarily from: (a) the net sales of products from acquired companies (approximately $22.7 million), (b) net sales of new products (approximately $4.3 million), (c) favorable foreign currency fluctuations (approximately $1.7 million) and (d) reduced rebate expense (approximately $1.1 million). The increase in net sales was partially offset by: (a) decreased net sales of existing products (approximately $10.5 million) and (b) the loss of the net sales of the prior year’s exited product lines (approximately $0.8 million).

      Orthodontics. Decreased net sales in the Orthodontics segment resulted primarily from: (a) decreased net sales of existing products (approximately $2.9 million), (b) the loss of the net sales of the prior year’s exited product lines (approximately $1.3 million) and (c) increased rebate expense (approximately $1.3 million). The decrease in net sales was partially offset by: (a) net sales of new products (approximately $3.1 million), (b) favorable foreign currency fluctuations (approximately $0.9 million) and (c) the net sales of products from an acquired company (approximately $0.1 million).

      Overall Company. Gross profit for the twelve months ended September 30, 2002 increased by $6.4 million or 2.6% from the corresponding fiscal 2001 period.

      Professional Dental. Increased gross profit in the Professional Dental segment resulted primarily from: (a) margins relating to the net sales of products from acquired companies (approximately $11.5 million), (b) unit volume relating to new products (approximately $2.6 million), (c) favorable manufacturing variances (approximately $1.8 million), (d) favorable foreign currency fluctuations (approximately $1.6 million), (e) decreased rebate expense (approximately $1.1 million), (f) a favorable product mix (approximately $0.6 million) and (g) decreased royalty expense (approximately $0.2 million). The increase in gross profit was partially offset by: (a) a decrease in the net sales of existing products (approximately $6.0 million), (b) inventory adjustments (approximately $1.2 million, of which approximately $0.8 million due to physical inventory adjustments and approximately $0.4 million is related to standard cost revisions) and (c) margins lost from the prior year’s exited products lines (approximately $0.4 million).

      Orthodontics. Decreased gross profit in the Orthodontics segment resulted primarily from: (a) unfavorable manufacturing variances (approximately $4.4 million), (b) decreased net sales of existing products (approximately $1.8 million), (c) increased rebate expense (approximately $1.3 million), (d) margins lost from the prior year’s exited products (approximately $0.8 million) and (e) increased royalty expense (approximately $0.5 million). The decrease in gross profit margins were partially offset by: (a) unit volume relating to new products (approximately $1.9 million), (b) favorable foreign currency fluctuations (approximately $0.9 million), (c) a favorable product mix (approximately $0.4 million), (d) margins relating to net sales of products from an acquired company (approximately $0.1 million) and (e) inventory adjustments (approximately $0.1 million, of which approximately $0.7 million is related to physical inventory adjustments, partially offset by an decrease in obsolescence of approximately $0.7 million and approximately $0.1 million decrease in standard cost revisions).

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      Overall Company. Selling, general and administrative expenses for the fiscal year ended September 30, 2002 increased by $13.8 million or 9.2% from the corresponding fiscal 2001 period.

      Professional Dental. Increased selling, general and administrative expenses in the Professional Dental segment resulted primarily from: (a) expenses related to acquisitions (approximately $8.5 million), (b) increased restructuring charges (approximately $3.3 million), (c) increased selling and marketing expenses (approximately $1.9 million), (d) increased amortization expense of goodwill and other intangible assets (approximately $1.1 million) and (e) increased research and development expenses (approximately $0.4 million). The increase in selling, general and administrative expenses was partially offset by: (a) a decrease in general and administrative expenses (approximately $1.0 million) and favorable foreign currency fluctuations (approximately $0.1 million).

      Orthodontics. Decreased selling, general and administrative expenses in the Orthodontics segment resulted primarily from: (a) a decrease in general and administrative expenses (approximately $2.7 million), (b) favorable foreign currency fluctuations (approximately $0.7 million) and (c) decreased amortization expense of goodwill and other intangible assets (approximately $0.1 million). The decrease in selling, general and administrative expenses was partially offset by: (a) increased selling and marketing expenses (approximately $2.9 million), (b) increased research and development expenses (approximately $0.2 million) and (c) expenses related to an acquisition (approximately $0.1 million).

      Depreciation and amortization expense of goodwill and other intangible assets is allocated among cost of sales, selling, general and administrative expenses and other expense. Depreciation and amortization expense of goodwill and other intangible assets increased $2.0 million in 2002 from the prior year period due to additional amortization from the step-up of assets, goodwill and intangibles recorded from the various acquisitions, as well as routine capital expenditures.

      As a result of the foregoing, operating income for the fiscal year ended September 30, 2002 decreased by 7.4% or $7.3 million from operating income for the corresponding 2001 period.

      Interest expense was $25.8 million in 2002, a decrease of $7.6 million from the corresponding 2001 period. The decrease resulted from reduced average debt balances and reduced average interest rates on our credit facility.

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      In the third quarter of 2002, we terminated our prior credit agreement and entered into a new syndicated credit facility. As a result of the refinancing activity, we recorded the following refinancing expenses; (a) an expense of approximately $4.5 million related to the write-off of the deferred financing fees related to our prior credit agreement, (b) a loss on the terminated interest rate swaps that could not be re-assigned to our new credit facility of approximately $3.8 million (representing the fair value of the swaps at the termination date), (c) a non-cash loss on the remaining interest rate swaps that were re-assigned to the new credit facility of approximately $3.2 million (representing the fair value of the remaining swaps at the date of the refinancing that were reclassified from accumulated other comprehensive income (loss), and (d) a prepayment penalty primarily due to a penalty related to our terminated tranche B term loan of approximately $1.5 million. The refinancing expense of approximately $0.8 million in fiscal year 2001 represents the write-off of the associated deferred financing fees as a result of the termination of Apogent’s credit agreement due to the spin-off of SDS.

      Taxes on income in 2002 were $20.7 million, or 39.5% of income before taxes, a decrease of $4.5 million from the prior year taxes on income of $25.2 million, or 40.1% of income before taxes. Excluding a one-time $0.3 million tax charge related to the 2002 restructuring, the taxes on income were $20.4 million in 2002.

      As a result of the foregoing, we had net income of $31.6 million in 2002, as compared to net income of $37.6 million in the corresponding 2001 period.

      Basic earnings per share for 2002 was $0.83 per share, while diluted earnings per share was $0.81 per share. For 2001, basic earnings per share was $1.05, while diluted earnings per share was $1.01 per share.

      We believe the following critical accounting policies, among others, affect significant judgments and estimates used in the preparation of our consolidated financial statements. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for determining the carrying values of assets and liabilities that are not readily apparent from other sources and are inherently uncertain. As a result, changes in estimates, assumptions and general market conditions on which our judgments and estimates are based, could cause actual results to differ materially from future expected results.

	•	Inventories — Inventories are stated at the lower of cost or market using the first-in, first-out method. We estimate customer demand, prices for products and future inventory usage in evaluating the adequacy of inventory reserves. Increases in inventory reserves are charged to cost of goods sold.
	•	Intangible and Long-Lived Assets — Our business acquisitions typically result in goodwill and other intangible assets. We assess the impairment of identifiable intangibles, long-lived assets and related goodwill annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Our judgments regarding the existence of impairment indicators and future cash flows related to intangible assets are based on operational performance of our acquired businesses, market conditions and other factors. Future events could cause us to conclude that impairment indicators exist and that goodwill associated with our acquired businesses is impaired. Any resulting impairment loss could have an adverse impact on our results of operations.
	•	Pension and Other Postretirement Benefits — We have two non-contributory defined benefit pension plans that cover all regular United States based employees with more than five years of service. Our accumulated benefit obligation, the fair value of plan assets and the amount of annual pension cost are

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		calculated based on a number of actuarial assumptions including an expected long-term return on plan assets, assumed rates of compensation increase and the discount rate used to calculate the actuarial present value of benefit obligations to be paid in the future. In developing these assumptions, we evaluate input from our actuaries as well as information available from the securities markets. The assumptions and factors used by us may differ materially from actual results due to changing market conditions, earlier or later retirement ages or longer or shorter life spans of participants. These differences may result in a significant impact to the amount of pension obligation or expense recorded by us. The actuarial assumptions are evaluated annually as of the beginning of each fiscal year.

	At October 1, 2003, the discount rate was 6.0%. To the extent the discount rate increases or decreases, the projected pension obligation is decreased or increased, accordingly. The estimated effect of a 0.25 percent decrease in the discount rate would increase the projected pension obligation by $2.5 million and increase annual pension expense by $0.4 million.
	The expected long-term rate of return on the plan assets is the weighted average rate of the long-term investment return expected on those assets. To the extent the actual rate of return on assets realized over the course of a year is greater than the assumed rate, that year’s annual pension expense is not affected. Rather, the gain would reduce future pension expense over a period of approximately 12 to 18 years. As of October 1, 2003, we utilized 8.75% as the expected long-term rate of return on plan assets.
	The assumed average rate of compensation increase is the average annual compensation increase expected over the remaining employment periods for the participating employees. At October 1, 2003, we utilized a rate of 4.0 percent. This rate is utilized principally in calculating the pension obligation and annual pension expense. The estimated effect of a 0.25 percent increase in the assumed rate of compensation increase would increase the projected pension obligation by $0.4 million and increase annual pension expense by $0.1 million.
	Based on market conditions, and based on information from our actuaries and investment advisors, we reduced, during the quarter ended June 30, 2003, our discount rate from 7.25% to 6.0% and the expected return on plan assets from 10.00% to 8.75%. We maintained our expected rate of compensation increase at 4.00%. To compensate for the lowered assumptions, we made a $10.3 million contribution to our pension fund during the quarter ended June 30, 2003. The change in assumptions will result in an increase in our pension expense in fiscal 2004.

Acquisitions

      As discussed in Item 1 — Business “Research and Development,” we have maintained an active program of development and introduction of new products. We believe that introducing new products is important to maintain our competitive position. We have also pursued numerous acquisition opportunities, completing 28 acquisitions between 1993 and 2003. Acquisitions completed since the beginning of fiscal 2002 are as follows:

      These acquisitions included in our Professional Dental segment are consistent with our strategy of acquiring product lines that can be manufactured in existing facilities, sold through existing sales and distribution networks or that expand our geographic reach. We intend to continue to seek out acquisition candidates consistent with our strategy. However, there can be no assurance of the number or size of future acquisitions.

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Restructuring Charges

      In September 2002, we recorded a restructuring charge of approximately $3.7 million ($2.4 million after tax). The charge was primarily composed of severance and termination costs associated with the 71 employees whose employment we have either terminated or plan to terminate as a result of the consolidation of several of our European facilities into our Hawe Neos facility in Switzerland. Of the $3.7 million in restructuring charges, approximately $3.1 million was a cash charge related to severance and contractual obligations, $0.3 million was a cash charge for tax liabilities included in income taxes payable and the balance of approximately $0.3 million related to non-cash charges. As of September 30, 2003, 61 of the 71 planned terminations have been completed. We expect to complete the balance of the 2002 restructuring plan by the end of fiscal 2004.

      The 2002 restructuring charge activity since September 2002 and its components are as follows (in thousands):

      In September 2001, we recorded a restructuring charge of approximately $2.4 million ($1.5 million after tax) consisting primarily of the severance and termination costs associated with the termination of the employment of 63 employees that were employed at Ormco’s San Diego, California manufacturing facility. Their employment was terminated as a result of the closing of the facility. We completed the closing of the facility as of June 30, 2002 and finalized all remaining costs. Work previously performed at the facility was absorbed into Ormco’s Glendora, California facility.

      The 2001 restructuring charge activity since September 30, 2001 and its components are as follows (in thousands):