1
==========================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 2000 COMMISSION FILE NUMBER: 000-23092
NATIONAL DENTEX CORPORATION
MASSACHUSETTS 04-2762050
------------- ----------
(STATE OF INCORPORATION) (I.R.S. IDENTIFICATION NO.)
526 BOSTON POST ROAD, WAYLAND, MA 01778
- --------------------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(508) - 358 - 4422
-----------------------------
(REGISTRANT'S TELEPHONE NUMBER)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
------ -------
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF NOVEMBER 10, 2000: 3,563,407.
------------
================================================================================
2
NATIONAL DENTEX CORPORATION
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
-----------------
PAGE
PART I. FINANCIAL INFORMATION
- -------
ITEM 1. FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1999 AND SEPTEMBER 30,
2000 (UNAUDITED) 3
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 2000 (UNAUDITED) 4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 2000 (UNAUDITED) 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13
PART II. OTHER INFORMATION 14
- -------
SIGNATURES 15
3
NATIONAL DENTEX CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1999 2000
------------ -------------
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and equivalents ................................... $11,215,179 $11,347,819
Accounts receivable:
Trade, less allowance of $196,000 in 1999 and
$173,000 in 2000 .................................... 7,987,954 8,331,365
Other ................................................ 436,401 1,119,573
Inventories ............................................ 3,840,821 3,964,023
Prepaid expenses ....................................... 912,513 846,896
Deferred tax asset ..................................... 350,820 404,026
----------- -----------
Total current assets .................................. 24,743,688 26,013,702
----------- -----------
PROPERTY AND EQUIPMENT:
Land and buildings ..................................... 3,887,402 3,887,402
Leasehold and building improvements .................... 3,976,361 4,641,194
Laboratory equipment ................................... 7,356,055 7,919,939
Furniture and fixtures ................................. 2,228,775 2,392,638
Capital leases ......................................... -- --
----------- -----------
17,448,593 18,841,173
Less - Accumulated depreciation and
amortization ....................................... 9,020,264 9,778,729
----------- -----------
Net property and equipment ............................. 8,428,329 9,062,444
----------- -----------
OTHER ASSETS, net:
Goodwill ............................................... 11,111,435 10,688,717
Non competition agreements ............................. 3,539,947 3,390,670
Deferred tax asset ..................................... 337,268 347,871
Other .................................................. 1,310,044 1,794,187
----------- -----------
16,298,694 16,221,445
----------- -----------
$49,470,711 $51,297,591
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable ....................................... $ 1,491,285 $ 1,347,586
Accrued liabilities:
Payroll and employee benefits ........................ 3,764,657 2,948,044
Current portion of deferred purchase price ........... 2,403,888 979,172
Other ................................................ 370,203 357,456
----------- -----------
Total current liabilities ............................ 8,030,033 5,632,258
----------- -----------
LONG TERM LIABILITIES:
Payroll and employee benefits .......................... 1,159,871 851,790
Deferred purchase price ................................ 731,334 357,778
----------- -----------
Total long-term liabilities .......................... 1,891,205 1,209,568
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY:
Preferred stock, $.01 par value
Authorized - 500,000 shares
None issued and outstanding .......................... -- --
Common stock, $.01 par value
Authorized - 8,000,000 shares Issued and outstanding -
3,550,083 shares at December 31, 1999, and 3,580,607
shares at September 30, 2000 ......................... 35,500 35,806
Paid-in capital ........................................ 14,903,119 15,294,366
Retained earnings ...................................... 24,610,855 29,125,593
----------- -----------
Total stockholders' equity ........................... 39,549,474 44,455,765
----------- -----------
$49,470,711 $51,297,591
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
3
4
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended Nine months ended
------------------------------- -------------------------------
September 30, September 30, September 30, September 30,
1999 2000 1999 2000
------------- ------------- ------------- -------------
Net sales ........................... $17,146,259 $18,049,052 $52,391,491 $56,875,325
Cost of goods sold .................. 10,141,905 10,920,048 30,383,702 33,107,900
----------- ----------- ----------- -----------
Gross profit ..................... 7,004,354 7,129,004 22,007,789 23,767,425
Total operating expenses ............ 5,142,861 5,079,339 15,622,084 16,563,830
----------- ----------- ----------- -----------
Operating income ................. 1,861,493 2,049,665 6,385,705 7,203,595
Other expense ....................... 19,182 25,213 43,154 88,988
Interest income ..................... 84,088 150,228 204,073 409,956
----------- ----------- ----------- -----------
Income before provision for income
taxes.............................. 1,926,399 2,174,680 6,546,624 7,524,563
Provision for income taxes .......... 761,319 869,872 2,618,650 3,009,825
----------- ----------- ----------- -----------
Net income ....................... $ 1,165,080 $ 1,304,808 $ 3,927,974 $ 4,514,738
=========== =========== =========== ===========
Net income per share - Basic ........ $ .33 $ .36 $ 1.11 $ 1.26
=========== =========== =========== ===========
Net income per share - Diluted ...... $ .33 $ .36 $ 1.10 $ 1.26
=========== =========== =========== ===========
Weighted average shares outstanding -
Basic 3,549,646 3,580,412 3,541,652 3,569,863
=========== =========== =========== ===========
Weighted average shares outstanding -
Diluted 3,577,688 3,618,148 3,563,414 3,595,755
=========== =========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
4
5
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Preferred Stock Common Stock
---------------------- -------------------
Number of $.01 Par Number of $.01 Par Paid-in Retained
Shares Value Shares Value Capital Earnings Total
--------- -------- --------- --------- -------- --------- -----
BALANCE, December 31, 1999 ............. -- $ -- 3,550,083 $ 35,500 $14,903,119 $24,610,855 $39,549,474
Issuance of 12,183 shares of common
stock under the employee stock
option plan .......................... -- -- 12,183 122 163,318 -- 163,440
Issuance of 17,528 shares of common
stock under the employee stock
purchase plan ........................ -- -- 17,528 176 215,945 -- 216,121
Issuance of 813 shares of common
stock as director's fee............... -- -- 813 8 11,984 -- 11,992
Net income ............................. -- -- -- -- -- 4,514,738 4,514,738
----- ------- --------- -------- ----------- ----------- -----------
BALANCE, September 30, 2000 ............ -- $ -- 3,580,607 $ 35,806 $15,294,366 $29,125,593 $44,455,765
===== ======= ========= ======== =========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
5
6
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months ended September 30,
---------------------------------------
1999 2000
----------- -----------
Cash flows from operating activities:
Net income................................................... $ 3,927,974 $ 4,514,738
Adjustments to reconcile net income to net cash provided by
operating activities, net of effects of acquisitions:
Depreciation and amortization............................ 1,702,944 1,821,576
Increase in accounts receivable.......................... (93,771) (734,862)
Increase in inventories.................................. (283,399) (104,580)
(Increase) decrease in prepaid expenses ................. (117,267) 65,617
Increase in deferred tax asset .......................... (5,121) (63,809)
Increase in other assets................................. (167,789) (756,340)
Decrease in accounts payable and
accrued liabilities..................................... (1,044,356) (1,345,667)
Decrease in deferred tax liability....................... (27,804) --
----------- -----------
Net cash provided by operating activities................ 3,891,411 3,396,673
----------- -----------
Cash flows from investing activities:
Payment for acquisitions, net of cash acquired......... (2,112,123) (70,940)
Payment of deferred purchase price......................... (515,165) ( 2,190,098)
Additions to property and equipment, net................... (1,189,041) (1,394,548)
Proceeds from officer's life insurance policy.............. 1,016,871 --
----------- -----------
Net cash used in investing activities.................... (2,799,458) (3,655,586)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock..................... 407,943 391,553
----------- -----------
Net cash provided by financing activities................ 407,943 391,553
----------- -----------
Net increase (decrease) in cash.............................. 1,499,896 132,640
Cash at beginning of period.................................. 8,525,648 11,215,179
----------- -----------
Cash at end of period........................................ $10,025,544 $11,347,819
----------- -----------
Supplemental disclosures of cash flow information:
Interest paid.............................................. $7,611 $84,830
----------- -----------
Income taxes paid.......................................... $ 3,035,875 $ 3,365,354
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
6
7
NATIONAL DENTEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(1) INTERIM FINANCIAL STATEMENTS
- --------------------------------
The accompanying unaudited financial statements include all adjustments
(consisting only of normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the results of operations for
the periods presented. Interim results are not necessarily indicative of the
results to be expected for a full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted as allowed by Form 10-Q. The accompanying
unaudited consolidated financial statements should be read in conjunction with
the Company's consolidated financial statements for the year ended December 31,
1999 as filed with the Securities and Exchange Commission on Form 10-K.
(2) EARNINGS PER SHARE
- ----------------------
Basic earnings per share was computed by dividing net income by the
weighted-average common shares outstanding. Diluted earnings per share was
computed by giving effect to all dilutive potential common shares outstanding.
These shares include shares issuable upon the exercise of options and warrants
as determined by the application of the treasury stock method. The calculation
of basic earnings per share and diluted earnings per share is as follows:
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 2000 September 30, 1999 September 30, 2000
------------------- ------------------- ------------------ ------------------
Net income applicable to common stock $1,165,080 $1,304,808 $3,927,974 $4,514,738
========== ========== ========== ==========
Computation of Basic Earnings per Share:
- ----------------------------------------
Weighted average common shares
outstanding 3,549,646 3,580,412 3,541,652 3,569,863
Basic earnings per share $.33 $.36 $1.11 $1.26
Computation of Diluted Earnings per Share:
- ------------------------------------------
Weighted average common shares
outstanding 3,549,646 3,580,412 3,541,652 3,569,863
Shares issuable from assumed exercise
of options and warrants (as determined
by the application of the treasury
stock method) 28,042 37,736 21,762 25,892
---------- ---------- ---------- ----------
Weighted average common shares
outstanding as adjusted 3,577,688 3,618,148 3,563,414 3,595,755
Diluted earnings per share $.33 $.36 $1.10 $1.26
7
8
Options to purchase 123,870 shares of common stock at exercise prices ranging
from $17.63 to $21.88 per share were outstanding during the third quarter of
2000 but were not included in the computation of diluted earnings per share
because the options' exercise price was greater than the average market price of
the common shares. The options, which expire through September 2008, were still
outstanding at September 30, 2000.
(3) COMPREHENSIVE INCOME
- ------------------------
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," establishes standards for reporting and displaying comprehensive income
and its components. The Company adopted the statement in its quarter ending
March 31, 1998. The Company does not have any other items of comprehensive
income. As such, comprehensive income is equal to net income as presented in the
consolidated statements of income.
(4) RECENT ACCOUNTING PRONOUNCEMENTS
- ------------------------------------
The Securities and Exchange Commission issued SAB No. 101, "Revenue
Recognition", in December 1999. This bulletin established guidelines for revenue
recognition and is effective for periods beginning after September 15, 2000. The
Company believes that the adoption of the guidance provided in SAB No. 101 will
not have a material impact on future operating results.
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", in June 1998. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. The standard is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company believes that the
adoption of the guidance provided in SFAS 133 will not have a material impact on
future operating results.
(5) RECLASSIFICATIONS
- ---------------------
Certain amounts in the 1999 financial statement have been reclassified to
conform with the 2000 presentation.
(6) SUBSEQUENT EVENTS
- ---------------------
Effective October 23, 2000 the Company acquired all of the outstanding capital
stock of Oral Arts Dental Laboratory, Inc. of Atlanta, Georgia.
Effective November 1, 2000 the Company acquired all of the outstanding capital
stock of Ideal Dental Laboratory, Inc. of Albuquerque, New Mexico.
8
9
ITEM 2.
- -------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
==========================================
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital increased from $16,713,000 at December 31, 1999 to
$20,381,000 at September 30, 2000. Cash and equivalents increased $ 133,000 from
$11,215,000 at December 31, 1999. Operating activities provided $3,397,000 in
cash flow for the nine months ended September 30, 2000. Cash outflows related to
dental laboratory acquisitions totaled $2,261,000 for the nine months ended
September 30, 2000 compared to $2,627,000 for the same period in 1999. Capital
expenditures totaled $1,395,000 for the nine months ended September 30, 2000
compared to $1,189,000 for the same period in 1999.
The Company maintains a financing agreement (the "Agreement") with Citizens
Bank of Massachusetts (formerly State Street Bank and Trust Company) (the
"Bank"). The Agreement, as amended and extended on June 27, 1998, includes
revolving lines of credit of $4,000,000 and $8,000,000. The interest rate on
both revolving lines of credit is the prime rate minus 0.5% or the LIBOR rate
plus 1.5%, at the Company's option. Both revolving lines of credit mature on
June 1, 2001. A commitment fee of one eighth of 1% is payable on the unused
amount of both revolving lines of credit. At September 30, 2000 the full
principal amount was available to the Company under both revolving lines of
credit.
Management believes that cash flow from operations and the Company's
existing financing will be sufficient to meet contemplated operating and capital
requirements, including costs associated with anticipated acquisitions, if any,
in the foreseeable future.
This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that could affect capital expenditures, the Company's
requirements for capital, the costs associated with anticipated acquisitions and
the Company's results of operations include general economic conditions, the
availability of laboratories for purchase by the Company, the ability of the
Company to acquire and successfully operate additional dental laboratories,
governmental regulation of health care, trends in the dental industry towards
managed care, other factors affecting patient visits to the Company's clients,
increases in labor and materials costs and other risks indicated from time to
time in filings with the Securities and Exchange Commission.
9
10
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth for the periods indicated the percentage of
net sales represented by certain items in the Company's Consolidated Financial
Statements:
Nine Months Ended
----------------------------------
September 30, September 30,
1999 2000
------------- -------------
Net sales 100.0% 100.0%
Cost of goods sold 58.0 58.2
----- -----
Gross profit 42.0 41.8
Total operating expenses 29.8 29.1
----- -----
Operating income 12.2 12.7
Other expense 0.1 0.2
Interest income 0.4 0.7
----- -----
Income before provision for income taxes 12.5 13.2
Provision for income taxes 5.0 5.3
----- -----
Net income 7.5% 7.9%
----- -----
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1999
- --------------------------------------------------------------------
NET SALES
Net sales increased $4,484,000 or 8.6% in the nine months ended September
30, 2000 over the corresponding period of the prior year. Approximately $385,000
of this increase was attributable to acquisitions, with the remaining increase
representing same laboratory sales growth.
COST OF GOODS SOLD
Cost of goods sold, which consists principally of labor and related
benefits, cost of materials, and laboratory overhead, increased by $2,724,000.
As a percentage of sales, cost of goods sold increased from 58.0% to 58.2%,
representing a gross margin decrease of 0.2%. Increases in materials costs were
partially offset by improvements in labor productivity and decreases in
laboratory overhead on a percentage basis. The continued rising cost of
palladium, a component of dental alloys used in the manufacture of many of the
Company's products, continues to be a factor in the increased materials costs.
Since the cost of this commodity shows no sign of returning to historical
levels, each of the Company's laboratories has implemented a program to either
switch its current palladium customers to alternative metals, such as gold, or
to recover a portion of the cost increase by eliminating all unit pricing and
charging a fee per unit plus metal cost.
10
11
TOTAL OPERATING EXPENSES
Total operating expenses, which consist of (i) selling expenses, the cost
of the Company's pick-up and delivery services and administrative expenses at
the dental laboratory level, (ii) costs of operation by the Company's corporate
headquarters and field support services and (iii) amortization expense,
increased by $942,000 or 6.0% during the nine months ended September 30, 2000
over the corresponding period in 1999. Operating expenses decreased as a
percentage of net sales from 29.8% to 29.1% during the nine months ended
September 30, 2000 compared with the corresponding period in 1999 as a result of
the higher sales volume.
Selling and administrative expenses increased in amount while decreasing as
a percentage of net sales. In addition, expenses attributable to the
amortization expenses associated with acquired dental laboratories decreased as
a percentage of sales.
OPERATING INCOME
Operating income increased by $818,000 or 12.8% for the nine months ended
September 30, 2000 over the corresponding period in 1999. The increase was the
result of higher sales volume and reductions in operating expenses as a
percentage of net sales, partially offset by the increase in cost of goods sold.
OTHER INCOME
Other income decreased $46,000 in the nine months ended September 30, 2000
compared to the same period in 1999. The increase was primarily attributable to
customer use of credit cards. This expense alone increased by $61,000.
INTEREST INCOME
Interest income increased by $206,000 or 100.9% in the nine months ended
September 30, 2000 over the corresponding period in 1999. The increase was
primarily due to increasing investment principal throughout the period as well
as increased short-term interest rates.
PROVISION FOR INCOME TAXES
The Company's provision for income taxes for the nine months ended
September 30, 2000 increased to $3,010,000 from $2,619,000 in the corresponding
period in 1999. The effective tax rate remained unchanged at 40.0% . The tax
provision in future periods may increase depending in part on the level and
nature of the Company's acquisition activities.
NET INCOME
As a result of the factors discussed above, net income for the nine months
ended September 30, 2000 increased by $587,000 or 14.9% over the corresponding
period in 1999. Net income per share, on a diluted basis, increased from $1.10
per share to $1.26 per share.
11
12
.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
12
13
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings:
No material legal proceedings are pending to which the Company is a
party or of which any of its property is subject.
ITEM 2. Changes in Securities and Use of Proceeds:
Not applicable.
ITEM 3. Defaults upon Senior Securities:
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders:
Not applicable.
ITEM 5. Other Information:
See footnote 6 to the Consolidated Financial Statements for information
regarding recent acquisition activity.
ITEM 6. Exhibits and Reports on form 8-K:
a. Exhibits: (27) Financial Data Schedule
b. Reports on Form 8-K: None
13
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NATIONAL DENTEX CORPORATION
Registrant
November 14, 2000 By: /s/ David L. Brown
-------------------------------------
David L. Brown
President, Treasurer and Director
(Principal Executive Officer)
November 14, 2000 By: /s/ Richard F. Becker
------------------------------------
Richard F. Becker, Jr.
Chief Financial Officer, Vice President
of Finance and Assistant Treasurer
(Principal Financial and Accounting Officer)
14