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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 March 31, 2001 Commission File Number: 000-23092
NATIONAL DENTEX CORPORATION
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Massachusetts 04-2762050
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(State of Incorporation) (I.R.S. Identification No.)
526 Boston Post Road, Wayland, MA 01778
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(Address of Principal Executive Offices) (Zip Code)
(508)-358-4422
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(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
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Number of shares of Common Stock outstanding as of May 8, 2001: 3,482,930.
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NATIONAL DENTEX CORPORATION
FORM 10-Q
Quarter Ended March 31, 2001
TABLE OF CONTENTS
Page
PART I. Financial Information
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Item 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 2000 and
March 31, 2001 (Unaudited) 3
Consolidated Statements of Income for the three months
ended March 31, 2000 and March 31, 2001 (Unaudited) 4
Consolidated Statements of Stockholders' Equity for the three
months ended March 31, 2001 (Unaudited) 5
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and March 31, 2001 (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 12
PART II. Other Information 13
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Signatures 15
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NATIONAL DENTEX CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
2000 2001
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(Unaudited)
ASSETS
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CURRENT ASSETS:
Cash and equivalents .......................................... $ 12,300,606 $ 7,508,645
Accounts receivable:
Trade, less allowance of $274,000 in 2000 and
$261,000 in 2001 ........................................... 8,457,113 9,651,768
Other ....................................................... 520,294 575,609
Inventories ................................................... 4,576,919 4,769,943
Prepaid expenses .............................................. 1,264,219 1,604,886
Deferred tax asset ............................................ 383,750 414,075
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Total current assets ......................................... 27,502,901 24,524,926
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PROPERTY AND EQUIPMENT:
Land and buildings ............................................ 3,891,705 3,891,705
Leasehold and building improvements ........................... 4,851,336 4,878,734
Laboratory equipment .......................................... 8,064,102 8,162,134
Furniture and fixtures ........................................ 2,660,024 2,745,901
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19,467,167 19,678,474
Less - Accumulated depreciation and
amortization .............................................. 10,097,602 10,382,222
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Net property and equipment .................................... 9,369,565 9,296,252
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OTHER ASSETS, net:
Goodwill ...................................................... 12,847,790 13,950,742
Non-competition agreements .................................... 3,545,660 3,516,240
Deferred tax asset ............................................ 358,321 392,648
Other ......................................................... 1,765,991 1,827,670
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18,517,762 19,687,300
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$ 55,390,228 $ 53,508,478
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts payable .............................................. $ 1,474,487 $ 1,606,830
Accrued liabilities:
Payroll and employee benefits ............................... 3,752,687 1,812,405
Current portion of deferred purchase price .................. 2,322,254 1,259,282
Other ....................................................... 498,708 1,308,686
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Total current liabilities ................................... 8,048,136 5,987,203
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LONG TERM LIABILITIES:
Payroll and employee benefits ................................. 829,915 1,056,105
Deferred purchase price ....................................... 915,778 1,364,610
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Total long-term liabilities ................................. 1,745,693 2,420,715
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY:
Preferred stock, $.01 par value
Authorized - 500,000 shares
None issued and outstanding ................................. -- --
Common stock, $.01 par value
Authorized - 8,000,000 shares
Issued - 3,580,874 shares at December 31, 2000, and 3,592,200
shares at March 31, 2001
Outstanding - 3,563,674 shares at December 31, 2000, and
3,466,100 shares at March 31, 2001 ....................... 35,809 35,922
Paid-in capital ............................................... 15,297,934 15,494,959
Retained earnings ............................................. 30,571,525 32,056,548
Treasury Stock at cost - 17,200 shares at December 31, 2000 and
126,100 shares at March 31, 2001 ........................... (308,869) (2,486,869)
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Total stockholders' equity .................................. 45,596,399 45,100,560
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$ 55,390,228 $ 53,508,478
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The accompanying notes are an integral part of these
consolidated financial statements.
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NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
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March 31, 2000 March 31, 2001
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Net sales ...................................... $18,960,175 $20,605,601
Cost of goods sold ............................. 10,877,959 12,134,653
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Gross profit ................................ 8,082,216 8,470,948
Total operating expenses ....................... 5,761,322 6,066,437
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Operating income ............................ 2,320,894 2,404,511
Other expense .................................. 28,822 28,080
Interest income ................................ 130,015 112,963
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Income before provision for income taxes .... 2,422,087 2,489,394
Provision for income taxes ..................... 968,835 1,004,371
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Net income .................................. $ 1,453,252 $ 1,485,023
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Net income per share - Basic $ .41 $ .42
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Net income per share - Diluted $ .41 $ .42
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Weighted average shares outstanding - Basic 3,552,435 3,498,232
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Weighted average shares outstanding - Diluted 3,568,546 3,574,130
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The accompanying notes are an integral part of these
consolidated financial statements.
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NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
COMMON STOCK
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Number of $.01 Par Paid-in Retained Treasury
Shares Value Capital Earnings Stock Total
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BALANCE, December 31, 2000........ 3,580,874 $35,809 $15,297,934 $30,571,525 $ (308,869) $45,596,399
Issuance of 11,326 shares of
common stock under the stock
option plans...................... 11,326 113 197,025 -- -- 197,138
Net income........................ -- -- -- 1,485,023 -- 1,485,023
Repurchase of 108,900 shares of
common stock under the stock
repurchase program................ -- -- -- -- (2,178,000) (2,178,000)
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BALANCE, March 31, 2001........... 3,592,200 $35,922 $15,494,959 $32,056,548 $(2,486,869) $45,100,560
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The accompanying notes are an integral part of these
consolidated financial statements.
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NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three months ended March 31,
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2000 2001
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Cash flows from operating activities:
Net income ................................................ $ 1,453,252 $ 1,485,023
Adjustments to reconcile net income to net cash provided by
operating activities, net of effects of acquisitions:
Depreciation and amortization ......................... 588,420 678,231
Increase in accounts receivable ....................... (981,855) (1,097,669)
Increase in inventories ............................... (27,265) (138,916)
Increase in prepaid expenses .......................... (129,063) (340,667)
Increase in deferred tax asset ........................ (7,850) (64,652)
Increase in other assets .............................. (90,593) (61,679)
Decrease in accounts payable and accrued liabilities .. (344,391) (833,675)
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Net cash provided by operating activities ............. 460,655 (374,004)
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Cash flows from investing activities:
Payment for acquisitions, net of cash acquired .......... -- (1,054,771)
Payment of deferred purchase price ...................... (838,031) (1,201,633)
Additions to property and equipment, net ................ (439,654) (180,691)
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Net cash used in investing activities ................. (1,277,685) (2,437,095)
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Cash flows from financing activities:
Proceeds from issuance of common stock .................. 107,000 197,138
Repurchases of common stock ............................. -- (2,178,000)
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Net cash provided by (used in) financing activities ... 107,000 (1,980,862)
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Net decrease in cash ...................................... (710,030) (4,791,961)
Cash at beginning of period ............................... 11,215,179 12,300,606
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Cash at end of period ..................................... $10,505,149 $ 7,508,645
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Supplemental disclosures of cash flow information:
Interest paid ........................................... $ 2,528 $ 2,407
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Income taxes paid ....................................... $ 260,422 $ 151,157
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The accompanying notes are an integral part of these
consolidated financial statements.
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NATIONAL DENTEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(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 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, 2000 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
March 31, 2000 March 31, 2001
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Net income applicable to common stock $1,453,252 $1,485,023
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COMPUTATION OF BASIC EARNINGS PER SHARE:
Weighted average common shares outstanding 3,552,435 3,498,232
Basic earnings per share $ .41 $ .42
COMPUTATION OF DILUTED EARNINGS PER SHARE:
Weighted average common shares outstanding 3,552,435 3,498,232
Shares issuable from assumed exercise of
options and warrants (as determined by
the application of the treasury stock method) 16,111 75,898
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Weighted average common shares outstanding as
adjusted 3,568,546 3,574,130
Diluted earnings per share $ .41 $ .42
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Options to purchase 10,400 shares of common stock at exercise prices ranging
from $21.00 to $21.875 per share were outstanding during the first quarter of
2001 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. These options, which expire at various times through
September 2007, were still outstanding at March 31, 2001.
(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 PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended
by SFAS No. 137 and SFAS No. 138, which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in contracts, and for hedging activities. SFAS No. 133 requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. SFAS No. 133 is effective for
all fiscal quarters of fiscal year 2001. SFAS No. 133 is not expected to have a
material impact on the Company's financial position or results of operations.
(5) ACQUISITIONS
On March 1, 2001, the Company acquired certain assets of Creative Dental
Ceramics, Inc. of Richfield, Minnesota.
(6) SUBSEQUENT EVENTS
On May 1, 2001, the Company acquired certain assets of Bauer Dental Studio, Inc.
of Mitchell, South Dakota.
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ITEM 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
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LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased from $19,455,000 at December
31, 2000 to $18,538,000 at March 31, 2001. Cash and equivalents decreased
$4,792,000 from $12,301,000 at December 31, 2000 to $7,509,000 at March 31,
2001. Operating activities consumed $374,000 of cash during the three months
ended March 31, 2001. The decrease in cash flow from operating activities was
mainly attributable to the payment of various accrued payroll and benefit
liabilities and increases in prepaid insurance.
Cash outflows related to dental laboratory acquisitions totaled
$2,256,000 for the three months ended March 31, 2001. Repurchases of the
Company's common stock under the Company's stock repurchase program totaled
$2,178,000 for the three months ended March 31, 2001.
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, 1997, 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 London
Interbank Offered Rate (LIBOR) rate plus 1.5%, at the Company's option. Both
revolving lines of credit mature on June 1, 2001. Currently, the Company is
negotiating similar agreements with the Bank to extend the lines of credit.
A commitment fee of one eighth of 1% is payable on the unused amount of
both lines of credit. At December 31, 2000, the full principal amount was
available to the Company under both revolving lines of credit. The Agreement
requires compliance with certain covenants, including the maintenance of
specified net worth and other financial ratios. As of March 31, 2001, the
Company was in compliance with these covenants.
Management believes that cash flow from operations and 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.
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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:
Three Months Ended
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March 31, March 31,
2000 2001
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Net sales 100.0% 100.0%
Cost of goods sold 57.4 58.9
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Gross profit 42.6 41.1
Total operating expenses 30.4 29.4
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Operating income 12.2 11.7
Other expense 0.2 0.1
Interest income 0.7 0.5
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Income before provision for income taxes 12.8 12.1
Provision for income taxes 5.1 4.9
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Net income 7.7% 7.2%
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THREE MONTHS ENDED MARCH 31, 2001 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 2000
Net Sales
Net sales increased $1,645,000 or 8.7% in the three months ended March 31,
2001 over the corresponding period of the prior year. Approximately $1,116,000
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 $1,257,000.
As a percentage of sales, cost of goods sold increased from 57.4% to 58.9%,
representing a gross margin decrease of 1.5%. Increases in labor and material
costs were partially offset by decreases in laboratory overhead expenses. The
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
material costs.
The Company has attempted to address this issue in each marketplace by
instituting price increases, temporary surcharges and the use of substitute
metals. Since the cost of this commodity shows no sign of returning to
historical levels, each of the Company's laboratories has instituted a program
to either switch its current palladium customers to less expensive metals, such
as gold, or to make the surcharges permanent by eliminating all unit pricing and
charging a fee per unit plus metal.
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Total Operating Expenses
Operating expenses, which consist of selling, delivery and
administrative expenses both at the laboratory and corporate level, increased by
$305,000 or 5.3% during the three months ended March 31, 2001 over the
corresponding period in 2000. Operating expenses decreased as a percentage of
net sales from 30.4% to 29.4% during the three months ended March 31, 2001
compared with the corresponding period in 2000. Decreases in expenses associated
with laboratory and executive compensation plans were partially offset by
increases in delivery costs and advertising and promotional expenses.
Operating Income
Operating income increased by $84,000 or 3.6% for the three months
ended March 31, 2001 over the corresponding period in 2000. The increase was the
result of higher sales volume and reductions in operating expenses as a
percentage of net sales.
Interest Income
Interest income decreased by $17,000 or 13.1% in the three months ended
March 31, 2001 over the corresponding period in 2000. The decrease was primarily
due to decreased investment principal and declining interest rates.
Provision for Income Taxes
The Company's provision for income taxes for the three months ended
March 31, 2001 increased to $1,004,000 from $969,000 in the corresponding period
in 2000. The effective tax rate has increased from 40.0% to 40.3%. 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 three
months ended March 31, 2001 increased by $32,000 or 2.2% over the corresponding
period in 2000. Net income per share, on a diluted basis, increased from $0.41
per share to $0.42 per share.
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ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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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:
The Company's Special Meeting in lieu of an Annual Meeting of
Stockholders was held on April 10, 2001. On February 20, 2001, the record date
for the meeting, there were 3,473,000 shares of Common Stock outstanding, of
which 2,949,581 shares or 84.9% were represented at the meeting by proxy or in
person. At the meeting, the following matters were voted upon and approved:
(a) Proposal to fix the number of directors at six and to elect the
following persons as directors.
Number of Votes Cast Number of Votes Withheld
Name FOR Nominee FROM Nominee
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Jack R. Crosby 2,836,481 113,100
William H. McClurg 2,837,231 112,350
David V. Harkins 2,837,231 112,350
Norman F. Strate 2,835,423 114,158
David L. Brown 2,834,578 115,003
Daniel A. Grady 2,837,131 112,450
(b) Proposal to approve the Company's 2001 Stock Plan.
Number of Votes Cast Number of Votes Cast Number of Votes Number of Broker
FOR Proposal AGAINST Proposal ABSTAINED Non-votes ABSTAINED
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1,491,677 1,023,238 42,108 392,558
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(c) Proposal to approve the appointment of Arthur Andersen LLP as
auditors.
Number of Votes Cast Number of Votes Cast Number of Votes
FOR Proposal AGAINST Proposal ABSTAINED
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2,948,733 398 450
ITEM 5. Other Information:
See footnotes 5 and 6 to the Consolidated Financial Statements for
information regarding recent acquisitions.
ITEM 6. Exhibits and Reports on Form 8-K:
a. Reports on Form 8-K: None
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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, there unto duly authorized.
NATIONAL DENTEX CORPORATION
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Registrant
May 15, 2001 By: /s/ David L. Brown
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David L. Brown,
President, CEO, and Director
(Principal Executive Officer)
May 15, 2001 By: /s/ Richard F. Becker
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Richard F. Becker, Jr.
Chief Financial Officer,
Vice President of Finance
and Treasurer
(Principal Financial and
Accounting Officer)