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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 June 30, 2001 Commission File Number: 000-23092
NATIONAL DENTEX CORPORATION
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 August 7, 2001: 3,492,964.
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NATIONAL DENTEX CORPORATION
FORM 10-Q
Quarter Ended June 30, 2001
Table of Contents
Page
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 2000 and June 30,
2001 (Unaudited) 3
Consolidated Statements of Income for the three and six months
ended June 30, 2000 and June 30, 2001 (Unaudited) 4
Consolidated Statements of Stockholders' Equity for the six
months ended June 30, 2001 (Unaudited) 5
Consolidated Statements of Cash Flows for the six months ended
June 30, 2000 and June 30, 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
Signatures 14
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NATIONAL DENTEX CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
2000 2001
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(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and equivalents .................................................. $ 12,300,606 $ 7,944,180
Accounts receivable:
Trade, less allowance of $274,000 in 2000 and
$264,000 in 2001 ................................................... 8,457,113 9,803,921
Other ............................................................... 520,294 446,578
Inventories ........................................................... 4,576,919 4,901,514
Prepaid expenses ...................................................... 1,264,219 2,275,007
Deferred tax asset .................................................... 383,750 376,646
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Total current assets ................................................. 27,502,901 25,747,846
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PROPERTY AND EQUIPMENT:
Land and buildings .................................................... 3,891,705 3,891,705
Leasehold and building improvements ................................... 4,851,336 4,930,883
Laboratory equipment .................................................. 8,064,102 8,463,195
Furniture and fixtures ................................................ 2,660,024 2,861,447
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19,467,167 20,147,230
Less - Accumulated depreciation and
amortization ...................................................... 10,097,602 10,691,942
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Net property and equipment ............................................ 9,369,565 9,455,288
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OTHER ASSETS, net:
Goodwill .............................................................. 12,847,790 15,815,540
Non competition agreements ............................................ 3,545,660 3,480,986
Deferred tax asset .................................................... 358,321 360,100
Other ................................................................. 1,765,991 2,188,079
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18,517,762 21,844,705
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$ 55,390,228 $ 57,047,839
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ...................................................... $ 1,474,487 $ 1,480,734
Accrued liabilities:
Payroll and employee benefits ....................................... 3,752,687 3,103,238
Current portion of deferred purchase price .......................... 2,322,254 1,572,326
Other ............................................................... 498,708 950,724
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Total current liabilities ........................................... 8,048,136 7,107,022
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LONG TERM LIABILITIES:
Payroll and employee benefits ......................................... 829,915 1,084,887
Deferred purchase price ............................................... 915,778 1,585,944
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Total long-term liabilities ......................................... 1,745,693 2,670,831
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY:
Preferred stock, $.01 par value
Authorized - 500,000 shares
None issued and outstanding ......................................... -- --
Common stock, $.01 par value
Authorized - 8,000,000 shares
Issued - 3,580,874 shares at December 31, 2000, and 3,618,564 shares
At June 30, 2001
Outstanding - 3,563,674 at December 31, 2000, and 3,492,564 shares at
June 30, 2001 ...................................................... 35,809 36,186
Paid-in capital ....................................................... 15,297,934 15,881,033
Retained earnings ..................................................... 30,571,525 33,839,636
Treasury Stock at cost - 17,200 shares at December 31, 2000 and
126,100 shares at June 30, 2001 .................................... (308,869) (2,486,869)
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Total stockholders' equity .......................................... 45,596,399 47,269,986
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$ 55,390,228 $ 57,047,839
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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 Six months ended
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June 30, June 30, June 30, June 30,
2000 2001 2000 2001
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Net sales ................................... $ 19,866,098 $ 21,861,049 $ 38,826,273 $ 42,466,650
Cost of goods sold .......................... 11,309,893 12,559,818 22,187,852 24,694,471
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Gross profit ............................. 8,556,205 9,301,231 16,638,421 17,772,179
Total operating expenses .................... 5,723,169 6,376,841 11,484,491 12,443,278
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Operating income ......................... 2,833,036 2,924,390 5,153,930 5,328,901
Other expense ............................... 34,953 31,800 63,775 59,880
Interest income ............................. 129,713 59,868 259,728 172,831
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Income before provision for income taxes . 2,927,796 2,952,458 5,349,883 5,441,852
Provision for income taxes .................. 1,171,118 1,169,370 2,139,953 2,173,741
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Net income ............................... $ 1,756,678 $ 1,783,088 $ 3,209,930 $ 3,268,111
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Net income per share - Basic ................ $ .49 $ .51 $ .90 $ .94
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Net income per share - Diluted .............. $ .49 $ .50 $ .90 $ .92
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Weighted average shares outstanding - Basic . 3,576,628 3,485,005 3,564,531 3,491,582
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Weighted average shares outstanding - Diluted 3,601,048 3,570,859 3,584,834 3,569,819
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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 18,727 shares of common
stock under the stock option
plans ........................... 18,727 187 317,948 -- -- 318,135
Issuance of 15,711 shares of common
stock under the employee stock
purchase plan ................... 15,823 158 201,142 -- -- 201,300
Issuance of 3,140 shares of common
stock as directors' fees ........ 3,140 32 64,009 -- -- 64,041
Net income ........................ -- -- -- 3,268,111 -- 3,268,111
Repurchase of 108,900 shares of
common stock under the stock
repurchase program ................ -- -- -- -- (2,178,000) (2,178,000)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, June 30, 2001 ............ 3,618,564 $ 36,186 $ 15,881,033 $ 33,839,636 $ (2,486,869) $ 47,269,986
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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 six months ended June 30,
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2000 2001
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Cash flows from operating activities:
Net income ............................................. $ 3,209,930 $ 3,268,111
Adjustments to reconcile net income to net cash
provided by operating activities, net of effects
of acquisitions:
Depreciation and amortization ...................... 1,197,153 1,406,093
(Increase) in accounts receivable .................. (1,195,568) (931,932)
(Increase) in inventories .......................... (26,656) (90,787)
(Increase) in prepaid expenses ..................... (137,753) (1,010,788)
Increase (decrease) in deferred tax asset .......... (10,191) 5,325
Increase in other assets .......................... (208,386) (457,805)
Decrease in accounts payable and accrued liabilities (603,697) (85,513)
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Net cash provided by operating activities .......... 2,224,832 2,102,704
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Cash flows from investing activities:
Payment for acquisitions, net of cash acquired ....... (25,000) (2,820,809)
Payment of deferred purchase price ................... (1,727,827) (1,429,459)
Additions to property and equipment, net ............. (1,036,323) (614,337)
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Net cash used in investing activities .............. (2,789,150) (4,864,605)
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Cash flows from financing activities:
Proceeds from issuance of common stock ............... 370,780 583,475
Repurchases of common stock .......................... -- (2,178,000)
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Net cash provided by (used in) financing activities 370,780 (1,594,525)
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Net decrease in cash ................................... (193,538) (4,356,426)
Cash at beginning of period ............................ 11,215,179 12,300,606
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Cash at end of period .................................. $ 11,021,641 $ 7,944,180
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Supplemental disclosures of cash flow information:
Interest paid ........................................ $ 82,338 $ 5,056
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Income taxes paid .................................... $ 2,154,188 $ 1,657,003
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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
June 30, 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 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 Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2000 June 30, 2001 June 30, 2000 June 30, 2001
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Net income applicable to common stock $1,756,678 $1,783,088 $3,209,930 $3,268,111
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COMPUTATION OF BASIC EARNINGS PER SHARE:
Weighted average common shares outstanding 3,576,628 3,485,005 3,564,531 3,491,582
Basic earnings per share $ .49 $ .51 $ .90 $ .94
COMPUTATION OF DILUTED EARNINGS PER SHARE:
Weighted average common shares outstanding 3,576,628 3,485,005 3,564,531 3,491,582
Shares issuable from assumed exercise of
options (as determined by the application
of the treasury stock method) 24,420 85,854 20,303 78,237
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Weighted average common shares outstanding
as adjusted 3,601,048 3,570,859 3,584,834 3,569,819
Diluted earnings per share $ .49 $ .50 $ .90 $ .92
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Options to purchase 10,300 shares of common stock at an exercise price of
$21.575 per share were outstanding during the second 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 in March 2006, were still outstanding at
June 30, 2001.
(3) COMPREHENSIVE INCOME
Statement of Financial Accounting Standards (SFAS)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
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.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets". SFAS 141 addresses the initial
recognition and measurement of goodwill and other intangible assets acquired in
a business combination. SFAS 142 addresses the initial recognition and
measurement of intangible assets acquired outside of a business combination,
whether acquired individually or with a group of other assets, and the
accounting and reporting for goodwill and other intangibles subsequent to their
acquisition. These standards require that the purchase method of accounting be
used for business combinations and eliminate the use of the pooling-of-interest
method. Additionally, they require that goodwill no longer be amortized but
instead be subject to impairment tests at least annually. The Company is
required to adopt SFAS 141 and SFAS 142 on a prospective basis as of January 1,
2002; however, certain provisions of these new standards may also apply to any
acquisitions concluded subsequent to June 30, 2001. The Company is currently
assessing the potential impact of these standards.
(5) ACQUISITIONS
On May 1, 2001 the Company acquired certain assets of Bauer Dental Studio, Inc.
of Mitchell, South Dakota. The acquisition, which has been reflected in the
accompanying consolidated balance sheet as of June 30, 2001, has been accounted
for as a purchase in accordance with Accounting Principles Board Opinion No. 16.
(6) SUBSEQUENT EVENTS
On July 2, 2001, the Company acquired all of the outstanding capital stock of
Aronovitch Dental Laboratory of Owings Mills, Maryland.
On August 1, 2001, the Company acquired certain assets of New Mexico Dental
Laboratory, Inc. of Albuquerque, New Mexico.
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Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased from $19,455,000 at December 31, 2000 to
$18,641,000 at June 30, 2001. Cash and equivalents decreased $ 4,356,000 from
$12,301,000 at December 31, 2000 to $7,944,000 at June 30, 2001. Operating
activities provided $2,103,000 in cash flow for the six months ended June 30,
2001.
Cash outflows related to dental laboratory acquisitions totaled
$4,250,000 for the six months ended June 30, 2001 compared to $1,753,000 for the
same period in 2000. Capital expenditures totaled $614,000 for the six months
ended June 30, 2001 compared to $1,036,000 for the same period in 2000.
Repurchases of the Company's common stock under the Company's stock repurchase
program totaled $2,178,000 for the six months ended June 30, 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 July 30, 2001, includes
a revolving line of credit of $4,000,000 and an acquisition line of credit of
$8,000,000. The interest rate on both lines of credit is the prime rate minus
0.5% or the LIBOR rate plus 1.5%, at the Company's option. Both lines of credit
matured on June 1, 2001. The Bank and the Company have agreed to extend this
arrangement under substantially the same terms until June 30, 2004. A commitment
fee of one quarter of 1% is payable on the unused amount of both lines of
credit. At June 30, 2001 the full principal amount was available to the Company
under both 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.
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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:
Six Months Ended
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June 30, June 30,
2000 2001
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Net sales 100.0% 100.0%
Cost of goods sold 57.1 58.2
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Gross profit 42.9 41.8
Total operating expenses 29.6 29.3
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Operating income 13.3 12.5
Other income (expense) (0.2) (0.1)
Interest income 0.7 0.4
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Income before provision for income taxes 13.8 12.8
Provision for income taxes 5.5 5.1
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Net income 8.3% 7.7%
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SIX MONTHS ENDED JUNE 30, 2001 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2000
Net Sales
Net sales increased $3,640,000 or 9.4% in the six months ended June 30,
2001 over the corresponding period of the prior year. Approximately $2,945,000
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 $2,507,000.
As a percentage of sales, cost of goods sold increased from 57.1% to 58.2%,
representing a gross margin decrease of 1.1%. 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.
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
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eliminating all unit pricing and charging a fee per unit plus metal. However,
despite these measures, materials costs may continue to put pressure on gross
margins for the foreseeable future.
Total Operating Expenses
Operating expenses, which consist of selling, delivery and
administrative expenses both at the laboratory and corporate level, increased by
$959,000 or 8.4% during the six months ended June 30, 2001 over the
corresponding period in 2000. Operating expenses decreased as a percentage of
net sales from 29.6% to 29.3% during the six months ended June 30, 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 $175,000 or 3.4% for the six months ended
June 30, 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 $87,000 or 33.5% in the six months ended
June 30, 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 six months ended June
30, 2001 increased to $2,174,000 from $2,140,000 in the corresponding period in
2000. 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 six
months ended June 30, 2001 increased by $58,000 or 1.8% over the corresponding
period in 2000. Net income per share, on a diluted basis, increased from $0.90
per share to $0.92 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:
Not applicable.
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, thereunto duly authorized.
NATIONAL DENTEX CORPORATION
Registrant
August 14, 2001 By: /s/ David L. Brown
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David L. Brown
President, CEO, and Director
(Principal Executive Officer)
August 14, 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)