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, 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
- --------------------------------- -----
(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
--- ---
Number of shares of Common Stock outstanding as of November 8, 2001: 3,442,530.
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NATIONAL DENTEX CORPORATION
FORM 10-Q
Quarter Ended September 30, 2001
Table of Contents
PART I. Financial Information
Item 1. Financial Statements: Page
Consolidated Balance Sheets as of December 31, 2000 and
September 30, 2001 (Unaudited) 3
Consolidated Statements of Income for the three and nine 4
months ended September 30, 2000 and September 30, 2001
(Unaudited)
Consolidated Statements of Stockholders' Equity for the nine 5
months ended September 30, 2001 (Unaudited)
Consolidated Statements of Cash Flows for the nine months 6
ended September 30, 2000 and September 30, 2001 (Unaudited)
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and 10
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. Other Information
Signatures 15
2
NATIONAL DENTEX CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
2000 2001
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and equivalents .......................................... $ 12,300,606 $ 7,498,720
Accounts receivable:
Trade, less allowance of $274,000 in 2000 and
$264,000 in 2001 ........................................... 8,457,113 9,332,282
Other ....................................................... 520,294 351,313
Inventories ................................................... 4,576,919 5,002,073
Prepaid expenses .............................................. 1,264,219 2,204,555
Deferred tax asset ............................................ 383,750 374,103
------------ ------------
Total current assets ......................................... 27,502,901 24,763,046
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PROPERTY AND EQUIPMENT:
Land and buildings ............................................ 3,891,705 3,891,705
Leasehold and building improvements ........................... 4,851,336 5,051,888
Laboratory equipment .......................................... 8,064,102 8,697,726
Furniture and fixtures ........................................ 2,660,024 2,944,368
------------ ------------
19,467,167 20,585,687
Less - Accumulated depreciation and
amortization .............................................. 10,097,602 11,008,137
------------ ------------
Net property and equipment .................................... 9,369,565 9,577,550
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OTHER ASSETS, net:
Goodwill ...................................................... 12,847,790 17,490,573
Non competition agreements .................................... 3,545,660 3,706,983
Deferred tax asset ............................................ 358,321 370,124
Other ......................................................... 1,765,991 2,381,675
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18,517,762 23,949,355
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$ 55,390,228 $ 58,289,951
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .............................................. $ 1,474,487 $ 1,701,587
Accrued liabilities:
Payroll and employee benefits ............................... 3,752,687 2,235,190
Current portion of deferred purchase price .................. 2,322,254 1,910,638
Other ....................................................... 498,708 1,479,800
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Total current liabilities ................................... 8,048,136 7,327,215
------------ ------------
LONG TERM LIABILITIES:
Payroll and employee benefits ................................. 829,915 1,180,483
Deferred purchase price ....................................... 915,778 2,263,528
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Total long-term liabilities ................................. 1,745,693 3,444,011
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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 3,620,330
shares At September 30, 2001
Outstanding - 3,563,674 at December 31, 2000, and 3,441,530 . 35,809 36,203
shares at September 30, 2001
Paid-in capital ............................................... 15,297,934 15,914,923
Retained earnings ............................................. 30,571,525 35,108,468
Treasury Stock at cost - 17,200 shares at December 31, 2000 and
178,800 shares at September 30, 2001 ....................... (308,869) (3,540,869)
------------ ------------
Total stockholders' equity .................................. 45,596,399 47,518,725
------------ ------------
$ 55,390,228 $ 58,289,951
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The accompanying notes are an integral part of these
consolidated financial statements.
3
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended Nine months ended
------------------ -----------------
September 30, September 30, September 30, September 30,
2000 2001 2000 2001
----------- ----------- ----------- -----------
Net sales ................................. $18,049,052 $21,007,815 $56,875,325 $63,474,465
Cost of goods sold ........................ 10,920,048 12,711,992 33,107,900 37,406,463
----------- ----------- ----------- -----------
Gross profit ........................... 7,129,004 8,295,823 23,767,425 26,068,002
Total operating expenses .................. 5,079,339 6,197,547 16,563,830 18,640,826
----------- ----------- ----------- -----------
Operating income ....................... 2,049,665 2,098,276 7,203,595 7,427,176
Other expense ............................. 25,213 39,191 88,988 99,071
Interest income ........................... 150,228 60,636 409,956 233,467
----------- ----------- ----------- -----------
Income before provision for income taxes 2,174,680 2,119,721 7,524,563 7,561,572
Provision for income taxes ................ 869,872 850,888 3,009,825 3,024,629
----------- ----------- ----------- -----------
Net income ............................. $ 1,304,808 $ 1,268,833 $ 4,514,738 $ 4,536,943
=========== =========== =========== ===========
Net income per share - Basic .............. $ .36 $ .36 $ 1.26 $ 1.30
=========== =========== =========== ===========
Net income per share - Diluted ............ $ .36 $ .36 $ 1.26 $ 1.27
=========== =========== =========== ===========
Weighted average shares outstanding - Basic 3,580,412 3,489,873 3,569,863 3,491,006
=========== =========== =========== ===========
Weighted average shares outstanding - Diluted 3,618,148 3,565,136 3,595,755 3,568,598
=========== =========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
4
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock
---------------------
Number of $.01 Par Paid-in Retained Treasury
Shares Value Capital Earnings Stock Total
--------- ------- ----------- ----------- ----------- ------------
BALANCE, December 31, 2000 .......... 3,580,874 $35,809 $15,297,934 $30,571,525 (308,869) $ 45,596,399
Issuance of 20,493 shares of
common stock under the stock option
plans ............................. 20,493 205 351,838 -- -- 352,043
Issuance of 15,823 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 31 64,009 -- -- 64,040
Net income .......................... -- -- -- 4,536,943 -- 4,536,943
Repurchase of 161,600 shares of
common stock under the stock
repurchase program ................ -- -- -- -- (3,232,000) (3,232,000)
--------- ------- ----------- ----------- ----------- ------------
BALANCE, September 30, 2001 ......... 3,620,330 $36,203 $15,914,923 $35,108,468 $(3,540,869) $ 47,518,725
--------- ------- ----------- ----------- ----------- ------------
The accompanying notes are an integral part of these
consolidated financial statements
5
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine months ended September 30,
---------------------------------------
2000 2001
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Cash flows from operating activities:
Net income ............................................. $ 4,514,738 $ 4,536,943
Adjustments to reconcile net income to net cash
provided by operating activities, net of effects
of acquisitions:
Depreciation and amortization ...................... 1,821,576 2,152,775
Increase in accounts receivable .................... (734,862) (72,314)
Increase in inventories ............................ (104,580) (117,256)
Decrease (Increase) in prepaid expenses ............ 65,617 (929,096)
Increase in deferred tax asset ..................... (63,809) (2,156)
Increase in other assets ........................... (756,340) (651,402)
Decrease in accounts payable and accrued liabilities (1,345,667) (405,018)
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Net cash provided by operating activities .......... 3,396,673 4,512,476
------------ ------------
Cash flows from investing activities:
Payment for acquisitions, net of cash acquired ....... (70,940) (4,360,992)
Payment of deferred purchase price ................... (2,190,098) (1,427,710)
Additions to property and equipment, net ............. (1,394,548) (911,043)
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Net cash used in investing activities .............. (3,655,586) (6,699,745)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock ............... 391,553 617,383
Repurchases of common stock .......................... -- (3,232,000)
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Net cash provided by (used in) financing activities 391,553 (2,614,617)
------------ ------------
Net increase (decrease) in cash ........................ 132,640 (4,801,886)
Cash at beginning of period ............................ 11,215,179 12,300,606
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Cash at end of period .................................. $ 11,347,819 $ 7,498,720
------------ ------------
Supplemental disclosures of cash flow information:
Interest paid ........................................ $ 84,830 $ 6,033
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Income taxes paid .................................... $ 3,365,354 $ 3,054,148
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The accompanying notes are an integral part of these
consolidated financial statements.
6
NATIONAL DENTEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
-------------- --------------- -------------- -------------
2000 2001 2000 2001
-------------- --------------- -------------- -------------
Net income applicable to common stock .... $1,304,808 $1,268,833 $4,514,738 $4,536,933
========== ========== ========== ==========
Computation of Basic Earnings per Share:
Weighted average common shares outstanding 3,580,412 3,489,873 3,569,863 3,491,006
Basic earnings per share ................. $ .36 $ .36 $ 1.26 $ 1.30
Computation of Diluted Earnings per Share:
Weighted average common shares outstanding 3,580,412 3,489,873 3,569,863 3,491,006
Shares issuable from assumed exercise of
options (as determined by the application
of the treasury stock method) 37,736 75,263 25,892 77,592
---------- ---------- ---------- ----------
Weighted average common shares outstanding
as adjusted .............................. 3,618,148 3,565,136 3,595,755 3,568,598
Diluted earnings per share ............... $ .36 $ .36 $ 1.26 $ 1.27
7
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 third 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 through September, 2007, were
still outstanding at September 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
Effective July 1, 2001 the Company acquired all of the outstanding capital stock
of Aronovitch Dental Laboratory, Inc. of Owings Mills, Maryland. The
acquisition, which has been reflected in the accompanying consolidated balance
sheet as of September 30, 2001, has been accounted for as a purchase in
accordance with Accounting Principles Board Opinion No. 16.
Effective August 1, 2001 the Company acquired certain assets of New Mexico
Dental Laboratory, Inc. of Albuquerque, New Mexico. The acquisition, which has
been reflected in the accompanying consolidated balance sheet as of September
30, 2001, has been accounted for as a purchase in accordance with Accounting
Principles Board Opinion No. 16.
8
(6) Subsequent Events
Effective November 1, 2001, the Company acquired all of the outstanding capital
stock of Crown Dental Studio, Inc. of Shreveport, Louisiana.
Effective November 1, 2001, the Company acquired all of the outstanding capital
stock of The Freeman Center, Inc. of Stallings, North Carolina.
9
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
$17,436,000 at September 30, 2001. Cash and equivalents decreased $ 4,802,000
from $12,301,000 at December 31, 2000 to $7,499,000 at September 30, 2001.
Operating activities provided $4,512,000 in cash flow for the nine months ended
September 30, 2001.
Cash outflows related to dental laboratory acquisitions totaled
$5,789,000 for the nine months ended September 30, 2001 compared to $2,261,000
for the same period in 2000. Capital expenditures totaled $911,000 for the nine
months ended September 30, 2001 compared to $1,394,000 for the same period in
2000. Repurchases of the Company's common stock under the Company's stock
repurchase program totaled $3,232,000 for the nine months ended September 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 September 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.
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,
2000 2001
------- ----
Net sales .............................. 100.0% 100.0%
Cost of goods sold ..................... 58.2 58.9
----- -----
Gross profit ........................... 41.8 41.1
Total operating expenses ............... 29.1 29.4
----- -----
Operating income ....................... 12.7 11.7
Other expense .......................... 0.2 0.2
Interest income ........................ 0.7 0.4
----- -----
Income before provision for income taxes 13.2 11.9
Provision for income taxes ............. 5.3 4.8
----- -----
Net income ............................. 7.9% 7.1%
----- -----
Nine Months Ended September 30, 2001 Compared with
Nine Months Ended September 30, 2000
Net Sales
Net sales increased $6,599,000 or 11.6% in the nine months ended
September 30, 2001 over the corresponding period of the prior year.
Approximately $5,608,000 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 $4,299,000.
As a percentage of sales, cost of goods sold increased from 58.2% to 58.9%,
representing a gross margin decrease of 0.7%. The increase in cost of goods sold
is primarily attributable to increases in labor and related benefits.
Total Operating Expenses
Operating expenses, which consist of selling, delivery and
administrative expenses both at the laboratory and corporate level, increased by
$2,077,000 or 12.5% during the nine months ended September 30, 2001 over the
corresponding period in 2000. Operating expenses increased as a percentage of
net sales from 29.1% to 29.4% during the nine months ended September 30, 2001
compared with the corresponding period in 2000.
11
Increases in amortization, selling and administrative expenses were partially
offset by decreases in expenses associated with laboratory and executive
compensation plans. Selling expenses have increased as a result of development,
staffing and training costs associated with the Company's "NDX Reliance"
national marketing program. This program, the first of its kind for the
Company, represents a significant investment in marketing and promotion, which
management believes will impact revenue and expenses in future periods.
Operating Income
Operating income increased by $224,000 or 3.1% for the nine months
ended September 30, 2001 over the corresponding period in 2000. The increase was
the result of higher sales volume, primarily attributable to dental laboratory
acquisitions. The impact of the current economic slowdown has reduced the
Company's rate of internal sales growth. As a result, operating income as a
percentage of sales declined to 11.7% in the nine months ended September 30,
2001 from 12.7% in the corresponding period in 2000.
Interest Income
Interest income decreased by $176,000 or 43.1% in the nine months ended
September 30, 2001 compared to the corresponding period in 2000. The decrease
was primarily due to decreased investment principal and sharply declining
interest rates.
Provision for Income Taxes
The Company's provision for income taxes for the nine months ended
September 30, 2001 increased to $3,024,629 from $3,009,825 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 nine
months ended September 30, 2001 increased by $22,000 or .5% over the
corresponding period in 2000. Net income per share, on a diluted basis,
increased from $1.26 per share to $1.27 per share.
Events of September 11, 2001
None of the Company's employees were lost or injured, and none of its
properties or records were damaged, as a result of the terrorist attacks that
occurred in the United States on September 11, 2001. Although operations during
that week were hampered by the temporary disruption of the transportation and
communication infrastructure, management does not believe the impact will be
material. However, at this time, management is unable to predict the long-term
impact of these events, or of the domestic and foreign response, on either the
dental laboratory industry as a whole, or on the Company's and financial
condition in particular.
12
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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 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
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, 2001 By:/s/ David L. Brown
---------------------------------
David L. Brown
President, CEO, and Director
(Principal Executive Officer)
November 14, 2001 By:/s/ Richard F. Becker
---------------------------------
Richard F. Becker, Jr.
Chief Financial Officer,
Vice President of Finance and
Treasurer (Principal Financial and
Accounting Officer)