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 JUNE 30, 1997 COMMISSION FILE NUMBER: 0-23092 NATIONAL DENTEX CORPORATION --------------------------- MASSACHUSETTS 04-2762050 ------------- ---------- (STATE OF INCORPORATION) (I.R.S. IDENTIFICATION NO.) 111 SPEEN STREET, FRAMINGHAM, MA 01701 -------------------------------- ----- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (508) - 820 - 4800 ------------------ (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 AUGUST 7, 1997: 3,458,921. ---------- ================================================================================ 2 NATIONAL DENTEX CORPORATION FORM 10-Q QUARTER ENDED JUNE 30, 1997 TABLE OF CONTENTS ----------------- PAGE PART I. FINANCIAL INFORMATION - ------- ITEM 1. FINANCIAL STATEMENTS: CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND JUNE 30, 3 1997 (UNAUDITED) CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS AND SIX MONTHS 4 ENDED JUNE 30, 1996 AND JUNE 30, 1997 (UNAUDITED) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE SIX 5 MONTHS ENDED JUNE 30, 1997 (UNAUDITED) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED 6 JUNE 30, 1996 AND JUNE 30, 1997 (UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 8 RESULTS OF OPERATIONS PART II. OTHER INFORMATION 11 - -------- SIGNATURES 12 3 NATIONAL DENTEX CORPORATION CONSOLIDATED BALANCE SHEETS December 31, June 30, 1996 1997 ------------ ------------ (Unaudited) ASSETS ------ CURRENT ASSETS: Cash and equivalents ....................................... $ 4,959,038 $ 3,651,237 Accounts receivable: Trade, less allowance of $204,000 in 1996 and $165,000 in 1997 ........................................ 6,149,448 7,140,578 Other .................................................... 198,481 244,533 Inventories ................................................ 2,929,898 3,059,293 Prepaid expenses ........................................... 668,606 809,118 Deferred tax asset ......................................... 402,703 397,064 ------------ ------------ Total current assets ...................................... 15,308,174 15,301,823 ------------ ------------ PROPERTY AND EQUIPMENT: Land and buildings ......................................... 3,773,720 3,773,720 Leasehold and building improvements ........................ 2,380,010 2,545,248 Laboratory equipment ....................................... 5,734,432 5,992,496 Furniture and fixtures ..................................... 1,592,657 1,685,083 Capital leases ............................................. 342,819 342,819 ------------ ------------ 13,823,638 14,339,366 Less - Accumulated depreciation and amortization ........................................... 7,352,321 7,708,120 ------------ ------------ Net property and equipment ................................. 6,471,317 6,631,246 ------------ ------------ OTHER ASSETS, net: Goodwill ................................................... 5,346,757 7,522,197 Other ...................................................... 3,107,873 3,726,765 ------------ ------------ 8,454,630 11,248,962 ------------ ------------ $ 30,234,121 $ 33,182,031 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Current portion of long-term obligations ................... $ 204,213 $ 205,767 Accounts payable ........................................... 973,080 1,114,280 Accrued liabilities: Payroll and employee benefits ............................ 2,604,909 2,291,385 Deferred purchase price .................................. 1,244,629 1,860,607 Other .................................................... 422,693 357,721 ------------ ------------ Total current liabilities ................................ 5,449,524 5,829,760 ------------ ------------ LONG TERM LIABILITIES: Deferred tax liability ..................................... 304,819 202,502 Deferred purchase price .................................... 443,300 582,067 ------------ ------------ Total long-term liabilities .............................. 748,119 784,569 ------------ ------------ 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 - 3,440,738 shares at December 31, 1996, and 3,456,617 shares at June 30, 1997 ............................................ 34,407 34,566 Paid-in capital ............................................ 13,683,615 13,909,548 Retained earnings .......................................... 10,318,456 12,623,588 ------------ ------------ Total stockholders' equity ............................... 24,036,478 26,567,702 ------------ ------------ $ 30,234,121 $ 33,182,031 ------------ ------------ 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 Six Months Ended ---------------------- ---------------------- June 30, June 30, June 30, June 30, 1996 1997 1996 1997 ----------- ----------- ----------- ----------- Net sales ................................... $13,705,235 $15,266,540 $26,053,833 $29,247,471 Cost of goods sold .......................... 7,574,989 8,393,593 14,599,595 16,393,117 ----------- ----------- ----------- ----------- Gross profit ............................. 6,130,246 6,872,947 11,454,238 12,854,354 Total operating expenses .................... 4,229,880 4,677,995 8,253,967 9,120,448 ----------- ----------- ----------- ----------- Operating income ......................... 1,900,366 2,194,952 3,200,271 3,733,906 Other income ................................ 43,777 28,696 85,198 59,848 Interest income ............................. 22,060 16,702 58,754 35,371 ----------- ----------- ----------- ----------- Income before provision for income taxes . 1,966,203 2,240,350 3,344,223 3,829,125 Provision for income taxes .................. 786,481 891,660 1,337,689 1,523,993 ----------- ----------- ----------- ----------- Net income ............................... $ 1,179,722 $ 1,348,690 $ 2,006,534 $ 2,305,132 =========== =========== =========== =========== Net income per share ........................ $ .34 $ .38 $ .57 $ .66 =========== =========== =========== =========== Weighted average shares outstanding ......... 3,518,928 3,509,545 3,509,461 3,504,191 =========== =========== =========== =========== 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 Shares Value Shares Value ------ ------- ----------- ----------- BALANCE, December 31, 1996 .................... -- $ -- 3,440,738 $ 34,407 Issuance of 2,083 shares of common stock under the employee stock option plan .............. -- -- 2,083 21 Issuance of 12,386 shares of common stock under the employee stock purchase plan ........... -- -- 12,386 124 Issuance of 1,410 shares of common stock as director's fees ............................ -- -- 1,410 14 -- -- -- -- ------ ------- ----------- ----------- Net income BALANCE, June 30, 1997 ........................ -- $ -- 3,456,617 $ 34,566 ====== ======= =========== =========== Paid-in Retained Capital Earnings Total ----------- ----------- ----------- BALANCE, December 31, 1996 .................... $13,683,615 $10,318,456 $24,036,478 Issuance of 2,083 shares of common stock under the employee stock option plan .............. 20,452 -- 20,473 Issuance of 12,386 shares of common stock under the employee stock purchase plan ........... 181,525 -- 181,649 Issuance of 1,410 shares of common stock as director's fees ............................ 23,956 -- 23,970 -- 2,305,132 2,305,132 ----------- ----------- ----------- Net income BALANCE, June 30, 1997 ........................ $13,909,548 $12,623,588 $26,567,702 =========== =========== =========== 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 six months ended June 30, --------------------------------- 1996 1997 ----------- ----------- Cash flows from operating activities: Net income ........................................ $ 2,006,534 $ 2,305,132 Adjustments to reconcile net income to net cash provided by operating activities, net of effects of acquisitions: Depreciation and amortization ................. 644,695 779,681 Increase in accounts receivable ............... (393,843) (732,095) Increase in inventories ....................... (194,461) (94,700) Increase in prepaid expenses .................. (116,685) (137,327) (Increase) decrease in deferred tax asset ..... (10,010) 15,639 (Increase) decrease in other assets ........... 47,554 (34,293) (Increase) decrease in accounts payable and accrued liabilities .......................... (659,702) (379,663) Decrease in deferred tax liability ............ (89,739) (102,317) ----------- ----------- Net cash provided by operating activities ..... 1,234,703 1,620,057 ----------- ----------- Cash flows from investing activities: Payment for acquisitions, net of cash acquired .. (839,017) (2,425,864) Payment of deferred purchase price .............. (845,252) (300,681) Additions to property and equipment, net ........ (650,989) (428,960) ----------- ----------- Net cash used in investing activities ......... (2,335,258) (3,155,505) ----------- ----------- Cash flows from financing activities: Net payments of current and long-term obligations (95,918) 1,554 Proceeds from issuance of common stock .......... 366,214 226,093 ----------- ----------- Net cash provided by financing activities ..... 270,296 227,647 ----------- ----------- Net decrease in cash .............................. (830,259) (1,307,801) Cash at beginning of period ....................... 4,193,394 4,959,038 ----------- ----------- Cash at end of period ............................. $ 3,363,135 $ 3,651,237 ----------- ----------- Supplemental disclosures of cash flow information: Interest paid ................................... $ 16,058 $ 5,915 ----------- ----------- Income taxes paid ............................... $ 1,355,462 $ 1,599,391 ----------- ----------- The accompanying notes are an integral part of these consolidated financial statements. 6 7 NATIONAL DENTEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 (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, 1996 as filed with the Securities and Exchange Commission on Form 10-K. (2) EARNINGS PER SHARE Net earnings per share ("EPS") amounts have been computed using the weighted average number of common and common equivalent shares outstanding during each year. In March 1997, the Financial Accounting Standards Board (FASB) released SFAS 128, "Earnings Per Share", which will become effective December 31, 1997. As a result, the Company's reported earnings per share for 1996 and 1997 will be restated in the Company's annual report on Form 10-K for the year ending December 31, 1997. The pro forma effect of this accounting change on previously reported earnings per share is as follows: For the three months ended For the six months ended Year Ended -------------------------- ------------------------ ---------- June 30 June 30 December 31 Per Share Amounts 1997 1996 1997 1996 1996 ---- ---- ---- ---- ---- Primary EPS as reported $ .38 $ .34 $ .66 $ .57 $ 1.06 Effect of SFAS No. 128 .01 -- .01 .02 .03 -------- -------- -------- -------- -------- Basic EPS as restated $ .39 $ .34 $ .67 $ .59 $ 1.09 ======== ======== ======== ======== ======== Fully Diluted EPS as reported $ .38 $ .34 $ .66 $ .57 $ 1.06 Effect of SFAS No. 128 -- -- -- -- -- -------- -------- -------- -------- -------- Diluted EPS as restated $ .38 $ .34 $ .66 $ .57 $ 1.06 ======== ======== ======== ======== ======== (3) SUBSEQUENT EVENTS On July 1, 1997 the Company acquired all of the outstanding capital stock of T.L.C. Dental Laboratories, Inc. of Orlando, Florida. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ================================================================================ LIQUIDITY AND CAPITAL RESOURCES Working capital decreased from $9,859,000 at December 31, 1996 to $9,472,000 at June 30, 1997. Cash and equivalents decreased $1,308,000 from $4,959,000 at December 31, 1996. Operating activities provided $1,620,000 in cash flow for the six months ended June 30,1997. Cash outflows related to dental laboratory acquisitions totaled $2,727,000 for the same period. The Company maintains a financing agreement (the "Agreement") with 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 LIBOR rate plus 1.5%, at the Company's option. The first revolving line of credit matures on June 1, 2001 and the second revolving line of credit matures on June 1, 2000. A commitment fee of one eighth of 1% is payable on the unused amount of the first revolving line of credit. At June 30, 1997, the full principal amount was available to the Company under both revolving lines of credit. Management believes that existing working capital and 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, other factors affecting patient visits to the Company's clients, and other risks indicated in filings with the Securities and Exchange Commission. 8 9 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 ---------------- June 30, June 30, 1996 1997 -------- -------- Net sales 100.0% 100.0% Cost of goods sold 56.0 56.0 ----- ----- Gross profit 44.0 44.0 Total operating expenses 31.7 31.2 ----- ----- Operating income 12.3 12.8 Other income 0.3 0.2 Interest income 0.2 0.1 ----- ----- Income before provision for income taxes 12.8 13.1 Provision for income taxes 5.1 5.2 ----- ----- Net income 7.7% 7.9% ----- ----- SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996 Net Sales Net sales increased $3,194,000 or 12.3% in the six months ended June 30, 1997 over the corresponding period of the prior year. Approximately $2,135,000 of this increase is attributable to business at dental laboratories owned less than one year, with the remaining increase representing unit growth at dental laboratories owned during both the six months ended June 30, 1997 and the comparable six months ended June 30, 1996. Cost of Goods Sold Cost of goods sold, which consists principally of labor and related benefits, cost of materials, and laboratory overhead, increased by $1,794,000. As a percentage of sales, cost of goods sold was 56.0% in both the six months ended June 30, 1997 and the comparable six months ended June 30, 1996. Increases in materials costs were offset by improvements in labor productivity and a decrease in laboratory overhead expenses. 9 10 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, and (ii) costs of operation by the Company's corporate headquarters and field support services, increased by $866,000 or 10.5% during the six months ended June 30, 1997 over the corresponding period in 1996. Operating expenses decreased as a percentage of net sales from 31.7% to 31.2% during the six months ended June 30, 1997 over the corresponding period in 1996. Decreases as a percentage of sales in administrative and corporate field support services were partially offset by increased incentive compensation and amortization of intangible assets acquired in acquisitions subsequent to June 30, 1996. Operating Income Operating income increased by $534,000 or 16.7% for the six months ended June 30, 1997 over the corresponding period in 1996. 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 $23,000 or 39.8% in the six months ended June 30, 1997 over the corresponding period in 1996. The decrease was primarily due to decreased investment principal. Provision for Income Taxes The Company's provision for income taxes for six months ended June 30, 1997 increased to $1,524,000 from $1,338,000 in the corresponding period in 1996. The effective tax rate decreased slightly from 40.0% to 39.8%. Net Income As a result of the factors discussed above, net income for the six months ended June 30, 1997 increased by $299,000 or 14.9% over the corresponding period in 1996. Net income per share increased from $0.57 per share to $0.66 per share. 10 11 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: 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: On July 1, 1997 the Company required all of the outstanding capital stock of T.L.C. Dental Laboratories, Inc. of Orlando, Florida ITEM 6. Exhibits and Reports on form 8-K: a. Exhibits: (11) Statement Regarding Computation of Per Share Earnings (27) Financial Data Schedule b. Reports on Form 8-K: None 11 12 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) 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 8, 1997 By:/s/ William M. Mullahy -------------------------------------------- William M. Mullahy, President Chief Executive Officer and Director (Principal Executive Officer) August 8, 1997 By:/s/ David L. Brown -------------------------------------------- David L. Brown, Vice President, Chief Financial Officer, Treasurer and Assistant Clerk (Principal Financial Officer) 12