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, 2002 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 9, 2002: 3,480,221.
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NATIONAL DENTEX CORPORATION
FORM 10-Q
Quarter Ended March 31, 2002
Table of Contents
Page
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 2001 and March 31, 3
2002 (Unaudited)
Consolidated Statements of Income for the three months 4
ended March 31, 2001 and March 31, 2002 (Unaudited)
Consolidated Statements of Stockholders' Equity for the three 5
months ended March 31, 2002 (Unaudited)
Consolidated Statements of Cash Flows for the three months
ended March 31, 2001 and March 31, 2002 (Unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and 9
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. Other Information 13
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Signatures 15
2
NATIONAL DENTEX CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
2001 2002
---- ----
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents................................. $ 6,378,026 $ 5,421,717
Accounts receivable:
Trade, less allowance of $307,000 in 2001 and
$213,000 in 2002....................................... 9,582,266 10,503,050
Other................................................... 491,120 486,224
Inventories............................................... 5,220,462 5,309,594
Prepaid expenses.......................................... 1,792,607 1,923,884
Deferred tax asset........................................ 369,195 354,975
--------------------- -----------------------
Total current assets..................................... 23,833,676 23,999,444
--------------------- -----------------------
PROPERTY AND EQUIPMENT:
Land and buildings........................................ 4,585,731 4,585,731
Leasehold and building improvements....................... 5,191,126 5,311,590
Laboratory equipment...................................... 8,880,778 9,046,405
Furniture and fixtures.................................... 3,012,380 3,060,090
--------------------- -----------------------
21,670,015 22,003,816
Less - Accumulated depreciation and amortization........ 11,346,581 11,679,277
--------------------- -----------------------
Net property and equipment.............................. 10,323,434 10,324,539
--------------------- -----------------------
OTHER ASSETS, net:
Goodwill.................................................. 21,645,288 21,817,008
Non-competition agreements................................ 3,568,480 3,236,576
Deferred tax asset........................................ 362,701 378,918
Other assets.............................................. 2,349,685 2,460,964
--------------------- ------------------------
27,926,154 27,893,466
--------------------- ------------------------
$ 62,083,264 $ 62,217,449
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable.......................................... $ 1,889,234 $ 2,094,314
Accrued liabilities:
Payroll and employee benefits............................ 3,540,899 2,009,353
Current portion of deferred purchase price............... 2,778,160 2,222,857
Other accrued expenses................................... 565,042 1,437,814
------------------- ---------------------
Total current liabilities................................ 8,773,335 7,764,338
------------------- ---------------------
LONG TERM LIABILITIES:
Payroll and employee benefits............................. 1,224,231 1,304,664
Deferred purchase price................................... 3,058,609 2,391,194
------------------- ---------------------
Total long-term liabilities............................. 4,282,840 3,695,858
------------------- ---------------------
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 - 3,625,663 shares at December 31, 2001,
and 3,636,657 shares at March 31, 2002
Outstanding - 3,446,863 shares at December 31,
2001, and 3,457,857 shares at March 31, 2002.......... 36,257 36,367
Paid-in capital........................................... 15,982,448 16,143,402
Retained earnings......................................... 36,549,253 38,118,353
Treasury Stock at cost - 178,800 shares at
December 31, 2001 and 178,800 shares at March 31, 2002... (3,540,869) (3,540,869)
------------------- ---------------------
Total stockholders' equity.............................. 49,027,089 50,757,253
------------------- ---------------------
$ 62,083,264 $ 62,217,449
------------------- ---------------------
The accompanying notes are an integral part of these consolidated financial
statements.
3
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended
March 31, 2001 March 31, 2002
-------------- --------------
Net sales........................................... $ 20,605,601 $ 23,414,179
Cost of goods sold.................................. 12,134,653 13,630,554
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Gross profit..................................... 8,470,948 9,783,625
Selling, general and administrative expenses........ 6,066,437 7,150,320
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Operating income................................. 2,404,511 2,633,305
Other expense ...................................... 28,080 29,791
Interest income..................................... 112,963 33,629
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Income before provision for income taxes......... 2,489,394 2,637,143
Provision for income taxes.......................... 1,004,371 1,068,043
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Net income ...................................... $ 1,485,023 $ 1,569,100
========= =========
Net income per share - Basic $ .42 $ .45
========= =========
Net income per share - Diluted $ .42 $ .44
========= =========
Weighted average shares outstanding - Basic 3,498,232 3,450,439
========= =========
Weighted average shares outstanding - Diluted 3,574,130 3,596,393
========= =========
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, 2001........... 3,625,663 $36,257 $ 15,982,448 $36,549,253 (3,540,869) $49,027,089
Issuance of 10,994 shares of common
stock under the stock option
plans.............................. 10,994 110 160,954 -- -- 161,064
Net income........................... -- -- -- 1,569,100 -- 1,569,100
BALANCE, March 31, 2002.............. 3,636,657 $ 36,367 $ 16,143,402 $38,118,353 $(3,540,869) $ 50,757,253
--------- ----------- ------------ ----------- ------------ -------------
The accompanying notes are an integral part of these consolidated financial
statements.
5
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three months ended March 31,
2001 2002
---------------- ----------------
Cash flows from operating activities:
Net income.............................................................. $1,485,023 $1,569,100
Adjustments to reconcile net income to net cash provided by operating
activities, net of effects of acquisitions:
Depreciation and amortization....................................... 678,231 534,976
(Benefit) provision for deferred income taxes....................... (64,652) (1,997)
Changes in operating assets and liabilities, net of effects of acquisitions:
Increase in accounts receivable..................................... (1,097,669) (915,888)
Increase in inventories............................................. (138,916) (89,132)
Increase in prepaid expenses ....................................... (340,667) (131,277)
Increase in other assets............................................ (61,679) (151,260)
Decrease in accounts payable and accrued liabilities................ (833,675) (317,876)
--------------- ---------------
Net cash (used in) provided by operating activities................. (374,004) 496,646
--------------- ---------------
Cash flows from investing activities:
Payment for acquisitions, net of cash acquired........................ (1,054,771) -
Payment of deferred purchase price.................................... (1,201,633) (1,278,103)
Additions to property and equipment, net.............................. (180,691) (335,916)
--------------- ---------------
Net cash used in investing activities............................... (2,437,095) (1,614,019)
--------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of common stock................................ 197,138 161,064
Repurchases of common stock........................................... (2,178,000) -
--------------- ---------------
Net cash (used in) provided by financing activities................. (1,980,862) 161,064
--------------- ---------------
Net decrease in cash.................................................... (4,791,961) (956,309)
Cash at beginning of period............................................. 12,300,606 6,378,026
--------------- ---------------
Cash at end of period................................................... $7,508,645 $5,421,717
--------------- ---------------
Supplemental disclosures of cash flow information:
Interest paid......................................................... $2,407 $3,429
--------------- ---------------
Income taxes paid..................................................... $151,157 $56,900
--------------- ---------------
The accompanying notes are an integral part of these consolidated financial
statements.
6
NATIONAL DENTEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
(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, 2001 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. At March 31,
2002, all outstanding options were determined to be issuable. The calculation of
basic earnings per share and diluted earnings per share is as follows:
Three Months Ended Three Months Ended
March 31, 2001 March 31, 2002
-------------- --------------
Net income applicable to common stock $1,485,023 $1,569,100
========== ==========
Computation of Basic Earnings per Share:
- ---------------------------------------
Weighted average common shares outstanding 3,498,232 3,450,439
Basic earnings per share $.42 $.45
Computation of Diluted Earnings per Share:
- -----------------------------------------
Weighted average common shares outstanding 3,498,232 3,450,439
Shares issuable from assumed exercise of options
and warrants (as determined by the application
of the treasury stock method) 75,898 145,954
------ --------
Weighted average common shares outstanding as adjusted 3,574,130 3,596,393
Diluted earnings per share $.42 $.44
7
(3) Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income," requires disclosure of all
components of comprehensive income on an annual and interim basis. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. The Company's comprehensive income is equal to its net income for all
periods presented.
(4) Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business combination. SFAS
No. 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 was required to adopt SFAS No. 141 and SFAS No.
142 on a prospective basis as of January 1, 2002. In accordance with the
provisions of SFAS No. 141 and SFAS No. 142, the Company no longer amortizes
goodwill. In the prior year period ended March 31, 2001, the Company incurred
goodwill amortization expense of approximately $205,000.
(5) Subsequent Events
Effective April 1, 2002, the Company acquired all of the outstanding capital
stock of Fox Dental Company of Tampa, Florida.
8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The Company's working capital increased from $15,060,000 at December 31,
2001 to $16,235,000 at March 31, 2002. Cash and equivalents decreased $956,000
from $6,378,000 at December 31, 2001 to $5,422,000 at March 31, 2002. Operating
activities provided $497,000 in cash flow for the three month period ending
March 31, 2002.
Cash outflows related to dental laboratory acquisitions totaled $1,278,000
for the three months ended March 31, 2002. Capital expenditures for the same
period were $336,000.
The Company maintains a financing agreement (the "Agreement") with Citizens
Bank of Massachusetts (the "Bank"). The Agreement, as amended and extended
effective December 31, 2001, includes a revolving line of credit of $4,000,000
and a term facility of $8,000,000. The interest rate on both 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 lines of credit mature on June 30, 2004.
A commitment fee of one eighth of 1% is payable on the unused amount of
both lines of credit. At March 31, 2002, the full principal amount was available
to the Company under both 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, 2002, 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.
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:
Three months Ended
March 31, 2001 March 31, 2002
-------------- --------------
Net sales 100.0% 100.0%
Cost of goods sold 58.9 58.2
---- ----
Gross profit 41.1 41.8
Selling, general and administrative expenses 29.4 30.5
---- ----
Operating income 11.7 11.3
Other expense 0.1 0.1
Interest income 0.5 0.1
--- ---
Income before provision for income taxes 12.1 11.3
Provision for income taxes 4.9 4.6
--- ---
Net income 7.2% 6.7%
---- ----
Three Months Ended March 31, 2002 Compared with Three Months Ended March 31,
2001
Net Sales
For the quarter ended March 31, 2002, net sales increased $2,808,000 or
13.6% over the corresponding period of the prior year. Approximately $3,100,000
of sales growth was attributable to business at dental laboratories owned less
than one year. Same laboratory sales decreased slightly during the quarter ended
March 31, 2002. However, during the quarter ended March 31, 2002 there was one
less sales day than during the comparable quarter ended March 31, 2001. When
adjusted to a sales per day basis, same laboratory sales growth was .1%.
Cost of Goods Sold
The Company's cost of goods sold increased by $1,496,000 or 12.3% in the
quarter ended March 31, 2002 over the same three month period ending March 31,
2001, attributable primarily to increased unit sales. As a percentage of sales,
cost of goods sold decreased from 58.9% to 58.2%. Increases in labor were more
than offset by decreases in laboratory overhead expenses and material costs.
Material costs have decreased as the cost of palladium, a component of dental
alloys, has stabilized after several years of steep increases. Additionally,
during 2001 the Company started to reduce its reliance on palladium through the
substitution of alternative materials.
10
Selling, General and Administrative Expenses
Operating expenses, which consist of selling, delivery, administrative
expense and amortization both at the laboratory and corporate level, increased
by $1,084,000 or 17.9% during the three months ended March 31, 2002 over the
corresponding period in 2001. Operating expenses increased as a percentage of
net sales from 29.4% to 30.5% during the three months ended March 31, 2002
compared with the corresponding period in 2001. Decreases in expenses associated
with delivery costs and amortization charges were offset by increases in
administrative costs and advertising and promotional expenses. The decline in
amortization expense was attributable to the impact of the implementation of
SFAS No. 141 and SFAS No. 142. Selling and Corporate Overhead expenses increased
as the Company continued development and implementation of a national marketing
program, "The NDX Reliance Program." The Company has continued to absorb the
staffing, training and marketing expenses necessary for the success of the
program.
Operating Income
Due to the increase in net sales, partially offset by increases in
operating expenses as a percent of net sales, operating income increased
$229,000 or 9.5% for the three month period ending March 31, 2002 versus the
corresponding period for the prior year.
Interest (Expense) Income
Interest income decreased by $79,000 or 70.2% in the three months ended
March 31, 2002 over the corresponding period in 2001. The decrease was primarily
due to lower investment principal and lower interest rates.
Provision for Income Taxes
The provision for income taxes increased to $1,068,000 for the three month
period ending March 31, 2002 from $1,004,000 in the corresponding period in
2001. This $64,000 increase was the result of increased income and a higher
effective tax rate. The 40.3% effective tax rate for the three month period
ending March 31, 2001 increased to 40.5% for the current period.
Net Income
As a result of all the factors discussed above, net income increased to
$1,569,100 or $0.44 per share on a diluted basis for the three months ended
March 31, 2002 from $1,485,000 or $0.42 per share on a diluted basis for the
corresponding period in 2001.
11
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
12
PART II. Other Information
Item 1. Legal Proceedings:
- -------
The Company is involved from time to time in litigation incidental to its
business. Management believes that the outcome of current litigation will not
have a material adverse effect upon the operations or financial condition of the
Company and will not disrupt the normal operations of the Company.
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 9, 2002. On February 19, 2002, the record date for the
meeting, there were 3,449,881 shares of Common Stock outstanding, of which
2,395,156 shares or 69.4% were represented at the meeting or by proxy. At the
meeting, the following matters were voted upon and approved:
(a) Proposal to fix the number of directors at five and to elect the
following persons as directors.
Name Number of Votes Cast Number of Votes Withheld
----
FOR Nominee FROM Nominee
---------------------- --------------------------
Jack R. Crosby 2,392,147 3,009
David V. Harkins 2,350,503 44,653
Norman F. Strate 2,394,675 481
David L. Brown 2,394,675 481
Daniel A. Grady 2,394,351 805
(b) 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
- -------------------- ------------------- --------------
2,355,912 33,507 5,737
13
Item 5. Other Information:
- -------
a. See footnote 5 to the Consolidated Financial Statements for
information regarding subsequent events.
b. The Company's Board of Directors elected the Company's audit
committee, consisting of Daniel A. Grady, chairman, Norman F. Strate
and Jack R. Crosby, at a regular Board of Directors meeting held on
April 9, 2002.
Item 6. Exhibits and Reports on form 8-K:
- -------
a. Reports on Form 8-K: None
b. Exhibits: Not applicable
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, there unto duly authorized.
NATIONAL DENTEX CORPORATION
---------------------------
Registrant
May 15, 2002 By:/s/ David L. Brown
---------------------------------------
David L. Brown,
President, CEO, and Director
(Principal Executive Officer)
May 15, 2002 By:/s/ Richard F. Becker
---------------------------------------
Richard F. Becker, Jr.
Chief Financial Officer, Vice President, Treasurer
(Principal Financial and Accounting Officer)
15