<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period ended June 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to .
Commission File Number 0-18347
SULLIVAN DENTAL PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
WISCONSIN 36-3070444
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10920 West Lincoln Avenue, West Allis, Wisconsin 53227
- - - ------------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
(414)321-8881
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(Registrant's telephone number, including area code)
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 twelve (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 ninety (90) days.
Yes X No
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As of August 1, 1996, 9,306,747 shares of common stock, $.01 par value, were
outstanding.
<PAGE>
SULLIVAN DENTAL PRODUCTS, INC.
FORM 10-Q
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996
INDEX
PAGE
Part I Item 1 - Financial Information 1
Balance Sheets as of June 30, 1996
and December 31, 1995 1-2
Statements of Income for the three
months and six months ended June 30, 1996 and 1995 3
Statements of Cash Flows for the three months
and six months ended June 30, 1996 and 1995 4
Notes to Financial Statements 5-6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
Part II Item 4 - Submission of Matters to a Vote of
Security Holders 9
Item 5 - Other Information 10
Item 6 - Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
PART I FINANCIAL INFORMATION
SULLIVAN DENTAL PRODUCTS, INC.
BALANCE SHEETS
June 30, December 31,
1996 1995
------------- -------------
ASSETS
CURRENT ASSETS:
Cash $ 29,391 $ 172,482
Accounts receivable:
Trade, less allowance for
uncollectible accounts 30,183,319 31,753,427
Other 24,743 1,039,093
Inventory 40,827,097 45,977,729
Prepaid expenses and income taxes 2,310,865 1,851,508
------------- -------------
Total current assets 73,375,415 80,794,239
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Warehouse and office equipment 7,898,909 7,528,286
Transportation equipment 2,860,916 2,672,728
Leasehold improvements 1,331,626 1,296,970
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12,091,451 11,497,984
Less accumulated depreciation and
amortization 5,382,567 4,899,204
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Net equipment and leasehold
improvements 6,708,884 6,598,780
OTHER ASSETS:
Goodwill 8,996,680 9,276,039
Other 287,383 245,568
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$ 89,368,362 $ 96,914,626
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See notes to financial statements.
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<PAGE>
June 30, December 31,
1996 1995
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks $ 1,725,000 $ 9,900,000
Accounts payable 15,318,250 18,474,537
Accrued expenses:
Salaries, commissions and benefits 2,125,890 2,098,566
Other 4,754,202 3,293,498
Dividends payable 450,313 -
------------- -------------
Total current liabilities 24,373,655 33,766,601
DEFERRED INCOME TAXES 695,000 695,000
STOCKHOLDERS' EQUITY:
Preferred stock--$.01 par value; 500,000
shares authorized, none issued - -
Common stock--$.01 par value; 30,000,000
shares authorized, 9,306,747 shares
issued in 1996 and 1995 93,067 93,067
Paid-in capital 31,030,201 31,030,201
Retained earnings 35,988,652 33,662,217
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Total 67,111,920 64,785,485
Less treasury stock at cost (300,
496 and 257,496 shares in 1996
and 1995, respectively) (2,812,213) (2,332,460)
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Total stockholders' equity 64,299,707 62,453,025
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$ 89,368,362 $ 96,914,626
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See notes to financial statements.
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<PAGE>
SULLIVAN DENTAL PRODUCTS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
------------- ------------- ------------- -------------
Net sales $ 58,496,802 $ 51,527,997 $112,957,115 $103,520,982
Cost of sales 38,603,853 33,905,422 74,438,739 68,116,806
------------- ------------- ------------- -------------
Gross profit 19,892,949 17,622,575 38,518,376 35,404,176
Operating expenses 16,882,011 15,166,285 33,348,795 30,601,610
------------- ------------- ------------- -------------
Operating income 3,010,938 2,456,290 5,169,581 4,802,566
Interest expense (60,418) (3,825) (206,138) (5,794)
Other income 136,479 163,290 418,117 470,263
------------- ------------- ------------- -------------
Income before provision
for income taxes 3,086,999 2,615,755 5,381,560 5,267,035
Provision for income
taxes 1,235,000 1,046,000 2,153,000 2,107,000
------------- ------------- ------------- -------------
Net income $ 1,851,999 $ 1,569,755 $ 3,228,560 $ 3,160,035
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income per common and common
equivalent share:
Primary and fully diluted $ .20 $ .17 $ .35 $ .33
Weighted average common shares:
Primary 9,383,000 9,488,000 9,351,000 9,514,000
Fully diluted 9,383,000 9,488,000 9,351,000 9,514,000
</TABLE>
See notes to financial statements.
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SULLIVAN DENTAL PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,851,999 $ 1,569,755 $ 3,228,560 $ 3,160,035
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 513,700 468,898 1,017,578 897,610
(Gain) loss on sale of equipment (10,044) 37,172 (19,598) 22,253
Provision for losses on accounts receivable 105,000 82,500 210,000 232,500
Changes in assets and liabilities:
Decrease (increase) in accounts receivable--trade (2,321,601) 918,355 1,315,587 2,499,843
Decrease (increase) in accounts receivable--other 361,844 (136,537) 1,014,350 697,380
Decrease (increase) in inventory 936,384 790,559 5,150,632 (2,645,416)
(Increase) in prepaid expenses and income taxes (1,385,348) (900,978) (459,357) (617,052)
(Increase) decrease in other assets (71,148) 12,440 (72,148) 456
(Decrease) increase in accounts payable 1,923,169 (4,764,947) (3,156,287) (7,042,328)
Increase in accrued expenses--
salaries, commissions and benefits 879,836 732,222 27,324 187,601
Increase (decrease) in accrued expenses--other 1,810,528 (89,844) 1,460,704 (639,778)
(Decrease) in income taxes payable (367,697) (935,631) - (414,073)
------------- ------------- ------------- -------------
Net cash provided by (used in) operating
activities 4,226,622 (2,216,036) 9,717,345 (3,660,969)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of assets, net of cash received - - - 42,155
Purchase of equipment and leasehold improvements (552,387) (815,355) (1,002,887) (1,634,175)
Proceeds from sale of equipment 54,416 162,762 76,766 190,866
------------- ------------- ------------- -------------
Net cash (used in) investing activities (497,971) (652,593) (926,121) (1,401,154)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) in notes payable to banks (3,000,000) - (8,175,000) -
Purchase of treasury stock (307,503) (2,231,250) (307,503) (2,231,250)
Dividends paid (451,812) - (451,812) -
Proceeds from stock options exercised - 93,239 - 154,289
------------- ------------- ------------- -------------
Net cash (used in) financing activities (3,759,315) (2,138,011) (8,934,315) (2,076,961)
------------- ------------- ------------- -------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (30,664) (5,006,640) (143,091) (7,139,084)
CASH AND CASH EQUIVALENTS, beginning of period 60,055 5,067,572 172,482 7,200,016
------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of period $ 29,391 $ 60,932 $ 29,391 $ 60,932
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 54,918 $ 3,825 $ 236,770 $ 5,794
Income taxes 1,793,320 2,381,271 1,895,302 2,920,713
</TABLE>
See notes to financial statements.
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SULLIVAN DENTAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION:
The financial statements have been prepared by the Company, without audit by
independent certified public accountants, in accordance with generally accepted
accounting principles for interim financial information and pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations since the Company
believes that the disclosures contained herein are adequate to make the
information presented not misleading.
These financial statements should be read in conjunction with the financial
statements and notes included in the Company's 1995 Annual Report on Form 10-K.
In the opinion of the Company, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position of the
Company as of June 30, 1996, as well as the results of operations and the cash
flows for the three and six months ended June 30, 1996 and 1995, have been
included.
The results of operations for such interim periods are not necessarily
indicative of the results for the full year.
INVENTORY:
The Company measures inventory and cost of sales for interim financial
statements by use of a historically developed gross profit percentage.
Annually, the Company adjusts the inventory to reflect the results of a physical
count.
NET INCOME PER SHARE:
Net income per share and the dilutive effect on net income per share of
potentially dilutive stock options are computed by the treasury stock method.
Common stock equivalents result from the assumed issuance of shares under stock
option plans.
CASH FLOWS:
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents. The change in assets and liabilities in the operating section
of the statement of cash flows for the six months ended June 30, 1995, is
reflected net of the effects of the acquisition consummated.
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SULLIVAN DENTAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996
NOTE B - DIVIDENDS
On March 20, 1996, the Company declared a cash dividend of $.05 per share
payable April 20, 1996, to stockholders of record on April 10, 1996. On June 20,
1996, the Company declared a cash dividend of $.05 per share payable July 19,
1996, to stockholders of record on July 10, 1996. Total dividends are $902,125.
NOTE C - TREASURY STOCK
During June 1996, the Company repurchased 30,000 shares of its own common stock
in the open market for $307,503. Also during June 1996, an acquisition from a
prior year was revalued and 13,000 shares valued at $172,250 were returned to
the Company and recorded as treasury stock.
NOTE D - SUBSEQUENT EVENT
On July 8, 1996, the Company signed a letter of intent to purchase substantially
all of the assets and assume certain liabilities of Mountain West Dental
Company, an Idaho based dental supply, equipment and service company, in
exchange for approximately 429,000 shares of common stock of the Company. The
value of the shares and goodwill will be determined at the date of closing.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Net sales for the three months ended June 30, 1996 ("Current Quarter") were
$58,497,000, an increase of $6,969,000, or 13.5%, over the three months ended
June 30, 1995 ("Prior Quarter"). The $6,969,000 increase in net sales was
substantially due to increased unit sales and, to a lesser extent, price
increases. The growth in unit sales was generated largely by increased
penetration in existing markets.
Sales of dental supplies comprised 67.8% of net sales in the second quarter of
1996 versus 69.4% during the same period in 1995. Sales of dental equipment
constituted 25.7% of net sales in the Current Quarter versus 24.0% in the Prior
Quarter. The balance of sales in each period consisted of repair service and
parts. The change in product mix is largely due to the opening of 4 new
equipment sales and service centers in the last 12 months which, when adjusting
for the closing of one center, brings the total number of equipment sales and
service centers to 46 nationwide.
Gross profit rose $2,270,000, or 12.9%, in the Current Quarter compared to the
Prior Quarter, primarily as the result of increased sales. Gross Profit as a
Percentage of net sales decreased from 34.2% to 34.0%.
Operating expenses rose $1,716,000, or 11.3%, to $16,882,000, in the second
quarter of 1996 compared to $15,166,000 in the second quarter of 1995 and
decreased as a percentage of net sales to 28.9% from 29.4% over the same period
last year. Of this increase in operating expenses, $877,000 resulted from
increased salaries and commissions due to higher sales creating higher
commissions and salaries paid to new sales trainees and support staff and
$540,000 due to increases in health and general insurance premiums.
Operating income in the Current Quarter increased from the Prior Quarter by
$555,000 to $3,011,000, due to the factors identified above. Interest expense
rose by $56,000 to $60,000 due to use of the bank credit lines. The weighted
average interest rate for the Current Quarter was 6.6%.
Net income per share for primary and fully diluted shares rose to $.20 per share
during the second quarter of 1996 compared to $.17 per share for the
corresponding period in 1995. Net income increased $282,000 in the second three
months of 1996 as compared to such period in 1995, due to higher sales.
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<PAGE>
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Net sales for the six months ended June 30, 1996 ("Current Period") were
$112,957,000, an increase of $9,436,000, or 9.1% over the six months ended June
30, 1995 ("Prior Period"). The $9,436,000 increase in net sales was
substantially due to increased unit sales and, to a lesser extent, price
increases. The growth in unit sales was generated largely by increased
penetration in existing markets.
Sales of dental supplies comprised 69.1% of net sales in the first half of 1996
versus 70.7% during the same period in 1995. Sales of dental equipment
constituted 24.1% of net sales in the Current Period versus 22.4% in the Prior
Period.
Gross profit rose $3,114,000, or 8.8%, in the first half of 1996, compared to
the same period last year, primarily as a result of increased sales. Gross
profit as a percentage of sales decreased from 34.2% to 34.1%.
Operating expenses for the Current Period rose $367,000, or 9.0%, compared to
the Prior Period and decreased as a percentage of net sales to 29.5% from 29.6%
over the same period last year. Of this increase in operating expenses,
$1,429,000 resulted from increased salaries and commissions due to higher sales
creating higher commissions and salaries paid to new sales trainees and support
staff.
Operating income in the Current Period increased from the Prior Period by
$2,747,000 to $5,170,000 due to the factors identified above. Interest expense
increased by $200,000 to $206,000. The weighted average interest rate for the
Current Period was 6.6%.
Net income per share for primary and fully diluted shares increased to $.35 per
share from $.33 per share during the Current Period compared to the Prior
Period. Net income increased by $69,000, or 2.2%, in the first half of 1996 as
compared to the same period last year, primarily due to increased sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company had no short-term investments at June 30, 1996 or at year-end 1995.
The Company, pursuant to a stock repurchase plan which authorized the purchase
of up to 500,000 shares, has to date repurchased 280,000 shares of its common
stock from the public at various prices with an average price of approximately
$9.00 per share, which repurchases total $2,538,750.
Inventories decreased $5,151,000 due to reduced purchasing in the first and
second quarter of 1996.
Working capital at June 30, 1996 was $49,002,000, an increase of $1,974,000 over
December 31, 1995 reflecting net income of $3,229,000 reduced by dividends of
$902,000 and the purchase of treasury stock of $308,000.
Cash and cash equivalents as of June 30, 1996 decreased by $143,000 from
December 31, 1995. Net cash provided by operating activities for the six months
ended June 30, 1996 was $9,717,000 primarily as a result of
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<PAGE>
net income adjusted for depreciation and bad debts and decreases in inventory
and accounts receivable offset by decreases in accounts payable. Cash was used
for equipment purchases ($1,003,000), to reduce notes payable to banks
($8,175,000), to pay dividends ($452,000) and to repurchase stock ($308,000).
Other assets, net of amortization, as of June 30, 1996 decreased $238,000 to
$9,284,000 compared to $9,522,000 at December 31, 1995. The decrease is due to
amortization of goodwill ($182,000), the reduction of goodwill for the revaluing
of the acquisition of Inglis Dental Supply, Inc. ($128,000) and offset by the
purchase of customer lists ($65,000).
The Company expects that the $23,000,000 available lines of credit, of which
$1,725,000 was borrowed as of June 30, 1996, together with internally generated
funds from its operations, will be sufficient to meet its currently foreseeable
short-term and long-term liquidity and capital needs.
On June 20, 1996, the Company declared a cash dividend of $.05 cents per share
paid on July 19, 1996 to shareholders of record on July 10, 1996.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Company held its Annual Shareholders Meeting on May 14, 1996, and the
following directors were elected, having received votes as follows:
AUTHORITY AUTHORITY
DIRECTOR GRANTED WITHHELD
Robert J. Sullivan 7,993,025 97,012
Robert E. Doering 7,993,525 96,512
Wayne G. Holt 7,993,185 96,852
Kevin J. Ackeret 7,994,585 95,452
Timothy J. Sullivan 7,989,815 100,122
Howard O. Wolfe 7,921,685 168,252
Kerry B. Wolfe 7,921,575 168,362
The Shareholders also approved the Board of Directors Resolution to adopt the
Company's 1995 Long-Term Stock Plan. The vote was 5,207,721 in favor, 1,412,212
opposed and 663,120 abstentions.
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ITEM 5. OTHER INFORMATION
On July 8, 1996, the Company executed a letter of intent to purchase
substantially all of the assets and assume the liabilities of Mountain West
Dental Company, an Idaho-based dental equipment and supply company, in exchange
for 429,000 registered shares of common stock of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K - The Company was not required to, and did not, file a Form
8-K during the period covered by this report.
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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.
SULLIVAN DENTAL PRODUCTS, INC.
(Registrant)
By /S/ Timothy J. Sullivan
------------------------------------
Dated: August 8, 1996 TIMOTHY J. SULLIVAN, Vice President
and Principal Financial Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 29
<SECURITIES> 0
<RECEIVABLES> 31,029
<ALLOWANCES> 846
<INVENTORY> 40,827
<CURRENT-ASSETS> 73,375
<PP&E> 12,091
<DEPRECIATION> 5,382
<TOTAL-ASSETS> 89,368
<CURRENT-LIABILITIES> 24,374
<BONDS> 0
0
0
<COMMON> 93
<OTHER-SE> 64,207
<TOTAL-LIABILITY-AND-EQUITY> 64,300
<SALES> 112,957
<TOTAL-REVENUES> 113,375
<CGS> 74,439
<TOTAL-COSTS> 74,439
<OTHER-EXPENSES> 33,349
<LOSS-PROVISION> 210
<INTEREST-EXPENSE> 206
<INCOME-PRETAX> 5,382
<INCOME-TAX> 2,153
<INCOME-CONTINUING> 3,229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,229
<EPS-PRIMARY> .345
<EPS-DILUTED> .345
</TABLE>
