<PAGE> 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 SEPTEMBER 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 NOVEMBER 4, 1997: 3,459,707.
---------
================================================================================
<PAGE> 2
NATIONAL DENTEX CORPORATION
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 3
SEPTEMBER 30, 1997 (UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS AND 4
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1997
(UNAUDITED)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE NINE 5
MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS 6
ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 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
<PAGE> 3
NATIONAL DENTEX CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and equivalents............................................. $ 4,959,038 $ 3,739,837
Accounts receivable:
Trade, less allowance of $204,000 in 1996 and
$165,000 in 1997.............................................. 6,149,448 7,037,848
Other.......................................................... 198,481 208,445
Inventories...................................................... 2,929,898 3,126,026
Prepaid expenses................................................. 668,606 780,838
Deferred tax asset............................................... 402,703 408,862
----------- -----------
Total current assets............................................ 15,308,174 15,301,856
----------- -----------
PROPERTY AND EQUIPMENT:
Land and buildings............................................... 3,773,720 3,590,720
Leasehold and building improvements.............................. 2,380,010 2,882,205
Laboratory equipment............................................. 5,734,432 6,125,831
Furniture and fixtures........................................... 1,592,657 1,798,375
Capital leases................................................... 342,819 342,819
----------- -----------
13,823,638 14,739,950
Less - Accumulated depreciation and
amortization................................................. 7,352,321 7,763,373
----------- -----------
Net property and equipment....................................... 6,471,317 6,976,577
----------- -----------
OTHER ASSETS, net:
Goodwill......................................................... 5,346,757 8,399,666
Other............................................................ 3,107,873 4,257,409
----------- -----------
8,454,630 12,657,075
----------- -----------
$30,234,121 $34,935,508
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term obligations......................... $ 204,213 $ 3,646
Accounts payable................................................. 973,080 1,135,291
Accrued liabilities:
Payroll and employee benefits.................................. 2,604,909 3,153,331
Deferred purchase price........................................ 1,244,629 1,765,928
Other.......................................................... 422,693 148,471
----------- -----------
Total current liabilities...................................... 5,449,524 6,206,667
----------- -----------
LONG TERM LIABILITIES:
Deferred tax liability........................................... 304,819 244,588
Deferred purchase price.......................................... 443,300 872,967
----------- -----------
Total long-term liabilities.................................... 748,119 1,117,555
----------- -----------
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 3,459,291 shares at
September 30, 1997............................................. 34,407 34,593
Paid-in capital.................................................. 13,683,615 13,950,612
Retained earnings................................................ 10,318,456 13,626,081
----------- -----------
Total stockholders' equity..................................... 24,036,478 27,611,286
----------- -----------
$30,234,121 $34,935,508
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
-------------------------------- --------------------------------
September 30, September 30, September 30, September 30,
1996 1997 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales.................................... $12,987,428 $15,117,547 $39,041,261 $44,365,018
Cost of goods sold........................... 7,561,389 8,784,726 22,160,984 25,177,843
----------- ----------- ----------- -----------
Gross profit.............................. 5,426,039 6,332,821 16,880,277 19,187,175
Total operating expenses..................... 4,124,172 4,707,234 12,378,139 13,827,682
----------- ----------- ----------- -----------
Operating income.......................... 1,301,867 1,625,587 4,502,138 5,359,493
Other income ................................ 27,691 17,742 112,889 77,590
Interest income.............................. 31,805 21,941 90,559 57,312
----------- ----------- ----------- -----------
Income before provision for income taxes.. 1,361,363 1,665,270 4,705,586 5,494,395
Provision for income taxes................... 525,311 662,777 1,863,000 2,186,770
----------- ----------- ----------- -----------
Net income ............................... $ 836,052 $ 1,002,493 $ 2,842,586 $ 3,307,625
=========== =========== =========== ===========
Net income per share $ .24 $ .28 $ .81 $ .94
=========== =========== =========== ===========
Weighted average shares outstanding 3,510,464 3,524,872 3,510,282 3,510,948
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
-------------------- --------------------
Number of $.01 Par Number of $.01 Par Paid-in Retained
Shares Value Shares Value Capital Earnings Total
-------- -------- --------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996..................... --- $ --- 3,440,738 $ 34,407 $13,683,615 $10,318,456 $24,036,478
Issuance of 2,757 shares of common stock
under the employee stock option plan......... --- --- 2,757 28 27,536 --- 27,564
Issuance of 12,386 shares of common stock
under the employee stock purchase plan ..... --- --- 12,386 124 181,525 --- 181,649
Issuance of 2,000 shares of common stock as
compensation................................ --- --- 2,000 20 33,980 --- 34,000
Issuance of 1,410 shares of common stock as
director's fees............................. --- --- 1,410 14 23,956 --- 23,970
--- --- --- --- --- 3,307,625 3,307,625
---- ------ --------- -------- ----------- ----------- -----------
Net income.....................................
BALANCE, September 30, 1997.................... --- $ --- 3,459,291 $ 34,593 $13,950,612 $13,626,081 $27,611,286
==== ===== ========= ======== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the nine months ended September 30,
-----------------------------------------
1996 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 2,842,586 $ 3,307,625
Adjustments to reconcile net income to net cash
provided by operating activities, net of effects
of acquisitions:
Depreciation and amortization............................... 999,420 1,266,938
Increase in accounts receivable............................. (24,198) (376,874)
Increase in inventories..................................... (310,996) (140,971)
Increase in prepaid expenses ............................... (71,023) (108,702)
(Increase) decrease in deferred tax asset .................. (65,667) 3,841
(Increase) decrease in other assets......................... 145,892 (166,577)
Increase (decrease) in accounts payable and
accrued liabilities........................................ (796,234) 149,772
Decrease in deferred tax liability.......................... (18,107) (60,231)
------------ ------------
Net cash provided by operating activities................... 2,701,673 3,874,821
------------ ------------
Cash flows from investing activities:
Payment for acquisitions, net of cash acquired............ (839,017) (3,691,799)
Payment of deferred purchase price............................ (978,629) (604,329)
Additions to property and equipment, net...................... (650,989) (864,509)
------------ ------------
Net cash used in investing activities....................... (2,468,635) (5,160,637)
------------ ------------
Cash flows from financing activities:
Net payments of current and long-term obligations............. (95,918) (200,568)
Proceeds from issuance of common stock........................ 366,214 267,183
------------ ------------
Net cash provided by financing activities................... 270,296 66,615
------------ ------------
Net decrease in cash............................................ 503,334 (1,219,201)
Cash at beginning of period..................................... 4,193,394 4,959,038
------------ ------------
Cash at end of period........................................... $ 4,696,728 $ 3,739,837
------------ ------------
Supplemental disclosures of cash flow information:
Interest paid................................................. $ 18,741 $ 8,599
------------ ------------
Income taxes paid............................................. $ 2,143,128 $ 2,518,566
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 7
NATIONAL DENTEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended Year Ended
-------------------------- ------------------------- -----------
September 30 September 30 December 31
Per Share Amounts 1997 1996 1997 1996 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Primary EPS as reported $.28 $.24 $.94 $.81 $1.06
Effect of SFAS No. 128 .01 .01 .02 .02 .03
---- ---- ---- ---- -----
Basic EPS as restated $.29 $.25 $.96 $.83 $1.09
==== ==== ==== ==== =====
Fully Diluted EPS as reported $.28 $.24 $.94 $.81 $1.06
Effect of SFAS No. 128 --- --- --- --- ---
---- ---- ---- ---- -----
Diluted EPS as restated $.28 $.24 $.94 $.81 $1.06
==== ==== ==== ==== =====
</TABLE>
(3) ACQUISITIONS
In July, 1997 the Company acquired all of the capital stock of T.L.C. Dental
Laboratories, Inc. in Orlando, Florida. The acquisition, which has been
reflected in the accompanying consolidated balance sheet as of September 30,
1997 has been accounted for as a purchase in accordance with Accounting
Principle Board Opinion No. 16.
7
<PAGE> 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
$9,095,000 at September 30, 1997. Cash and equivalents decreased $1,219,000 from
$4,959,000 at December 31, 1996. Operating activities provided $3,875,000 in
cash flow for the nine months ended September 30,1997. Cash outflows related to
dental laboratory acquisitions totaled $4,296,000 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 both revolving lines of credit. At September 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
<PAGE> 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:
<TABLE>
<CAPTION>
Nine months ended
------------------------------------
September 30, September 30,
1996 1997
------------- -------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 56.8 56.8
----- -----
Gross profit 43.2 43.2
Total operating expenses 31.7 31.2
----- -----
Operating income 11.5 12.1
Other income 0.3 0.2
Interest income 0.2 0.1
----- -----
Income before provision for income taxes 12.1 12.4
Provision for income taxes 4.8 4.9
----- -----
Net income 7.3% 7.5%
----- -----
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1996
Net Sales
Net sales increased $5,324,000 or 13.6% in the nine months ended
September 30, 1997 over the corresponding period of the prior year.
Approximately $3,505,000 of this increase was 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 nine months ended
September 30, 1997 and the comparable nine months ended September 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 $3,017,000.
As a percentage of sales, cost of goods sold was 56.8% in both the nine months
ended September 30, 1997 and the comparable nine months ended September 30,
1996. Increases in materials costs continued to be offset by improvements in
labor productivity and decreases in laboratory overhead expenses.
9
<PAGE> 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 $1,450,000 or
11.7% during the nine months ended September 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 nine months ended September 30, 1997 over the corresponding
period in 1996. Decreases as a percentage of sales in administrative, selling
and corporate field support services were partially offset by increased delivery
expenses, increased incentive compensation and amortization of intangible assets
acquired in acquisitions subsequent to September 30, 1996.
Operating Income
Operating income increased by $857,000 or 19.0% for the nine months
ended September 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 $33,000 or 36.7% in the nine months ended
September 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 the nine months ended
September 30, 1997 increased to $2,187,000 from $1,863,000 in the corresponding
period in 1996. The effective tax rate increased slightly from 39.6% to 39.8%.
Net Income
As a result of the factors discussed above, net income for the nine
months ended September 30, 1997 increased by $465,000 or 16.4% over the
corresponding period in 1996. Net income per share increased from $0.81 per
share to $0.94 per share.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings:
The Company is a party to various legal proceedings incident to its
normal course of business, none of which management believes will have a
material adverse effect on the Company's results of operations or financial
position.
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:
Not Applicable
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
<PAGE> 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
November 6, 1997 By: /s/ William M. Mullahy
-------------------------------------
William M. Mullahy, President
Chief Executive Officer and Director
(Principal Executive Officer)
November 6, 1997 By: /s/ David L. Brown
-------------------------------------
David L. Brown, Vice President,
Chief Financial Officer, Treasurer
and Assistant Clerk
(Principal Financial Officer)
12
<PAGE> 1
EXHIBIT 11
NATIONAL DENTEX CORPORATION
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------------------- ------------------------------
September 30, September 30, September 30, September 30,
1996 1997 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
COMPUTATION OF PRIMARY NET INCOME PER SHARE:
Net Income applicable to common stock $ 836,052 $1,002,493 $2,842,586 $3,307,625
---------------------------- ---------------------------
Shares:
Weighted average common shares outstanding 3,439,904 3,459,072 3,405,721 3,452,638
Add: Shares issuable from assumed exercise
of options and warrants (as determined by the
application of the treasury stock method) 70,560 65,800 104,561 58,310
---------------------------- ---------------------------
Weighted average common shares outstanding as adjusted 3,510,464 3,524,872 3,510,282 3,510,948
---------------------------- ---------------------------
Primary net income per share $ 0.24 $ 0.28 $ 0.81 $ 0.94
============================ ===========================
COMPUTATION OF FULLY DILUTED NET INCOME PER SHARE:
Net Income per primary computation above $ 836,052 $1,002,493 $2,842,586 $3,307,625
---------------------------- ---------------------------
Shares:
Weighted average common shares outstanding 3,439,904 3,459,072 3,405,721 3,452,638
Add: Shares issuable from assumed exercise
of options and warrants (as determined by the
application of the treasury stock method) 70,560 75,165 104,561 75,860
---------------------------- ---------------------------
Weighted average common shares outstanding as adjusted 3,510,464 3,534,237 3,510,282 3,528,498
---------------------------- ---------------------------
Fully diluted net income per share $ 0.24 $ 0.28 $ 0.81 $ 0.94
============================ ===========================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 1997 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,739,837
<SECURITIES> 0
<RECEIVABLES> 7,246,293
<ALLOWANCES> 165,346
<INVENTORY> 3,126,026
<CURRENT-ASSETS> 15,301,856
<PP&E> 14,739,950
<DEPRECIATION> 7,763,373
<TOTAL-ASSETS> 34,935,508
<CURRENT-LIABILITIES> 6,206,667
<BONDS> 0
0
0
<COMMON> 34,593
<OTHER-SE> 27,576,693
<TOTAL-LIABILITY-AND-EQUITY> 34,935,508
<SALES> 44,365,018
<TOTAL-REVENUES> 44,365,018
<CGS> 25,177,843
<TOTAL-COSTS> 13,827,682
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (57,312)
<INCOME-PRETAX> 5,494,395
<INCOME-TAX> 2,186,770
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,307,625
<EPS-PRIMARY> .94
<EPS-DILUTED> .94
</TABLE>
