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, 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 May 6, 1997: 3,427,741.
<Page 2>
NATIONAL DENTEX CORPORATION
FORM 10-Q
Quarter Ended March 31, 1997
Table of Contents
Page
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1996
and March 31, 1997 (Unaudited) 3
Consolidated Statements of Income for the three months
ended March 31, 1996 and March 31, 1997 (Unaudited) 4
Consolidated Statements of Stockholders' Equity for
the three months ended March 31, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows for the three
months ended March 31, 1996 and March 31, 1997 (Unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information 11
Signatures 13
<Page 3>
NATIONAL DENTEX CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
------------ -----------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 4,959,038 $ 3,253,282
Accounts receivable:
Trade, less allowance of $204,000 in 1996
and $183,000 in 1997 6,149,448 6,752,650
Other 198,481 211,612
Inventories 2,929,898 2,976,202
Prepaid expenses 668,606 853,792
Deferred tax asset 402,703 421,821
------------- -------------
Total current assets 15,308,174 14,469,359
------------- -------------
PROPERTY AND EQUIPMENT:
Land and buildings 3,773,720 3,773,720
Leasehold and building improvements 2,380,010 2,466,528
Laboratory equipment 5,734,432 5,867,064
Furniture and fixtures 1,592,657 1,623,200
Capital leases 342,819 342,819
------------- -------------
13,823,638 14,073,331
Less - Accumulated depreciation
and amortization 7,352,321 7,526,524
------------- -------------
Net property and equipment 6,471,317 6,546,807
------------- -------------
OTHER ASSETS, net:
Goodwill 5,346,757 7,631,150
Other 3,107,873 3,815,678
------------- -------------
8,454,630 11,446,828
------------- -------------
$30,234,121 $32,462,994
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations $ 204,213 $ 204,981
Accounts payable 973,080 1,425,872
Accrued liabilities:
Payroll and employee benefits 2,604,909 2,252,421
Deferred purchase price 1,244,629 1,895,301
Other 422,693 835,184
------------- -------------
Total long-term liabilities 5,449,524 6,613,759
------------- -------------
LONG-TERM LIABILITIES:
Deferred tax liability 304,819 246,559
Deferred purchase price 443,300 603,667
------------- -------------
Total long-term liability 748,119 850,226
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY:
Preferred stock, $.01 par value
Authorized - 500,000 shares
None issued and outstanding --- ---
Common stock, $.01 par value
Authorized - 800,000 shares
Issued and outstanding - 3,440,738 shares
at December 31, 1996, and 3,441,355 shares
at March 31, 1997 34,407 34,414
Paid-in capital 13,683,615 13,689,697
Retained earnings 10,318,456 11,274,898
------------- -------------
Total stockholders' equity 24,036,478 24,999,009
------------- -------------
$30,234,121 $32,462,994
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<Page 4>
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
March 31, March 31,
1996 1997
-------------- --------------
<S> <C> <C>
Net sales $12,348,598 $13,980,931
Cost of goods sold 7,024,606 7,999,524
-------------- --------------
Gross profit 5,323,992 5,981,407
Total operating expenses 4,024,087 4,442,453
-------------- --------------
Operating income 1,299,905 1,538,954
Other income 41,421 31,152
Interest income 36,694 18,669
-------------- --------------
Income before provision
for income taxes 1,378,020 1,588,775
Provision for income taxes 551,208 632,333
-------------- --------------
Net income $ 826,812 $ 956,442
============== ==============
Net income per share $ .24 $ .27
============== ==============
Weighted average shares
outstanding 3,503,066 3,498,813
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<Page 5>
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
<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 617 shares of
common stock under the
employee stock purchase
plan --- --- 617 7 6,082 --- 6,089
Net income --- --- --- --- --- 956,442 956,442
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, March 31, 1997 --- --- 3,441,355 $ 34,414 $13,689,697 $11,274,898 $24,999,009
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<Page 6>
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------
1996 1997
-------- --------
<S> <C> <C>
Cash flows from operating
activities:
Net income $826,812 $956,442
Adjustments to reconcile net
income to net cash provided by
operating activities, net of
effects of acquisitions:
Depreciation and amortization 321,738 400,220
Increase in accounts receivable (54,595) (311,246)
Increase in inventories (142,578) (11,609)
Increase in prepaid expenses (268,415) (182,000)
Increase in deferred tax asset (2,062) (9,118)
Increase in other assets (52,866) (34,292)
(Increase) decrease in accounts
payable and accrued liabilities (71,139) 365,000
Decrease in deferred tax liability (33,402) (58,260)
------------ ------------
Net cash provided by operating
activities 523,493 1,115,137
------------ ------------
Cash flows from investing activities:
Payment for acquisitions, net of
cash acquired --- (2,425,863)
Payment of deferred purchase price (774,558) (238,961)
Additions to property and equipment, net (151,006) (162,925)
------------ ------------
Net cash used in investing activities (925,564) (2,827,749)
------------ ------------
Cash flows from financing activities:
Net payments of current and
long-term obligations 2,835 767
Proceeds from issuance of common stock 98,022 6,089
------------ ------------
Net cash provided by financing activities 100,857 6,856
------------ ------------
Net decrease in cash (301,214) (1,705,756)
Cash at beginning of period 4,193,394 4,959,038
------------ ------------
Cash at end of period $3,892,180 $3,253,282
------------ ------------
Supplemental disclosures of cash flow
information:
Interest paid $13,205 $2,776
------------ ------------
Income taxes paid $89,500 $115,569
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<Page 7>
NATIONAL DENTEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 Year Ended
-------------------------- -----------
Per Share Amounts March 31 March 31 December 31
1997 1996 1996
-------- -------- -----------
<S> <C> <C> <C>
Primary EPS as reported $ .27 $ .24 $ 1.06
Effect of SFAS No. 128 .01 .01 .03
-------- -------- -----------
Basic EPS as restated $ .28 $ .25 $ 1.09
-------- -------- -----------
Fully diluted EPS as reported $ .27 $ .24 $ 1.06
Effect of SFAS No. 128 -- -- --
-------- -------- -----------
Diluted EPS as restated $ .27 $ .24 $ 1.06
-------- -------- -----------
</TABLE>
(3) Acquisitions
In January, 1997 the Company acquired all of the capital stock of Scrimpshire
Dental Studio, Inc. in Hunstville, Alabama. The acquisition, which has been
reflected in the accompanying consolidated balance sheet as of March 31, 1997
has been accounted for as a purchase in accordance with Accounting Principle
Board Opinion No. 16.
<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
$7,856,000 at March 31, 1997. Cash and equivalents decreased $1,706,000 from
$4,959,000 at December 31, 1996. Operating activities provided $1,115,000 in
cash flow for the three months ended March 31,1997. Cash outflows related to
dental laboratory acquisitions totaled $2,665,000 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,
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 or Libor rate plus 2%,
at the Company's option. The first revolving line of credit matures on June 1,
1998 and the second revolving line of credit matures on June 1, 1997. A
commitment fee of one quarter of 1% is payable on the unused amount of the
first revolving line of credit. In addition, a draw down fee equal to 3/8 of
1% of each advance under the second revolving line of credit is payable at the
time of such advance. At March 31, 1997, the full principal amount was
available to the Company under both revolving lines of credit. The Company and
the Bank are in the process of rewriting these agreements.
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 and the costs associated with anticipated acquisitions
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.
<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>
Three Months Ended
---------------------------------------
March 31, March 31,
1996 1997
-------------- --------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 56.9 57.2
-------------- --------------
Gross profit 43.1 42.8
Total operating expenses 32.6 31.8
-------------- --------------
Operating income 10.6 11.0
Other income 0.3 0.2
Interest income 0.3 0.1
-------------- --------------
Income before provision
for income taxes 11.2 11.4
Provision for income taxes 4.5 4.5
-------------- --------------
Net income 6.7% 6.8%
-------------- --------------
</TABLE>
Three Months Ended March 31, 1997 Compared with Three Months Ended March 31,
1996
Net Sales
Net sales increased $1,632,000 or 13.2% in the three months ended March
31, 1997 over the corresponding period of the prior year. Approximately
$1,236,000 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 three months ended March 31, 1997
and the comparable three months ended March 31, 1996.
<Page 10>
Cost of Goods Sold
Cost of goods sold, which consists principally of labor and related
benefits, cost of materials, and laboratory overhead, increased by $975,000.
As a percentage of sales, cost of goods sold increased from 56.9% to 57.2%,
representing a gross margin decrease of .3%. Increases in materials costs were
partially offset by improvements in labor productivity and a decrease in
laboratory overhead expenses.
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 $418,000 or
10.4% during the three months ended March 31, 1997 over the corresponding
period in 1996.
Operating expenses decreased as a percentage of net sales from 32.6% to
31.8% during the three months ended March 31, 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
amortization of intangible assets acquired in acquisitions subsequent to March
31, 1996.
Operating Income
Operating income increased by $211,000 or 15.3% for the three months ended
March 31, 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, partially offset by a slight increase in cost of goods
sold.
Interest Income
Interest income decreased by $18,000 or 49.1% in the three months ended
March 31, 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 three months ended March 31,
1997 increased to $632,000 from $551,000 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 three
months ended March 31, 1997 increased by $130,000 or 15.7% over the
corresponding period in 1996. Net income per share increased from $0.24 per
share to $0.27 per share.
<Page 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:
The Company's Annual Meeting of Stockholders was held on April 8, 1997. On
the record date for the meeting, there were 3,441,321 shares of Common Stock
outstanding, of which 3,046,329 shares were represented at the meeting by proxy
or in person. At the meeting, the following matters were voted upon and
approved:
(a) Proposal to fix the number of directors at four and to elect the
following persons as directors.
Number of Votes Cast Number of Votes Withheld
Name FOR Nominee FROM Nominee
- ------------------- -------------------- ------------------------
William M. Mullahy 2,913,375 132,954
Jack R. Crosby 2,913,275 133,054
William H. McClurg 2,913,275 133,054
David V. Harkins 2,913,375 132,954
(b) Proposal to approve the amendment of the Company's 1992 Long Term
Incentive Plan to increase the number of shares available for issuance by
100,000.
Number of Votes Cast Number of Votes Cast Number of Votes
FOR Proposal AGAINST Proposal ABSTAINED
- -------------------- -------------------- ---------------
2,977,762 14,808 53,759
<Page 12>
(c) 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
- -------------------- -------------------- ---------------
3,044,229 300 1,800
Item 5. Other Information:
On April 8, 1997, Norman F. Strate was appointed to the Company's Board of
Directors.
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
<Page 13>
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
May 14, 1997 By:/s/ William M. Mullahy
------------------------------------
William M. Mullahy, President
Chief Executive Officer and Director
(Principal Executive Officer)
May 14, 1997 By:/s/ David L. Brown
------------------------------------
David L. Brown, Vice President, Chief
Financial Officer, Treasurer and
Assistant Clerk
(Principal Financial Officer)
<PAGE>
EXHIBIT 11
NATIONAL DENTEX CORPORATION
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
March 31, March 31,
1996 1997
----------------------------------
<S> <C> <C>
Computation of Primary
Net Income per Share:
Net Income applicable
to common stock $ 826,812 $ 956,442
----------------------------------
Shares:
Weighted average common
shares outstanding 3,341,119 3,441,088
ADD: Shares issuable from
assumed exercise of options
and warrants (as determined by
the application of the treasury
stock method) 161,947 57,725
----------------------------------
Weighted average common shares
outstanding as adjusted 3,503,066 3,498,813
----------------------------------
Primary net income per share $0.24 $0.27
==================================
Three Months Ended
----------------------------------
March 31, March 31,
1996 1997
----------------------------------
Computation of Fully Diluted
Net Income per Share:
Net Income per primary
computation above $ 826,812 $ 956,442
Shares:
Weighted average common
shares outstanding 3,341,119 3,441,088
ADD: Shares issuable from
assumed exercise of options
and warrants (as determined by
the application of the treasury
stock method) 161,947 57,725
----------------------------------
Weighted average common shares
outstanding as adjusted 3,503,066 3,498,813
----------------------------------
Fully diluted net income per share $0.24 $0.27
==================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheets at March 31, 1997 (Unaudited) and the
Condensed Consolidated Statements of Operations and Cash Flows fo rthe three
months ended March 31, 1997 (Unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,253,282
<SECURITIES> 0
<RECEIVABLES> 7,147,740
<ALLOWANCES> 183,478
<INVENTORY> 2,976,202
<CURRENT-ASSETS> 14,469,359
<PP&E> 14,073,331
<DEPRECIATION> 7,526,524
<TOTAL-ASSETS> 32,462,994
<CURRENT-LIABILITIES> 6,613,759
<BONDS> 0
<COMMON> 34,414
0
0
<OTHER-SE> 24,964,595
<TOTAL-LIABILITY-AND-EQUITY> 32,462,994
<SALES> 13,980,931
<TOTAL-REVENUES> 13,980,931
<CGS> 7,999,524
<TOTAL-COSTS> 4,442,453
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (18,669)
<INCOME-PRETAX> 1,588,775
<INCOME-TAX> 632,333
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 956,442
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
