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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2000 COMMISSION FILE NUMBER: 000-23092
NATIONAL DENTEX CORPORATION
MASSACHUSETTS 04-2762050
------------------------ ---------------------------
(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
-------------------------------
(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 AUGUST 4, 2000: 3,580,607.
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NATIONAL DENTEX CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS: PAGE
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1999 AND
JUNE 30, 3 2000 (UNAUDITED) 3
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 1999 AND JUNE 30, 2000 (UNAUDITED) 4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE SIX
MONTHS ENDED JUNE 30, 2000 (UNAUDITED) 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND JUNE 30, 2000 (UNAUDITED) 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 12
PART II. OTHER INFORMATION 13
SIGNATURES 14
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NATIONAL DENTEX CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1999 2000
----------- -----------
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and equivalents ............................. $11,215,179 $11,021,641
Accounts receivable:
Trade, less allowance of $196,000 in
1999 and $177,000 in 2000 ....................... 7,722,729 9,085,566
Other ............................................ 436,401 269,132
Inventories ...................................... 3,840,821 3,869,277
Prepaid expenses ................................. 912,513 1,050,266
Deferred tax asset ............................... 350,820 365,382
----------- -----------
Total current assets ............................ 24,478,463 25,661,264
----------- -----------
PROPERTY AND EQUIPMENT:
Land and buildings ............................... 3,887,402 3,887,402
Leasehold and building improvements .............. 3,976,361 4,487,764
Laboratory equipment ............................. 7,356,055 7,764,006
Furniture and fixtures ........................... 2,228,775 2,352,167
Capital leases ................................... -- --
----------- -----------
17,448,593 18,491,339
Less - Accumulated depreciation and
amortization ................................... 9,020,264 9,536,969
----------- -----------
Net property and equipment ....................... 8,428,329 8,954,370
----------- -----------
OTHER ASSETS, net:
Goodwill ......................................... 11,111,435 10,846,030
Non competition agreements ....................... 3,539,947 3,261,683
Deferred tax asset ............................... 337,268 332,897
Other ............................................ 1,310,044 1,483,427
----------- -----------
16,298,694 15,924,037
----------- -----------
$49,205,486 $50,539,671
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable ................................. $ 1,491,285 $ 1,157,234
Accrued liabilities:
Payroll and employee benefits ................... 3,764,657 3,786,505
Current portion of deferred purchase price ...... 2,403,888 1,111,783
Other ........................................... 104,977 92,958
----------- -----------
Total current liabilities ....................... 7,764,807 6,148,480
----------- -----------
LONG TERM LIABILITIES:
Payroll and employee benefits .................... 1,159,871 880,395
Deferred purchase price .......................... 731,334 380,612
----------- -----------
Total long-term liabilities ..................... 1,891,205 1,261,007
----------- -----------
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 - 3,550,083 shares at
December 31, 1999, and 3,579,238 shares
at June 30, 2000 ................................ 35,500 35,792
Paid-in capital .................................. 14,903,119 15,273,607
Retained earnings ................................ 24,610,855 27,820,785
----------- -----------
Total stockholders' equity ...................... 39,549,474 43,130,184
----------- -----------
$49,205,486 $50,539,671
----------- -----------
The accompanying notes are an integral part of these
consolidated financial statements.
3
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NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales .................................................. $18,233,360 $19,866,098 $35,245,232 $38,826,273
Cost of goods sold ......................................... 10,427,794 11,309,893 20,241,797 22,187,852
----------- ----------- ----------- -----------
Gross profit ............................................ 7,805,566 8,556,205 15,003,435 16,638,421
Total operating expenses ................................... 5,282,567 5,723,169 10,479,223 11,484,491
----------- ----------- ----------- -----------
Operating income ........................................ 2,522,999 2,833,036 4,524,212 5,153,930
Other expense .............................................. 21,236 34,953 23,972 63,775
Interest income ............................................ 50,828 129,713 119,985 259,728
----------- ----------- ----------- -----------
Income before provision for income taxes ................ 2,552,591 2,927,796 4,620,225 5,349,883
Provision for income taxes ................................. 999,263 1,171,118 1,857,331 2,139,953
----------- ----------- ----------- -----------
Net income .............................................. $ 1,553,328 $ 1,756,678 $ 2,762,894 $ 3,209,930
=========== =========== =========== ===========
Net income per share - Basic ............................... $ .44 $ .49 $ .78 $ .90
=========== =========== =========== ===========
Net income per share - Diluted ............................. $ .44 $ .49 $ .78 $ .90
=========== =========== =========== ===========
Weighted average shares outstanding - Basic ................ 3,548,927 3,576,628 3,537,589 3,564,531
=========== =========== =========== ===========
Weighted average shares outstanding - Diluted .............. 3,566,469 3,601,048 3,555,845 3,584,834
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
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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, 1999..... -- $ -- 3,550,083 $35,500 $14,903,119 $24,610,855 $39,549,474
Issuance of 10,850 shares
of common stock under
the employee stock
option plan................... -- -- 10,850 109 143,003 -- 143,112
Issuance of 17,492 shares
of common stock under
the employee stock
purchase plan .................. -- -- 17,492 175 215,501 -- 215,676
Issuance of 813 shares
of common stock as
director's fees................. -- -- 813 8 11,984 -- 11,992
Net income....................... -- -- -- -- -- 3,209,930 3,209,930
----- -------- --------- ------- ----------- ----------- -----------
BALANCE, June 30, 2000........... -- $ -- 3,579,238 $35,792 $15,273,607 $27,820,785 $43,130,184
===== ======== ========= ======= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six months ended June 30,
---------------------------------
1999 2000
----------- ------------
Cash flows from operating activities:
Net income ................................... $ 2,762,894 $ 3,209,930
Adjustments to reconcile net income
to net cash provided by operating
activities, net of effects of
acquisitions:
Depreciation and amortization ............ 1,118,145 1,197,153
Increase in accounts receivable .......... (622,504) (1,195,568)
Increase in inventories .................. (96,699) (26,656)
Increase in prepaid expenses ............. (79,611) (137,753)
Increase in deferred tax asset ........... (17,960) (10,191)
Increase in other assets ................. (112,191) (208,386)
Decrease in accounts payable and
accrued liabilities ...................... (880,818) (603,697)
Decrease in deferred tax liability ....... (79,863) --
----------- ------------
Net cash provided by operating
activities .............................. 1,991,393 2,224,832
----------- ------------
Cash flows from investing activities:
Payment for acquisitions, net of cash
acquired .................................. (2,112,123) (25,000)
Payment of deferred purchase price ......... (350,165) (1,727,827)
Additions to property and equipment, net ... (676,624) (1,036,323)
----------- ------------
Net cash used in investing activities ..... (3,138,912) (2,789,150)
----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock ..... 400,443 370,780
---------- ------------
Net cash provided by financing
activities ............................... 400,443 370,780
---------- ------------
Net decrease in cash ......................... (747,076) (193,538)
Cash at beginning of period .................. 8,525,648 11,215,179
---------- ------------
Cash at end of period ........................ $ 7,778,572 $ 11,021,641
----------- ------------
Supplemental disclosures of cash flow
information:
Interest paid .............................. $ 5,056 $ 82,338
----------- ------------
Income taxes paid .......................... $ 2,071,415 $ 2,154,188
----------- ------------
The accompanying notes are an integral part of these
consolidated financial statements.
6
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NATIONAL DENTEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(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, 1999 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 as determined
by the application of the treasury stock method. The calculation of basic
earnings per share and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income applicable to common stock $1,553,328 $1,756,678 $2,762,894 $ 3,209,930
========== ========== ========== =============
COMPUTATION OF BASIC EARNINGS PER SHARE:
Weighted average common shares outstanding
3,548,927 3,576,628 3,537,589 3,564,531
Basic earnings per share $ .44 $ .49 $ .78 $ .90
COMPUTATION OF DILUTED EARNINGS PER SHARE:
Weighted average common shares outstanding
3,548,927 3,576,628 3,537,589 3,564,531
Shares issuable from assumed exercise of options
(as determined by the application of the treasury
stock method)
17,542 24,420 18,256 20,303
---------- ---------- ---------- -------------
Weighted average common shares outstanding as
adjusted 3,566,469 3,601,048 3,555,845 3,584,834
Diluted earnings per share $ .44 $ .49 $ .78 $ .90
</TABLE>
7
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Options to purchase 148,846 shares of common stock at exercise prices ranging
from $16.25 to $21.875 per share were outstanding during the second quarter of
2000 but were not included in the computation of diluted earnings per share
because the options' exercise price was greater than the average market price of
the common shares. The options, which expire through January 2009, were still
outstanding at June 30, 2000.
(3) COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," establishes standards for reporting and displaying comprehensive income
and its components. The Company adopted the statement in its quarter ending
March 31, 1998. The Company does not have any other items of comprehensive
income. As such, comprehensive income is equal to net income as presented in the
consolidated statements of income.
(4) RECENT ACCOUNTING PRONOUNCEMENTS
The Securities and Exchange Commission issued SAB No. 101, "Revenue
Recognition", in December 1999. This bulletin established guidelines for revenue
recognition and is effective no later then the fourth fiscal quarter of fiscal
years beginning after December 15, 1999. The Company believes that the adoption
of the guidance provided in SAB No. 101 will not have a material impact on
future operating results.
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", in June 1998. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. The standard is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company believes that the
adoption of the guidance provided in SFAS 133 will not have a material impact
on future operating results.
(5) ACQUISITIONS
In April, 2000 the Company acquired certain assets of Pro-Dental Laboratory in
West Caldwell, New Jersey. The acquisition, which has been reflected in the
accompanying consolidated balance sheet as of June 30, 2000, has been accounted
for as a purchase in accordance with Accounting Principles Board Opinion No. 16.
8
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
======================================================
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased from $16,713,000 at December 31, 1999 to
$19,513,000 at June 30, 2000. Cash and equivalents decreased $194,000 from
$11,215,000 at December 31, 1999. Operating activities provided $2,137,000 in
cash flow for the six months ended June 30, 2000. Cash outflows related to
dental laboratory acquisitions totaled $1,665,000 for the six months ended June
30, 2000 compared to $2,462,000 for the same period in 1999. Capital
expenditures totaled $1,036,000 for the six months ended June 30, 2000 compared
to $677,000 for the same period in 1999.
The Company maintains a financing agreement (the "Agreement") with Citizens
Bank of Massachusetts (formerly State Street Bank and Trust Company) (the
"Bank"). The Agreement, as amended and extended on June 27, 1998, 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. Both revolving lines of credit mature on
June 1, 2001. A commitment fee of one eighth of 1% is payable on the unused
amount of both revolving lines of credit. At June 30, 2000 the full principal
amount was available to the Company under both revolving lines of credit.
Management believes that cash flow from operations and the Company's
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
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RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
net sales represented by certain items in the Company's Consolidated Financial
Statements:
Six Months Ended
--------------------------
June 30, June 30,
1999 2000
-------- --------
Net sales 100.0% 100.0%
Cost of goods sold 57.4 57.1
----- -----
Gross profit 42.6 42.9
Total operating expenses 29.7 29.6
----- -----
Operating income 12.9 13.3
Other income (expense) (0.1) (0.2)
Interest income 0.3 0.7
----- -----
Income before provision for income taxes 13.1 13.8
Provision for income taxes 5.3 5.5
----- -----
Net income 7.8% 8.3%
----- -----
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
Net Sales
Net sales increased $3,581,000 or 10.2% in the six months ended June 30,
2000 over the corresponding period of the prior year. Approximately $289,000 of
this increase was attributable to acquisitions, with the remaining increase
representing same laboratory sales growth.
Cost of Goods Sold
Cost of goods sold, which consists principally of labor and related
benefits, cost of materials, and laboratory overhead, increased by $1,946,000.
As a percentage of sales, cost of goods sold decreased from 57.4% to 57.1%,
representing a gross margin increase of .3%. Increases in materials costs were
offset by improvements in labor productivity and decreases in laboratory
overhead on a percentage basis. The continued rising cost of palladium, a
component of dental alloys used in the manufacture of many of the Company's
products, continues to be a factor in the increased materials costs. Since the
cost of this commodity shows no sign of returning to historical levels, each of
the Company's laboratories has implemented a program to either switch its
current palladium customers to alternative metals, such as gold, or to recover a
portion of the cost increase by eliminating all unit pricing and charging a fee
per unit plus metal cost.
10
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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, (ii) costs of operation by the Company's corporate
headquarters and field support services and (iii) amortization expense,
increased by $1,005,000 or 9.6% during the six months ended June 30, 2000 over
the corresponding period in 1999.
Expenses related to the Laboratory Incentive Compensation plan and the
Executive Incentive Compensation plan increased as a result of increased
operating income. In addition, expenses attributable to the amortization
expenses associated with acquired dental laboratories increased. The remainder
of the increase was attributable to rising costs associated with pick-up and
delivery services.
Operating expenses decreased as a percentage of net sales from 29.7% to
29.6% during the six months ended June 30, 2000 compared with the corresponding
period in 1999 as a result of the higher sales volume.
Operating Income
Operating income increased by $630,000 or 13.9% for the six months ended
June 30, 2000 over the corresponding period in 1999. The increase was mainly the
result of higher sales volume and reductions in cost of goods sold as a
percentage of net sales. Additionally, operating expenses slightly decreased as
a percentage of net sales for the same period.
Other Expense
Other expense increased by $40,000 in the six months ended June 30, 2000
compared to the same period in 1999. The increase was primarily attributable to
customer use of credit cards. This expense alone increased by $39,000.
Additionally, there was a decrease in rental income.
Interest Income
Interest income increased by $140,000 or 116.5% in the six months ended
June 30, 2000 over the corresponding period in 1999. The increase was primarily
due to increased investment principal as well as higher short-term interest
rates.
Provision for Income Taxes
The Company's provision for income taxes for the six months ended June 30,
2000 increased to $2,140,000 from $1,857,000 in the corresponding period in
1999. The effective tax rate has decreased slightly from 40.2% to 40.0%. The tax
provision in future periods may increase depending in part on the level and
nature of the Company's acquisition activities.
Net Income
As a result of the factors discussed above, net income for the six months
ended June 30, 2000 increased by $447,000 or 16.2% over the corresponding period
in 1999. Net income per share, on a diluted basis, increased from $0.78 per
share to $0.90 per share.
11
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ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
12
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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 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:
-------
Not applicable.
ITEM 5. Other Information:
-------
See footnote 5 to the Consolidated Financial Statements for information
regarding a recent acquisition.
ITEM 6. Exhibits and Reports on Form 8-K:
-------
a. Exhibits: (27) Financial Data Schedule
b. Reports on Form 8-K: None
13
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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, there unto duly authorized.
NATIONAL DENTEX CORPORATION
---------------------------
Registrant
August 11, 2000 By: /s/ David L. Brown
-------------------------------------
David L. Brown
President, Treasurer and Director
(Principal Executive Officer)
August 11, 2000 By: /s/ Richard F. Becker
------------------------------------
Richard F. Becker, Jr.
Chief Financial Officer, Vice
President of Finance and Assistant
Treasurer (Principal Financial and
Accounting Officer)
14
