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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 September 30, 2002 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
- --------------------------------------- ----------
(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
Number of shares of Common Stock outstanding as of November 12, 2002: 3,465,209.
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1
FORM 10-Q
Quarter Ended September 30, 2002
Table of Contents
-----------------
PART I. Financial Information
- ------
Item 1. Financial
Statements:
Page
Consolidated Balance Sheets as of December 31, 2001 and September 30, 3
2002 (Unaudited)
Consolidated Statements of Income for the three and nine months 4
ended September 30, 2001 (Unaudited) and September 30, 2002 (Unaudited)
Consolidated Statement of Stockholders' Equity for the nine 5
months ended September 30, 2002 (Unaudited)
Consolidated Statements of Cash Flows for the nine months ended 6
September 30, 2001 (Unaudited) and September 30, 2002 (Unaudited)
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 16
PART II. Other Information 17
- -------
Signatures 18
Certifications 19
2
NATIONAL DENTEX CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
2001 2002
------------------- --------------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 6,378,026 $ 4,539,210
Accounts receivable:
Trade, less allowance of $307,000 in 2001 and
$228,000 in 2002........................................... 9,582,266 10,311,074
Other....................................................... 491,120 585,119
Raw material inventories...................................... 5,220,462 5,630,513
Prepaid expenses.............................................. 1,792,607 2,023,967
Deferred tax asset............................................ 369,195 304,401
------------------- --------------------
Total current assets......................................... 23,833,676 23,394,284
------------------- --------------------
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings............................................ 4,585,731 4,585,731
Leasehold and building improvements........................... 5,191,126 5,943,699
Laboratory equipment.......................................... 8,880,778 9,854,107
Furniture and fixtures........................................ 3,012,380 3,320,277
------------------- --------------------
21,670,015 23,703,814
Less- Accumulated depreciation and amortization...............
11,346,581 12,251,888
------------------- --------------------
Net property, plant and equipment............................. 10,323,434 11,451,926
------------------- --------------------
OTHER ASSETS, net:
Goodwill...................................................... 21,645,288 23,762,587
Non-competition agreements.................................... 3,568,480 2,820,047
Deferred tax asset............................................ 362,701 477,103
Other assets.................................................. 2,349,685 3,040,561
------------------- --------------------
Total other assets.......................................... 27,926,154 30,100,298
------------------- --------------------
Total assets................................................ $ 62,083,264 $ 64,946,508
------------------- --------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.............................................. $ 1,889,234 $ 1,882,320
Accrued liabilities:
Payroll and employee benefits............................... 3,540,899 3,189,788
Current portion of deferred purchase price.................. 2,778,160 1,886,697
Other accrued expenses...................................... 565,042 523,874
------------------- --------------------
Total current liabilities................................... 8,773,335 7,482,679
------------------- --------------------
LONG TERM LIABILITIES:
Payroll and employee benefits................................. 1,224,231 1,490,593
Deferred purchase price....................................... 3,058,609 1,965,416
------------------- --------------------
Total long-term liabilities................................. 4,282,840 3,456,009
------------------- --------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value
Authorized - 500,000 shares
None issued and outstanding................................. - -
Common stock, $.01 par value
Authorized - 8,000,000 shares
Issued - 3,625,663 shares at December 31, 2001, and 3,665,209 shares
at September 30, 2002
Outstanding - 3,446,863 at December 31, 2001, and 3,465,209
shares at September 30, 2002................................ 36,257 36,652
Paid-in capital............................................... 15,982,448 16,643,963
Retained earnings............................................. 36,549,253 41,292,074
Treasury Stock at cost - 178,800 shares at December 31, 2001
and 200,000 shares at September 30, 2002...................... (3,540,869) (3,964,869)
------------------- --------------------
Total stockholders' equity.................................. 49,027,089 54,007,820
------------------- --------------------
Total liabilities and stockholders' equity.................. $ 62,083,264 $ 64,946,508
------------------- --------------------
The accompanying notes are an integral part of these consolidated financial statements.
3
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2001 2002 2001 2002
------------- ------------- ------------- -------------
Net sales.............................. $ 21,007,815 $ 23,363,944 $ 63,474,465 $ 71,975,205
Cost of goods sold..................... 12,711,992 14,054,277 37,406,463 42,146,476
------------- ------------- ------------- -------------
Gross profit........................ 8,295,823 9,309,667 26,068,002 29,828,729
Selling, general and
administrative expenses............... 6,197,547 7,144,247 18,640,826 21,831,777
------------- ------------- ------------- -------------
Operating income.................... 2,098,276 2,165,420 7,427,176 7,996,952
Other expense.......................... 39,191 56,135 99,071 148,728
Interest income........................ 60,636 13,167 233,467 56,477
------------- ------------- ------------- -------------
Income before provision
for income taxes................... 2,119,721 2,122,452 7,561,572 7,904,701
Provision for income taxes............. 850,888 820,070 3,024,629 3,161,880
------------- ------------- ------------- -------------
Net income ......................... $ 1,268,833 $ 1,302,382 $ 4,536,943 $ 4,742,821
============= ============= ============= ==============
Net income per share - Basic $ .36 $ .37 $ 1.30 $ 1.37
============= ============= ============= ==============
Net income per share - Diluted $ .36 $ .37 $ 1.27 $ 1.32
============= ============= ============= ==============
Weighted average shares outstanding - Basic 3,489,873 3,475,133 3,491,006 3,468,316
============= ============= ============= ==============
Weighted average shares
outstanding - Diluted 3,565,136 3,541,391 3,568,598 3,585,799
============= ============= ============= ==============
The accompanying notes are an integral part of these consolidated financial statements.
4
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(Unaudited)
Common Stock
-----------------------
Number of $.01 Par Paid-in Retained Treasury
Shares Value Capital Earnings Stock Total
----------- -------- ----------- ----------- ------------ ------------
BALANCE, December 31, 2001................ 3,625,663 $36,257 $15,982,448 $36,549,253 $(3,540,869) $49,027,089
Issuance of 24,380 shares of common
stock under the stock option plans....... 24,380 243 357,165 -- -- 357,408
Issuance of 12,706 shares of
common stock under the employee
stock purchase program.................. 12,706 127 240,292 -- -- 240,419
Issuance of 2,460 shares of
common stock as directors' fees.......... 2,460 25 64,058 -- -- 64,083
Net income................................ -- -- -- 4,742,821 -- 4,742,821
Repurchase of 21,200 shares
of common stock under the stock
repurchase program....................... -- -- -- -- (424,000) (424,000)
============ ========= ============ =========== ============ ===========
BALANCE, September 30, 2002............... 3,665,209 $ 36,652 $ 16,643,963 $41,292,074 $(3,964,869) $ 54,007,820
============ ========= ============ =========== ============ ============
The accompanying notes are an integral part of these consolidated financial statements
5
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months ended September 30,
2001 2002
---------- ----------
Cash flows from operating activities:
Net income................................................... $4,536,943 $4,742,821
Adjustments to reconcile net income to net cash
provided by operating activities, net of effects
of acquisitions:
Depreciation and amortization............................ 2,152,775 1,661,699
Provision for deferred income taxes......................
Issuance of common stock as directors' fees..............
Changes in operating assets and liabilities, net of effects
of acquisitions:
Increase in accounts receivable......................... (72,314) (372,931)
Increase in inventories................................. (117,256) (292,224)
Increase in prepaid expenses ........................... (929,096) (204,735)
Increase in other assets................................ (651,402) (273,754)
Decrease in accounts payable and accrued liabilities.... (405,018) (987,285)
---------- ----------
Net cash provided by operating activities............... 4,576,516 4,288,062
---------- ----------
Cash flows from investing activities:
Payment for acquisitions, net of cash acquired............. (4,360,992) (2,769,490)
Payment of deferred purchase price......................... (1,427,710) (1,860,625)
Additions to property, plant and equipment, net............ (911,043) (1,670,590)
---------- ----------
Net cash used in investing activities.................... (6,699,745) (6,300,705)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock..................... 553,343 597,827
Repurchases of common stock................................ (3,232,000) (424,000)
---------- ----------
Net cash (used in) provided by financing activities...... (2,678,657) 173,827
---------- ----------
Net decrease in cash and cash equivalents.................... (4,801,886) (1,838,816)
Cash and cash equivalents at beginning of period............. 12,300,606 6,378,026
---------- ----------
Cash and cash equivalents at end of period................... $7,498,720 $4,539,210
---------- ----------
Supplemental disclosures of cash flow information:
Interest paid.............................................. $6,033 $8,488
---------- ----------
Income taxes paid.......................................... $3,054,148 $3,299,900
---------- ----------
The accompanying notes are an integral part of these consolidated financial statements.
6
NATIONAL DENTEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(1) Interim Financial Statements
- ---------------------------------
The accompanying unaudited financial statements include all adjustments
(consisting only of normal recurring accruals) which are, in the opinion of
management, necessary for fair presentation of the results of operations for the
periods presented. Interim results are not necessarily indicative of the results
to be expected for a full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted as allowed by
Form 10-Q. The accompanying unaudited consolidated financial statements should
be read in conjunction with the Company's consolidated financial statements for
the year ended December 31, 2001 as filed with the Securities and Exchange
Commission on Form 10-K.
(2) Earnings Per Share
- -----------------------
Basic earnings per share was computed by dividing net income by the
weighted-average common shares outstanding. Diluted earnings per share was
computed by giving effect to all dilutive potential common shares outstanding.
These shares include shares issuable upon the exercise of options 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:
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2001 2002 2001 2002
------------ ------------- ------------- -------------
Net income applicable to common stock $1,268,833 $1,302,382 $4,536,943 $4,742,821
------------ ------------- ------------- -------------
Computation of Basic Earnings per Share:
- ----------------------------------------
Weighted average common shares outstanding 3,489,873 3,475,133 3,491,006 3,438,316
Basic earnings per share $.36 $.37 $1.30 $1.37
Computation of Diluted Earnings per Share:
- ------------------------------------------
Weighted average common shares outstanding 3,489,873 3,475,133 3,491,006 3,468,316
Shares issuable from assumed exercise of
options (as determined by the application
of the treasury stock method) 75,263 66,258 77,592 117,483
------------ ------------ ------------ -------------
Weighted average common shares
outstanding as adjusted 3,565,136 3,541,191 3,568,598 3,589,799
Diluted earnings per share $.36 $.37 $1.27 $1.32
7
The following table summarizes options that were outstanding but were not
included in the computation of diulted earnings per share because the options'
exercise price was greater than the average market price of the common shares:
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, 2001 September 30, 2002 September 30, 2001 September 30, 2002
------------------ ------------------ ------------------ ------------------
Number of Options for
Common Shares 10,400 126,050 10,300 115,750
Range of Exercise Prices $21.00 - $21.875 $21.875 - $24.68 $21.875 $24.68 - $24.88
Expires Through: September, 2007 May, 2012 September, 2007 May, 2012
(3) Recent Accounting Pronouncements
- ------------------------------------
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business combination. SFAS
No. 142 addresses the initial recognition and measurement of intangible assets
acquired outside of a business combination, whether acquired individually or
with a group of other assets, and the accounting and reporting for goodwill and
other intangibles subsequent to their acquisition. These standards require that
the purchase method of accounting be used for business combinations and
eliminate the use of the pooling-of-interest method. Additionally, they require
that goodwill no longer be amortized. The Company was required to adopt SFAS No.
141 and SFAS No. 142 on a prospective basis as of January 1, 2002. In accordance
with the provisions of SFAS No. 141 and SFAS No. 142, the Company no longer
amortizes goodwill. The impact of goodwill amortization on earnings and earnings
per share is as follows:
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2001 2002 2001 2002
------------- ------------- ------------- -------------
Net income applicable to common stock $1,268,833 $1,302,382 $4,536,943 $4,742,821
Add back: Goodwill amortization 241,482 -- 679,180 --
------------- ------------- ------------- -------------
Adjusted net income $1,510,315 $1,302,382 $5,216,123 $4,742,821
============= ============= ============= =============
Computation of Basic Earnings per Share:
Reported basic earnings per share $.36 $.37 $1.30 $1.37
Add back: Goodwill amortization .07 -- .19 --
------------- ------------- ------------- -------------
Adjusted basic earnings per share $.43 $.37 $1.49 $1.37
============= ============= ============= =============
Computation of Diluted Earnings per Share:
Reported earnings per share $.36 $.37 $1.27 $1.32
Add back: Goodwill amortization .07 -- .19 --
------------- ------------- ------------- -------------
Adjusted diluted earnings per share $.43 $.37 $1.46 $1.32
============= ============= ============= =============
8
SFAS No. 142 further requires that goodwill be subject to impairment tests at
least annually. A two-step process is required to complete such testing with the
first step being to identify any potential impairment. The Company was required
to perform this first step effective for the quarter ended June 30, 2002. The
second step of the goodwill impairment test measures the amount of the
impairment loss, if any. This measurement must be as of the beginning of the
year of adoption and must be completed by the end of the Company's fiscal year.
The Company has completed both steps of the impairment testing and has
determined that no impairment exists at this time.
In July 2002, the FASB issued Statement of Financial "Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" (FAS
146), which nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)." FAS
146 requires a liability for a cost associated with an exit or disposal activity
be recognized and measured initially at its fair value in the period in which
the liability is incurred. If fair value cannot be reasonably estimated, the
liability shall be recognized initially in the period in which fair value can be
reasonably estimated. The provisions of FAS 146 will be effective for the
Company prospectively for exit or disposal activities initiated after December
31, 2002.
(4) Legal Proceedings
- ----------------------
The Company is involved from time to time in litigation incidental to its
business. Management believes that the outcome of current litigation will not
have a material adverse effect upon the operations or financial condition of the
Company and will not disrupt the normal operations of the Company.
(5) Acquisitions
- -----------------
On August 1, 2002 the Company acquired certain assets of E&S Dental Laboratory
of San Diego, California. E&S Dental had sales in excess of $1,500,000 in its
last fiscal year ended December 31, 2001. The acquisition has been accounted for
as a purchase in accordance with SFAS No. 141. The results of operations and
cash flows of E&S Dental Laboratory have been included in the consolidated
financial statements of the Company from the date of acquisition.
9
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
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Liquidity and Capital Resources
- -------------------------------
The Company's working capital increased from $15,060,000 at December 31,
2001 to $15,912,000 at September 30, 2002. Cash and cash equivalents decreased
$1,839,000 from $6,378,000 at December 31, 2001 to $4,539,000 at September 30,
2002. Operating activities provided $4,288,000 in cash flow for the nine-month
period ending September 30, 2002.
Cash outflows related to dental laboratory acquisitions totaled $4,630,000
for the nine months ended September 30, 2002 compared to $5,789,000 for the same
period in 2001. Repurchases of the Company's common stock under the Company's
stock repurchase program totaled $424,000 for the nine months ended September
30, 2002.
The Company maintains a financing agreement (the "Agreement") with Citizens
Bank of Massachusetts (the "Bank"). The Agreement, as amended and extended
effective December 31, 2001, includes a revolving line of credit of $4,000,000
and a term facility of $8,000,000. The interest rate on both lines of credit is
the prime rate minus 0.5% or the London Interbank Offered Rate (LIBOR) rate plus
1.5%, at the Company's option. Both lines of credit mature on June 30, 2004.
A commitment fee of one eighth of 1% is payable on the unused amount of
both lines of credit. At September 30, 2002, the full principal amount was
available to the Company under both lines of credit. The Agreement requires
compliance with certain covenants, including the maintenance of specified net
worth and other financial ratios. As of September 30, 2002, the Company was in
compliance with these covenants.
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.
Commitments and Contingencies
- -----------------------------
The following table represents a list of the Company's contractual
obligations and commitments as of September 30, 2002:
Payments Due By Period
Less Than Greater Than
Total 1 Year 1 - 3 Years 4 - 5 Years 5 Years
------------ ---------- ------------- ------------ -------------
Operating Leases.................. 10,739,000 2,583,000 4,837,000 1,533,000 1,786,000
Laboratory Purchase Obligations... 3,852,000 1,887,000 1,965,000 -- --
------------ ---------- ------------- ------------ -------------
TOTAL........................ $14,591,000 $4,470,000 $6,802,000 $1,533,000 $1,786,000
============ ========== ============= ============ =============
Laboratory purchase obligations totaling $3,852,000 are classified as
deferred acquisition costs and are presented in the liability section of the
balance sheet. The Company is committed under various noncancelable operating
lease agreements covering its office space and dental laboratory facilities and
certain equipment. Certain of these leases also require the Company to pay
maintenance, repairs, insurance and related taxes.
10
Forward-Looking Statements
- --------------------------
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. These statements are not a
guarantee of future performance, and involve certain risks, uncertainties and
assumptions that are difficult to predict. 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, expenses associated with the
introduction of a national marketing program and other risks indicated from time
to time in filings with the Securities and Exchange Commission, including the
Company's annual report on Form 10-K and quarterly reports on Form 10-Q.
Critical Accounting Policies
- ----------------------------
Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 2 of the notes to consolidated financial statements,
in the Company's December 31, 2001 annual report on Form 10-K, includes a
summary of our significant accounting policies and methods used in the
preparation of our consolidated financial statements. While the preparation of
our consolidated financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
reported amounts of expenses during the reporting period, we do not believe the
Company's financial statements are significantly affected by complex accounting
policies and methods.
11
Results of Operations
- ---------------------
The following table sets forth for the periods indicated the percentage of
net sales represented by certain items in the Company's consolidated financial
statements:
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2001 2002 2001 2002
------------ ------------ ------------- -------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 60.5 60.2 58.9 58.6
------------ ------------ ------------- -------------
Gross profit 39.5 39.8 41.1 41.4
Selling, general and
administrative
expenses 29.5 30.6 29.4 30.3
------------ ------------ ------------- -------------
Operating income 10.0 9.2 11.7 11.1
Other expense 0.2 0.2 0.2 0.2
Interest income 0.3 0.1 0.4 0.1
------------ ------------ ------------- -------------
Income before
provision for income
taxes 10.1 9.1 11.9 11.0
Provision for income taxes 4.1 3.5 4.8 4.4
------------ ------------ ------------- -------------
Net income 6.0% 5.6% 7.1% 6.6%
------------ ------------ ------------- -------------
Nine months Ended September 30, 2002 Compared with Nine Months Ended September 30, 2001
---------------------------------------------------------------------------------------
Net Sales
For the nine-month period ended September 30, 2002, net sales increased
$8,501,000 or 13.4% over the corresponding period of the prior year.
Approximately $8,590,000 of sales growth was attributable to business at dental
laboratories owned less than one year. Same laboratory sales decreased slightly
during the nine-month period ended September 30, 2002. However, there was one
less sales day than during the comparable period ended September 30, 2001. When
adjusted to a sales per day basis, same laboratory sales growth was 0.4%.
Industry growth has generally slowed in the current economy as many patients and
dentists have postponed optimal treatment plans in favor of less expensive
alternatives.
12
Cost of Goods Sold
The Company's cost of goods sold increased by $4,740,000 or 12.7% for the
period ended September 30, 2002 over the same nine-month period ended September
30, 2001, attributable primarily to increased unit sales. As a percentage of
sales, cost of goods sold decreased from 58.9% to 58.6%.
As a percentage of net sales, increases in labor and benefit costs were
more than offset by decreases in laboratory overhead expenses and material
costs. The increase in labor and benefit costs were primarily attributable to
increases in the cost of providing health insurance for the Company's employees.
Material costs have decreased as the cost of palladium, a component of dental
alloys, has decreased and stabilized after several years of steep increases.
Additionally, during 2001 the Company started to reduce its reliance on
palladium through the substitution of alternative materials.
Selling, General and Administrative Expenses
Operating expenses, which consist of selling, delivery, administrative
expense at both the laboratory and corporate level and amortization expense,
increased by $3,191,000 or 17.1% during the nine months ended September 30, 2002
over the corresponding period in 2001. Operating expenses increased as a
percentage of net sales from 29.4% to 30.3% during the nine months ended
September 30, 2002 compared with the corresponding period in 2001.
As a percentage of net sales, increases in selling and administrative
expenses were offset in part by decreases in delivery expenses and amortization
charges. Increases in selling and administrative expenses during the period were
primarily related to the continued development and implementation of the
Company's national marketing program, "The NDX Reliance Program." The Company
has continued to absorb the staffing, training and marketing expenses necessary
for the successful implementation of the program.
The decline in amortization expense was attributable to the impact of the
implementation of SFAS No. 142.
Operating Income
Due to the increase in net sales, partially offset by increases in
operating expenses as a percent of net sales, operating income increased
$570,000 or 7.7% for the nine month period ended September 30, 2002 versus the
corresponding period for the prior year. While sales increased by 13.4% and cost
of goods sold declined from 58.9% to 58.6% of net sales, selling, general and
administrative expenses increased from 29.4% to 30.3% of net sales.
Interest Income
Interest income decreased by $177,000 or 75.9% in the nine months ended
September 30, 2002 over the corresponding period in 2001. The decrease was
primarily due to lower investment principal and lower interest rates.
Provision for Income Taxes
The provision for income taxes increased to $3,162,000 for the nine-month
period ended September 30, 2002 from $3,025,000 in the corresponding period in
2001. This $137,000 increase was the result of increased income. The effective
tax rate for the nine-month period ended September 30, 2002 was 40.0%, which is
consistent with the corresponding period in 2001.
Net Income
As a result of all the factors discussed above, net income increased to
$4,743,000 or $1.32 per share on a diluted basis for the nine months ended
September 30, 2002 from $4,537,000 or $1.27 per share on a diluted basis for the
corresponding period in 2001.
13
Three Months Ended September 30, 2002 Compared with
Three Months Ended September 30, 2001
----------------------------------------------------
Net Sales
For the quarter ended September 30, 2002, net sales increased $2,356,000 or
11.2% over the corresponding period of the prior year. Approximately $2,280,000
of sales growth was attributable to business at dental laboratories owned less
than one year. Same laboratory sales growth was slightly positive during the
quarter ended September 30, 2002.
Cost of Goods Sold
The Company's cost of goods sold increased by $1,342,000 or 10.6% for the
quarter ended September 30, 2002 over the comparable quarter ended September 30,
2001, attributable primarily to increased unit sales. As a percentage of sales,
for reasons comparable to the nine-month period discussed above, cost of goods
sold decreased from 60.5% to 60.2%.
Selling, General and Administrative Expenses
Operating expenses increased by $947,000 or 15.3% during the quarter ended
September 30, 2002 over the corresponding period in 2001. Operating expenses
increased as a percentage of net sales from 29.5% to 30.6% during the quarter
ended September 30, 2002 compared with the corresponding quarter in 2001. The
reasons for the increase are comparable to the nine-month period discussed
above.
Operating Income
Due to the increase in net sales, partially offset by increases in
operating expenses as a percent of net sales, operating income increased $67,000
or 3.2% for the quarter ended September 30, 2002 versus the corresponding period
for the prior year. While sales increased by 11.2% and cost of goods sold
declined from 60.5% to 60.2% of net sales, selling, general and administrative
expenses increased from 29.5% to 30.6% of net sales.
Interest Income
Interest income decreased by $47,000 or 78.3% in the quarter ended
September 30, 2002 over the corresponding period in 2001. The decrease was
primarily due to lower investment principal and lower interest rates.
Provision for Income Taxes
The provision for income taxes decreased to $820,000 for the quarter ended
September 30, 2002 from $851,000 in the corresponding quarter in 2001. This
$31,000 decrease was the result of a lower effective tax rate. The 40.1%
effective tax rate for the quarter ended September 30, 2001 decreased to 38.6%
for the current period.
Net Income
As a result of all the factors discussed above, net income increased to
$1,302,000 or $0.37 per share on a diluted basis for the quarter ended September
30, 2002 from $1,269,000 or $0.36 per share on a diluted basis for the
corresponding quarter in 2001.
14
Item 3.
- -------
Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk exposure includes potential price volatility of
commodities used by the Company in its manufacturing processes. The Company
purchases dental alloys which contain gold, palladium and other precious metals.
The Company has not participated in hedging transactions. The Company has relied
on pricing practices which attempt to pass increased costs on to the customer,
in conjunction with materials substitution strategies.
Item 4.
- -------
Controls and Procedures
Within the 90 days prior to the filing date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's President and Chief Executive
Officer and its Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures as defined in Rule
13a-14 of the Securities Exchange Act of 1934. The Company's legal counsel
assisted the Company in making this initial evaluation. Based on that
evaluation, such officers concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company required to be included in this report.
Internal Controls
There have been no significant changes in the Company's internal controls
or in other factors which could significantly affect internal controls
subsequent to the date the Company carried out its evaluation.
15
PART II. Other Information
- ---------------------------
Item 1. Legal Proceedings:
- -------
The Company is involved from time to time in litigation incidental to
its business. Management believes that the outcome of current
litigation will not have a material adverse effect upon the operations
or financial condition of the Company and will not disrupt the normal
operations of the Company.
Item 2. Changes in Securities and Use of Proceeds:
- -------
Not applicable.
Item 3. Defaults upon Senior Securities:
- -------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders:
- -------
Not applicable.
Item 5. Other Information:
- -------
See footnote 5 to the Consolidated Financial Statements for information
regarding recent acquisitions.
Item 6. Exhibits and Reports on Form 8-K:
- -------
a. Exhibits: Not applicable
b. Reports on form 8-K: Not applicable
16
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.
NATIONAL DENTEX CORPORATION
---------------------------
Registrant
November 12, 2002 By:/s/ David L. Brown
-----------------------------
David L. Brown
President, CEO, and Director
(Principal Executive Officer)
November 12, 2002 By:/s/ Richard F. Becker, Jr.
-----------------------------
Richard F. Becker, Jr.
Chief Financial Officer, Vice President of
Finance and Treasurer
(Principal Financial and Accounting Officer)
Quarterly Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, David L. Brown, President, Chief Executive Officer and Director, certify
that:
1. I have reviewed this quarterly report on Form 10-Q of National Dentex
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries (if any), is made known to us by others
within those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the Evaluation Date, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002 By:/s/ David L. Brown
---------------------------------------
David L. Brown
President, Chief Executive Officer and
Director
Quarterly Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Richard F. Becker, Jr., Chief Financial Officer, Vice President of
Finance and Treasurer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of National Dentex
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries (if any), is made known to us by others
within those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the Evaluation Date, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002 By:/s/ Richard F. Becker, Jr.
---------------------------------------
Richard F. Becker, Jr.
Chief Financial Officer, Vice President
of Finance and Treasurer
Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of National Dentex Corporation (the
"Company") on Form 10-Q for the fiscal quarter ending September 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, David L. Brown, President, Chief Executive Officer, and Director
of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
By:/s/ David L. Brown
- -------------------------------
David L. Brown
President, Chief Executive Officer and Director
November 12, 2002
Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of National Dentex Corporation (the
"Company") on Form 10-Q for the fiscal quarter ending September 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Richard F. Becker, Jr., Chief Financial Officer, Vice President of
Finance and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
By:/s/ Richard F. Becker, Jr.
- ------------------------------------
Richard F. Becker, Jr.
Chief Financial Officer, Vice President of Finance and Treasurer
November 12, 2002