AMERICAN DENTAL PARTNERS INC - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period March 31, 2004

Commission File Number: 0-23363

AMERICAN DENTAL PARTNERS, INC.

(Exact name of registrant as specified in its charter)

DELAWARE

04-3297858

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

American Dental Partners, Inc.

201 Edgewater Drive, Suite 285

Wakefield, Massachusetts 01880

(Address of principal executive offices, including zip code)

(781) 224-0880

(781) 224-4216 (fax)

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. x YES ¨ NO

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.) ¨ YES x NO

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

The number of shares of Common Stock, $0.01 par value, outstanding as of May 11, 2004 was 7,476,486.

AMERICAN DENTAL PARTNERS, INC.

INDEX


		Page
PART I.	Financial Information

Item 1.	Financial Statements

	Consolidated Balance Sheets at March 31, 2004 and December 31, 2003 (unaudited)	3

	Consolidated Statements of Income for the Three Months Ended March 31, 2004 and 2003 (unaudited)	4

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003 (unaudited)	5

	Notes to Interim Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21

Item 4.	Controls and Procedures	22

PART II.

Item 1.	Legal Proceedings	23

Item 2.	Changes in Securities and Use of Proceeds	23

Item 3.	Defaults Upon Senior Securities	23

Item 4.	Submission of Matters to a Vote of Security Holders	23

Item 5.	Other Information	23

Item 6.	Exhibits and Reports of Form 8-K	23

Signatures		24

Exhibit Index		25

AMERICAN DENTAL PARTNERS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)


	March 31, 2004			December 31, 2003
ASSETS
Current assets:
Cash and cash equivalents	$	2,151		$	1,895
Accounts receivable		639			614
Receivables due from affiliated dental group practices		15,528			16,611
Inventories		1,853			1,901
Prepaid expenses and other receivables		2,328			1,874
Deferred income taxes		931			987

Total current assets		23,430			23,882

Property and equipment, net		35,074			35,216
Non-current assets:
Goodwill, net		5,095			5,095
Intangible assets, net		83,301			83,843
Other assets		979			1,036

Total non-current assets		89,375			89,974

Total assets	$	147,879		$	149,072

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	8,518		$	8,203
Accrued compensation and benefits		5,144			5,672
Accrued expenses		5,725			4,684
Current maturities of debt		1,373			1,407

Total current liabilities		20,760			19,966

Non-current liabilities:
Long-term debt		37,143			42,319
Deferred income taxes		12,693			12,692
Other liabilities		226			203

Total non-current liabilities		50,062			55,214

Total liabilities		70,822			75,180

Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.01 per share, 1,000,000 shares authorized, no shares issued or outstanding		—			—
Common stock, par value $0.01 per share, 25,000,000 shares authorized, 8,058,986 and 7,934,940 shares issued and 7,476,486 and 7,352,440 shares outstanding at March 31, 2004 and December 31, 2003, respectively		81			79
Additional paid-in capital		49,932			48,833
Treasury stock, at cost, 582,500 shares		(3,874	)		(3,874	)
Retained earnings		30,918			28,854

Total stockholders’ equity		77,057			73,892

Total liabilities and stockholders’ equity	$	147,879		$	149,072

See accompanying notes to interim consolidated financial statements.

AMERICAN DENTAL PARTNERS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended March 31,
	2004		2003
Net revenue	$	44,064	$	39,032
Operating expenses:
Salaries and benefits		19,273		17,542
Lab fees and dental supplies		7,155		6,511
Office occupancy expenses		5,164		4,930
Other operating expenses		4,159		3,622
General corporate expenses		1,920		1,580
Depreciation expense		1,436		1,280
Amortization of intangible assets		1,082		1,040

Total operating expenses		40,189		36,505

Earnings from operations		3,875		2,527
Interest expense, net		465		633

Earnings before income taxes		3,410		1,894
Income taxes		1,346		723

Net earnings	$	2,064	$	1,171

Net earnings per common share:
Basic	$	0.28	$	0.16

Diluted	$	0.26	$	0.16

Weighted average common shares outstanding:
Basic		7,391		7,266

Diluted		7,858		7,518

See accompanying notes to interim consolidated financial statements.

AMERICAN DENTAL PARTNERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2004			2003
Cash flows from operating activities:
Net earnings	$	2,064		$	1,171
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		1,436			1,280
Amortization of intangible assets		1,082			1,040
Other amortization		58			57
Deferred income taxes		—			3
(Gain) loss on disposal of property and equipment		(15	)		1
Changes in assets and liabilities, net of acquisitions and affiliations:
Accounts receivable		(25	)		(106	)
Receivables due from affiliated dental groups		1,083			(897	)
Other current assets		(404	)		(410	)
Accounts payable and accrued expenses		704			383
Accrued compensation and benefits		(528	)		(35	)
Income taxes payable and receivable, net		1,162			317
Other		57			(10	)

Net cash provided by operating activities		6,674			2,794

Cash flows from investing activities:
Acquisitions and affiliations, net of cash acquired		(450	)		—
Capital expenditures, net		(1,253	)		(1,151	)
Contingent and deferred payments		(95	)		(110	)
Proceeds from the sale of property and equipment		15			—
Payment of acquisition costs		(15	)		(90	)

Net cash used for investing activities		(1,798	)		(1,351	)

Cash flows from financing activities:
Repayments under revolving line of credit, net		(5,010	)		(1,230	)
Principal payments of debt		(200	)		(186	)
Common stock issued for the employee stock purchase plan		115			115
Proceeds from issuance of common stock for exercise of stock options		488			7
Payment of debt issuance costs		(13	)		—

Net cash used for financing activities		(4,620	)		(1,294	)

Increase in cash and cash equivalents		256			149
Cash and cash equivalents at beginning of period		1,895			844

Cash and cash equivalents at end of period	$	2,151		$	993

Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net	$	461		$	568

Cash paid during the period for income taxes, net	$	183		$	417

Acquisitions and affiliations:
Assets acquired	$	475		$	—
Liabilities assumed and issued		(25	)		—

Net cash paid for acquisitions and affiliations	$	450		$	—

See accompanying notes to interim consolidated financial statements.

AMERICAN DENTAL PARTNERS, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Description of Business

American Dental Partners, Inc. (the “Company”) is a leading provider of business services to multi-disciplinary dental groups in selected markets throughout the United States.. The Company acquires selected assets of the dental practices with which it affiliates and enters into long-term service agreements with the affiliated dental group practice or professional corporation (“PC”). The Company provides all services necessary for the administration of the non-clinical aspects of the dental operations. Services provided to the affiliated dental groups include assistance with organizational planning and development; recruiting, retention and training programs; quality assurance initiatives; facilities development and management; employee benefits administration; procurement; information systems; marketing and payor relations; and financial planning, reporting and analysis. The Company operates in one segment.

(2) Basis of Presentation

The interim consolidated financial statements include the accounts of American Dental Partners, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The Company does not own any interests in or absorb a majority of the economic risks and rewards of the affiliated dental group practices. Accordingly, the financial statements of the affiliated dental group practices are not consolidated with those of the Company.

The interim consolidated financial statements are unaudited, but in the opinion of management include all adjustments, which consist only of normal and recurring adjustments, necessary for a fair presentation of its financial position and results of operations. Results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to 2003 interim consolidated financial statements to conform to current year presentation. These financial statements should be read in conjunction with the Company’s consolidated financial statements as of and for the year ended December 31, 2003 included in the Company’s Annual Report on Form 10-K.

(3) Goodwill and Intangible Assets

Intangible assets consisted of the following as of March 31, 2004 and December 31, 2003 (in thousands):


	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
March 31, 2004
Service agreements	$	105,556	$	(22,434	)	$	83,122
Customer relationships		205		(26	)		179

Total intangible assets	$	105,761	$	(22,460	)	$	83,301

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