Attached files
file | filename |
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EX-32.2 - EX-32.2 - NATIONAL DENTEX CORP /MA/ | b80579exv32w2.htm |
EX-31.1 - EX-31.1 - NATIONAL DENTEX CORP /MA/ | b80579exv31w1.htm |
EX-32.1 - EX-32.1 - NATIONAL DENTEX CORP /MA/ | b80579exv32w1.htm |
EX-31.2 - EX-31.2 - NATIONAL DENTEX CORP /MA/ | b80579exv31w2.htm |
EX-10.1 - EX-10.1 - NATIONAL DENTEX CORP /MA/ | b80579exv10w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from to .
Commission file number 000-23092
NATIONAL DENTEX CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS | 04-2762050 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
2 Vision Drive, Natick, MA | 01760 | |
(Address of Principal Executive Offices) | (Zip Code) |
(508) 907-7800
(Registrants Telephone No., including Area Code)
(Registrants Telephone No., 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. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act (Check one).
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of May 6, 2010, 5,913,464 shares of the registrants Common Stock, par value $.01 per
share, were outstanding.
NATIONAL DENTEX CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 31, 2010
TABLE OF CONTENTS
2
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
December 31, | March 31, | |||||||
2009 | 2010 | |||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 1,510,046 | $ | 1,260,694 | ||||
Accounts receivable: |
||||||||
Trade, less allowance of $583,000 in 2009 and $585,000 in 2010 |
16,132,939 | 17,490,241 | ||||||
Other |
1,728,591 | 1,823,248 | ||||||
Inventories |
6,890,017 | 7,240,200 | ||||||
Prepaid expenses |
3,784,470 | 3,434,431 | ||||||
Deferred tax assets |
973,237 | 948,746 | ||||||
Total current assets |
31,019,300 | 32,197,560 | ||||||
PROPERTY, PLANT AND EQUIPMENT: |
||||||||
Land and buildings |
7,535,015 | 7,535,015 | ||||||
Leasehold and building improvements |
19,334,362 | 19,249,937 | ||||||
Laboratory equipment |
20,459,600 | 20,767,279 | ||||||
Furniture and fixtures |
8,337,527 | 8,522,746 | ||||||
55,666,504 | 56,074,977 | |||||||
Less Accumulated depreciation and amortization |
24,946,070 | 25,928,135 | ||||||
Net property, plant and equipment |
30,720,434 | 30,146,842 | ||||||
OTHER ASSETS, net: |
||||||||
Goodwill |
69,616,034 | 69,682,080 | ||||||
Trade names |
9,490,645 | 9,501,994 | ||||||
Customer relationships |
5,352,962 | 5,136,163 | ||||||
Non-competition agreements |
1,291,824 | 1,219,632 | ||||||
Other assets |
7,803,877 | 7,779,862 | ||||||
Total other assets |
93,555,342 | 93,319,731 | ||||||
Total assets |
$ | 155,295,076 | $ | 155,664,133 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Current portion of long-term debt |
$ | 5,071,050 | $ | 5,072,121 | ||||
Accounts payable |
3,495,044 | 3,692,953 | ||||||
Accrued liabilities: |
||||||||
Payroll and employee benefits |
9,315,821 | 8,069,810 | ||||||
Other accrued expenses |
3,841,752 | 4,719,335 | ||||||
Total current liabilities |
21,723,667 | 21,554,219 | ||||||
LONG-TERM LIABILITIES: |
||||||||
Long-term obligations |
21,776,455 | 20,557,220 | ||||||
Deferred compensation |
6,739,265 | 6,772,472 | ||||||
Other accrued expenses |
1,475,247 | 1,403,599 | ||||||
Deferred tax liabilities |
5,789,956 | 5,696,486 | ||||||
Total long-term liabilities |
35,780,923 | 34,429,777 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 7) |
||||||||
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 5, 761,363 shares at December 31, 2009 and March 31, 2010 |
57,613 | 57,613 | ||||||
Paid-in capital |
20,374,197 | 20,500,462 | ||||||
Retained earnings |
77,189,758 | 78,836,955 | ||||||
Accumulated other comprehensive income |
168,918 | 285,107 | ||||||
Total stockholders equity |
97,790,486 | 99,680,137 | ||||||
Total liabilities and stockholders equity |
$ | 155,295,076 | $ | 155,664,133 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
Table of Contents
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2009 | 2010 | |||||||
Net sales |
$ | 41,259,709 | $ | 40,258,817 | ||||
Cost of goods sold |
23,637,927 | 22,479,949 | ||||||
Gross profit |
17,621,782 | 17,778,868 | ||||||
Selling, general and administrative expenses |
13,723,717 | 14,347,378 | ||||||
Operating income |
3,898,065 | 3,431,490 | ||||||
Other expense |
219,588 | 211,157 | ||||||
Interest expense |
344,833 | 182,906 | ||||||
Income before provision for income taxes |
3,333,644 | 3,037,427 | ||||||
Provision for income taxes |
1,274,785 | 1,390,230 | ||||||
Net income |
$ | 2,058,859 | $ | 1,647,197 | ||||
Net income per share basic |
$ | .36 | $ | .29 | ||||
Net income per share diluted |
$ | .36 | $ | .28 | ||||
Weighted average shares outstanding basic |
5,656,547 | 5,763,675 | ||||||
Weighted average shares outstanding diluted |
5,749,649 | 5,943,073 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
Table of Contents
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2009 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 2,058,859 | $ | 1,647,197 | ||||
Adjustments to reconcile net income to net cash provided by operating
activities: |
||||||||
Depreciation and amortization |
1,480,384 | 1,460,655 | ||||||
(Gain) loss on disposal of property, plant and equipment |
(3,282 | ) | 2,802 | |||||
Benefit for deferred income taxes |
(67,190 | ) | (76,826 | ) | ||||
Provision for bad debts |
27,815 | 46,492 | ||||||
Losses on write-down of inventories |
33,595 | 22,379 | ||||||
Stock-based compensation expense |
110,180 | 126,266 | ||||||
Changes in operating assets and liabilities: |
||||||||
Decrease (increase) in accounts receivable |
309,419 | (1,485,679 | ) | |||||
Increase in inventories |
(489,960 | ) | (366,415 | ) | ||||
Decrease in prepaid expenses |
291,744 | 350,112 | ||||||
Decrease in other assets |
35,080 | 2,996 | ||||||
Increase (decrease) in accounts payable and accrued liabilities |
811,343 | (287,980 | ) | |||||
Net cash provided by operating activities |
4,597,987 | 1,441,999 | ||||||
Cash flows from investing activities: |
||||||||
Premiums paid for life insurance policies |
(2,598 | ) | (2,598 | ) | ||||
Proceeds received from life insurance policies |
25,200 | | ||||||
Additions to property, plant and equipment |
(651,335 | ) | (483,038 | ) | ||||
Cash proceeds from the disposition of property, plant, and equipment |
4,300 | 150 | ||||||
Net cash used in investing activities |
(624,433 | ) | (485,486 | ) | ||||
Cash flows from financing activities: |
||||||||
Borrowings of revolving line of credit |
13,536,382 | 14,853,402 | ||||||
Repayments of revolving line of credit |
(16,355,932 | ) | (14,804,200 | ) | ||||
Repayments of long-term debt |
(1,280,691 | ) | (1,267,365 | ) | ||||
Net cash used in financing activities |
(4,100,241 | ) | (1,218,163 | ) | ||||
Effect of exchange rate changes on cash |
(11,391 | ) | 12,298 | |||||
Net decrease in cash and cash equivalents |
(138,078 | ) | (249,352 | ) | ||||
Cash and cash equivalents at beginning of period |
2,109,943 | 1,510,046 | ||||||
Cash and cash equivalents at end of period |
$ | 1,971,865 | $ | 1,260,694 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
5
Table of Contents
NATIONAL DENTEX CORPORATION
Notes to Consolidated Financial Statements
March 31, 2010
(Unaudited)
March 31, 2010
(Unaudited)
(1) Interim Financial Statements
The accompanying unaudited financial statements include all adjustments (consisting only of
normal recurring adjustments) that are, in the opinion of management, necessary for a fair
statement 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. The year-end balance sheet
data was derived from audited financial statements, but does not include all disclosures required
by accounting principles generally accepted in the United States of America.
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
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 in accordance with the rules and regulations of the
Securities and Exchange Commission (SEC). The accompanying unaudited consolidated financial
statements should be read in conjunction with the Companys consolidated financial statements for
the year ended December 31, 2009 contained in its Annual Report on Form 10-K for the year ended
December 31, 2009, as filed with the SEC on March 12, 2010.
(2) Recent Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (FASB) issued an accounting
standard update that requires new disclosures related to fair value measurements. A reporting
entity should disclose separately the amounts of significant transfers in and out of Level 1 and
Level 2 fair value measurements and describe the reasons for the transfers. This update also clarifies existing disclosures by
requiring fair value measurement disclosures for each class of assets and liabilities as well as
disclosures about inputs and valuation techniques for fair value measurements that fall into Level
2 or Level 3. This update also includes conforming amendments to the guidance on employers
disclosures about postretirement benefit plans that changes the terminology from major categories
of assets to classes of assets. This update was effective for us on January 1, 2010 and had no
material impact on the fair value disclosures made in our consolidated financial statements. In addition, in the
reconciliation for fair value measurements using significant unobservable inputs (Level 3), an
entity should present separately information about purchases, sales, issuances and settlements on a
gross basis rather than as one net number. This update will be
effective for us on January 1, 2011 and will have no material
impact on the fair value disclosures made in our consolidated
financial statements.
On March 30, 2010, the
President of the United States signed the Health Care and Education
Reconciliation Act of 2010, which is a reconciliation bill that amends the Patient Protection and
Affordable Care Act, that was signed by the President on March 23, 2010 (together the Acts). As a
result of this legislation, the tax treatment related to the Medicare Part D subsidy has changed,
requiring companies to determine the financial impact, if any, of this change. We have evaluated
the potential financial impact of this change and have determined that there is no material impact
on our consolidated financial statements. We are continuing to evaluate the other provisions of
the Acts, but we are not currently able to determine the potential impact the Acts will have on our
consolidated financial statements, if any.
(3) Goodwill and Other Intangible Assets
The Companys acquisition strategy has been to consolidate within the dental laboratory
industry and use its financial and operational synergies to create a competitive advantage.
Certain factors, such as the laboratorys assembled workforce and technical skills, result in the
recognition of goodwill. The Company continually evaluates whether events and circumstances have
occurred that indicate that the value of goodwill has been impaired. In addition, goodwill is
evaluated for possible impairment on an annual basis, based on a two-step process. The Company has
selected June 30th as the date for the annual assessment of goodwill impairment.
6
Table of Contents
Notes to Condensed Consolidated Financial Statements (Continued)
The first step is used to identify potential impairment and involves comparing each
reporting units estimated fair value to its carrying value, including goodwill. A reporting unit
is an operating segment or one level below an operating segment (referred to as a component). The
Company has determined that each individual laboratory is a reporting unit. The second step of the
goodwill impairment process involves the calculation of an implied fair value of goodwill for the
laboratories which step one indicated were impaired. Fair value is determined by using an income
approach, consistent with our valuation of dental laboratories acquired in purchase business
combinations.
The Companys most recent goodwill impairment test as of June 30, 2009 incorporated forecasted
results and assumptions for its laboratories. The Company continues to closely monitor the
financial results of certain laboratories in the NDX laboratories operating segment in subsequent
periods in comparison to forecasted financial results and assumptions made at June 30, 2009 to
determine whether any impairment charges are warranted for these laboratories. Based on the
foregoing, the Company recorded a $264,000 impairment expense in the third quarter of 2009 related
to one of the laboratories in the NDX Laboratories operating segment. There were no circumstances
in the first quarter of 2010 that triggered an interim evaluation of goodwill. As of March 31, 2010, the
Company had $69,682,000 of goodwill remaining on its consolidated balance sheet.
The changes in the carrying amount of goodwill for the three months ended March 31, 2009 and
2010 are as follows:
As of March 31, | ||||||||
2009 | 2010 | |||||||
NDX Laboratories Segment |
||||||||
Goodwill, Balance as of January 1 |
$ | 44,983,000 | $ | 45,299,000 | ||||
Accumulated impairment losses |
(6,950,000 | ) | (7,034,000 | ) | ||||
38,033,000 | 38,265,000 | |||||||
Effects of exchange rate changes |
(52,000 | ) | 66,000 | |||||
Balance as of March 31 |
||||||||
Goodwill |
44,931,000 | 45,365,000 | ||||||
Accumulated impairment losses |
(6,950,000 | ) | (7,034,000 | ) | ||||
$ | 37,981,000 | $ | 38,331,000 | |||||
As of March 31, | ||||||||
2009 | 2010 | |||||||
Green Dental Laboratory Segment |
||||||||
Goodwill balance |
$ | 15,208,000 | $ | 15,208,000 | ||||
As of March 31, | ||||||||
2009 | 2010 | |||||||
Keller Group Segment |
||||||||
Goodwill balance |
$ | 16,143,000 | $ | 16,143,000 | ||||
There
were no changes to the carrying values of goodwill for the Green Dental and Keller Group operating segment during the periods presented.
7
Table of Contents
Notes to Condensed Consolidated Financial Statements (Continued)
Trade Names
Trade names, as acquired, are valued using the relief-from-royalty valuation approach. Company
practice is to use existing and acquired trade names in perpetuity, and consequently they have been
treated as indefinite-lived intangibles. While these assets are not subject to amortization, they
are tested for impairment on an annual basis, or as circumstances may require. The Company uses the
relief-from-royalty valuation approach at each fiscal year end to determine whether the trade names
are impaired. Trade name impairment charges generally result from a decline in forecasted revenue
at specific laboratories in comparison to revenue forecasts used in previous valuation
calculations. Impairment charges are a component of selling, general and administrative expense.
The changes in the carrying amount of trade names for the three months ended March 31,
2009 and 2010 are as follows:
As of March 31, 2009 | As of March 31, 2010 | |||||||
Beginning of year |
$ | 9,978,000 | $ | 9,491,000 | ||||
Effects of exchange rate changes |
(9,000 | ) | 11,000 | |||||
Trade Names, end of period |
$ | 9,969,000 | $ | 9,502,000 | ||||
Customer Relationships
Acquired dental laboratories have customer relationships in place with dentists within their
market areas. The Company recognizes customer relationship assets when established relationships
exist with customers through contracts or other contractual relationships such as purchase orders
or sales orders. Customer relationships are valued based on an analysis of revenue and customer
attrition data and amortized over their useful lives. The amounts assigned to customer
relationships are amortized on a straight-line basis over their useful lives, ranging over periods
of 9 to 12 years. The Company has determined that the straight-line method is appropriate based on
an analysis of customer attrition statistics.
As of March 31, 2009 | As of March 31, 2010 | |||||||
Beginning of year, gross |
$ | 9,439,000 | $ | 9,474,000 | ||||
Effects of exchange rate changes |
(6,000 | ) | 7,000 | |||||
Customer relationships, gross |
9,433,000 | 9,481,000 | ||||||
Less: Accumulated amortization |
(3,452,000 | ) | (4,345,000 | ) | ||||
Customer relationships, net |
$ | 5,981,000 | $ | 5,136,000 | ||||
Amortization expense associated with customer relationships totaled approximately $224,000 for
the three months ended March 31, 2010 and is recorded in selling, general and administrative
expenses. Future amortization expense of the current customer relationship balance will be
approximately:
For the remainder of fiscal 2010 |
$ | 672,000 | ||
2011 |
895,000 | |||
2012 |
826,000 | |||
2013 |
614,000 | |||
2014 |
483,000 | |||
2015 |
477,000 | |||
Thereafter |
1,169,000 | |||
$ | 5,136,000 | |||
8
Table of Contents
Notes to Condensed Consolidated Financial Statements (Continued)
Non-competition Agreements
In connection with the acquisition of dental operations, the Company has executed non-compete
agreements with certain individuals, ranging over periods of 2 to 15 years. The amounts assigned to
non-competition agreements are amortized on a straight-line basis over the economic useful life of
the agreement, and are recorded as operating expenses.
As of March 31, 2009 | As of March 31, 2010 | |||||||
Beginning of year, gross |
$ | 10,696,000 | $ | 10,699,000 | ||||
Effects of exchange rate changes |
(1,000 | ) | | |||||
Non-competition agreements, gross |
10,695,000 | 10,699,000 | ||||||
Less: Accumulated amortization |
(9,186,000 | ) | (9,479,000 | ) | ||||
Non-competition agreements, net |
$ | 1,509,000 | $ | 1,220,000 | ||||
Amortization expense associated with non-competition agreements totaled approximately $73,000
for the three months ended March 31, 2010.
Future amortization expense of non-competition agreements will be approximately:
For the remainder of fiscal 2010 |
$ | 215,000 | ||
2011 |
247,000 | |||
2012 |
192,000 | |||
2013 |
170,000 | |||
2014 |
115,000 | |||
2015 |
91,000 | |||
Thereafter |
190,000 | |||
$ | 1,220,000 | |||
(4) Earnings per Share
The Companys basic earnings per share is computed by dividing net income by the weighted
average number of shares outstanding and diluted earnings per share reflects the dilutive effect of
potential common shares. Potential common shares are considered to be dilutive whenever the
exercise price is less than the average market price during the periods presented. The weighted
average number of shares outstanding, the dilutive effects of outstanding stock options, and the
shares under option plans that were anti-dilutive for the three months ended March 31, 2009 and
2010 are as follows:
Three Months | Three Months | |||||||
Ended | Ended | |||||||
March 31, 2009 | March 31, 2010 | |||||||
Weighted average number of shares used in basic earnings per share calculation |
5,656,547 | 5,763,675 | ||||||
Incremental shares under option plans |
93,102 | 179,398 | ||||||
Weighted average number of shares used in diluted earnings per share calculation |
5,749,649 | 5,943,073 | ||||||
Shares under option plans excluded in computation of diluted earnings per share
due to anti-dilutive effects |
717,330 | 576,511 | ||||||
9
Table of Contents
Notes to Condensed Consolidated Financial Statements (Continued)
(5) Inventories
Inventories consist of the following:
December 31, 2009 | March 31, 2010 | |||||||
Raw Materials |
$ | 5,726,274 | $ | 5,769,025 | ||||
Work in Process |
945,196 | 1,278,770 | ||||||
Finished Goods |
218,547 | 192,405 | ||||||
$ | 6,890,017 | $ | 7,240,200 | |||||
Inventories are stated at the lower of cost (first-in, first-out) or market. Work in process
represents an estimate of the value of specific orders in production yet incomplete at period end.
Finished goods consist of completed orders that were shipped to customers subsequent to period end.
(6) Comprehensive Income
Comprehensive income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances derived from non-owner sources. The
Companys total comprehensive income was as follows for the periods presented:
March 31, | ||||||||
2009 | 2010 | |||||||
Net income |
$ | 2,058,859 | $ | 1,647,197 | ||||
Foreign currency translation adjustments |
(105,895 | ) | 116,189 | |||||
Total comprehensive income |
$ | 1,952,964 | $ | 1,763,386 | ||||
Accumulated other comprehensive income at December 31, 2009 and March 31, 2010 of $168,918
and $285,107 respectively, as presented in the equity section of the consolidated balance sheet, is
attributable to accumulated foreign currency translation adjustments.
(7) Lines of Credit and Term Loan Facility
On August 9, 2005, the Company entered into an amended and restated financing agreement (the
Amended Agreement) with Bank of America, N.A. (the Bank). The Amended Agreement included a
revolving line of credit of $5,000,000, a revolving acquisition line of credit of $20,000,000 and a
term loan facility of $20,000,000. The interest rate on both revolving lines of credit and the term
loan was the prime rate or, at the Companys option, LIBOR, a cost of funds rate or the Banks
fixed rate plus a range of 1.25% to 2.25% per annum, depending on the ratio of consolidated funded
debt to consolidated EBITDA, as defined in the Amended Agreement. The Amended Agreement required
monthly payments of principal, based on a seven-year amortization schedule, with a final payment
due on the fifth anniversary of the Amended Agreement. The Amended Agreement required compliance
with certain covenants, including the maintenance of specified net worth, income and other
financial ratios.
In October 2006, the Company borrowed against its acquisition line of credit to finance the
acquisition of Keller Group, Incorporated (Keller). In order to refinance the borrowings incurred
for the Keller acquisition, the Company and the Bank executed a Second Amended and Restated Loan
Agreement as of November 7, 2006 (the Second Agreement) comprised of uncollateralized senior
credit facilities that at that time totaled $60,000,000. The Second Agreement amended and restated
the Amended Agreement (a) to increase the term loan facility to an aggregate principal amount of
$35,000,000 and used the proceeds of the increase in the term loan to repay the outstanding
principal balance under the acquisition line of credit and (b) to adjust the allocation of
availability under the lines of credit by increasing the revolving line of credit to $10,000,000
($5,000,000 of which may be used for future acquisitions) and decreasing the acquisition line of
credit from $20,000,000 to $15,000,000. The interest rate on both lines of credit and the term loan
was the prime rate or, at the Companys option, LIBOR, a cost of funds rate or the Banks fixed
rate, plus, in each case, a range of 1.25% to 3.00% per annum, depending on the ratio of
consolidated total funded debt to consolidated EBITDA, as each is defined in the Second
Agreement. The term loan facility portion of the Second Agreement requires monthly interest
payments and monthly payments of
10
Table of Contents
Notes to Condensed Consolidated Financial Statements (Continued)
principal, based on a seven year amortization schedule, with a final payment due on the fifth
anniversary of the Second Agreement. The Second Agreement requires compliance with certain
covenants, including the maintenance of specified net worth, minimum consolidated total EBITDA,
debt to income ratio and other financial ratios.
The Second Agreement was amended on May 9, 2008, effective March 31, 2008, to revise certain
financial targets within these covenants. Additionally, the Bank and the Company agreed to
consolidate the revolving line of credit with the acquisition line of credit into a single line of
credit of $25,000,000 to be used by the Company for general corporate purposes, including potential
acquisitions. The Second Agreement was also amended on September 2, 2008 in connection with the
acquisition of Dental Art, which increased the Companys outstanding debt and therefore required an
adjustment to an affected financial covenant. The Company further amended the agreement on December
16, 2008 to extend the maturity of the line of credit to November 7, 2011. The amendment changed
the interest rate on both the line of credit and the term loan to prime rate or, at the Companys
option, LIBOR, a cost of funds rate, or the Banks fixed rate, plus, in each case, a range of 2.50%
to 3.50% per annum, depending on the ratio of consolidated total funded debt to consolidated
EBITDA, as each is defined in the Second Agreement and also increased the commitment fee on the
unused portion of the line of credit from 0.125% to 0.50% per annum. In addition, the amendment
revised certain financial targets within the covenants. Finally, on March 13, 2009, the Second
Agreement was further amended to exclude $6,950,000 of goodwill impairment in the fourth quarter of
2008 from the calculation of EBITDA, used in determining compliance with certain financial
covenants. These amendments did not change the total availability under the Second Agreement. While
the Company was in compliance with its debt covenants as of March 31, 2010, it continues to closely
monitor compliance with these covenants in future periods, particularly minimum consolidated total
EBITDA, which may be negatively impacted by, among other things, potential declines in future
earnings, or declines attributable to additional goodwill impairment.
As of March 31, 2010, $18,422,000 was available under the consolidated revolving line of
credit.
Long-Term Debt:
December 31, | March 31, | |||||||
2009 | 2010 | |||||||
Term note |
$ | 19,583,000 | $ | 18,333,000 | ||||
Borrowings classified as long term under the revolving line of credit |
6,529,000 | 6,578,000 | ||||||
Other long-term debt |
736,000 | 718,000 | ||||||
Total debt |
26,848,000 | 25,629,000 | ||||||
Less: current maturities |
5,072,000 | 5,072,000 | ||||||
Long-term debt, less current portion |
$ | 21,776,000 | $ | 20,557,000 | ||||
The table below reflects the expected repayment terms associated with the Companys long-term
debt at March 31, 2010. The weighted average interest rate associated with the Companys borrowings
as of March 31, 2010 was 2.7%.
March 31, 2010 | ||||
Principal Due | ||||
For the remainder of fiscal 2010 |
$ | 3,804,000 | ||
Fiscal 2011 |
21,237,000 | |||
Fiscal 2012 |
80,000 | |||
Fiscal 2013 |
85,000 | |||
Fiscal 2014 |
90,000 | |||
Thereafter |
333,000 | |||
Total |
$ | 25,629,000 | ||
(8) Fair Value Measurements
Effective January 1, 2008, the Company adopted accounting standards that define fair value,
establish a framework for measuring fair value and enhance disclosures about fair value
measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or
11
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Notes to Condensed Consolidated Financial Statements (Continued)
most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. These standards establish a fair
value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value; describe three levels of inputs that may be
used to measure fair value which are provided in the table below; and allow an entity the
irrevocable option to elect fair value for the initial and subsequent measurement for certain
financial assets and liabilities on a contract-by-contract basis. The adoption of these standards
had no material impact on the Companys financial statements.
The
Company uses the market approach technique to value its financial
instruments using policy values provided by the supplier of these
products and there
were no changes in valuation techniques during the three months ended March 31, 2010. The Companys
financial assets and liabilities are primarily comprised of investments in insurance contracts held
as assets to satisfy outstanding retirement liabilities.
Assets and liabilities carried at fair value are classified and disclosed in one of the following
three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities that the
Company has the ability to access.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data
such as quoted prices, interest rates, and yield curves.
Level 3: Inputs are unobservable data points that are not corroborated by market data.
The following tables present information about the Companys financial assets measured at fair
value on a recurring basis as of March 31, 2010 and December 31, 2009. There were no liabilities
that require disclosure:
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant Other | Significant | ||||||||||||||
As of | Markets | Observable Inputs | Unobservable | |||||||||||||
Description | March 31, 2010 | (Level 1) | (Level 2) | Inputs ( Level 3) | ||||||||||||
Financial Assets |
||||||||||||||||
Cash Surrender Value
of Life Insurance |
$ | 5,554,000 | | $ | 5,554,000 | | ||||||||||
Total Financial Assets |
$ | 5,554,000 | | $ | 5,554,000 | | ||||||||||
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant Other | Significant | ||||||||||||||
As of | Markets | Observable Inputs | Unobservable | |||||||||||||
Description | December 31, 2009 | (Level 1) | (Level 2) | Inputs ( Level 3) | ||||||||||||
Financial Assets |
||||||||||||||||
Cash Surrender Value
of Life Insurance |
$ | 5,546,000 | | $ | 5,546,000 | | ||||||||||
Total Financial Assets |
$ | 5,546,000 | | $ | 5,546,000 | | ||||||||||
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Notes to Condensed Consolidated Financial Statements (Continued)
(9) Income Taxes
At March 31, 2010 the Company recorded unrecognized tax benefits of $1,497,000 and related
interest of $91,000. This liability related to ongoing tax filing positions taken by the Company
in its previously filed US Federal and State tax returns. The Company determined this amount did
not meet the recognition provisions of accounting for tax uncertainties.
On May 7, 2010, the Company settled the examination of the Companys U.S. income tax returns
for 2003 through 2006 with the Internal Revenue Service (IRS). Effective on that date, the full
amount of the Companys $1,497,000 in unrecognized tax benefits
were reversed. Additionally, $1,088,000
of these unrecognized tax benefits will reduce the Companys tax expense and $327,000 in prepaid
expenses related to advanced contingent professional fees will be charged to operating expenses in the second
quarter of 2010. As of May 7, 2010, the tax years that remain subject to examination by the IRS are
2007 to 2009.
(10) Segment Information
The Company follows accounting standards for disclosing information about reportable segments
in financial statements. Laboratory operating income includes the direct profits generated by
laboratories owned by the Company and excludes general and administrative expenses of the Companys
corporate location, including amortization expenses associated with the Companys intangible
assets, as well as interest expense.
In March 2005, the Company acquired Green Dental Laboratories, Inc. of Heber Springs,
Arkansas. In October 2006, the Company acquired Keller Group, Incorporated, a privately-held dental
laboratory business with production facilities in both St. Louis, Missouri and Louisville,
Kentucky. The Company has identified both Green and Keller as separate reportable segments based on
the quantitative criteria for financial reporting purposes. All of the Companys remaining
laboratories are included under the NDX Laboratories segment. As a result, the Company has three
reportable segments. The accounting policies of this segment are consistent with those described
for the consolidated financial statements in the summary of significant accounting policies.
The following table sets forth information about the Companys operating segments for the
three months ended March 31, 2009 and 2010.
Three Months | Three Months | |||||||
Ended | Ended | |||||||
March 31, 2009 | March 31, 2010 | |||||||
Revenue: |
||||||||
NDX Laboratories |
$ | 30,383,358 | $ | 28,796,661 | ||||
Green Dental Laboratory |
5,029,821 | 5,222,654 | ||||||
Keller Group |
6,098,689 | 6,518,304 | ||||||
Subtotal |
41,511,868 | 40,537,619 | ||||||
Inter-segment Revenues: |
||||||||
NDX Laboratories |
80,204 | 76,484 | ||||||
Green Dental Laboratory |
85,030 | 50,181 | ||||||
Keller Group |
86,925 | 152,137 | ||||||
Net Sales |
$ | 41,259,709 | $ | 40,258,817 | ||||
Laboratory Operating Income: |
||||||||
NDX Laboratories |
$ | 4,590,361 | $ | 4,500,747 | ||||
Green Dental Laboratory |
1,172,236 | 1,321,251 | ||||||
Keller Group |
1,071,498 | 1,335,526 | ||||||
$ | 6,834,095 | $ | 7,157,524 | |||||
Total Assets: |
||||||||
NDX Laboratories |
$ | 93,761,985 | $ | 89,836,420 | ||||
Green Dental Laboratory |
26,387,287 | 26,171,054 | ||||||
Keller Group |
25,596,814 | 25,489,645 | ||||||
Corporate |
15,042,214 | 14,167,014 | ||||||
$ | 160,788,300 | $ | 155,664,133 | |||||
Capital Expenditures: |
||||||||
NDX Laboratories |
$ | 963,523 | $ | 171,667 | ||||
Green Dental Laboratory |
12,434 | 193,011 | ||||||
Keller Group |
39,100 | 96,622 | ||||||
Corporate |
113,198 | 126,229 | ||||||
$ | 1,128,255 | $ | 587,529 | |||||
Depreciation & Amortization on Property, Plant & Equipment: |
||||||||
NDX Laboratories |
$ | 736,820 | $ | 752,372 | ||||
Green Dental Laboratory |
85,579 | 87,415 | ||||||
Keller Group |
136,091 | 102,087 | ||||||
Corporate |
208,400 | 204,645 | ||||||
$ | 1,166,890 | $ | 1,146,519 | |||||
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Notes to Condensed Consolidated Financial Statements (Continued)
Reconciliation of Laboratory Operating Income with reported Consolidated Operating Income:
Three Months | Three Months | |||||||
Ended | Ended | |||||||
March 31, 2009 | March 31, 2010 | |||||||
Laboratory Operating Income |
$ | 6,834,095 | $ | 7,157,524 | ||||
Less: |
||||||||
Corporate Selling, General and Administrative Expenses |
2,842,124 | 3,623,055 | ||||||
Amortization Expense Intangible Assets |
313,494 | 314,136 | ||||||
Add: |
||||||||
Other Expense |
219,588 | 211,157 | ||||||
Consolidated Operating Income |
$ | 3,898,065 | $ | 3,431,490 | ||||
(11) Subsequent Events
Agreement and Plan of Merger
On April 5, 2010,
the Company announced that it had
entered into an Agreement and Plan of Merger (the Merger
Agreement), dated as of April 2, 2010, with
GDC Holdings, Inc. (Parent), a Delaware corporation, and Royal Acquisition Corp., a Delaware
corporation and an indirect wholly owned subsidiary of Parent and a direct wholly owned subsidiary
of GeoDigm Corporation, a Minnesota corporation (Merger Sub). Pursuant to the Merger Agreement,
Merger Sub will be merged with and into the Company, with the Company being the surviving
corporation (the Merger). If the Merger is completed,
each share of common stock of the Company will be converted into the
right to receive $17.00 in cash, without interest and less applicable
withholding taxes. Related professional fees of
$519,000 incurred in connection with the Merger Agreement have been recorded in the first quarter of 2010.
Conclusion of IRS Examination of 2003-2006 U.S. Income Tax Returns
On May 7, 2010, the Company settled with the Internal Revenue Service the examination of the
Companys U.S. income tax returns for 2003 through 2006. Refer to Footnote (9) for more
information.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Unaudited Consolidated Financial
Statements and the related notes that appear elsewhere in this document.
Statements and the related notes that appear elsewhere in this document.
Certain statements in this Quarterly Report, particularly statements contained in this Item 2,
Managements Discussion and Analysis of Financial Condition and Results of Operations constitute
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 words
anticipate, believe, estimate, expect, plan, intend and other similar expressions are
intended to identify these forward-looking statements, but are not the exclusive means of
identifying them. Forward-looking statements included in this Quarterly Report or hereafter
included in other publicly available documents filed with the Securities and Exchange Commission
(SEC), reports to our stockholders and other publicly available statements issued or released by
us involve known and unknown risks, uncertainties, and other factors which could cause our actual
results, performance (financial or operating) or achievements to differ from the future results,
performance (financial or operating) or achievements expressed or implied by such forward-looking
statements. Such future results are based upon our best estimates based upon current conditions and
the most recent results of operations. Various risks, uncertainties and contingencies could cause
our actual results, performance or achievements to differ materially from those expressed in, or
implied by, the forward-looking statements contained in this Quarterly Report. These include, but
are not limited to, those described under Factors that may Affect Future Results and under Part
II Item 1A Risk Factors of this Quarterly Report, those described under Item 1A of our most recently
filed Annual Report on Form 10-K for the fiscal year
ended December 31, 2009, expectations regarding the timing of a
merger between National Dentex and an entity affiliated with GeoDigm
Corporation and statements regarding the ability to complete such
merger. We assume no
obligation to update these forward-looking statements contained in this report, whether as a result
of new information, future events, or otherwise.
Overview
We own and operate 43 dental laboratories located in 29 states and one Canadian province,
serving an active customer base of over 24,000 dentists. Our business consists of the design,
fabrication, marketing and sale of custom dental prosthetic appliances for dentists located
primarily in North America.
Our products are grouped into the following three main categories:
Restorative Products. Restorative products that our dental laboratories sell consist
primarily of crowns and bridges. A crown replaces the part of a tooth that is visible, and is
usually made of gold, porcelain or zirconia. A bridge is a restoration of one or more missing teeth
that are permanently attached to the natural teeth or roots. In addition to the traditional crown,
we also make onlays, which are partial crowns which do not cover all of the visible tooth; inlays,
which are restorations made to fit a prepared tooth cavity and then cemented into place and
precision crowns, which are restorations designed to receive and connect a removable partial
denture. We also mill crowns and bridges from zirconia using CAD-CAM (computer-assisted design and
computer-assisted manufacturing)technologies.
Reconstructive Products. Reconstructive products sold by our dental laboratories consist
primarily of partial dentures and full dentures. Partial dentures are removable dental prostheses
that replace missing teeth and associated structures. Full dentures are dental prostheses that
substitute for the total loss of teeth and associated structures. We also sell precision
attachments, which connect a crown and an artificial prosthesis, and implants, which are fixtures
anchored securely in the bone of the mouth to which a crown, partial or full denture is secured by
means of screws or clips.
Cosmetic Products. Cosmetic products sold by our dental laboratories consist primarily of
porcelain veneers and ceramic crowns. Porcelain veneers are thin coverings of porcelain cemented to
the front of a tooth to enhance personal appearance. Ceramic crowns are crowns made from ceramic
materials that most closely replicate natural teeth. We also sell composite inlays and onlays,
which replace silver fillings for a more natural appearance, and orthodontic appliances, which are
products fabricated to move existing teeth to enhance function and appearance.
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Additionally, we manufacture and market under an exclusive license in the United States
and on a non-exclusive basis in Canada, the laboratory version of the NTI-tss
plustm device, an appliance that is an alternative to full-coverage bite
guards, which is also approved by the FDA for use in the treatment of medically diagnosed migraine
pain and jaw disorders.
Recent Developments
On April 2, 2010, we entered into an Agreement and Plan of Merger (the Merger Agreement)
with GDC Holdings, Inc., a Delaware corporation (Parent), and Royal Acquisition Corp., a Delaware
corporation (Merger Sub). Merger Sub is an indirect wholly owned subsidiary of Parent and a
direct wholly owned subsidiary of GeoDigm Corporation, a Minnesota corporation (GeoDigm).
Pursuant to the terms of the Merger Agreement, Merger Sub will be merged with and into us, and as a
result we will continue as the surviving corporation and a wholly owned subsidiary of GeoDigm (the
Merger). Parent is controlled by Welsh, Carson, Anderson & Stowe XI, L.P. (Welsh Carson), a
private equity fund. Following the Merger, GeoDigm will own all of the outstanding capital stock
of the surviving corporation and we will no longer be a publicly traded company.
Pursuant to the Merger Agreement, at the effective time of the Merger, each issued and
outstanding share of our common stock (collectively, the Common Stock) will be canceled and
extinguished and automatically converted into the right to receive $17.00 in cash, without interest
and less applicable withholding taxes. Each outstanding and unexercised option and other right to
acquire our Common Stock under our equity incentive plans will become fully vested, and will be
terminated and settled for a cash payment equal to the difference between $17.00 and the respective
exercise price of such option or other right. We will terminate our employees stock purchase plan
prior to the effective time of the Merger and the options outstanding under our employees stock
purchase plan will not be converted into the right to receive the per share merger
consideration.
The Merger Agreement contains a provision under which we had the right to solicit
alternative acquisition proposals from April 2, 2010 through May 12, 2010. None of the parties
contacted during the go-shop period submitted a written proposal prior to the end of the
go-shop period, and therefore we ceased all discussion with said parties. Following the
expiration of such go-shop period, we became, and will continue to be until closing of
the transaction, subject to a no-shop restriction on our ability to solicit alternative acquisition
proposals, provide information and engage in discussions with third parties. The no-shop
provision is subject to a fiduciary-out provision that allows us, under certain circumstances, to
provide information and participate in discussions at any time with respect to unsolicited
alternative acquisition proposals.
The Merger Agreement contains certain termination rights for both us and Parent. The
Merger Agreement provides that, upon termination under specified circumstances, we would be
required to pay Parent a termination fee of $4.15 million and, under certain circumstances, to
reimburse Parent for an amount not to exceed $2 million for transaction expenses incurred by Parent
and its affiliates in connection with the Merger. Our reimbursement of Parents expenses would
reduce the amount of any required termination fee.
We are party to an equity commitment letter (the Equity Commitment Letter) with Parent and
Welsh Carson, the sole stockholder of Parent. Under the terms of the Equity Commitment Letter,
Welsh Carson has committed to make cash contributions to Parent that will result in Parent having
the ability to fully finance the Merger and the other transactions contemplated thereby up to a
maximum of $139 million (the Total Commitment Amount). The consummation of the Merger is not
subject to a financing condition, but is subject to customary conditions to closing, including the
approval of our shareholders and receipt of requisite antitrust approvals. The affirmative vote of
the holders of a majority of the Companys outstanding Common
Stock entitled to vote thereon is required to approve the
Merger. On April 27, 2010, we filed a preliminary merger proxy with the SEC. We expect the Merger
to close during the end of the second quarter or early in the third
quarter of 2010.
In the event of a breach of the Merger Agreement by Parent or Merger Sub, or the Equity
Commitment Letter by Welsh Carson, our sole remedy is to seek specific performance (or, if the court
declines to award specific performance, to seek to recover money damages in a manner consistent
with the Merger Agreement), against Parent in order to enforce Parents obligations under the
Merger Agreement, including to consummate the Merger, and against
Welsh Carson in order to enforce
Welsh Carsons obligations under the Equity Commitment Letter,
including Welsh Carsons commitment to provide
the cash contributions required for Parent to consummate the Merger or satisfy Parent or Merger
Subs liability for any breaches by them of the Merger Agreement, in all events not to exceed the
aggregate Total Commitment Amount.
The following sections of this Quarterly Report on Form 10-Q describe our business as an
independent going concern and do not contemplate how our business might operate following the
consummation of the Merger, except to the extent that our actions prior to closing may be
restricted by the terms of the Merger Agreement.
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Recent Trends
While the economic recession in the United States had negatively impacted the entire dental
laboratory industry throughout much of 2009, as price-sensitive consumers postponed elective dental
work, we believe that the decline in consumer demand subsided during the first quarter of 2010.
Economic conditions, coupled with high unemployment, tight credit and difficulties in the housing
market, had dampened consumer confidence and purchasing activities in 2008 and 2009. Additionally,
since 2007, increasing competitive pressures in the form of low price competition, including
competition from offshore laboratories primarily located in China, have been partially responsible
for decreasing revenues or revenue growth in several marketplaces. While our business has not
traditionally focused on this low cost segment of the market, certain customers are sensitive to
price competition. As a result, these increasing competitive pressures have somewhat constrained
our ability to increase prices. While the growth in offshore restorations moderated somewhat
during 2009, the deployment of technology-based solutions that allow dentists to fabricate their
own restorations without the use of a dental laboratory continued to increase. These trends appear
to be restraining industry growth, and have impacted our results of operations.
The main components of our costs are labor and related employee benefits as well as raw
materials, including precious metals such as gold and palladium. Beginning in the fourth quarter of
2008 and throughout 2009, we proactively reduced staffing levels to improve profitability and
eliminate excess capacity in response to the economic recession and the decline in consumer
discretionary spending. As a result of reductions in staffing levels, our costs for labor and
related benefits for the year ended December 31, 2009 were significantly lower than incurred during
the same period in 2008. We also focused on reducing discretionary operating expenses and as a
result our operating expenses were significantly reduced in the year ended December 31, 2009
compared to the prior year.
In addition to our cost reduction efforts, we have made additional investments in capital
equipment for technology-based dental laboratory CAD-CAM manufacturing solutions. Our ability to
afford and utilize these CAD-CAM systems provides us the opportunity to centrally produce product
for many of our laboratories at more efficient and profitable levels. We believe we have begun to
recognize these efficiencies and will continue to focus on more completely leveraging these and
future technology investments to reduce labor costs. Therefore, we believe that these investments
are critical to our long-term business strategy.
As the economy continues to recover, we anticipate that our new cost structure and
improvements in productivity will allow us to capitalize on the expected increase in demand for
dental services, as patients who deferred these types of expenditures no longer do so.
Acquisitions
Subject to the covenants and restrictions set forth in the Merger Agreement, we continue to
seek strategic acquisitions of dental laboratories, which have played an important role in helping
us increase sales from $135,843,000 in 2005 to $161,195,000 in 2009. In March 2005, we completed
the acquisition of Green Dental Laboratories, Inc. (Green). Green is treated as a separate
reportable segment for financial reporting purposes. In October 2006, we completed our largest
acquisition to date, that of Keller Group, Incorporated (Keller) of St. Louis, Missouri. Keller
is also treated as a separate reportable segment for financial reporting purposes. The acquisition
of Keller has broadened our marketing strategies and product offerings. In recent years Keller has
broadened its focus from local markets in the Midwest to the national marketplace. In order to
sustain this strategy, Keller invests significantly in product advertising, primarily in dental
print publications and direct mail, on products that can generate strong revenue growth. Most
recently, in September 2008, we completed the acquisition of Dental Art Laboratories, Inc. (Dental
Art) of Lansing, Michigan. We have generally used long-term debt to finance the purchase of our
dental laboratories, including Green, Keller and Dental Art. Future acquisitions may also be funded
using available debt financing. At March 31, 2010 our bank debt was
$24,911,000, down from $43,835,000 at September 30, 2008
following the acquisition of Dental Art,
due to significant repayments generated by cash flows from operations. As a result, and also due
to lower interest rates, interest expense declined $162,000 to $183,000 for the quarter ended March
31, 2010, from $345,000 for the quarter ended March 31, 2009.
Overview of Results of Operations
Sales for the quarter ended March 31, 2010 decreased by $1,001,000 or 2.4% from the quarter
ended March 31, 2009. While we, along with the dental laboratory
industry in general, experienced revenue
declines in 2009, we believe that
17
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the net sales results for the quarter ended
March 31, 2010 indicate this negative trend has
moderated as sales results for the first quarter of 2010 compare favorably to results for the latter half
of 2009. Within our cost of sales, labor and related benefit costs decreased by approximately
$924,000 compared to the first quarter of 2009 due primarily to the realization of cost savings
from staff reductions implemented in 2009. As a result of these factors, in the first quarter of 2010
gross profit increased by $157,000. However, due primarily to approximately $519,000 in
professional fees incurred in the first quarter of 2010 in connection with the signing of the
Merger Agreement, our operating expenses increased $624,000 in the first quarter of 2010. Primarily
as a result of these Merger Agreement-related costs, net income
decreased by $412,000, or 20.0%, in the first quarter of
2010 from the results for the first quarter of 2009.
For the most recent fiscal year ended December 31, 2009, net sales decreased $10,479,000 or
6.1% compared to the year ended December 31, 2008. Net sales in 2009 included approximately
$5,067,000 as a result of eight additional months of sales provided by the Dental Art acquisition,
without which net sales would have decreased approximately
$15,546,000, or 9.1%, for the full year
ended December 31, 2009 as compared to 2008.
Despite the decline in revenues of $10,479,000, gross profit for the year ended December 31,
2009 decreased by only $1,414,000 from 2008, and our gross margins increased to 42.2% for the year
ended December 31, 2009 from 40.5% in 2008 as a result of workforce reductions and cost saving
measures. Within our cost of sales, production labor costs and related employee benefits decreased
by $5,194,000. Operating expenses decreased by $2,833,000 or 4.8% for the year ended December 31,
2009, including decreases in labor and benefits of $2,418,000 at our laboratories and lower levels
of various other expense items.
Liquidity and Capital Resources
On August 9, 2005, we entered into an amended and restated financing agreement (the Amended
Agreement) with Bank of America, N.A. (the Bank). The Amended Agreement included a revolving
line of credit of $5,000,000, a revolving acquisition line of credit of $20,000,000 and a term loan
facility of $20,000,000. The interest rate on both revolving lines of credit and the term loan was
the prime rate or, at our option, LIBOR, a cost of funds rate, or the Banks fixed rate plus a
range of 1.25% to 2.25% per annum, depending on the ratio of consolidated funded debt to
consolidated EBITDA, as defined in the Amended Agreement. The Amended Agreement required monthly
payments of principal on the term loan, based on a seven-year amortization schedule, with a final
payment due on the fifth anniversary of the Amended Agreement. The Amended Agreement required
compliance with certain covenants, including the maintenance of specified net worth, income and
other financial ratios.
In
October 2006, we borrowed against our acquisition line of credit to finance our acquisition
of Keller. In order to refinance the borrowings incurred for the Keller acquisition, we and the
Bank executed a Second Amended and Restated Loan Agreement as of November 7, 2006 (the Second
Agreement) comprising uncollateralized senior credit facilities that at that time totaled
$60,000,000. The Second Agreement amended and restated the Amended Agreement (a) to increase the
term loan facility to an aggregate principal amount of $35,000,000 and used the proceeds of the
increase in the term loan to repay the portion of the outstanding principal balance under the
acquisition line of credit and (b) to adjust the allocation of availability under the lines of
credit by increasing the revolving line of credit to $10,000,000 ($5,000,000 of which may be used
for future acquisitions) and decreasing the acquisition line of credit from $20,000,000 to
$15,000,000. The interest rate on both lines of credit and the term loan was the prime rate or, at
our option, LIBOR, a cost of funds rate or the Banks fixed rate, plus, in each case, a range of
1.25% to 3.00% per annum, depending on the ratio of consolidated total funded debt to consolidated
EBITDA, as each is defined in the Second Agreement. The term loan facility portion of the Second
Agreement requires monthly interest payments and monthly payments of principal, based on a seven
year amortization schedule, with a final payment due on the fifth anniversary of the Second
Agreement. The Second Agreement requires compliance with certain covenants, including the
maintenance of specified net worth, minimum consolidated total EBITDA, debt to income ratio and
other financial ratios.
The Second Agreement was amended on May 9, 2008, effective March 31, 2008, to revise certain
financial targets within these covenants. Additionally, we and the Bank agreed to consolidate the
revolving line of credit with the acquisition line of credit into a single line of credit of
$25,000,000 to be used by us for general corporate purposes, including potential acquisitions. The
Second Agreement was also amended on September 2, 2008 in connection with the acquisition of Dental
Art, which increased our outstanding debt and therefore required an
18
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adjustment to an affected financial covenant. We further amended the agreement on December 16,
2008 to extend the maturity of the line of credit to November 7, 2011. The amendment changed the
interest rate on both the line of credit and the term loan to prime rate or, at our option, LIBOR,
a cost of funds rate, or the Banks fixed rate, plus, in each case, a range of 2.50% to 3.50% per
annum, depending on the ratio of consolidated total funded debt to consolidated EBITDA, as each
is defined in the Second Agreement and also increased the commitment fee on the unused portion of
the line of credit from 0.125% to 0.50% per annum. In addition, the amendment revised certain
financial targets within the covenants. Finally, on March 13, 2009, we amended the Second Agreement
to exclude $6,950,000 of goodwill impairment in the fourth quarter of 2008 from the calculation of
EBITDA, used in determining our compliance with certain financial covenants. These amendments did
not change the total availability under the Second Agreement. While we were in compliance with our
debt covenants as of March 31, 2010, we continue to closely monitor our compliance with these
covenants in future periods, particularly minimum consolidated total EBITDA, which may be
negatively impacted by, among other things, potential declines in future earnings, including
declines attributable to additional goodwill impairment.
As of March 31, 2010, $18,422,000 was available under the consolidated revolving line of
credit.
Long-Term Debt:
December 31, | March 31, | |||||||
2009 | 2010 | |||||||
Term note |
$ | 19,583,000 | $ | 18,333,000 | ||||
Borrowings classified as long term under the revolving line of credit |
6,529,000 | 6,578,000 | ||||||
Other long-term debt |
736,000 | 718,000 | ||||||
Total debt |
26,848,000 | 25,629,000 | ||||||
Less: current maturities |
5,072,000 | 5,072,000 | ||||||
Long-term debt, less current portion |
$ | 21,776,000 | $ | 20,557,000 | ||||
The table below reflects the expected repayment terms associated with the Companys long-term
debt at March 31, 2010. The weighted average annual interest rate on all of our borrowings was 2.7%
as of March 31, 2010.
March 31, 2010 | ||||
Principal Due | ||||
For the remainder of fiscal 2010 |
$ | 3,804,000 | ||
Fiscal 2011 |
21,237,000 | |||
Fiscal 2012 |
80,000 | |||
Fiscal 2013 |
85,000 | |||
Fiscal 2014 |
90,000 | |||
Thereafter |
333,000 | |||
Total |
$ | 25,629,000 | ||
Liquidity:
Our working capital increased by $1,347,000 to $10,643,000 at March 31, 2010 from $9,296,000
at December 31, 2009. Operating activities provided $1,442,000 in cash flow for the three months
ended March 31, 2010 compared to $4,598,000 during the three months ended March 31, 2009, a
decrease of $3,156,000. This decrease is primarily attributable to increases in trade accounts
receivable of $870,000, due to higher sales volume in the month of March 2010 coupled with an
increase in the aging of accounts receivable, and decreases in accrued liabilities of $1,920,000
due to the payment of bonuses accrued at December 31, 2009, partially offset by accruals for
professional fees related to the Merger Agreement.
For the three months ended March 31, 2010, investing activities consumed $485,000 in cash flow
for the three months ended March 31, 2010 compared to $624,000 during the three months ended March
31, 2009, a decrease of $139,000 primarily due to lower capital expenditures. Financing activities
consumed $1,218,000 compared to $4,100,000 for the three months ended March 31, 2009. The
decreased use of cash in financing activities of $2,882,000 is
attributable to funds to reduce current liabilities rather than
bank debt, in contrast to the prior year.
We believe that cash flow from operations and available financing will be sufficient to meet
contemplated operating and capital requirements such as those discussed below, for the foreseeable
future.
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Commitments and Contingencies
The following table represents a list of our contractual obligations and commitments as of
March 31, 2010:
Payments Due By Period | ||||||||||||||||||||
Less Than | Greater Than | |||||||||||||||||||
Total | 1 Year | 1 - 3 Years | 4 - 5 Years | 5 Years | ||||||||||||||||
Term Loan Facility |
$ | 18,333,000 | $ | 5,000,000 | $ | 13,333,000 | $ | | $ | | ||||||||||
Line of Credit |
6,578,000 | | 6,578,000 | | | |||||||||||||||
Capital Leases |
718,000 | 72,000 | 158,000 | 178,000 | 310,000 | |||||||||||||||
Operating Leases: |
||||||||||||||||||||
Real Estate |
17,218,000 | 3,729,000 | 6,279,000 | 3,818,000 | 3,392,000 | |||||||||||||||
Vehicles |
459,000 | 459,000 | | | | |||||||||||||||
Equipment |
202,000 | 98,000 | 83,000 | 20,000 | 1,000 | |||||||||||||||
$ | 43,508,000 | $ | 9,358,000 | $ | 26,431,000 | $ | 4,016,000 | $ | 3,703,000 | |||||||||||
Bank borrowings on the term loan facility, with repayment terms greater than one year, are
classified as long-term debt on the balance sheet.
We are committed under various non-cancelable operating lease agreements covering office space
and dental laboratory facilities, vehicles and certain equipment. Certain of these leases also
require us to pay maintenance, repairs, insurance and related taxes.
Results of Operations
The following table sets forth for the periods indicated the percentage of net sales
represented by certain items in our unaudited consolidated financial statements:
Three Months Ended March 31, | ||||||||
2009 | 2010 | |||||||
Net sales |
100.0 | % | 100.0 | % | ||||
Cost of goods sold |
57.3 | 55.8 | ||||||
Gross profit |
42.7 | 44.2 | ||||||
Selling, general and administrative expenses |
33.3 | 35.7 | ||||||
Operating income |
9.4 | 8.5 | ||||||
Other expense |
0.5 | 0.5 | ||||||
Interest expense |
0.8 | 0.5 | ||||||
Income before provision for income taxes |
8.1 | 7.5 | ||||||
Provision for income taxes |
3.1 | 3.4 | ||||||
Net income |
5.0 | % | 4.1 | % | ||||
Three Months Ended March 31, 2010 compared with Three Months Ended March 31, 2009
Net Sales
Net sales decreased $1,001,000 or 2.4% to $40,259,000 for the three months ended March 31,
2010 from $41,260,000 for the three months ended March 31, 2009. While we, along with the dental
laboratory industry in general, experienced revenue declines in 2009, we believe that the net sales results
for the quarter ended March 31, 2010 indicate this negative trend has moderated, as sales results for the
first quarter of 2010 compare favorably to results for the latter half of 2009. Net
sales increased approximately $354,000, or 5.9%, in the Keller operating segment and increased
approximately $228,000, or 4.6%, in the Green operating segment. Net sales decreased approximately
$1,583,000, or 5.2%, in the NDX Laboratories operating segment as certain laboratories have been
more affected by local economic conditions.
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Cost of Goods Sold
Our cost of goods sold decreased by $1,158,000 or 4.9% to $22,480,000 for the three months
ended March 31, 2010 from $23,638,000 for the three months ended March 31, 2009. As a percentage of
sales, cost of goods sold decreased to 55.8% from 57.3%, primarily resulting from decreases in
labor and employee benefits, mostly in the NDX Laboratories operating segment.
Production labor decreased by approximately $805,000 and related benefits decreased by
approximately $119,000 for the three months ended March 31, 2010, compared to the three months
ended March 31, 2009. These decreases in expense resulted from the realization of the cost saving
from the staff reductions implemented in 2009. Production labor and benefits expense as a percentage of
sales decreased to 31.1% for the three months ended March 31, 2010 from 32.6% for the three months
ended March 31, 2009. Greens production labor and benefits costs were 28.4% of sales compared to
28.9% for the same periods; Kellers production labor and benefits costs were 22.9% of sales
compared to 21.9% for these same periods; and NDX Laboratories production labor and benefits costs
were 33.4% of sales compared to 35.3% for these same periods.
The cost of raw materials as a percentage of sales remained essentially flat at 15.3% for the
three months ended March 31, 2010 compared to 15.2% for the three months ended March 31, 2009.
While the average cost of palladium, a precious metal used as a component of many dental alloys,
and the average cost of gold increased 121.4% and 22.0%, respectively, for the three months ending
March 31, 2010 compared to the same period ended March 31, 2009, other factors offset these
increases causing materials costs to decline including a decrease in the volume of precious
alloy-based crowns in favor of all-ceramic restorations and lower costs for all-ceramic materials
such as zirconia.
Selling, General and Administrative Expenses
Operating expenses consisting of selling, delivery and administrative expenses both at the
laboratory and corporate level, increased by $624,000 or 4.5% to $14,348,000 for the three months
ended March 31, 2010 compared to $13,724,000 for the three months ended March 31, 2009. Operating
expenses as a percentage of net sales increased to 35.7% in 2010 from 33.3% for the three months
ended March 31, 2009. As a percentage of net sales, administrative expenses remained flat at 9.0%
for the three months ended March 31, 2010 compared to the same period for 2009. As a percentage of
net sales, delivery expenses increased to 9.2% of sales for the
three months ended March 31, 2010 from 8.9% for the three months
ended March 31, 2009. Selling expenses remained essentially flat at 6.6% of sales in the first quarter of 2010 compared
to 6.5% of sales for the same period in 2009. Selling expenses in the first quarter of 2010 for the Keller segment were
13.9% of sales, or $887,000, compared to 14.6% of sales, or $879,000, for 2009.
The net increase of $624,000 in our operating expenses for the period ended March 31, 2010
compared to the same period in 2009 was primarily attributable to the following items:
| Increases in professional fees related to the Merger Agreement of $519,000 offset by decreases of $134,000 in audit and consulting fees $385,000; | ||
| Increases in corporate compensation, including $190,000 of severance pay $336,000; | ||
| Increases in sales related travel expenditures $109,000; |
partially offset by:
| Decreases in deferred compensation accruals for our supplemental executive retirement plans $134,000; | ||
| Reductions in laboratory administrative expenses, primarily attributable to lower labor and benefits $123,000. |
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Operating Income
As a result of the above factors, our operating income decreased by $467,000 to $3,431,000 for
the three months ended March 31, 2010 from $3,898,000 for the three months ended March 31, 2009. As
a percentage of net sales, operating income decreased to 8.5% for the three months ended March 31,
2010 from 9.4% for the three months ended March 31, 2009.
Interest Expense
Due to lower debt levels and interest rates, interest expense declined $162,000 to $183,000
for the three months ended March 31, 2010 from $345,000 for the three months ended March 31, 2009.
Provision for Income Taxes
The provision for income taxes increased by $115,000 to $1,390,000 for the three months ended
March 31, 2010 from $1,275,000 in 2009. The 45.8% effective tax rate estimated for the three months
ended March 31, 2010 increased from 38.2% for the three months ended March 31, 2009 due to changes
in the amounts of certain non-deductible expenses, including $403,000 of professional fees related
to the Merger Agreement.
Net Income
As a result of all the factors discussed above, net income decreased $412,000, or 20.0%, to
$1,647,000, or $0.28 per share on a diluted basis, for the three months ended March 31, 2010 from
$2,059,000 or $0.36 per share on a diluted basis, for the three months ended March 31, 2009. The
impact of professional fees associated with the Merger Agreement, inclusive of the non-deductible
nature of certain of these fees, on our net income for the quarter ended March 31, 2010 was
$473,000, or $0.08 per share on a diluted basis.
Operating Segment Results
Our business consists of a single industry segment, which is the design, fabrication,
marketing and sale of custom dental prosthetic appliances for and to dentists in North America. We
report on three operating segments within this single industry segment. These three segments are
known as Green Dental, representing the operations of Green Dental Laboratories, Inc. of Heber
Springs, Arkansas, which we acquired in March 2005; Keller, representing the operations of Keller
Group, Incorporated with laboratories in St. Louis, Missouri and Louisville, Kentucky, which we
acquired in October, 2006; and NDX Laboratories, which represents our remaining laboratories. We
have identified both Green and Keller as separate reportable segments based on the quantitative
criteria for financial reporting purposes.
Three Months Ended March 31, | ||||||||||||||||
2009 | 2010 | $ Change | % Change | |||||||||||||
Revenue: |
||||||||||||||||
NDX Laboratories |
$ | 30,383,358 | $ | 28,796,661 | $ | (1,586,697 | ) | (5.2 | )% | |||||||
Green Dental Laboratory |
5,029,821 | 5,222,654 | 192,833 | 3.8 | ||||||||||||
Keller Group |
6,098,689 | 6,518,304 | 419,615 | 6.9 | ||||||||||||
Subtotal |
41,511,868 | 40,537,619 | (974,249 | ) | (2.3 | ) | ||||||||||
Less: Intersegment Revenues |
252,159 | 278,802 | 26,644 | 10.6 | ||||||||||||
Net Sales |
$ | 41,259,709 | $ | 40,258,817 | $ | (1,000,893 | ) | (2.4 | ) | |||||||
Laboratory Operating Income: |
||||||||||||||||
NDX Laboratories |
$ | 4,590,361 | $ | 4,500,747 | $ | (89,614 | ) | (2.0 | ) | |||||||
Green Dental Laboratory |
1,172,236 | 1,321,251 | 149,015 | 12.7 | ||||||||||||
Keller Group |
1,071,498 | 1,335,526 | 264,028 | 24.6 | ||||||||||||
Laboratory Operating Income |
$ | 6,834,095 | $ | 7,157,524 | $ | 323,429 | 4.7 | |||||||||
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NDX Laboratories
For the three months ended March 31, 2010, before elimination of inter-segment revenues, sales
in this segment decreased by $1,587,000, or 5.2%, and cost of goods sold decreased $1,446,000. Gross
profit as a percentage of sales increased to 40.9% for the three months ended March 31, 2010
compared to 39.2% for the three months ended March 31, 2009. Production labor and benefits
decreased $1,105,000, or 10.3%, due primarily to a reduction in staffing levels. Materials expense
increased to 15.3% of sales in 2010 from 14.9% of sales in 2009.
Operating expenses were essentially flat at $7,243,000 in the first quarter of
2010 compared to $7,291,000 in the
same period for 2009. Underlying the expenses in the first quarter of 2010 were decreases in labor and benefits of
$143,000, offset by increases in fuel and delivery service of $129,000.
Laboratory operating income as a percentage of sales for NDX Laboratories increased to 15.6%
for the three months ended March 31, 2010 from 15.1% for the three months ended March 31, 2009 as a
result of the factors discussed above.
Green Dental Laboratory
The sales increase before elimination of inter-segment revenues for the three months ended
March 31, 2010 in this segment was $193,000 or 3.8%. Cost of goods sold increased by $75,000,
resulting primarily from increases in overtime costs of $56,000 due to higher sales volumes. Gross
profit as a percentage of sales increased to 49.2% for the three months ended March 31, 2010
compared to 48.3% for the three months ended March 31, 2009.
As a result of the factors discussed above, laboratory operating income as a percentage of
sales for Green increased to 25.5% for the three months ended March 31, 2010 compared to 23.7% for
the three months ended March 31, 2009 and increased by $149,000.
Keller Group
For the three months ended March 31, 2010, the sales increase before elimination of
inter-segment revenues in this segment was $420,000 or 6.9% as compared to the prior year
period. Cost of goods sold increased by $213,000, including increases in overtime costs of $65,000
due to higher sales volumes. Gross profit as a percentage of sales decreased to 54.9% for the three
months ended March 31, 2010 from 55.8% for the three months ended March 31, 2009. Administrative
expenses decreased by $146,000 in the three months ended March 31, 2010 compared to the three
months ended March 31, 2009 primarily due to decreased labor and benefit costs. As a percentage of
sales, administrative costs decreased to 6.8% in 2010 from 9.6% in 2009.
As a result of the factors discussed above, laboratory operating income as a percentage of
sales for Keller increased to 21.0% for the three months ended March 31, 2010 compared to 17.8% for
the three months ended March 31, 2009, a $264,000 increase for the three month period ended March
31, 2010 as compared to the same period in 2009.
Factors That May Affect Future Results
Various risks, uncertainties and contingencies could cause our actual results, performance or
achievements to differ materially from those expressed in, or implied by, statements contained in
this Quarterly Report on Form 10-Q, including, but not limited to those risks described in this
Quarterly Report, including in Part II, Item 1A of this Quarterly Report, those described in Item 1A, Risk
Factors in our most recently filed Annual Report on Form 10-K, expectations regarding the
timing of the closing of the Merger Agreement and statements
regarding our ability to consummate the Merger.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our market risk exposure includes potential price volatility of commodities we use in our
manufacturing processes. We purchase dental alloys that contain gold, palladium and other precious
metals. We have not participated in hedging transactions. We have relied on pricing practices that
attempt to pass some portion, if not all, of our increased costs on to our customers, in
conjunction with materials substitution strategies. Our market risk
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exposure also includes investments in insurance contracts held as assets to satisfy
outstanding retirement liabilities, a portion of which are subject to market value fluctuations of
the underlying investment.
At March 31, 2010, we had variable rate debt of $24,911,000 associated with our credit
facility. Based on this amount, the earnings decrease and cash flows impact for the next year
resulting from a one percentage point increase in interest rates would be approximately $150,000,
net of tax, holding other variables constant.
We have investments in a Canadian subsidiary. The net assets of this subsidiary are exposed to
volatility in currency exchange rates. Translation gains and losses related to the net assets of
this subsidiary are included in accumulated other comprehensive income.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
We carried out an evaluation, with the participation of our principal executive officer and
principal financial officer, of the effectiveness of our disclosure controls and procedures as of
March 31, 2010. In designing and evaluating our disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving their objectives, and our management necessarily applied its
judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on
this evaluation, our principal executive officer and principal financial officer concluded that, as
of March 31, 2010, our disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) of the Exchange Act, were effective to ensure that information required to be disclosed
by us in the reports that we file or submit to the Securities and Exchange Commission is
accumulated and communicated to management, including the CEO and CFO, to allow timely decisions
regarding required disclosure.
(b) Changes in Internal Controls.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2010 that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
We are subject to ordinary course litigation incidental to our business. Our management
believes that the outcome of this litigation, individually or in the aggregate, will not have a
material adverse effect upon our operations or financial condition and will not disrupt our normal
operations. Refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2009,
as filed with the SEC on March 12, 2010, for a discussion of certain litigation matters.
Item 1A. Risk Factors:
Information concerning certain risks and uncertainties appears in Part I, Item 1A Risk
Factors of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, as filed
with the SEC on March 12, 2010. You should carefully consider these risks and uncertainties before
making an investment decision with respect to shares of our common stock. Such risks and
uncertainties could materially adversely affect our business, financial condition or operating
results.
There have been no material changes to the Risk Factors disclosed in our Annual Report on Form
10-K for the fiscal year ended December 31, 2009, except as set forth below.
There
are risks and uncertainties associated with the proposed Merger with
an affiliate of GeoDigm.
On
April 2, 2010, we entered into an Agreement and Plan of Merger (the Merger Agreement)
among GDC Holdings, Inc. (Parent), a Delaware corporation, Royal Acquisition Corp. (Merger
Sub), a Delaware corporation and an indirect wholly owned subsidiary of Parent and a direct wholly
owned subsidiary of GeoDigm Corporation (GeoDigm), a Minnesota corporation. Pursuant to the
Merger Agreement, Merger Sub will be merged with and into National Dentex, with National Dentex
being the surviving corporation (the Merger) and a direct wholly owned subsidiary of GeoDigm.
There are risks and uncertainties associated with the proposed Merger. For
example, the Merger may not be consummated, or may not be consummated as currently anticipated, as
a result of several factors, including but not limited to the failure to satisfy the closing
conditions set forth in the Merger Agreement. If the proposed Merger is not completed, the share
price of our common stock may change to the extent that the current market price of our common
stock reflects an assumption that the Merger will be consummated. Additionally, under certain
circumstances, if the Merger Agreement is terminated, we would be required to pay a termination fee
of $4.15 million, incurred by Parent and its affiliates in
connection with the Merger or
reimbursement of transaction expenses not exceeding $2 million.
The Merger Agreement also restricts
us from engaging in certain actions without Parents approval, which could prevent us from pursuing opportunities that may
arise prior to the closing of the Merger.
Our business could be adversely impacted as a result of uncertainty related to the proposed Merger
with an affiliate of GeoDigm.
The
proposed Merger could cause disruptions in our business, which could have an effect
on our results of operations and financial condition. For example:
| our employees may experience uncertainty about their future roles at the Company, which might adversely affect our ability to retain and hire key managers and other employees; | ||
| customers and suppliers may experience uncertainty about the Companys future and seek alternative business relationships with third parties or seek to alter their business relationships with the Company; and |
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| the attention of our management may be directed to transaction-related considerations and may be diverted from the day-to-day operations of our business. |
In addition, we have incurred, and will continue to incur, significant fees for professional
services and other transaction costs in connection with the proposed Merger, and many of these fees
and costs are payable by us regardless of whether or not the Merger
is consummated.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds:
In November 2002, we announced that our Board of Directors approved the repurchase by us of up
to 300,000 shares of our common stock pursuant to a stock repurchase program. During the three
months ended March 31, 2010, we did not repurchase any shares of our common stock. The following
table provides information about our repurchase activity during the first three months of
2010:
Issuer Purchases of Equity Securities
Maximum Number | ||||||||||||||||
Total Number of | of Shares that | |||||||||||||||
Shares Purchased | May Yet Be | |||||||||||||||
Total Number | Average | as Part of Publicly | Purchased Under | |||||||||||||
of Shares | Price Paid | Announced Plans | the Plans or | |||||||||||||
Fiscal Period | Purchased | per Share | or Programs | Programs | ||||||||||||
January 1, 2010 - March 31, 2010 |
| | | 206,700 |
We did not repurchase any of our equity securities during the three months ended March 31,
2010 or engage in any transactions during such period reportable pursuant to Item 703 of Regulation
S-K. Under the terms of the Merger Agreement, with limited exceptions, we may not repurchase any
shares of our common stock.
Item 3. Defaults upon Senior Securities:
Not Applicable
Item 4. Removed and Reserved
Item 5. Other Information:
Not Applicable
Item 6. Exhibits:
The exhibits listed in the Exhibit Index immediately preceding the exhibits are filed as part
of this Quarterly Report on Form 10-Q.
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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, thereunto duly authorized.
NATIONAL DENTEX CORPORATION Registrant |
||||
May 14, 2010 | By: | /s/ DAVID L. BROWN | ||
David L. Brown | ||||
Chairman and Chief Executive Officer (Principal Executive Officer) | ||||
May 14, 2010 | By: | /s/WAYNE M. COLL | ||
Wayne M. Coll | ||||
Vice President and Chief Financial Officer (Principal Financial Officer) |
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Exhibit Index
Exhibit | ||
No. | Description | |
10.1*
|
Fourth Amendment to National Dentex Corporation 1992 Employees Stock Purchase Plan. | |
31.1*
|
Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act (Chief Executive Officer). | |
31.2*
|
Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act (Chief Financial Officer). | |
32.1*
|
Certification pursuant to 18 U.S.C. Section 1350 (Chief Executive Officer). | |
32.2*
|
Certification pursuant to 18 U.S.C. Section 1350 (Chief Financial Officer). |
* | Filed herewith. |
28