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| YDNT > SEC Filings for YDNT > Form 10-Q on 7-Nov-2008 | All Recent SEC Filings |
7-Nov-2008
Quarterly Report
The Company has included in its MD&A its most critical accounting policies, the judgments and uncertainties affecting the application of those policies, and the likelihood that materially different amounts would be reported under different conditions using different assumptions. A "critical accounting policy" is one which is both important to the portrayal of a company's financial condition and results and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company believes that the following accounting policies fit this definition:
Allowance for doubtful accounts - Accounts receivable balances are subject to credit risk. Management has reserved for expected credit losses, sales returns and allowances, and discounts based upon past experience as well as knowledge of current customer information. The Company believes that the reserves are adequate. It is possible, however, that the accuracy of the Company's estimation process could be impacted by unforeseen circumstances. Management continuously reviews the reserve balance and refines the estimates to reflect any changes in circumstances.
Inventory - The Company values inventory at the lower of cost or market on a first-in, first-out basis. Inventory values are based upon standard costs which approximate historical costs. Management regularly reviews inventory quantities on hand and records a write-down for excess or obsolete inventory based primarily on estimated product demand and other knowledge related to the inventory. If demand for the Company's products is significantly different than management's expectations, the valuation of inventory could be materially impacted. Inventory write-downs are included in cost of goods sold.
Goodwill and other intangible assets - In accordance with the provisions of SFAS No. 142, goodwill and other long-lived assets with indefinite useful lives are reviewed by management for impairment annually or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. If indicators of impairment are present, the determination of the amount of impairment would be based on management's judgment as to the future operating cash flows to be generated from the assets. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets".
Contingencies - The Company and its subsidiaries from time to time are subject to various contingencies, including legal proceedings arising in the normal course of business. Management, with the assistance of external legal counsel, performs an analysis of current litigation and will record liabilities if a loss is probable and can be reasonably estimated.
Assets and Liabilities Acquired in Business Combinations - The Company periodically acquires businesses. All business acquisitions are accounted for under the provisions of SFAS No. 141, "Business Combinations," which requires the use of the purchase method. The purchase method requires the Company to allocate the cost of an acquired business to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The allocation of acquisition cost to assets acquired includes the consideration of identifiable intangible assets. The excess of the cost of an acquired business over the fair value of the assets acquired and liabilities assumed is recognized as goodwill. The Company's measurement of fair values and certain pre-acquisition contingencies may impact the Company's cost allocation to assets acquired and liabilities assumed for a period of up to one year following the date of an acquisition. The Company utilizes a variety of information sources to determine the value of acquired assets and liabilities. For larger acquisitions, third-party appraisers are utilized to assist the Company in determining the fair value and useful lives of identifiable intangibles, including the determination of intangible assets that have an indefinite life. The valuation of the acquired assets and liabilities and the useful lives assigned by the Company will impact the determination of future operating performance of the Company.
RESULTS OF OPERATIONS (In thousands, except per share data)
Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007
Net Sales
Net sales increased $270 or 1.1% to $24,922 in the third quarter of 2008 from $24,652 in the third quarter of 2007. The sales increase this quarter reflects continued solid overall demand for the Company's consumable products, which offset weaker demand for the Company's diagnostic product line. The increase in sales of the Company's consumable products was primarily due to strong execution of sales and marketing in addition to a price increase of certain consumable products. The sales shortfall in the Company's diagnostic product line was principally due to lower government and international sales and a lower conversion rate for outstanding proposals, as some dentists deferred purchases. In addition, reported sales increased by approximately $123 principally as a result of a weaker U.S. dollar against the Euro in the third quarter of 2008 compared to the third quarter of 2007.
Gross Profit
Gross profit increased $411 or 3.2% to $13,163 in the third quarter of 2008 compared to $12,752 in the third quarter of 2007. The additional gross profit was primarily a result of increased net sales. Gross margin increased to 52.8% of net sales in the third quarter of 2008 from 51.7% in the third quarter of 2007. Gross margin was impacted by changes in product mix, improved operating efficiencies and increased sales volume.
Selling, General, and Administrative Expenses
SG&A expenses increased $354 or 4.7% to $7,955 in the third quarter of 2008 from $7,601 in the third quarter of 2007. SG&A increased primarily due to increased personnel costs to support the growth of the business. Share-based compensation cost totaled $363 in the third quarter of 2008 compared to $325 in the third quarter of 2007. As a percent of net sales, SG&A expenses increased 1.1 percentage points to 31.9% in the third quarter of 2008 compared to 30.8% in the third quarter of 2007 as a result of the factors explained above.
Income from Operations
Income from operations increased $57 or 1.1% to $5,208 in the third quarter of 2008 compared to $5,151 in the third quarter of 2007. The change was a result of the items explained above.
Interest Expense, net
Interest expense, net decreased $34 to $324 in the third quarter of 2008 from $358 in the third quarter of 2007. The decrease was attributable to lower interest rates in the third quarter of 2008 compared to the third quarter of 2007.
Other (Income) Expense, net
Other (income) expense, net increased $(51) to $(18) in the third quarter of 2008 from $33 in the third quarter of 2007. This increase was due to higher levels of miscellaneous income.
Provision for Income Taxes
Provision for income taxes increased $69 in the third quarter of 2008 to $1,754 from $1,685 in the third quarter of 2007 as a result of higher pre-tax income as well as an increase in the effective tax rate. The effective tax rate in the third quarter of 2008 was 35.8% compared to 35.4% in the third quarter of 2007.
Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007
Net Sales
Net sales increased $2,859 or 4.0% to $75,220 in the first nine months of 2008 from $72,361 in the first nine months of 2007. The sales increase reflects continued solid overall demand for the Company's consumable products, which offset weaker demand for the Company's diagnostic product line. The sales shortfall in the Company's diagnostic product line in the third quarter of 2008 was principally due to lower government and international sales and a lower conversion rate for outstanding proposals, as some dentists deferred purchases. In addition, reported sales increased by approximately $630 principally as a result of a weaker U.S. dollar against the Euro in the first nine months of 2008 compared to the first nine months of 2007.
Gross Profit
Gross profit increased $1,206 or 3.1% to $39,892 in the first nine months of 2008 compared to $38,686 in the first nine months of 2007. The additional gross profit was primarily a result of increased net sales. Gross margin decreased to 53.0% of net sales in the first nine months of 2008 compared to 53.5% in the first nine months of 2007. The slight decrease in gross margin is a result of changes in product mix offset by the positive impact of operating efficiencies and sales volume.
Selling, General, and Administrative Expenses
SG&A expenses increased $1,957 or 8.5% to $24,962 in the first nine months of 2008 from $23,005 in the first nine months of 2007. SG&A increased primarily due to continued investments in personnel costs, principally in sales and marketing, in addition to higher equity compensation expense. Share-based compensation cost totaled $1,073 in the first nine months of 2008 compared to $758 in the first nine months of 2007. As a percent of net sales, SG&A expenses increased 1.4 percentage points to 33.2% in the first nine months of 2008 compared to 31.8% in the first nine months of 2007 as a result of the factors explained above.
Income from Operations
Income from operations decreased $751 or 4.8% to $14,930 in the first nine months of 2008 compared to $15,681 in the first nine months of 2007. The change was a result of the items explained above.
Interest Expense, net
Interest expense, net increased $308 to $1,069 in the first nine months of 2008 from $761 in the first nine months of 2007. The increase was attributable to higher debt levels offset by lower interest rates in the first nine months of 2008 compared to the first nine months of 2007.
Other (Income) Expense, net
Other (income) expense, net increased $(434) to $(383) in the first nine months of 2008 from $51 in the first nine months of 2007. This increase was primarily attributable to a foreign exchange impact on debt repaid from the Company's Irish subsidiary of approximately $300.
Provision for Income Taxes
Provision for income taxes decreased $337 in the first nine months of 2008 to $5,164 from $5,501 in the first nine months of 2007 as a result of lower pre-tax income as well as a decrease in the effective tax rate. The effective tax rate in the first nine months of 2008 was 36.3% compared to 37.0% in the first nine months of 2007.
Liquidity and Capital Resources
Historically, the Company has financed its operations primarily through cash flow from operating activities and, to a lesser extent, through borrowings under its credit facility. Net cash flow from operating activities was $16,011 and $16,669 for the first nine months of 2008 and 2007, respectively. Net capital expenditures for property, plant and equipment were $2,176 and $6,579 for the first nine months of 2008 and 2007, respectively. The decrease was attributable primarily to the completion of a distribution and manufacturing facility in 2007. Significant capital expenditures included buildings, facility improvements and new equipment purchases. Future capital expenditures are expected to include facility expansion and improvements, panoramic X-ray machines for the Company's rental program, production machinery and information systems.
On January 16, 2008, the Company transferred a majority of its X-ray equipment loans to a third party for a cash payment of $3,519. The Company transferred $4,154 of the notes receivable portfolio for a purchase price of $4,140. Of the purchase price, $621 is subject to a recourse holdback pool that has been established with respect to the limited recourse the third party has on the loans. On May 5, 2008, the Company transferred additional X-ray equipment loans to a third party for a cash payment of $235. There is an additional $42 subject to a recourse holdback pool. As the transactions do not qualify as sales of assets under SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," the transactions have been treated as financing and the loans remain on the Company's balance sheet. As of September 30, 2008, the amount of notes receivable transferred to a third party was $2,506, of which $767 is classified as a short-term notes receivable and $1,739 as a
long-term notes receivable. A corresponding long-term and short-term liability have been recorded on the Company's balance sheet.
The Company maintains a credit agreement with a borrowing capacity of $75,000, which expires in April 2010. Borrowings under the agreement bear interest at rates ranging from LIBOR + .75% to LIBOR + 1.50%, or Prime, depending on the Company's level of indebtedness. Commitment fees for this agreement range from .125% to .15% of the unused balance. The agreement is unsecured and contains various financial and other covenants. As of September 30, 2008 and December 31, 2007, the Company was in compliance with all of these covenants. At September 30, 2008 the Company had $33,023 in outstanding borrowings under this agreement and $41,977 available for borrowing. Management believes through its operating cash flows as well as borrowing capabilities, the Company has adequate liquidity and capital resources to meet its needs on a short and long-term basis. If market and other conditions change from those we anticipate, our liquidity may be affected.
Forward-Looking Statements
Investors are cautioned that this report as well as other reports and oral statements by Company officials may contain certain forward-looking statements as defined in the Private Securities Litigation and Reform Act of 1995. Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions and which include words such as "expects", "anticipates", "intends", "plans", "believes", "estimates" or similar expressions. These statements are not guaranties of future performance and the Company makes no commitment to update or disclose any revisions to forward-looking statements, or any facts, events or circumstances after the date hereof that may bear upon forward-looking statements. Because such statements involve risks and uncertainties, actual actions and strategies and the timing and expected results thereof may differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, those disclosed in the Company's Annual Report on Form 10-K and other reports filed with the SEC.
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