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| YDNT > SEC Filings for YDNT > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
Critical Accounting Policies
The SEC has requested that all registrants include in their MD&A a description of their 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. The SEC indicated that a "critical accounting policy" is one which is both important to the portrayal of the 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 its reserves are adequate. It is possible, however, that the accuracy of our estimation process could be impacted by unforeseen circumstances. The Company continuously reviews its 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 (FIFO) basis. Inventory values are based upon standard costs, which approximate actual 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 information related to the inventory including planned introduction of new products and changes in technology. If demand for the Company's products is significantly different than management's expectations, the value of inventory could be materially impacted. Inventory write-downs are included in cost of goods sold. Costs associated with the procurement and warehousing of inventories are included in cost of goods sold except for the Company's distribution only businesses, which are included in SG&A.
Goodwill and other intangible assets - In accordance with the ASC 350 goodwill and other intangible assets with indefinite useful lives are reviewed by management for impairment at least 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. ASC 350 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 ASC 360.
Revenue Recognition - Revenue from the sale of products is recorded at the time title passes, generally when the products are shipped, as the Company's shipping terms are customarily FOB shipping point. Revenue from the rental of equipment to others is recognized on a month-to-month basis as the revenue is earned. The Company
The Company offers discounts to its distributors if certain conditions are met. Customer allowances, volume discounts and rebates, and other short-term incentive programs are recorded as a reduction in reported revenues at the time of sale. The Company reduces product revenue for the estimated redemption of annual rebates on certain current product sales. Customer allowances and rebates are estimated based on historical experience and known trends.
The policy with respect to sales returns generally provides that a customer may not return inventory except at the Company's option, with the exception of X-ray machines, which have a 90-day return policy. Historically, the level of product returns has not been significant. The Company generally warrants its products against defects, and its most generous policy provides a two-year parts and labor warranty on X-ray machines. The Company owns X-ray equipment rented on a month-to-month basis to customers. A liability for the removal costs of the rented X-ray machines is capitalized and amortized over four years.
Stock compensation - Under the provisions of ASC 718, "Compensation- Stock Compensation," share-based compensation cost is estimated at the grant date based on the award's fair-value as calculated by an option pricing model, and is recognized as expense ratably over the requisite service period. The option pricing models require judgmental assumptions including volatility, forfeiture rates, and expected option life. If any of the assumptions used in the model change significantly, share-based compensation expense may differ in the future from that recorded in the current period.
Assets and Liabilities Acquired in Business Combinations - The Company periodically acquires businesses. All business acquisitions completed subsequent to January 1, 2009 will be accounted for under the provisions of ASC 805. Under ASC 805, an entity is required to recognize the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred, restructuring costs generally be expensed in periods subsequent to the acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. The changes related to income taxes also impact the accounting for acquisitions completed prior to the effective date of ASC 805. In addition, acquired in-process research and development is capitalized as an intangible asset and amortized over its estimated useful life. All business acquisitions completed subsequent to 2002 were accounted for under 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.
Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
Net Sales
Net sales decreased $117 or 0.5% to $24,805 in the third quarter of 2009 from $24,922 in the third quarter of 2008. Total sales for the third quarter remained stable, as increased demand for the Company's consumable products offset continued weakness in its diagnostic product line. Consumable product sales, which include preventive, infection control, endodontic, micro-applicator and home care product lines, posted gains for the quarter. The Company's diagnostic product line continues to be affected by the weak economy and tight credit markets. Sales of diagnostic products were $490 less than the prior year quarter.
Gross Profit
Gross profit increased $785 or 6.0% to $13,948 in the third quarter of 2009 compared to $13,163 in the third quarter of 2008. Gross margin increased to 56.2% of net sales in the third quarter of 2009 from 52.8% in the third quarter of 2008. Gross margin increased due to improved production efficiencies, favorable product mix, and continued benefits of facility consolidations.
Selling, General, and Administrative Expenses
SG&A expenses increased $343 or 4.3% to $8,298 in the third quarter of 2009 from $7,955 in the third quarter of 2008. SG&A increased primarily due to higher incentive compensation expense consistent with the performance of the business, somewhat offset by headcount reductions and reduced marketing expenses. As a percent of net sales, SG&A expenses increased to 33.5% in the third quarter of 2009 compared to 31.9% in the third quarter of 2008 due to the items explained above.
Income from Operations
Income from operations increased $442 or 8.5% to $5,650 in the third quarter of 2009 compared to $5,208 in the third quarter of 2008. The change was a result of the items explained above.
Interest Expense, net
Interest expense, net decreased $152 to $172 in the third quarter of 2009 from $324 in the third quarter of 2008. The decrease was primarily attributable to reduced interest expense resulting from lower interest rates and lower borrowings on the Company's credit facility.
Other Expense (Income), net
Other expense (income), net increased $71 to $53 in the third quarter of 2009 from $(18) in the third quarter of 2008. This increase was due to lower levels of miscellaneous income.
Provision for Income Taxes
Provision for income taxes increased $197 in the third quarter of 2009 to $1,951 from $1,754 in the third quarter of 2008 as a result of higher pre-tax income. The effective tax rate in the third quarter of 2009 was 36.0% compared to 35.8% in the third quarter of 2008.
Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
Net Sales
Net sales decreased $2,014 or 2.7% to $73,206 in the first nine months of 2009 from $75,220 in the first nine months of 2008. Sales of the Company's consumable products were solid despite the challenging economic environment, while demand for the Company's diagnostic products remained weak. Consumable product sales, which include preventive, infection control, endodontic, micro-applicators and home care product lines, remained essentially flat over the first nine months of 2008. Sales of diagnostic products were $2,115 below that of the first nine months of 2008. In addition, a stronger U.S. dollar negatively impacted sales by approximately $620.
Gross profit increased $1,050 or 2.6% to $40,942 in the first nine months of 2009 compared to $39,892 in the first nine months of 2008. Gross margin increased to 55.9% of net sales in the first nine months of 2009 compared to 53.0% in the first nine months of 2008. The increase in gross margin was primarily a result of benefits of operating efficiencies implemented in 2008, including facility consolidations and adjusted staff levels and favorable product mix.
Selling, General, and Administrative Expenses
SG&A expenses were essentially flat at $24,899 in the first nine months of 2009 from $24,962 in the first nine months of 2008. The benefits from headcount reductions and reduced marketing expenses were offset by higher equity compensation as well as increased incentive compensation consistent with the performance of the business. As a percent of net sales, SG&A expenses increased to 34.0% in the first nine months of 2009 compared to 33.2% in the first nine months of 2008 due to the lower sales in 2009 compared to 2008.
Income from Operations
Income from operations increased $1,113 or 7.5% to $16,043 in the first nine months of 2009 compared to $14,930 in the first nine months of 2008. The change was a result of the items explained above.
Interest Expense, net
Interest expense, net decreased $563 to $506 in the first nine months of 2009 from $1,069 in the first nine months of 2008. The decrease was primarily attributable to reduced interest expense resulting from lower interest rates and lower borrowings on the Company's credit facility
Other Expense (Income), net
Other expense (income), net increased $478 to $95 in the first nine months of 2009 from $(383) in the first nine months of 2008. This increase was primarily attributable to a foreign exchange impact on debt repaid from the Company's Irish subsidiary of approximately $300 in 2008.
Provision for Income Taxes
Provision for income taxes increased $318 in the first nine months of 2009 to $5,482 from $5,164 in the first nine months of 2008 as a result of higher pre-tax income offset by a decrease in the effective tax rate. The effective tax rate in the first nine months of 2009 was 35.5% compared to 36.3% in the first nine months of 2008 due to a reduction in the effective blended state rate resulting from changes in certain state filing requirements based on previous consolidation activity offset by changes in state tax laws enacted in the second quarter of 2009 which increased the Company's state rate.
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 $17,661 and $16,011 for the first nine months of 2009 and 2008, respectively. Net capital expenditures for property, plant and equipment were $3,135 and $2,176 for the nine months of 2009 and 2008, respectively. Significant capital expenditures in 2009 included buildings, facility improvements, and production machinery and equipment. Future capital expenditures are expected to include facility improvements, production machinery and information systems. During the first quarter of 2009, the Company acquired the rights to distribute a product line which expands its infection control offerings. The Company paid approximately $1,300 in cash. The agreement also requires the Company to pay $60 annually for the next ten years.
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 was 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 was an additional $42 subject to a recourse holdback pool. In connection with the agreement, a portion of the recourse holdback pool was released to the Company during the nine months ended September 30, 2009 for a total cash payment of $346. As the transactions
On May 21, 2009, the Company renewed its credit facility. The new credit facility reduces the aggregate commitment from $75,000 to $60,000 and expires in July 2012. The Company has $42,372 available under the line of credit at September 30, 2009. Borrowings under the arrangement bear interest at rates ranging from LIBOR + 2.00% to LIBOR +2.50% or Prime + .50% to Prime + 1.00%, depending on the Company's level of indebtedness. Commitment fees for this arrangement range from .25% to .50% of the unused balance. Borrowings under the previous arrangement had interest rates ranging from LIBOR +.75% to LIBOR +1.50% or Prime and commitment fees from .125% to .15% of the unused balance. The agreement is unsecured and contains various financial and other covenants. As of September 30, 2009 and December 31, 2008, the Company was in compliance with all of these covenants. At September 30, 2009, the Company had $17,628 in outstanding borrowings under this agreement and $42,372 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.
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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