<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO ___________
COMMISSION FILE NO. 1-5439
DEL LABORATORIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-1953103
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
565 BROAD HOLLOW ROAD, FARMINGDALE, NEW YORK 11735
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 293-7070
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES (X) NO ( )
The number of shares of Common Stock, $1 par value, outstanding as of
November 9, 1995 was 4,187,889.
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DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,432,321 $ 10,125,568
Accounts receivable-less allowance for
doubtful accounts of $2,000,000
and $1,300,000, respectively 28,080,287 18,692,993
Inventories 39,511,921 34,688,184
Prepaid expenses and other current assets 1,131,269 1,958,917
------------ ------------
Total current assets 74,155,798 65,465,662
------------ ------------
Property, plant and equipment, net 26,991,399 24,806,283
Intangibles arising from acquisitions, net 9,445,058 9,669,506
Other assets 4,932,953 5,015,394
------------ ------------
Total assets $115,525,208 $104,956,845
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 163,509 $ 334,754
Accounts payable 13,651,575 14,931,062
Accrued liabilities 19,638,987 10,703,484
Income taxes payable 2,442,316 683,532
------------ ------------
Total current liabilities 35,896,387 26,652,832
Other liabilities 2,103,680 2,176,826
Deferred income taxes 1,853,538 1,853,538
Long-term debt, less current portion 40,013,663 40,070,395
------------ ------------
Total liabilities 79,867,268 70,753,591
------------ ------------
Shareholders' equity:
Common stock $1 par value, authorized 10,000,000
shares; issued 6,588,544 shares (A) 6,588,544 6,588,544
Additional paid-in capital (A) 2,853,365 2,895,714
Foreign currency translation adjustment (621,771) (546,242)
Retained earnings 51,295,439 46,203,176
------------ ------------
60,115,577 55,141,192
Less: Treasury stock, at cost, 2,413,161 shares and
2,375,276 shares, respectively (A) (22,555,715) (18,637,618)
Receivables for stock options exercised (1,901,922) (2,300,320)
------------ ------------
Total shareholders' equity 35,657,940 34,203,254
------------ ------------
Total liabilities and shareholders' equity $115,525,208 $104,956,845
------------ ------------
------------ ------------
</TABLE>
(A) Adjusted to reflect a 2-for-1 stock split effective
June 16, 1995
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DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT 30 SEPT 30 SEPT 30 SEPT 30
1995 1994 1995 1994
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $55,113,948 $49,608,186 $158,467,316 $141,927,717
----------- ----------- ------------ ------------
Cost of goods sold 23,668,884 20,616,398 64,794,588 56,971,888
Selling and administrative
expenses 27,172,023 25,335,801 81,670,675 74,435,497
----------- ----------- ------------ ------------
50,840,907 45,952,199 146,465,263 131,407,385
----------- ----------- ------------ ------------
Operating income 4,273,041 3,655,987 12,002,053 10,520,332
----------- ----------- ------------ ------------
Interest expense 954,767 929,461 2,868,651 2,965,067
Interest income (32,377) (54,394) (212,204) (112,724)
----------- ----------- ------------ ------------
Interest expense, net 922,390 875,067 2,656,447 2,852,343
----------- ----------- ------------ ------------
Earnings before income taxes 3,350,651 2,780,920 9,345,606 7,667,989
Income taxes 1,374,000 1,141,000 3,831,000 3,144,000
----------- ----------- ------------ ------------
Net earnings $ 1,976,651 $ 1,639,920 $ 5,514,606 $ 4,523,989
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Weighted average common
shares outstanding (A) 4,819,000 4,824,000 4,897,000 4,850,000
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Earnings per common share (A) $ 0.41 $ 0.35 $ 1.13 $ 0.95
Dividends per common share (A) $ 0.035 $ 0.0325 $ 0.100 $ 0.093
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
(A) Adjusted to reflect a 2-for-1 stock split effective June 16, 1995.
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<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
September 30 September 30
1995 1994
------------ -------------
<S> <C> <C>
ASSETS
Cash flows from operating activities
Net earnings $ 5,514,606 $ 4,523,989
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 3,044,613 2,924,621
Provisions for doubtful accounts 368,000 368,000
Other non-cash operating items 17,896 (127,600)
Changes in operating assets and liabilities:
Accounts receivable (9,755,294) (5,564,666)
Inventories (4,823,737) 857,465
Prepaid expenses and other current assets 827,648 (171,649)
Income taxes receivable -- 130,349
Other assets 82,441 (636,333)
Accounts payable (1,279,487) 2,271,003
Accrued liabilities 9,072,653 4,891,055
Income taxes payable 1,758,784 532,209
Other liabilities (73,146) --
----------- -----------
Net cash provided by operating activities 4,754,977 9,998,443
----------- -----------
Cash flows used in investing activities:
Property, plant and equipment additions (5,005,281) (3,834,253)
----------- -----------
Net cash used in investing activities (5,005,281) (3,834,253)
----------- -----------
Cash flows used in financing activities:
Principal payments of long-term debt (227,977) (563,425)
Proceeds from issuance of common stock
upon exercise of options 1,848,112 578,601
Decrease in receivables for
stock options exercised 262,621 24,984
Purchase of treasury stock (5,766,207) (1,610,997)
Decrease in notes payable -- (1,600,000)
Dividends paid (559,492) (511,041)
----------- -----------
Net cash used in financing activities (4,442,943) (3,681,878)
----------- -----------
Net decrease in cash and cash equivalents (4,693,247) 2,482,312
Cash and cash equivalents at beginning of year 10,125,568 5,815,233
----------- -----------
Cash and cash equivalents at end of period $ 5,432,321 $ 8,297,545
----------- -----------
----------- -----------
</TABLE>
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<PAGE>
DEL LABORATORIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
In the opinion of management, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as of
September 30, 1995 and December 31, 1994, the results of operations for the
three and nine months ended September 30, 1995 and 1994 and statements of cash
flows for the nine months ended September 30, 1995 and 1994.
Results for an interim period are not necessarily indicative of results for the
entire year and such results are subject to year-end adjustments and independent
audit.
Classification of inventories at September 30, 1995 and December 31, 1994 were
as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Raw Materials $20,621,562 $15,533,967
Work In Process 3,887,243 3,797,247
Finished Goods 15,003,116 15,356,970
----------- -----------
$39,511,921 $34,688,184
----------- -----------
----------- -----------
</TABLE>
Earnings per common share is computed under the "modified treasury stock method"
which assumes the exercise of all outstanding options and warrants and the use
of the proceeds thereof to acquire up to 20% of the outstanding common stock of
the Company. Excess proceeds not utilized for the purchase of such shares are
assumed utilized, first to reduce outstanding debt and then any remainder is
assumed invested in interest bearing securities with net earnings increased for
the hypothetical interest expense savings or interest income, net of taxes.
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(1) LIQUIDITY AND CAPITAL RESOURCES
Under its institutional debt covenants, the Company is permitted a level of
short-term borrowings not to exceed $15,000,000. Presently, the Company
has arrangements with banks which provide up to $27,500,000 of short-term
lines of credit at the prime rate of interest. There were no short-term
borrowings at September 30, 1995 and December 31, 1994.
The Company has, from time to time, acquired shares of its common stock
pursuant to a plan approved by the Board of Directors in 1987. During the
first nine months of 1995, the Company purchased 262,611 shares at an
average cost of $21.96 per share, and such shares were placed in treasury.
The shares purchased during the first nine months of 1995 were from open
market purchases and from employees who held shares issued pursuant to the
Company's stock option plans.
The Company believes that currently available funds, anticipated funds from
operations and existing credit facilities will be adequate for its
foreseeable needs.
At September 30, 1995, accounts receivable were $28,080,000, a increase of
$9,387,000 from the December 31, 1994 level. At September 30, 1994,
accounts receivable were $21,368,000, an increase of $5,197,000 from the
December 31, 1993 level. The increase is primarily attributable to the
increased level of sales during 1995.
Inventories at September 30, 1995 were $39,512,000, an increase of
$4,824,000 from the December 31, 1994 level. The inventory increase is
primarily in the cosmetics division. The strong demand for cosmetics
products has necessitated maintaining high levels of inventory in support
of production scheduling and shipping requirements.
Accrued liabilities at September 30, 1995 increased by $8,936,000 from the
December 31, 1994 level. This increase is primarily attributable to
increased advertising and sales promotional activity during the third
quarter of 1995 versus the fourth quarter of 1994.
(2) RESULTS OF OPERATIONS
SALES
Sales for the third quarter of 1995 were $55.1 million, 11.1% above the
$49.6 million of sales for the third quarter of 1994.
The third quarter 1995 results reflect a sales increase in the cosmetics
division. The pharmaceutical division had a level of sales equal to that
of the third quarter of 1994.
COST OF SALES
Cost of sales for the third quarter of 1995, as a percentage of net sales,
was 42.9%, compared with 41.6% in the corresponding period of 1994.
The increase in third quarter 1995 cost of sales over the comparable period
in 1994 is primarily attributable to a changing mix of business during the
quarter within the cosmetics division and the level sales performance of
the pharmaceutical division.
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<PAGE>
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses were $27.2 million, or 49.3% of net sales in
the third quarter of 1995, and were $25.3 million, or 51.1% of net sales for the
corresponding 1994 period.
NET INTEREST EXPENSE
Net interest expense for the third quarter of 1995 was $922,000 compared with
$875,000 incurred in the third quarter of 1994.
PROVISION FOR INCOME TAXES
The provision for income taxes is 41% of earnings before income taxes in both
the third quarter of 1995 and 1994.
NET EARNINGS
Net earnings for the third quarter of 1995 were $1,977,000, 20.5% above the
$1,640,000 reported for the third quarter of 1994.
LEGAL MATTERS
The Company has been notified that it has been identified as a potentially
responsible party with respect to environmental remediation activities required
at a site in Pennsylvania. The total cost to the Company of remediation
activities that it may be required to undertake cannot yet be quantified,
although the Company is one of over 900 potentially responsible parties that
have been identified at the site. Although no dollar amount can be assigned to
remediation costs because of inherent uncertainties, on the basis of current
available information, management has determined that such costs will not have a
material adverse effect on the company's financial position. It is the Company's
policy to meet all regulatory requirements for the protection of the environment
and to take prompt remedial action where necessary.
In July 1994, the Equal Employment Opportunity Commission ("EEOC") filed suit
against the Company in the United States District Court for the Eastern District
of New York alleging sexual discrimination against certain present and former
employees of the Company, in violation of Title VII of the Civil Rights Act of
1964, as amended. On August 3, 1995, the Court approved a consent decree between
the Company and the EEOC settling the case. The company denied that it engaged
in any unlawful conduct, and the consent decree expressly acknowledges that the
settlement does not constitute an admission by the Company of any violation of
any law, rule or regulation relating to employment discrimination. The Board of
Directors determined that the settlement was in the best interest of the Company
and its shareholders, considering the expense that would have resulted from
continued litigation and the time and attention of management and employees that
would necessarily have been required.
Pursuant to the settlement, the Company agreed to pay 15 former employees a
total sum of $1,185,000. The settlement also incorporated the Company's
revised sexual harassment policy which includes a revised complaint
procedure.
On August 9, 1995, two stockholder derivative actions were filed in the State of
Delaware Chancery Court against the Company and members of its Board of
Directors, alleging breach of fiduciary duty and waste of corporate assets by
the directors in connection with the Company's response to and investigation of
the claims of sexual harassment made against the Company which were the subject
of the lawsuit filed by the EEOC. One action also names a former director and a
person mistakenly named as a director. Plaintiffs have moved to consolidate
these actions. The derivative actions seek restitution of amounts paid in
connection with the defense and settlement of the lawsuit and certain other
relief. The Company believes that there is no basis for the allegations made in
these derivative actions.
The Company is of the opinion, on the basis of currently available information,
that none of the matters referred to above will have a material effect on the
Company's results of operations or financial condition.
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<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT INDEX
ITEM NO. EXHIBIT EXHIBIT NO. DESCRIPTION
- -------- ------- ----------- -----------
2 Plan of acquisition - Not Applicable
reorganization, arrange-
ment, liquidation, or
succession.
3 Articles of Incorporation - Not Applicable
and By-Laws
4 Instruments defining the - Not Applicable
rights of security holders,
including indentures.
11 Statement re: computation - Not Applicable
of per share earnings.
15 Letter re: unaudited interim - Not Applicable
financial information.
18 Letter re: change in account- - Not Applicable
ing principles.
19 Report furnished to security - Not Applicable
holders.
22 Published report regarding - Not Applicable
matters submitted to vote of
security holders.
24 Power of Attorney - Not Applicable
27 Financial Data Schedule 1 ----
99 Additional exhibits - Not Applicable
(b) REPORTS ON FORM 8-K
During the quarter ended September 30, 1995, the Company filed one Report
on Form 8-K. The Report was dated August 9, 1995 and included information
under "Item 5 - Other Events." No financial statements were included with
such report.
<PAGE>
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.
DEL LABORATORIES, INC.
----------------------
(Registrant)
Date: November 13, 1995 /s/ Dan K. Wassong
- ----------------------------- ------------------------------
Dan K. Wassong
Chairman, President and
Chief Executive Officer
Date: November 13, 1995 /s/ Melvyn C. Goldstein
- ----------------------------- ------------------------------
Melvyn C. Goldstein
Vice President of Finance
and Principal Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 5,432,321
<SECURITIES> 0
<RECEIVABLES> 28,080,287
<ALLOWANCES> 2,000,000
<INVENTORY> 39,511,921
<CURRENT-ASSETS> 74,155,798
<PP&E> 26,991,399
<DEPRECIATION> 18,141,841
<TOTAL-ASSETS> 115,525,208
<CURRENT-LIABILITIES> 35,896,387
<BONDS> 0
<COMMON> 6,588,544
0
0
<OTHER-SE> 29,069,396
<TOTAL-LIABILITY-AND-EQUITY> 115,525,208
<SALES> 158,467,316
<TOTAL-REVENUES> 158,467,316
<CGS> 64,794,588
<TOTAL-COSTS> 146,465,263
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,868,651
<INCOME-PRETAX> 9,345,606
<INCOME-TAX> 3,831,000
<INCOME-CONTINUING> 5,514,606
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,514,606
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 0
</TABLE>
