<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 March 31, 1996
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 May 13,
1996 was 4,177,298.
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
ASSETS March 31 December 31
1996 1995
------------- ------------
Current assets:
Cash and cash equivalents $ 8,549,373 $ 8,563,375
Accounts receivable-less allowance for
doubtful accounts of $1,750,000
and $1,700,000, respectively 31,423,025 24,626,182
Inventories 39,255,460 37,077,909
Prepaid expenses and other current assets 404,949 1,282,464
------------- ------------
Total current assets 79,632,807 71,549,930
Property, plant and equipment, net 27,060,427 26,840,799
Intangibles arising from acquisitions, net 9,193,500 9,259,050
Other assets 5,213,767 5,474,214
------------- ------------
Total assets $121,100,501 $113,123,993
------------- ------------
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 53,206 $ 70,395
Accounts payable 17,809,018 15,147,737
Accrued liabilities 17,332,029 14,494,724
Income taxes payable 1,653,269 1,395,607
------------- ------------
Total current liabilities 36,847,522 31,108,463
Other liabilities 3,632,432 3,632,432
Deferred income taxes 361,863 361,863
Long-term debt, less current portion 40,000,000 40,000,000
------------- ------------
Total liabilities 80,841,817 75,102,758
------------- ------------
Shareholders' equity:
Common stock $1 par value, authorized
10,000,000 shares; issued
6,588,544 shares 6,588,544 6,588,544
Additional paid-in capital 5,025,700 5,027,940
Foreign currency translation adjustment (413,954) (492,831)
Retained earnings 54,902,252 52,659,920
------------- ------------
66,102,542 63,783,573
Less: Treasury stock, at cost,
2,410,130 shares and
2,410,554 shares, respectively (24,093,780) (23,867,674)
Receivable for stock options exercised (1,750,078) (1,894,664)
------------- ------------
Total shareholders' equity 40,258,684 8,021,235
------------- ------------
Total liabilities and shareholders'
equity $121,100,501 $113,123,993
------------- ------------
------------- ------------
See accompanying notes to unaudited consolidated financial statements.
1
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DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31 MARCH 31
1996 1995
----------- -----------
Net sales $56,093,608 $50,697,539
----------- -----------
Cost of goods sold 22,815,167 19,538,749
Selling and administrative expenses 28,360,202 27,171,527
----------- -----------
51,175,369 46,710,276
----------- -----------
Operating income 4,918,239 3,987,263
----------- -----------
Interest expense 951,588 958,214
Interest income (81,842) (81,956)
----------- -----------
Interest expense, net 869,746 876,258
----------- -----------
Earnings before income taxes 4,048,493 3,111,005
Income taxes 1,660,000 1,275,000
----------- -----------
Net earnings $ 2,388,493 $ 1,836,005
----------- -----------
----------- -----------
Weighted average common
shares outstanding (A) 4,875,000 4,928,000
----------- -----------
----------- -----------
Earnings per common share (A) $ 0.49 $ 0.37
----------- -----------
----------- -----------
Dividends per common share (A) $ 0.035 $ 0.0325
----------- -----------
----------- -----------
(A) Adjusted to reflect a 2-for-1 stock split effective June 16, 1995.
See accompanying notes to unaudited consolidated financial statements.
2
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DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
MARCH 31 MARCH 31
1996 1995
----------- -----------
Cash flows from operating activities:
Net earnings $ 2,388,493 $ 1,836,005
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,198,731 1,041,301
Provision for doubtful accounts 138,000 138,000
Other non-cash operating items 76,636 140,014
Changes in operating assets and liabilities:
Accounts receivable (6,934,843) (4,885,265)
Inventories (2,177,551) (4,506,972)
Prepaid expenses and other current assets 877,515 1,278,819
Other assets and other liabilities 260,447 (7,507)
Accounts payable 2,661,281 113,803
Accrued liabilities 2,982,930 4,700,250
Income taxes payable 257,662 588,826
Other liabilities - (73,146)
----------- -----------
Net cash provided by operating activities 1,729,301 364,128
----------- -----------
Cash flows used in investing activities:
Property, plant and equipment additions (1,352,808) (1,540,070)
----------- -----------
Net cash used in investing activities (1,352,808) (1,540,070)
----------- -----------
Cash flows used in financing activities:
Principal payments of long-term debt (17,189) (110,853)
Proceeds from issuance of common stock
upon exercise of options 136,286 254,600
Decrease in receivable for stock
options exercised 144,586 202,811
Purchase of treasury stock (362,392) (828,554)
Dividends paid (291,786) (273,499)
----------- -----------
Net cash used in financing activities (390,495) (755,495)
----------- -----------
Net decrease in cash and cash equivalents (14,002) (1,931,437)
Cash and cash equivalents beginning of year 8,563,375 10,125,568
----------- -----------
Cash and cash equivalents at end of period $ 8,549,373 $ 8,194,131
----------- -----------
----------- -----------
See accompanying notes to unaudited consolidated financial statements.
3
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DEL LABORATORIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(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
March 31, 1996 and December 31, 1995, the results of operations for the three
months ended March 31, 1996 and 1995 and statements of cash flows for the three
months ended March 31, 1996 and 1995.
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 March 31, 1996 and December 31, 1995 were as
follows:
1996 1995
----------- -----------
Raw Materials $19,804,908 $15,645,998
Work In Process 3,877,214 3,888,456
Finished Goods 15,573,338 17,543,455
----------- -----------
$39,255,460 $37,077,909
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----------- -----------
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.
4
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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 March 31, 1996 and December 31, 1995.
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 three months of 1996, the Company purchased 12,505 shares at an
average cost of $29.01 per share, and such shares were placed in treasury.
The shares purchased during the first three months of 1996 were from open
market purchases and from employees who held shares issued pursuant to the
Company's stock option plan.
The Company believes that currently available funds, anticipated funds from
operations and existing credit facilities will be adequate for its
foreseeable needs.
At March 31, 1996, accounts receivable were $31,423,000, an increase of
$6,797,000 from the December 31, 1995 level. At March 31,1995, accounts
receivable were $23,440,000, an increase of $4,747,000 from the December
31, 1994 level. The increase is primarily attributable to the increased
level of sales during the first quarter of 1996.
Inventories at March 31, 1996 were $39,255,000, an increase of $2,178,000
from the December 31, 1995 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 product
scheduling and shipping requirements.
Accounts payable and accrued liabilities at March 31, 1996 increased by
$5,499,000 from the December 31, 1995 level. For the comparable 1995
period, accounts payable and accrued liabilities increased by $4,677,000.
(2) RESULTS OF OPERATIONS
SALES
Sales for the first quarter of 1996 were $56.1 million, 10.6% above the
$50.7 million of sales for the first quarter of 1995.
The first quarter 1996 results reflect a sales increase in both the
cosmetics and pharmaceutical divisions.
COST OF SALES
Cost of sales for the first quarter of 1996, as a percentage of net sales,
was 40.7%, compared with 38.5 % in the corresponding period of 1995.
The increase in first quarter 1996 cost of sales over the comparable period
in 1995 is primarily attributable to the mix of business within the
cosmetics and pharmaceutical divisions.
5
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SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses increased on a dollar basis in the first
quarter of 1996 versus the first quarter of 1995, but decreased as a percentage
of net sales to 50.6% from 53.6%. A combination of increased net sales and a
leveling of advertising and promotional expenditures are the primary reasons for
the decreased percentage in the first quarter of 1996.
NET INTEREST EXPENSE
Net interest expense for the first quarter of 1996 was $870,000 compared with
$876,000 incurred in the first quarter of 1995.
PROVISION FOR INCOME TAXES
The provision for income taxes is 41% of earnings before income taxes in both
the first quarter of 1996 and 1995.
NET EARNINGS
Net earnings for the first quarter of 1996 were $2,388,000, 30.1% above the
$1,836,000 reported for the first quarter of 1995.
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 currently
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 Court
of Chancery of the State of Delaware against members of the Company's Board
of Directors and a former director, as well as the Company as a nominal
defendant. The actions, which have been consolidated, allege breach of
fiduciary duty and waste of corporate assets by the directors in connection
with matters alleged in the lawsuit brought by the EEOC (as described above)
and the investigation and settlement of that lawsuit. The consolidated
stockholder derivative action seeks to compel the directors to account to the
Company for amounts paid in connection with the defense and settlement of the
lawsuit brought by the EEOC and seeks certain other relief. The Company
believes that this derivative action is without merit. Counsel for the
directors has filed a motion to dismiss the action, which is currently
pending before the court.
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.
6
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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.
10 Material Contracts - Not Applicable
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
None
7
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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.
DEL LABORATORIES, INC.
----------------------
(Registrant)
Date: May 13, 1996 Dan K. Wassong
----------------------
Dan K. Wassong
Chairman, President and
Chief Executive Officer
Date: May 13, 1996 Melvyn C. Goldstein
----------------------
Melvyn C. Goldstein
Vice President of Finance
and Principal Financial Officer
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 8,549,373
<SECURITIES> 0
<RECEIVABLES> 31,423,025
<ALLOWANCES> 1,750,000
<INVENTORY> 39,255,460
<CURRENT-ASSETS> 79,632,807
<PP&E> 43,512,734
<DEPRECIATION> 16,452,307
<TOTAL-ASSETS> 121,100,501
<CURRENT-LIABILITIES> 36,847,522
<BONDS> 40,000,000
0
0
<COMMON> 6,588,544
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 33,670,140
<SALES> 56,093,608
<TOTAL-REVENUES> 56,093,608
<CGS> 22,815,167
<TOTAL-COSTS> 51,175,369
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 138,000
<INTEREST-EXPENSE> 951,588
<INCOME-PRETAX> 4,048,493
<INCOME-TAX> 1,660,000
<INCOME-CONTINUING> 2,388,493
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,388,493
<EPS-PRIMARY> .49
<EPS-DILUTED> 0
</TABLE>
