<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, 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
November 13, 1996 was 4,170,562.
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
ASSETS September 30 December 31
1996 1995
------------ ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 10,633,226 $ 8,563,375
Accounts receivable-less allowance for
doubtful accounts of $1,300,000
and $1,700,000 respectively 31,156,536 24,626,182
Inventories 35,042,573 37,077,909
Prepaid expenses and other current assets 1,110,425 1,282,464
----------- -----------
Total current assets 77,942,760 71,549,930
----------- -----------
Property, plant and equipment, net 27,264,608 26,840,799
Intangibles arising from acquisitions, net 9,062,400 9,259,050
Other assets 5,763,600 5,474,214
----------- -----------
Total assets $ 120,033,368 $113,123,993
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 17,562 $ 70,395
Accounts payable 13,524,761 15,147,737
Accrued liabilities 19,141,285 14,494,724
Income taxes payable 330,546 1,395,607
----------- -----------
Total current liabilities 33,014,154 31,108,463
Long-term pension liability, less current portion 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 77,008,449 75,102,758
----------- -----------
Shareholders' equity:
Common stock $1 par value, authorized
10,000,000 shares; issued 8,784,725
shares (A) 8,784,725 8,784,725
Additional paid-in capital (A) 3,014,819 2,831,759
Foreign currency translation adjustment (447,762) (492,831)
Retained earnings 59,381,925 52,659,920
----------- -----------
70,733,707 63,783,573
Less: Treasury stock, at cost, 3,246,012 shares
and 3,214,072 shares, respectively (A) (25,967,882) (23,867,674)
Receivable for stock options exercised (1,740,906) (1,894,664)
----------- -----------
Total shareholders' equity 43,024,919 38,021,235
----------- -----------
Total liabilities and shareholders' equity $ 120,033,368 $113,123,993
----------- -----------
----------- -----------
(A) Adjusted to reflect a 4-for-3 stock split effective November 8, 1996.
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 AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30 SEPT. 30 SEPT. 30 SEPT. 30
1996 1995 1996 1995
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 60,353,721 $ 55,113,948 $174,506,903 $158,467,316
------------ ------------ ------------ -----------
Cost of goods sold 27,612,488 23,668,884 74,644,102 64,794,588
Selling and administrative expenses 27,516,000 27,172,023 85,165,137 81,670,675
------------ ------------ ------------ -----------
55,128,488 50,840,907 159,809,239 146,465,263
------------ ------------ ------------ -----------
Operating income 5,225,233 4,273,041 14,697,664 12,002,053
------------ ------------ ------------ -----------
Interest expense 941,224 954,767 2,843,980 2,868,651
Interest income (79,663) (32,377) (281,751) (212,204)
------------ ------------ ------------ -----------
Interest expense, net 861,561 922,390 2,562,229 2,656,447
------------ ------------ ------------ -----------
Earnings before income taxes 4,363,672 3,350,651 12,135,435 9,345,606
Income taxes 1,789,000 1,374,000 4,975,000 3,831,000
------------ ------------ ------------ -----------
Net earnings $ 2,574,672 $ 1,976,651 $ 7,160,435 $ 5,514,606
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
Weighted average common
shares outstanding (A) 6,456,000 6,425,000 6,484,000 6,529,000
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
Earnings per common share (A) $ 0.40 $ 0.31 $ 1.10 $ 0.85
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
Dividends per common share (A) $ 0.026 $ 0.026 $ 0.079 $ 0.075
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
</TABLE>
(A) Adjusted to reflect a 4-for-3 stock split effective November 8, 1996.
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 NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SEPT. 30 SEPT. 30
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $7,160,435 $5,514,606
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 3,596,343 3,044,613
Provision for doubtful accounts 368,000 368,000
Other non-cash operating items 189,805 17,896
Changes in operating assets and liabilities:
Accounts receivable (6,898,354) (9,755,294)
Inventories 2,035,336 (4,823,737)
Prepaid expenses and other current assets 172,039 827,648
Other assets and other liabilities (289,386) 82,441
Accounts payable (1,622,976) (1,279,487)
Accrued liabilities 4,646,561 9,072,653
Income taxes payable (1,065,060) 1,758,784
Other liabilities - (73,146)
------------- ------------
Net cash provided by operating activities 8,292,743 4,754,977
------------- ------------
Cash flows used in investing activities:
Property, plant and equipment additions (3,823,502) (5,005,281)
------------- ------------
Net cash used in investing activities (3,823,502) (5,005,281)
------------- ------------
Cash flows used in financing activities:
Principal payments of long-term debt (52,831) (227,977)
Proceeds from issuance of common stock
upon exercise of options 987,226 1,848,112
Decrease in receivable for stock
options exercised 153,758 262,621
Purchase of treasury stock (2,903,489) (5,766,207)
Dividends paid (584,054) (559,492)
------------- ------------
Net cash used in financing activities (2,399,390) (4,442,943)
------------- ------------
Net increase (decrease) in cash and cash equivalents 2,069,851 (4,693,247)
Cash and cash equivalents beginning of year 8,563,375 10,125,568
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Cash and cash equivalents at end of period $ 10,633,226 $ 5,432,321
------------- ------------
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</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
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DEL LABORATORIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1. 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, 1996, the results of operations for the three
and nine months ended September 30, 1996 and 1995 and statements of cash
flows for the nine months ended September 30, 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.
These financial statements should be read in conjunction with the
consolidated financial statements of the Company contained in the Company's
Form 10-K for the year ended December 31, 1995.
2. Classification of inventories at September 30, 1996 and December 31, 1995
were as follows:
1996 1995
---- -----
Raw Materials $20,711,592 $15,645,998
Work In Process 3,820,636 3,888,456
Finished Goods 10,510,345 17,543,455
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$35,042,573 $37,077,909
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3. 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.
On October 29, 1996, the Company's Board of Directors authorized a 4-for-3
split of its Common Stock. Distribution of the split shares will be made
on November 29, 1996 to shareholders of record at the close of business on
November 8, 1996. All share, per share and conversion amounts relating to
common stock included in the accompanying consolidated financial statements
have been restated to reflect the stock split.
<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, 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 nine months of 1996, the Company purchased 137,399 shares at an
average cost of $21.14 per share, and such shares were placed in treasury.
The shares purchased during the first nine months of 1996 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, 1996, accounts receivable were $31,157,000, an increase
of $6,530,000 from the December 31, 1995 level. The increase is primarily
attributable to the increased level of sales during the third quarter of
1996. At September 30, 1995, accounts receivable were $28,080,000 an
increase of $9,387,000 from the December 31, 1994 level.
Inventories at September 30, 1996 were $35,043,000, a decrease of $2,035,000
from the December 31, 1995 level.
Accounts payable and accrued liabilities at September 30, 1996 increased
by $3,024,000 from the December 31, 1995 level. For the comparable 1995
period, accounts payable and accrued liabilities increased by $7,656,000.
(2) RESULTS OF OPERATIONS
SALES
Sales for the quarter ended September 30, 1996 were $60.4 million, 9.5%
above the $55.1 million of sales for the quarter ended September 30, 1995.
Sales for the nine months ended September 30, 1996 were $174.5 million,
10.1% above the $158.5 million of sales for the nine months ended
September 30, 1995.
Sales in the Company's cosmetics division rose by approximately 11% for
both the quarter and nine months ended September 30, 1996. Sales in the
pharmaceutical division rose by approximately 3% and 7% for the quarter and
nine months ended September 30, 1996, respectively.
COST OF SALES
Cost of sales for the quarter ended September 30, 1996, as a percentage
of net sales, was 45.8%, compared with 42.9% in the corresponding period of
1995. Cost of sales for the nine months ended September 30, 1996, as a
percentage of net sales, was 42.8% compared with 40.9% in the corresponding
period of 1995.
The promotional nature of color cosmetics and natural based beauty
products dictates the need for periodic inventory review and disposition.
The increased cost of sales as a percentage of net sales for both the three
months and nine months ended September 30, 1996 is due principally to the
disposition and valuation of excess cosmetic inventory. To a lesser extent,
the rapid growth of net sales in the cosmetics division, which carries a
higher cost of sales than the pharmaceutical division, created a mix of
business that yielded an increased cost of sales.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses were 45.6% of net sales for the
quarter ended September 30, 1996 versus 49.3% in the corresponding period in
1995. For the nine months ended September 30, 1996, selling and
administrative expenses were 48.8% of net sales compared with 51.5% in the
corresponding period in 1995. While there has been some increase in
advertising and promotional expenditures, the Company, on a year to year
basis, has generally held other selling and administrative expenses in line.
The control of expenses, year to year, coupled with the increased sales
volume, has caused selling and administrative expenses to decline, as a
percentage of net sales.
<PAGE>
NET INTEREST EXPENSE
Net interest expense for the quarter ended September 30, 1996 was
$862,000 compared with $922,000 incurred in the quarter ended September 30,
1995. Net interest expense for the nine months ended September 30, 1996 was
$2,562,000, compared with $2,656,000 for the nine months ended September 30,
1995. The decreased net interest expense is primarily attributable to
increased interest income.
PROVISION FOR INCOME TAXES
In both the quarter and nine months ended September 30, 1996 and 1995,
the Company is providing for income taxes at the expected effective rate of
41%.
NET EARNINGS
Net earnings for the quarter ended September 30, 1996 were $2,575,000,
30.2% above the $1,977,000 reported for the quarter ended
September 30, 1995. For the nine months ended September 30, 1996, net
earnings were $7,160,000, 29.8% above the $5,515,000 reported for the nine
months ended September 30, 1995.
LEGAL MATTERS
The Company had been identified as one of over 900 potentially
responsible parties with respect to environmental remediation activities
required at a site in Pennsylvania. In November 1996, the Company accepted a
proposal under which the Company agreed to settle its liability at the
site; however, the matter may be reopened if total site remediation costs
exceed a certain sum. It is impossible to fix a dollar amount on any such
additional liability at this time. However, based upon the information
currently available, management has determined that any such costs will not
have a material adverse effect on the Company's results of operations or
financial condition.
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.
<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.
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
<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 14, 1996 Dan K. Wassong
- --------------------------- ---------------------------------
Dan K. Wassong
Chairman, President and
Chief Executive Officer
Date: November 14, 1996 Melvyn C. Goldstein
- --------------------------- ---------------------------------
Melvyn C. Goldstein
Vice President of Finance
and Principal Financial Officer
Date: November 14, 1996 Laurence Usdin
- --------------------------- ---------------------------------
Laurence Usdin
Vice President - Corporate Controller
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 10,633,226
<SECURITIES> 0
<RECEIVABLES> 31,156,536
<ALLOWANCES> 1,300,000
<INVENTORY> 35,042,573
<CURRENT-ASSETS> 77,942,760
<PP&E> 27,264,608
<DEPRECIATION> 18,718,819
<TOTAL-ASSETS> 120,033,368
<CURRENT-LIABILITIES> 33,014,155
<BONDS> 0
0
0
<COMMON> 8,784,725
<OTHER-SE> 34,240,194
<TOTAL-LIABILITY-AND-EQUITY> 43,024,919
<SALES> 174,506,903
<TOTAL-REVENUES> 0
<CGS> 74,644,102
<TOTAL-COSTS> 159,809,239
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 368,000
<INTEREST-EXPENSE> 2,562,229
<INCOME-PRETAX> 12,135,435
<INCOME-TAX> 4,975,000
<INCOME-CONTINUING> 7,160,435
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,160,435
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 0
</TABLE>
