<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 June 30, 1997
/ / 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) 844-2020
----------------------------------
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 August 6,
1997 was 5,683,689.
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Index
Page No.
--------
Financial Statements:
Consolidated Condensed Balance Sheets as of
June 30, 1997 and December 31, 1996. 3
Consolidated Condensed Statements of
Earnings for the three months ended June 30, 1997 and 1996. 4
Consolidated Condensed Statements of
Earnings for the six months ended June 30, 1997 and 1996. 5
Consolidated Condensed Statements of
Cash Flows for the six months ended June 30, 1997 and 1996. 6
Notes to Consolidated Condensed Financial Statements. 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Other Information 11
Signatures 12
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<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(In thousands except for share and per share data)
<TABLE>
<CAPTION>
Assets June 30 December 31
-------- 1997 1996
-------- -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,701 $ 14,516
Accounts receivable-less allowance for
doubtful accounts of $1,450
and $1,500, respectively 33,533 30,781
Inventories 36,589 33,788
Income taxes receivable 1,928 324
Deferred income taxes 2,250 2,250
Prepaid expenses and other current assets 2,140 1,840
-------- --------
Total current assets 89,141 83,499
Property, plant and equipment, net 32,130 26,628
Intangibles arising from acquisitions, net 8,320 8,497
Other assets 6,759 3,758
-------- --------
Total assets $136,350 $122,382
-------- --------
-------- --------
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current portion of note payable $ 483 $ -
Accounts payable 21,357 17,338
Accrued liabilities 15,271 14,895
-------- --------
Total current liabilities 37,111 32,233
Note payable, less current portion 3,960 -
Long-term pension liability, less current portion 4,132 4,132
Deferred income taxes 1,175 1,175
Long-term debt, less current portion 40,000 40,000
-------- --------
Total liabilities 86,378 77,540
-------- --------
Shareholders' equity:
Preferred stock $.01 par value, authorized
1,000,000 shares; no shares issued - -
Common stock $1 par value, authorized
10,000,000 shares; issued 8,784,514 shares 8,785 8,785
Additional paid-in capital 6,274 4,321
Foreign currency translation adjustment (413) (547)
Retained earnings 67,445 61,353
-------- --------
82,091 73,912
Less: Treasury stock, at cost, 3,099,226 shares
and 3,141,949 shares, respectively (30,532) (27,334)
Receivable for stock options exercised (1,587) (1,736)
-------- --------
Total shareholders' equity 49,972 44,842
-------- --------
Total liabilities and shareholders' equity $136,350 $122,382
-------- --------
-------- --------
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
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<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(In thousands except for per share data)
(UNAUDITED)
June 30 June 30
1997 1996
---------- ----------
Net sales $ 67,989 $ 58,060
---------- ----------
Cost of goods sold 26,719 24,217
Selling and administrative expenses 35,046 29,289
---------- ----------
61,765 53,506
---------- ----------
Operating income 6,224 4,554
---------- ----------
Interest expense 991 951
Interest income (89) (120)
---------- ----------
Interest expense, net 902 831
---------- ----------
Earnings before income taxes 5,322 3,723
Income taxes 2,129 1,526
---------- ----------
Net earnings $ 3,193 $ 2,197
---------- ----------
---------- ----------
Weighted average common
shares outstanding (A) 6,468 6,501
---------- ----------
---------- ----------
Earnings per common share (A) $ 0.49 $ 0.34
---------- ----------
---------- ----------
Dividends per common share (A) $ 0.035 $ 0.026
---------- ----------
---------- ----------
(A) June 30, 1996 amounts are adjusted to reflect a 4-for-3 stock split
effective November 8, 1996.
See accompanying notes to unaudited consolidated condensed financial
statements.
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<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(In thousands except for per share data)
(UNAUDITED)
June 30 June 30
1997 1996
---------- ----------
Net sales $ 129,308 $ 114,153
---------- ----------
Cost of goods sold 50,528 47,031
Selling and administrative expenses 66,242 57,649
---------- ----------
116,770 104,680
---------- ----------
Operating income 12,538 9,473
---------- ----------
Interest expense 1,941 1,903
Interest income (217) (202)
---------- ----------
Interest expense, net 1,724 1,701
---------- ----------
Earnings before income taxes 10,814 7,772
Income taxes 4,326 3,186
---------- ----------
Net earnings $ 6,488 $ 4,586
---------- ----------
---------- ----------
Weighted average common
shares outstanding (A)
Primary 6,403 6,500
---------- ----------
---------- ----------
Fully diluted 6,648
----------
----------
Earnings per common share (A)
Primary $ 1.01 $ 0.71
---------- ----------
---------- ----------
Fully diluted $ 0.98
----------
----------
Dividends per common share (A) $ 0.070 $ 0.053
---------- ----------
---------- ----------
(A) June 30, 1996 amounts are adjusted to reflect a 4-for-3 stock split
effective November 8, 1996.
See accompanying notes to unaudited consolidated condensed financial
statements.
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<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30 JUNE 30
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 6,488 $ 4,586
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 2,834 2,397
Provision for doubtful accounts 50 276
Other non-cash operating items 275 177
Changes in operating assets and liabilities:
Accounts receivable (2,802) (7,184)
Inventories (2,801) (703)
Prepaid expenses and other current assets (300) 179
Other assets and other liabilities (3,001) (300)
Accounts payable 4,019 624
Accrued liabilities 376 2,728
Income taxes (1,604) (1,072)
---------- ----------
Net cash provided by operating activities 3,534 1,708
---------- ----------
Cash flows used in investing activities:
Property, plant and equipment additions (3,716) (2,630)
---------- ----------
Net cash used in investing activities (3,716) (2,630)
---------- ----------
Cash flows used in financing activities:
Principal payments of long-term debt - (35)
Proceeds from issuance of common stock
upon exercise of options 4,154 466
Decrease in receivable for stock
options exercised 9 149
Purchase of treasury stock (5,399) (1,538)
Dividends paid (396) (438)
---------- ----------
Net cash used in financing activities (1,632) (1,396)
---------- ----------
Effect of exchange rate changes on cash (1) -
---------- ----------
Net decrease in cash and cash equivalents (1,815) (2,318)
Cash and cash equivalents at beginning of year 14,516 8,563
---------- ----------
Cash and cash equivalents at end of period $ 12,701 $ 6,245
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
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<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(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 June 30, 1997, the results of operations for the three and
six months ended June 30, 1997 and 1996 and the statements of cash flows
for the six months ended June 30, 1997 and 1996.
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, 1996.
2. Classification of inventories at June 30, 1997 and December 31, 1996 were
as follows (in thousands):
1997 1996
------ ------
Raw Materials $ 20,381 $ 15,346
Work In Process 3,850 3,862
Finished Goods 12,358 14,580
------------- --------------
$ 36,589 $ 33,788
------------- --------------
------------- --------------
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.
Common stock equivalents of 749,430 and 930,532 have been included in the
calculation of primary earnings per common share at June 30, 1997 and
1996, respectively. For June 30, 1997, common stock equivalents of
994,054 have been included in the calculation of fully diluted earnings
per common share.
4. In June 1997, the Company purchased land and buildings in North Carolina to
be used as a distribution center. This distribution center will replace
the Company's current leased facility. The lease expires in October, 1997
with all remaining leasehold improvements fully amortized by the end of the
lease term. The purchase price of the property is $5,500,000, of which
$275,000 was paid at closing and $5,225,000 is being financed through a
non-interest bearing note with the seller of the property. The Company
recorded the note payable at its present value using an interest rate of
7.3% which approximates the Company's incremental borrowing rate. The
repayment terms of the note include $1,375,000 to be repaid over three
years and a single lump sum payment of $3,850,000 on May 15, 2000. The
issuance of the note for the property represents a non-cash transaction and
is supplemental information related to the consolidated statement of cash
flows.
- 7 -
<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 borrowing not to exceed $15,000,000. Currently, 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 borrowings under
these lines during the six months ended June 30, 1997 or the year ended
December 31, 1996.
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. The
Company will generally undertake such purchases if, as and when management
believes that the prevailing market price for its Common Stock does not
adequately reflect the intrinsic value of the Company's business. During
the six months ended June 30, 1997 the Company purchased 198,857 shares at
an average cost of $27.15 per share, and such shares were placed in
treasury. The shares purchased were predominantly from employees who held
shares issued pursuant to the Company's stock option plans, with the
balance through open market purchases. As of June 30, 1997 the Company
was authorized to purchase up to 149,625 additional shares based on the
then existing Board authorization.
Net accounts receivable at June 30, 1997 increased by $2,752,000 from the
December 31, 1996 level. The increase is attributable to a sales
concentration in the latter part of the quarter. Inventories at June 30,
1997 increased by $2,801,000 from December 31, 1996.
During the six months ended June 30, 1997, the Company generated $3,534,000
cash from operations. The Company believes that cash from future
operations, cash on hand and amounts available from short-term lines of
credit , referred to above, will be sufficient to satisfy the Company's
liquidity needs for the foreseeable future.
In June 1997, the Company purchased land and buildings in North Carolina to
be used as a distribution center. This distribution center will replace
the Company's current leased facility. The lease expires in October,
1997 with all remaining leasehold improvements fully amortized by the end
of the lease term. The purchase price of the property is $5,500,000, of
which $275,000 was paid at closing and $5,225,000 is being financed through
a non-interest bearing note with the seller of the property. The Company
recorded the note payable at its present value using an interest rate of
7.3% which approximates the Company's incremental borrowing rate. The
repayment terms of the note include $1,375,000 to be repaid over three
years and a single lump sum payment of $3,850,000 on May 15, 2000.
(2) RESULTS OF OPERATIONS
Sales
-----
Sales for the second quarter of 1997 were $68.0 million, 17.1% above the
$58.1 million of sales for the second quarter of 1996. Sales for the six
months ended June 30, 1997 were $129.3 million, 13.3% above the $114.2
million of sales for the six months ended June 30, 1996.
The second quarter and six months of 1997 results reflect a sales increase
in the Cosmetics Division and a decrease in sales for the Pharmaceutical
Division.
Cost of Sales
-------------
Cost of sales for the second quarter of 1997, as a percentage of net sales,
decreased to 39.3%, as compared with 41.7 % in the corresponding period of
1996. Cost of sales for the six months ended June 30, 1997, as a
percentage of net sales, was 39.1% compared with 41.2% in the corresponding
period of 1996.
The decrease in cost of sales resulted from decreases in both the Cosmetics
and Pharmaceutical Divisions. These decreases were the result of increased
production levels and production efficiencies that allowed a greater
absorption of manufacturing overhead. In addition, the Company constantly
reviews product cost in order to produce its products at the lowest
possible cost.
- 8 -
<PAGE>
Selling and Administrative Expenses
- -----------------------------------
Selling and administrative expenses increased by $5.8 million in the second
quarter of 1997 versus the second quarter of 1996 and also increased as a
percentage of net sales to 51.5% from 50.4%. For the six months ended June
30, 1997, selling and administrative expenses increased by $8.6 million
versus the comparable period in 1996 and also increased as a percentage of
net sales to 51.2% from 50.5%. The increase of .7% as a percentage of sales
is attributable to increased advertising and promotional expenses during the
1997 period.
Net Interest Expense
- --------------------
Net interest expense for the second quarter of 1997 was $902,000 compared with
$831,000 incurred in the second quarter of 1996. Net interest expense for the
six months ended June 30, 1997 was $1,724,000 compared with $1,701,000 for the
six months ended June 30, 1996.
Provision for Income Taxes
- --------------------------
The provision for income taxes is based on the Company's expected effective tax
rate for the year, which is 40% of earnings in 1997. In 1996, the Company's
effective tax rate was 41%.
Net Earnings
- ------------
Net earnings for the second quarter of 1997 were $3,193,000, 45.3% above the
$2,197,000 reported for the second quarter of 1996. Net earnings for the six
months ended June 30, 1997 were $6,488,000, 41.5% above the $4,586,000 reported
for the six months ended June 30, 1996.
Legal Matters
- -------------
In June 1997, the Company entered into a settlement agreement with respect to
a stockholders' derivative action against the members of the Company's Board of
Directors, in which, among other things, the Company's insurance carrier
agreed to pay $400,000 to the Company on behalf of the individual defendants,
and the Company paid $150,000 in connection with plaintiffs' attorneys fees
(see Part II, Item I, Legal Proceedings).
New Accounting Pronouncements
- -----------------------------
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 131, "Disclosures about Statement of an Enterprise and
Related Information" (SFAS No. 131). SFAS No. 131 established standards to
report information about operating segments and related discussions about
products and services, geographic areas and major customers. SFAS No. 131 is
effective for financial statements for the period beginning after December 15,
1997. This statement permits early application and requires restatement of all
prior periods. The Company is currently evaluating the requirements of SFAS No.
131 and believes that the adoption of the statement will not have a material
impact on previously reported segment information.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
In August 1995, two stockholder derivative actions were filed in the State of
Delaware Chancery Court against the members of the Company's Board of Directors,
alleging breaches of fiduciary duties and waste of corporate assets in
connection with the Company's settlement with the EEOC relating to claims of
sexual harassment by an executive of the Company. This action was consolidated
into a single action, In Re Del Laboratories, Inc., Derivative Litigation,
---------------------------------------------------
Consolidated C.A. No. 14466.
In June 1997, the Delaware Chancery Court approved, and the Company entered
into, a settlement in which the Company's insurance carrier, on behalf of the
individual defendants, paid $400,000 to the Company, and the Board made the
Human Resources Committee a permanent committee of the Board to be composed only
of "independent" directors (as defined in the Internal Revenue Code). The Human
Resources Committee is charged with review and oversight of all aspects of
employment practices and other matters involving the welfare of employees and
prospective employees of Del (other than collective bargaining agreements
and compensation arrangements), including the Company's compliance with the
requirements of Title VII relating to discrimination, wrongful
discharge and retaliation. The Company also paid the plaintiffs' attorneys
an attorneys' fee of $150,000 under the settlement.
The stipulation of settlement expressly acknowledges that the settlement does
not constitute an admission by the defendants of any liability or wrongdoing by
them, but was entered into by the defendants to avoid the burden and expense of
further litigation.
Item 4. Matters Put Before a Vote of Stockholders
-----------------------------------------
At the 1997 Annual Meeting of Stockholders held on May 22, 1997, Dan K. Wassong,
Martin E. Revson and Jack Futterman were elected Directors for a three year
term.
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
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<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: August 14, 1997 /s/ Dan K. Wassong
- --------------------- -----------------------------------
Dan K. Wassong
Chairman, President and
Chief Executive Officer
Date: August 14, 1997 /s/ Melvyn C. Goldstein
- --------------------- -----------------------------------
Melvyn C. Goldstein
Vice President of Finance
and Principal Financial Officer
- 11 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 12,701
<SECURITIES> 0
<RECEIVABLES> 33,533
<ALLOWANCES> 1,450
<INVENTORY> 36,589
<CURRENT-ASSETS> 89,141
<PP&E> 51,575
<DEPRECIATION> 19,445
<TOTAL-ASSETS> 136,350
<CURRENT-LIABILITIES> 37,111
<BONDS> 3,960
0
0
<COMMON> 8,785
<OTHER-SE> 41,187
<TOTAL-LIABILITY-AND-EQUITY> 136,350
<SALES> 129,308
<TOTAL-REVENUES> 0
<CGS> 50,528
<TOTAL-COSTS> 116,770
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 50
<INTEREST-EXPENSE> 1,724
<INCOME-PRETAX> 10,814
<INCOME-TAX> 4,326
<INCOME-CONTINUING> 6,488
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,488
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 0.98
</TABLE>
