UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 1-5439
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DEL LABORATORIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 13-1953103
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(State or other jurisdiction of (I.R.S. Employer I.D. Number)
incorporation or organization)
565 Broad Hollow Road, Farmingdale, NY 11735
- -------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (516) 844-2020
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock, $1 par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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 |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on March 21, 1997 was $63,194,340. On such date, the mean price at
which the stock was sold was $20.63 per share.
The number of shares of Common Stock, $1 Par Value, outstanding as of March 21,
1997 was 5,627,147 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Part of the Form 10-K into
which the Document is
Document Incorporated
- -------- ------------
Definitive Proxy Statement Part III, items 10, 11, 12 and 13
to Shareholders
<PAGE>
Part I
Item 1 - Description of Business
a) General Development of Business
(1) The Registrant was organized and incorporated in 1961. The
Registrant is a manufacturer and distributor of cosmetics and
proprietary pharmaceuticals.
(2) Information Required for businesses not subject to section 13(a) or
15(d) of the Exchange Act
Not Applicable.
b) Financial Information About Industry Segments
Industry Segments (In thousands of dollars)
1996 1995 1994
---- ---- ----
Sales to unaffiliated customers:
Cosmetics $179,031 $162,348 $141,687
Pharmaceuticals 53,920 49,700 48,415
Operating income:
Cosmetics 8,885 6,358 4,331
Pharmaceuticals 10,120 9,049 8,939
Identifiable assets:
Cosmetics 106,541 97,714 89,197
Pharmaceuticals 15,841 17,003 15,760
c) Narrative Description of Business
(1) (i) Principal products and principal markets
The principal products in the cosmetics segment are nail care, color
cosmetics, beauty implements, bleach and depilatories, hair care products,
personal care products and other related cosmetics items. The products in
the Company's cosmetics segment are marketed under such well-known brand
names as Sally Hansen "Hard As Nails" and Sally Hansen Professional Nail
in nail care; Quencher and Natural Glow in color cosmetics; and
Naturistics, Nutri-Tonic and La Cross in personal care products. The
principal products in the pharmaceutical segment are all of a proprietary
nature and range from oral analgesics to acne treatment products and ear
drop medications. The products in the pharmaceutical segment are marketed
under such well-known brand names as Orajel in oral analgesics; Propa PH
in acne treatment; Pronto in personal hygiene; Arthricare in topical
arthritis treatment; and Auro-Dri in water-clogged ear remedies. The
products are sold principally in the United States and Canada, through the
Registrant's sales force and independent sales representatives to
wholesalers, independent and chain drug, variety and food stores.
The Registrant seeks to increase sales by aggressively marketing its
products under established brand names. Products from the cosmetics and
pharmaceutical divisions of the Registrant are targeted to the mass market
including the major national chain drug stores such as Walgreens, RiteAid,
CVS, Eckerd and Revco, chain mass merchandisers such as Wal-Mart, Kmart
and Target and numerous regional chains. The mass market channels account
for a major portion of the decorative color cosmetics market and the
majority of over-the-counter pharmaceutical products sales. The
Registrant's pharmaceutical products are also distributed to drug
wholesalers such as McKesson Drug and Bergen Brunswig.
Sales of the Registrant's products are promoted by two in-house national
sales forces, one for its cosmetics business and one for its
pharmaceutical business. Manufacturers' representatives are used only
selectively in those geographical areas where a full-time representative
cannot be economically justified. There are no material arrangements or
agreements in this area.
<PAGE>
The Registrant advertises its products on television, radio and in
magazines. In-store displays and promotional activities are utilized to
attract consumer attention and to inform them of the products available in
the various brands. Cooperative advertising programs with retailers are
also employed to further consumer awareness of the Registrant's product
lines.
Although the Registrant's products are sold in some foreign countries,
export net sales (which exclude sales in Canada and Puerto Rico) have
historically not exceeded 5% of total net sales in any year. In 1996,
export net sales were approximately 1.8% of the Registrant's total net
sales.
The Registrant's cosmetics business is operated primarily through the
Registrant and its wholly-owned subsidiary, Del Laboratories (Canada)
Inc., which sells to the Canadian market. The Registrant's pharmaceuticals
business is conducted primarily through the Registrant's wholly-owned
subsidiary, Del Pharmaceuticals, Inc., and that corporation's wholly-owned
subsidiary, Del Pharmaceuticals (Canada) Inc., which sells to the Canadian
market. The Registrant has also organized a limited number of subsidiaries
to conduct business in specific foreign countries. In certain other
countries, the Registrant licenses local representatives to sell the
Registrant's products.
(ii) Description of new products or segments requiring material investment of
assets
Not applicable.
(iii) Sources and availability of raw materials
For both the cosmetics and pharmaceutical segments, the Registrant
purchases raw materials from various basic manufacturers, paper board
suppliers and bottle distributors. During 1996, the Registrant experienced
no difficulty in obtaining raw materials.
(iv) Patents and trademarks
For both the cosmetics and pharmaceutical segments, the Registrant's major
trademarks are registered in the United States and in many other countries
throughout the world. Some of the products of the cosmetics and
pharmaceutical segments are manufactured and sold under patents owned by
the Registrant. Continued trademark registration and patent protection are
important to the Registrant's business.
(v) Extent to which business segments may be seasonal
Not applicable.
(vi) Working capital practices
The Registrant operates in a highly competitive packaged goods industry
and does not manufacture special products for its customers. Quick
response on standard merchandise to customer orders is expected. The
amount of order backlog does not have a material effect upon the
Registrant's business. Although the Registrant does not have a policy
regarding a customer cancellation, cancellations by customers are not
frequent or material. It is the Registrant's practice, consistent with the
packaged goods industry practice, to accept authorized returns for reasons
of quality and product discontinuation by the manufacturer.
(vii) Dependence of a business segment on limited customers
Sales to Wal-Mart Stores Inc. were 21.7%, 20.5% and 17.7% of consolidated
net sales for 1996, 1995 and 1994, respectively.
(viii) Backlog
See response to Item (vi) above.
(ix) Material government contracts
Not applicable.
(x) Competition
Competition in both the cosmetics and pharmaceutical industries is
intense. Many of the principal competitors in each of the Registrant's
industry segments are well-established firms with larger financial
resources and with sales believed to be in excess of sales made by the
Registrant in each applicable segment. The
<PAGE>
cosmetics industry is particularly sensitive to consumer purchasing power.
Consumer brand preferences in the cosmetics and proprietary drug
industries are generally influenced by advertising and promotional
support. The cosmetics industry is characterized by frequent introduction
of new products and the attendant intensification of advertising. See (i)
above for a description of the Registrant's advertising activities.
Advertising expenditures were $27.0 million in 1996 (11.6% as a percentage
of total net sales).
(xi) Spending on research and development
In the past three (3) years, commencing with 1996, the Registrant expended
$4,559,000, $4,589,000 and $3,452,000, respectively, on research
activities relating to the development of new products, clinical and
regulatory affairs and quality control/assurance of the Registrant's
product lines, all of which activities were conducted by the Registrant.
(xii) Compliance with environmental regulations
See response to Item 3 - Legal Proceedings.
(xiii) Number of employees
The Registrant has approximately 1,329 employees.
d) Financial information about foreign and domestic operations and export
sales
Not material.
Item 2 - Description of Properties
The Registrant's executive offices and principal manufacturing facilities for
both the cosmetics and pharmaceutical segments are located in two buildings at
565 Broad Hollow Road, Farmingdale, New York. One building is a brick faced
concrete block structure containing approximately 120,000 square feet of floor
space. The other is a steel beamed and brick faced concrete block building,
adjacent to the Farmingdale facility described above, containing approximately
20,000 square feet of floor space. Both buildings are owned by the Registrant.
The Registrant also owns certain property used for manufacturing facilities for
its cosmetics segment in Newark, New Jersey. The Newark buildings are brick
faced concrete block and contain approximately 90,000 square feet of floor
space.
The Registrant's principal warehouse and shipping facility for both the
cosmetics and pharmaceutical segments is located at 1 Arnold Drive, Huntington,
New York. This steel beamed and brickfaced concrete block building contains
approximately 130,000 square feet of floor space. The building is leased by the
Registrant. The lease expires in October 1997, and will not be renewed. Any
remaining leasehold improvements will be fully amortized by the end of the lease
term.
In March 1997, the Registrant entered into an agreement to purchase property and
buildings in Rocky Point, North Carolina for the purchase price of $5,500,000.
The Registrant expects to close on such facility in the second quarter of 1997.
The facility, which has an aggregate of approximately 220,000 square feet, will
be used as a distribution center to replace the Huntington facility.
The Registrant also owns property at 163 East Bethpage Road, Plainview, New
York. This steel beamed and brick faced concrete block building contains
approximately 63,000 square feet of floor space. The facility is used for both
offices and warehousing.
The Registrant owns property located in Canajoharie, New York, consisting of a
two-story brick and steel building with approximately 50,000 square feet of
floor space. This building is occupied by the Registrant's LaSalle Laboratories
division.
<PAGE>
The Registrant owns property located in the City of Barrie, Province of Ontario,
Canada, consisting of a building with approximately 39,000 square feet of floor
space. The facility is used for manufacturing and shipping and contains the
administrative offices of its Canadian division.
The Registrant also owns property located in the City of Little Falls, New York,
consisting of a building with approximately 63,000 square feet of floor space.
The facility is used for production and warehousing. The building was owned
subject to a mortgage issued as part of an industrial revenue bond financing
through the Herkimer County Development Authority. The mortgage was repaid in
full in September 1995.
The Registrant owns a second building located in close proximity to the Little
Falls facility described above. It was purchased in late 1986 and was subject to
a first mortgage. This 100,000 square foot facility is a one-story steel and
masonry industrial plant built in 1974 and is used for production and
warehousing. The mortgage was repaid in full in November 1996.
The Registrant also has short-term leases for space in public warehouses. The
space is primarily used for the cosmetics segment.
The Registrant believes that its facilities adequately meet the needs of the
Registrant, operating at reasonable levels of production.
Item 3 - Legal Proceedings
The Registrant 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 Registrant 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 Registrant in the United States District Court for the Eastern
District of New York alleging sexual discrimination against certain present and
former employees of the Registrant, 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 Registrant and the EEOC settling the case. The Registrant
denied that it engaged in any unlawful conduct, and the consent decree expressly
acknowledges that the settlement does not constitute an admission by the
Registrant 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 Registrant 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 Registrant agreed to pay 15 former employees a
total sum of $1,185,000. The settlement also incorporated the Registrant's
revised sexual harassment policy which includes a revised complaint procedure.
In August 1995, two stockholder derivative actions were filed in the State of
Delaware Chancery Court against the members of the Registrant's Board of
Directors, alleging breaches of fiduciary duties and waste of corporate assets
in connection with the Registrant's settlement with the EEOC relating to claims
of sexual harassment by an executive of the Registrant. This action was
consolidated into a single action, In Re Del Laboratories, Inc., Derivative
Litigation, Consolidated C.A. No. 14466.
In March 1997, the parties agreed, subject to Court approval, to a proposed
settlement in which the Registrant's insurance carrier, on behalf of the
individual defendants, will pay $400,000 to the Registrant, and the Board will
make 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 will be charged with review and oversight
of the Registrant's compliance with the requirements of Title VII relating to
employment practices, including discrimination, wrongful discharge and
retaliation. The Registrant has agreed not to oppose an application to the Court
by the plaintiffs' attorneys for an attorneys' fee of $150,000 which has been
provided for in the consolidated financial statements of the Registrant.
The defendants continue to deny all allegations of wrongdoing and have advised
the Registrant that they are entering into the proposed settlement to eliminate
the burden and expense of further litigation.
<PAGE>
The Registrant 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 Registrant's results of operations or financial condition.
Item 4 - Submission of Matters to a Vote of Security Holders
Not applicable.
Part II
Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters
The Registrant's common stock is traded on the American Stock Exchange. The
range of high and low sales prices as reported in the consolidated transaction
reporting system of such exchange for each quarterly period during the past two
years is as follows:
1996 1995
---- ----
High Low High Low
---- --- ---- ---
First Quarter $22.69 $15.19 $17.06 $13.22
Second Quarter $21.94 $19.59 $19.31 $15.75
Third Quarter $22.03 $20.44 $16.88 $14.81
Fourth Quarter $22.13 $19.97 $15.66 $14.16
There were 523 holders of record of the Registrant's common stock at December
31, 1996. This does not include beneficial holders whose shares are held of
record by nominees, such number not being known by the Registrant. The
Registrant paid regular quarterly dividends of $.025 from January 1995 through
August 1995 and $.026 from September 1995 through December 1996. The Registrant
has paid uninterrupted dividends for the past twenty three years. The per share
information set forth above has been adjusted for a 4-for-3 stock split
effective November 8, 1996 and a 2-for-1 stock split effective June 16, 1995.
The terms of the Registrant's various borrowing agreements provide, among other
things, for restrictions on the payment of cash dividends and certain other
expenditures. At December 31, 1996 retained earnings available for dividends and
certain other expenditures amounted to approximately $727,000.
During the three years ended December 31, 1996, the Registrant did not sell any
shares of Common Stock which were not registered pursuant to the Securities Act
of 1933, as amended.
<PAGE>
Item 6 - Selected Financial Data
(Amounts in Thousands Except Per Share and Employee Data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $ 232,951 $ 212,048 $ 190,102 $ 166,496 $ 143,768
Net earnings before
extraordinary item 9,278 7,025 5,681 4,173 3,314
Extraordinary item (c) -- -- -- (2,310) --
Net earnings 9,278 7,025 5,681 1,863 3,314
Earnings before
extraordinary item
per common share (a) (b) 1.43 1.09 .90 .65 .51
Extraordinary item per
common share (a) (c) -- -- -- (.35) --
Earnings per common
share (a) (b) 1.43 1.09 .90 .30 .51
Cash dividends per share (a) .105 .105 .098 .09 .09
Weighted average number of
shares outstanding (a) (b) 6,483 6,471 6,400 6,621 6,877
Other data:
Capital additions $ 5,327 $ 7,569 $ 5,827 $ 4,802 $ 3,715
Total assets 122,382 114,717 104,957 95,186 94,372
Long term debt 40,000 40,000 40,070 40,637 30,769
Working capital 51,266 42,034 38,813 38,777 29,886
Shareholders' equity 44,842 38,021 34,203 30,913 31,102
Approximate # of employees 1,329 1,243 1,175 1,080 985
</TABLE>
(a) Adjusted to reflect a 4-for-3 stock split effective November 8, 1996, a
2-for-1 stock split effective June 16, 1995 and a 4-for-3 stock split
effective June 15, 1994.
(b) Fully diluted earnings per common share were $.86 for the year ended
December 31, 1994 based on 6,669,000 weighted average common shares
outstanding. In the years 1992-1993 and 1995-1996, primary and fully
diluted earnings per common share were the same.
(c) Extraordinary item - related to the early retirement of debt (net of
income tax benefit of $1,540,000).
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
Under its institutional debt covenants, the Registrant is permitted a level of
short-term borrowing not to exceed $15,000,000. Currently, the Registrant 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 1996.
The Registrant has, from time to time, acquired shares of its common stock
pursuant to a plan approved by the Board of Directors in 1987. The Registrant
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 Registrant's business. In 1996, the Registrant purchased
313,452 shares at an average cost of $21.01 per share, and such shares were
placed in treasury. The shares purchased in 1996 were predominantly from
employees who held shares issued pursuant to the Registrant's stock option
plans, with the balance through open market purchases. As of December 31, 1996
the Registrant was authorized to purchase up to 87,725 additional shares based
on the then existing Board authorization.
Net accounts receivable at December 31, 1996 increased by $6,155,000 from the
December 31, 1995 level. The increase is attributable to a large sales increase
in the latter part of the fourth quarter of 1996.
Inventories at December 31, 1996 decreased by $3,290,000 versus the December 31,
1995 level. The decrease is primarily attributable to a decreased level of
finished goods within the Cosmetics Division.
During 1996, the Registrant generated approximately $16,229,000 of cash from
operations. The Registrant believes that existing cash on hand, plus cash from
future operations and amounts available under the short-term lines of credit
referred to above, will be sufficient to satisfy the Registrant's liquidity
needs for the foreseeable future.
In March 1997, the Registrant entered into an agreement to purchase land and
buildings in North Carolina. This property is to be used as a distribution
center and is replacing leased facilities whose lease expires in 1997. The
Registrant expects to close on the property during the second quarter of 1997.
The cost of the property is $5,500,000 with the seller financing the transaction
interest free. The agreement calls for payments over the next three years, with
a final payment of $3,850,000 in April, 2000. When the closing is completed, the
Registrant will record the transaction based on the present value of the loan on
the date of closing and will accrete interest over the life of the loan. Any
remaining leasehold improvements related to the leased facility will be fully
amortized by the end of the lease term.
Results of Operations
Sales
In 1996, net sales were $233.0 million, 9.9% above 1995. For 1995, net sales
were $212.0 million, 11.5% above 1994.
Net sales for the Cosmetics Division in 1996 were $179.0 million, a 10.3%
increase from the $162.3 million in 1995. The $162.3 million of net sales for
the Cosmetics Division in 1995 was an increase of 14.6% from the $141.7 million
in 1994. The Pharmaceutical Division had net sales of $53.9 million, a 8.5%
increase from the $49.7 million in 1995. The $49.7 million of net sales for the
Pharmaceutical Division in 1995 was an increase of 2.7% from the $48.4 million
in 1994.
The net sales increase in the Cosmetics Division is largely attributable to
increased volume in the Sally Hansen, Professional Nails and LaCross brands.
The net sales to new customers during 1996, 1995 and 1994 were immaterial (less
than 1.0% in each year).
Cost of Sales
Cost of sales was 41.9%, 41.7% and 40.0% of net sales in 1996, 1995 and 1994,
respectively.
The increased cost of sales, as a percentage of net sales, in 1996, compared to
1995, is attributable to costs of $902,000 for the impairment of long-lived
assets associated with the Naturistics brand of cosmetics. Without the costs
associated with the impairment, 1996 cost of sales would have been 41.5%,
slightly less than the cost of sales in 1995.
Selling and Administrative Expenses
Selling and administrative expenses increased in 1996 and 1995, but decreased as
a percentage of net sales to 50.0% in 1996, as compared to 51.0% in 1995 and
53.0% in 1994. Included in selling and administrative expenses for 1996 are
$1,873,000 of costs attributable to the impairment of long-lived assets
associated with the Naturistics brand of cosmetics and Propa PH. Without these
costs, 1996 selling and administrative expenses would have been 49.2% of net
sales. Although product promotion costs increased, a combination of increased
net sales, specific cost containment
<PAGE>
programs which have resulted in relatively small increases in shipping, travel
and a leveling of advertising expenditures, are the primary reasons for the
decreased percentage in 1996.
Advertising expenditures at $27.0 million in 1996, were 3.8% higher when
compared with $26.0 million in 1995 and $25.9 million in 1994.
Net Interest Expense
Net interest expense was $3,282,000 in 1996, compared with $3,501,000 in 1995
and $3,641,000 in 1994. The decrease in 1996 is primarily attributable to
increased interest income. The decrease in 1995 is attributable to increased
interest income, plus a reduction in interest expense arising from the
elimination of short-term borrowings.
Income Taxes
The Registrant's effective tax rate was 41.0% in 1996, 1995 and 1994.
Net Earnings
Net earnings for 1996 were $9,278,000, 32.1% above the $7,025,000 reported for
1995. The 1995 net earnings of $7,025,000 were 23.6% above the $5,681,000
reported for 1994.
Implementation of New Accounting Pronouncements
During 1996, the Registrant continually assessed the recoverability of its
long-lived assets. In the fourth quarter of 1996 the Registrant concluded that
the recoverability of long-lived assets associated with its Naturistics brand of
cosmetics and its Propa PH brand, were impaired. The initial noncash charge upon
the adoption of Statement of Financial Accounting Standards (SFAS) 121 was
$2,775,000 ($1,842,000 after tax or $.28 per share), which included the
$2,275,000 of tools, dies, molds and displays associated with the Naturistics
brand of cosmetics and $500,000 of goodwill associated with Propa PH.
Legal Matters
The Registrant 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 Registrant accepted a proposal under
which the Registrant 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
Registrant's results of operations or financial condition.
In July 1994, the Equal Employment Opportunity Commission ("EEOC") filed suit
against the Registrant in the United States District Court for the Eastern
District of New York alleging sexual discrimination against certain present and
former employees of the Registrant, 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 Registrant and the EEOC settling the case. The Registrant
denied that it engaged in any unlawful conduct, and the consent decree expressly
acknowledges that the settlement does not constitute an admission by the
Registrant 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 Registrant 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 Registrant agreed to pay 15 former employees a
total sum of $1,185,000. The settlement also incorporated the Registrant's
revised sexual harassment policy which includes a revised complaint procedure.
In August 1995, two stockholder derivative actions were filed in the State of
Delaware Chancery Court against the members of the Registrant's Board of
Directors, alleging breaches of fiduciary duties and waste of corporate assets
in connection with the Registrant's settlement with the EEOC relating to claims
of sexual harassment by an executive of the Registrant. This action was
consolidated into a single action, In Re Del Laboratories, Inc., Derivative
Litigation, Consolidated C.A. No. 14466.
In March 1997, the parties agreed, subject to Court approval, to a proposed
settlement in which the Registrant's insurance carrier, on behalf of the
individual defendants, will pay $400,000 to the Registrant, and the Board will
make 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 will be charged with review and oversight
of the Registrant's compliance with the requirements of Title VII relating to
employment practices, including discrimination, wrongful discharge and
retaliation. The Registrant has agreed not to oppose an application to the Court
by the plaintiffs' attorneys for an attorneys' fee of $150,000 which has been
provided for in the consolidated financial statements of the Registrant.
The defendants continue to deny all allegations of wrongdoing and have advised
the Registrant that they are entering into the proposed settlement to eliminate
the burden and expense of further litigation.
<PAGE>
The Registrant 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 Registrant's results of operations or financial condition.
Item 8 - Financial Statements and Supplementary Data
See Financial Statements and Schedule included separately herein.
Item 9 - Changes in and disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10 - Directors and Executive Officers of the Registrant
(a) The information required with respect to Directors is set forth under the
caption "Election of Directors - Information Concerning Directors" in
Registrant's definitive Proxy Statement to be filed pursuant to Regulation 14A
and incorporated herein by reference.
(b) The executive officers of the Registrant, the positions held by them, their
ages and the years in which they began to serve in the positions or office held
as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Year in
Which Began
to Serve in
Position or as
Name Position Age Executive Officer
---- -------- --- -----------------
<S> <C> <C> <C>
Dan K. Wassong Chairman, President and
Chief Executive Officer, Director 66 1969
Charles J. Hinkaty Vice President, President of
Del Pharmaceuticals, Inc.,
Director 47 1985
Melvyn C. Goldstein Vice President of Finance,
Treasurer 56 1982
William H. McMenemy Executive Vice President of Marketing,
Cosmetics Division, North America 50 1980
Harvey P. Alstodt Executive Vice President of Sales,
Cosmetics Division, North America 57 1988
James F. Lawrence Group Vice President - Operations 62 1993
Laurence Usdin Vice President - Corporate Controller 54 1996
</TABLE>
There is no arrangement or understanding between any executive officer and any
other person pursuant to which he was selected as an officer. The executive
officers of the Registrant are elected annually at the meeting of the Board of
Directors immediately following the Annual Meeting of the Stockholders. No
family relationship exists among any of the executive officers and directors of
the Registrant.
During the past five years, the principal occupation and employment of each of
the Registrant's executive officers has been his service in the respective
position shown for him in the above table, except as follows:
James F. Lawrence has been Group Vice President-Operations of the Registrant
since April 1993. Prior to that time, Mr. Lawrence served as an independent
consultant from September 1992 to April 1993, Vice President, Operations of
<PAGE>
Artmatic Cosmetics, Inc. from April 1991 to September 1992, Senior Vice
President, Sales and Marketing of Kolmar Laboratories, Inc., a contract
manufacturer, from April 1990 to April 1991 and President of Hazel Bishop, a
cosmetics manufacturer, from December 1987 to April 1990.
Laurence Usdin has been Vice President - Corporate Controller since September
1996. For more than five years prior thereto Mr. Usdin was Vice President -
Corporate Controller of Western Publishing Group, Inc. a manufacturer and
distributor of consumer products to the mass market.
Item 11 - Executive Compensation
The information required is set forth under the caption "Executive Compensation"
in Registrant's definitive Proxy Statement to be filed pursuant to Regulation
14A and is incorporated herein by reference.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
(a) and (b) Security Ownership of Certain Beneficial Owners and Management
The information required is set forth under the captions "Securities Ownership
of Certain Beneficial Owners" and "Election of Directors - Information
Concerning Directors" in Registrant's definitive Proxy Statement to be filed
pursuant to Regulation 14A and is incorporated herein by reference.
(c) Changes in Control
Not applicable.
Item 13 - Certain Relationships and Related Transactions
The information required is set forth under the caption "Executive Compensation"
in Registrant's definitive Proxy Statement to be filed pursuant to Regulation
14A and is incorporated herein by reference.
<PAGE>
Part IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
a) Documents filed as part of this report:
(1) and (2) See Index to Consolidated Financial Statements and Schedule
included herein.
(3) Exhibit Index
Item No. Item Title Exhibit No. Description
- -------- ---------- ----------- -----------
2 Plan of Not Applicable.
acquisition,
reorganization
arrangement,
liquidation or
succession
3 Articles of (a) Restated Certificate of
Incorporation Incorporation as filed with the
and By-Laws Delaware Secretary of State on
March 29, 1996.
(b) Certificate of Amendment filed
with the Delaware Secretary of
State on June 4, 1996.
(c) By-Laws as amended through
December 14, 1995.
4 Instruments defining Not Applicable.
the rights of security
holders including
indentures
9 Voting Trust Agreement Not Applicable.
10 Material (c) Employee Pension Plan, effective
Contracts January 1, 1989. (Amended and
restated).*
(d) Employees Stock Ownership Plan,
effective January 1, 1989.*
(e) Amendment No. 1 to Employees
Stock Ownership Plan.*
(c) Amendment No. 2 to Employees
Stock Ownership Plan.*
(e) 1984 Stock Option Plan, as
amended to date.*
(f) 1994 Stock Plan.*
(f) Annual Incentive Plan.*
(e) Loan Agreement with Dan K.
Wassong dated as of August 22,
1984 and related promissory
notes.
(c) Loan Agreement with Dan K.
Wassong, dated as of April 9,
1988.
(g) Loan Agreement with Dan K.
Wassong, dated as of November
14, 1990.
(c) 401(k) Plan effective January 1,
1989. (amended and restated).*
(c) Supplemental Executive
Retirement Plan. (amended and
restated).*
(1) Amendment effective January 1,
1997 to Supplemental Executive
Retirement Plan.*
* Constitutes a "management contract or compensatory plan or arrangement"
required to be filed pursuant to Item 14 (c) of the Form 10-K.
<PAGE>
Item No. Item Title Exhibit No. Description
- -------- ---------- ----------- -----------
(h) Employment agreement with Dan K.
Wassong, dated as of November
13, 1992.*
(c) Amendment to Employment
Agreement with Dan K. Wassong,
dated March 21, 1994.*
(i) Loan Agreement dated as of May
26, 1993 with Jackson National
Life Insurance Company and
Jackson National Life Insurance
Company of Michigan.
(e) Employment Agreement with
Charles J. Hinkaty, as amended.*
(2) Amendment to Employment
Agreement with Charles J.
Hinkaty dated April 22, 1996.*
(e) Employment Agreement with Harvey
P. Alstodt, as amended.*
(3) Amendment to Employment
Agreement with Harvey P. Alstodt
dated April 22, 1996.*
(e) Employment Agreement with
William H. McMenemy, as
amended.*
(4) Amendment to Employment
Agreement with William H.
McMenemy dated April 22, 1996.*
(e) Employment Agreement with Melvyn
C. Goldstein, as amended.*
(5) Amendment to Employment
Agreement with Melvyn C.
Goldstein dated April 22, 1996.*
(e) Life Insurance Agreement with
Robert H. Haines, as trustee,
dated as of February 18, 1993.*
11 Statements Re: (6) Computation of per share
computation of per earnings.
share earnings
12 Statements Re: Not Applicable.
computation of ratios
13 Annual Report to Not Applicable.
security holders
16 Letter Re: change Not Applicable.
in certifying accountant
18 Letter Re: change Not Applicable.
in accounting principles
21 Subsidiaries of (j) Listing of Subsidiaries.
Registrant.
22 Published report regarding Not Applicable.
matters submitted to vote
of security holders.
* Constitutes a "management contract or compensatory plan or arrangement"
required to be filed pursuant to Item 14 (c) of the Form 10-K.
<PAGE>
Item No. Item Title Exhibit No. Description
- -------- ---------- ----------- -----------
23 Consents of experts (8) Consent of KPMG Peat Marwick LLP
and counsel dated March 28, 1997.
24 Power of Attorney Not Applicable.
28 Information from Not Applicable.
reports furnished
to state insurance
regulatory authorities.
99 Additional exhibits Not Applicable.
- ----------
(a) These exhibits were filed on April 1, 1996 as exhibits to the Registrant's
Form 10-K for the year ended December 31, 1995 (File No. 1-5439) and are
incorporated herein by reference. The exhibit numbers in such Form 10-K are
as follows: Restated Certificate, exhibit 1; and By-Laws, exhibit 2.
(b) This exhibit was filed on August 14, 1996 as an exhibit to the Registrant's
Form 10-Q for the quarter ended June 30, 1996 (File No. 1-5439) and is
incorporated herein by reference. The exhibit number in such Form 10-Q is
exhibit 1.
(c) These exhibits were filed on March 31, 1995 as exhibits to the Registrant's
Form 10-K for the year ended December 31, 1994 (File No. 1-5439) and are
incorporated herein by reference. The exhibit numbers in such Form 10-K are
as follows: Employee Pension Plan, Exhibit 2; Amendment No. 2 to Employees
Stock Ownership Plan, Exhibit 3; Loan Agreement with Dan K. Wassong,
Exhibit 4; 401 (k) Plan, Exhibit 5; Supplemental Executive Retirement Plan,
Exhibit 6; Amendment to Employment Agreement with Dan K. Wassong, Exhibit
7.
(d) This exhibit was filed on April 2, 1990 as an exhibit to the Registrant's
Form 10-K for the year ended December 31, 1989 (File No. 1-5439) and is
incorporated herein by reference. The exhibit number in such Form 10-K is
Exhibit 2.
(e) These exhibits were filed on March 31, 1994, as exhibits to the
registrant's Form 10-K for the year ended December 31, 1993 (File No.
1-5439) and are incorporated herein by reference. The exhibit numbers in
such Form 10-K are as follows: Amendment No. 1 to Employees Stock Ownership
Plan, Exhibit 2; 1984 Stock Option Plan, Exhibit 3; Loan Agreement with Dan
K. Wassong dated August 22, 1984, Exhibit 4; Employment Agreement with
Charles J. Hinkaty, Exhibit 5; Employment Agreement with Harvey P. Alstodt,
Exhibit 6; Employment Agreement with William H. McMenemy, Exhibit 7;
Employment Agreement with Melvyn C. Goldstein, Exhibit 8; Life Insurance
Agreement with Robert H. Haines, as trustee, Exhibit 9.
(f) These exhibits were filed on or about April 25, 1994, as exhibits to the
Registrant's Definitive Proxy dated April 25, 1994, relating to the
Registrant's 1994 Annual Meeting of Stockholders (File No. 1-5439) and are
incorporated herein by reference. The exhibit numbers in such Proxy
Statement are as follows: 1994 Stock Plan, Annex A; Annual Incentive Plan,
Annex B.
(g) This exhibit was filed on April 1, 1991, as an exhibit to the Registrant's
Form 10-K for the year ended December 31, 1990 (File No. 1-5439) and is
incorporated herein by reference. The exhibit number in such Form 10-K is
Exhibit 2.
(h) This exhibit was filed on March 31, 1993, as an exhibit to the Registrant's
Form 10-K for the year ended December 31, 1992 (File No. 1-5439) and is
incorporated herein by reference. The exhibit number in such Form 10-K is
Exhibit 1.
(i) This exhibit was filed on July 1, 1993, as an exhibit to the Registrant's
Current Report on Form 8-K dated June 29, 1993 (File No. 1-5439) and is
incorporated herein by reference. The exhibit number in such Form 8-K is
Exhibit 1.
(j) This exhibit was filed on March 30, 1992, as an exhibit to the Registrant's
Form 10-K for the year ended December 31, 1991 (File No. 1-5439) and is
incorporated herein by reference. The exhibit number in such Form 10-K is
Exhibit 4.
(b) Not Applicable.
(c) See (a) (3) above.
<PAGE>
Other Matters
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned
Registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into Registrant's Registration Statements on Form S-8 Nos. 2-51603
(filed February 26, 1974), 2-57313 (filed September 30, 1976), 2-69841 (filed
November 7, 1980), 33-27777 (filed March 23, 1989) and 33-64777 (filed December
6, 1995).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused the report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DEL LABORATORIES, INC.
(Registrant)
By /s/ Dan K. Wassong March 28, 1997
-----------------------------
Dan K. Wassong, Chairman, President & Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By /s/ Dan K. Wassong March 28, 1997
-----------------------------
Dan K. Wassong, Chairman, President & Chief Executive Officer
By /s/ Charles Hinkaty March 28, 1997
-----------------------------
Charles Hinkaty, Director, Vice President
By /s/ Martin E. Revson March 28, 1997
-----------------------------
Martin E. Revson, Director
By /s/ Robert H. Haines March 28, 1997
-----------------------------
Robert H. Haines, Director
By /s/ Robert A. Kavesh March 28, 1997
-----------------------------
Robert A. Kavesh, Director
By /s/ Steven Kotler March 28, 1997
-----------------------------
Steven Kotler, Director
By /s/ Marcella Maxwell March 28, 1997
-----------------------------
Marcella Maxwell, Director
By /s/ Jack Futterman March 28, 1997
-----------------------------
Jack Futterman, Director
By /s/ Melvyn C. Goldstein March 28, 1997
-----------------------------
Melvyn C. Goldstein, Vice President of Finance & Principal
Accounting Officer
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
and Schedule
Independent Auditors' Report
Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Consolidated Statements of Earnings for the years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
Schedules:
II Valuation and Qualifying Accounts for the years ended December 31,
1996, 1995 and 1994.
All other schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or related
notes.
<PAGE>
The Board of Directors and Shareholders
Del Laboratories, Inc.:
We have audited the consolidated financial statements of Del Laboratories, Inc.
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Del Laboratories,
Inc. and subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
As discussed in notes 1(m) and 4 of the notes to consolidated financial
statements, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 121 "Accounting for Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of", in 1996.
KPMG PEAT MARWICK LLP
Jericho, New York
February 13, 1997
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,515,947 $ 8,563,375
Accounts receivable less allowance for doubtful accounts
of $1,500,000 in 1996 and $1,700,000 in 1995 30,781,594 24,626,182
Inventories 33,787,747 37,077,909
Income taxes receivable 323,856 --
Deferred income taxes 2,250,190 1,593,000
Prepaid expenses and other current assets 1,840,000 1,282,464
------------- -------------
Total current assets 83,499,334 73,142,930
------------- -------------
Property, plant and equipment, at cost 43,416,035 42,159,925
Less accumulated depreciation and amortization (16,787,785) (15,319,126)
------------- -------------
Net property, plant and equipment 26,628,250 26,840,799
Intangibles arising from acquisitions, at cost less
accumulated amortization 8,496,850 9,259,050
Other assets 3,757,915 5,474,214
------------- -------------
Total assets $ 122,382,349 $ 114,716,993
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ -- $ 70,395
Accounts payable 17,338,378 15,147,737
Accrued liabilities 14,894,630 14,494,724
Income taxes payable -- 1,395,607
------------- -------------
Total current liabilities 32,233,008 31,108,463
Long-term pension liability, less current portion 4,132,300 3,632,432
Deferred income taxes 1,175,000 1,954,863
Long-term debt, less current portion 40,000,000 40,000,000
------------- -------------
Total liabilities 77,540,308 76,695,758
------------- -------------
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 8,784,514 8,784,514
Additional paid-in capital 4,321,131 2,831,970
Foreign currency translation adjustment (547,028) (492,831)
Retained earnings 61,353,458 52,659,920
------------- -------------
73,912,075 63,783,573
Less: Treasury stock at cost, 3,141,949
shares in 1996 and 3,214,072 shares in 1995 (27,333,714) (23,867,674)
Receivable for stock options exercised (1,736,320) (1,894,664)
------------- -------------
Total shareholders' equity 44,842,041 38,021,235
------------- -------------
Total liabilities and shareholders' equity $ 122,382,349 $ 114,716,993
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $ 232,951,382 $ 212,047,952 $ 190,102,052
------------- ------------- -------------
Cost of goods sold 97,520,017 88,437,543 76,083,243
Selling and administrative expenses 116,426,276 108,203,207 100,748,947
------------- ------------- -------------
213,946,293 196,640,750 176,832,190
------------- ------------- -------------
Operating income 19,005,089 15,407,202 13,269,862
------------- ------------- -------------
Interest expense 3,803,218 3,830,954 3,878,660
Interest income (521,067) (329,465) (238,002)
------------- ------------- -------------
Interest expense, net 3,282,151 3,501,489 3,640,658
------------- ------------- -------------
Earnings before income taxes 15,722,938 11,905,713 9,629,204
Income taxes 6,445,000 4,881,000 3,948,000
------------- ------------- -------------
Net earnings $ 9,277,938 $ 7,024,713 $ 5,681,204
============= ============= =============
Earnings per common share:
Primary $ 1.43 $ 1.09 $ .90
============= ============= =============
Fully diluted $ .86
=============
Weighted average common shares
outstanding:
Primary 6,483,000 6,471,000 6,400,000
============= ============= =============
Fully diluted 6,669,000
=============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 9,277,938 $ 7,024,713 $ 5,681,204
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 6,301,831 5,945,401 4,012,137
Deferred income taxes (1,437,053) (1,491,675) (496,484)
Provision for doubtful accounts 40,000 655,000 548,400
Other non-cash operating items 85,661 192,161 (39,362)
Changes in operating assets and liabilities:
Accounts receivable (6,195,412) (6,588,189) (3,069,854)
Inventories 3,290,162 (2,389,725) 503,093
Prepaid expenses and other current assets (557,536) 676,453 (276,974)
Other assets and other liabilities 2,216,167 996,786 (377,547)
Income taxes receivable (323,856) -- 130,349
Accounts payable 2,190,641 208,200 3,302,965
Accrued liabilities 399,906 3,791,240 4,131,389
Income taxes payable 940,992 3,048,612 683,532
------------ ------------ ------------
Net cash provided by operating activities 16,229,441 12,068,977 14,732,848
------------ ------------ ------------
Cash flows used in investing activities:
Property, plant and equipment additions (5,327,085) (7,569,461) (5,826,656)
------------ ------------ ------------
Net cash used in investing activities (5,327,085) (7,569,461) (5,826,656)
------------ ------------ ------------
Cash flows used in financing activities:
Decrease in notes payable -- -- (1,600,000)
Principal payments of long-term debt (70,395) (334,754) (663,771)
Exercise of stock options 2,275,335 2,811,385 1,298,064
Decrease in receivable for stock
options exercised 18,344 265,656 40,134
Purchase of treasury stock (6,584,313) (8,245,752) (3,133,984)
Dividends paid (584,054) (559,494) (511,042)
Other financing activities (4,500) -- (6,633)
------------ ------------ ------------
Net cash used in financing activities (4,949,583) (6,062,959) (4,577,232)
------------ ------------ ------------
Effect of exchange rate changes on cash (201) 1,250 (18,625)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 5,952,572 (1,562,193) 4,310,335
Cash and cash equivalents at beginning of year 8,563,375 10,125,568 5,815,233
------------ ------------ ------------
Cash and cash equivalents at end of period $ 14,515,947 $ 8,563,375 $ 10,125,568
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1996, 1995 And 1994
<TABLE>
<CAPTION>
Foreign
Common Additional Currency
Stock $1 Paid-In Translation Retained Treasury
Par Value Capital Adjustment Earnings Stock
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1993 $ 8,784,514 $ 730,835 $ (311,787) $ 41,052,535 $(16,872,624)
Foreign currency translation adjustment (234,455)
Issuance of treasury stock upon exercise
of stock options (243,117 shares) (70,926) 1,368,990
Purchase of treasury stock
(293,707 shares) (3,133,984)
Income tax benefit arising from
stock options exercised 46,468
Payment for stock options exercised
Dividends declared ($.098 per share) (530,563)
Net earnings for the year 5,681,204
Cash paid for fractional shares (6,633)
------------ ------------ ------------ ------------ ------------
Balance December 31, 1994 $ 8,784,514 $ 699,744 $ (546,242) $ 46,203,176 $(18,637,618)
Foreign currency translation adjustment 53,411
Issuance of treasury stock upon exercise
of stock options (470,668 shares) (204,311) 3,015,696
Purchase of treasury stock
(517,705 shares) (8,245,752)
Income tax benefit arising from
stock options exercised 2,336,537
Payment for stock options exercised
Dividends declared ($.105 per share) (567,969)
Net earnings for the year 7,024,713
------------ ------------ ------------ ------------ ------------
Balance December 31, 1995 $ 8,784,514 $ 2,831,970 $ (492,831) $ 52,659,920 $(23,867,674)
Foreign currency translation adjustment (54,197)
Issuance of treasury stock upon exercise
of stock options (385,575 shares) (842,938) 3,118,273
Purchase of treasury stock
(313,452 shares) (6,584,313)
Income tax benefit arising from
stock options exercised 2,336,599
Payment for stock options exercised
Dividends declared ($.105 per share) (584,400)
Net earnings for the year 9,277,938
Cash paid for fractional shares (4,500)
------------ ------------ ------------ ------------ ------------
Balance December 31, 1996 $ 8,784,514 $ 4,321,131 $ (547,028) $ 61,353,458 $(27,333,714)
============ ============ ============ ============ ============
</TABLE>
Receivable For
Stock Options Shareholders'
Exercised Equity
------------ ------------
Balance December 31, 1993 $ (2,470,453) $ 30,913,020
Foreign currency translation adjustment (234,455)
Issuance of treasury stock upon exercise
of stock options (243,117 shares) 1,298,064
Purchase of treasury stock
(293,707 shares) (3,133,984)
Income tax benefit arising from
stock options exercised 46,468
Payment for stock options exercised 170,133 170,133
Dividends declared ($.098 per share) (530,563)
Net earnings for the year 5,681,204
Cash paid for fractional shares (6,633)
------------ ------------
Balance December 31, 1994 $ (2,300,320) $ 34,203,254
Foreign currency translation adjustment 53,411
Issuance of treasury stock upon exercise
of stock options (470,668 shares) 2,811,385
Purchase of treasury stock
(517,705 shares) (8,245,752)
Income tax benefit arising from
stock options exercised 2,336,537
Payment for stock options exercised 405,656 405,656
Dividends declared ($.105 per share) (567,969)
Net earnings for the year 7,024,713
------------ ------------
Balance December 31, 1995 $ (1,894,664) $ 38,021,235
Foreign currency translation adjustment (54,197)
Issuance of treasury stock upon exercise
of stock options (385,575 shares) 2,275,335
Purchase of treasury stock
(313,452 shares) (6,584,313)
Income tax benefit arising from
stock options exercised 2,336,599
Payment for stock options exercised 158,344 158,344
Dividends declared ($.105 per share) (584,400)
Net earnings for the year 9,277,938
Cash paid for fractional shares (4,500)
------------ ------------
Balance December 31, 1996 $ (1,736,320) $ 44,842,041
============ ============
See accompanying notes to consolidated financial statements.
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Accounting Policies
(a) Description of Business
Del Laboratories, Inc. and Subsidiaries (the Company) is a manufacturer and
distributor of cosmetics and proprietary pharmaceuticals. The principal products
in the cosmetics segment are nail care, color cosmetics, beauty implements,
personal care products and other related cosmetics items. The principal products
in the pharmaceutical segment are of a proprietary nature and range from oral
analgesics to acne treatment products and ear drop medications.
(b) Principles of Consolidation
The consolidated financial statements of the Company include the accounts of all
wholly-owned domestic and foreign subsidiaries. The net assets and results of
foreign operations are not significant to the consolidated financial statements.
The accounts of foreign subsidiaries are translated in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 52,
"Foreign Currency Translation." As such, balance sheet accounts are translated
at the exchange rate as of December 31, of each year and income statement
accounts are translated at average exchange rates when transactions occurred.
All intercompany accounts and transactions have been eliminated in
consolidation.
(c) Cash and Cash Equivalents
Cash and cash equivalents include deposits in banks, short term commercial
paper, United States Treasury bills and money market funds with an initial term
of less than three months. For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents.
(d) Revenue Recognition
The Company sells its products to chain drug stores, mass volume retailers,
supermarkets and wholesalers. Sales of such products and services are
principally denominated in U.S. dollars. The Company's accounts receivable
reflect the granting of credit to these customers. Revenues are recognized and
product discounts are recorded when merchandise is shipped. Net sales are
comprised of gross revenues less expected returns, trade discounts and customer
allowances. Merchandise returns are accrued at the earlier of receipt of goods
or customer notification of an approved return. The Company generally grants
credit based upon analysis of the customer's financial position and previously
established buying and selling patterns.
(e) Inventories
Inventories are valued at the lower of cost (principally first-in/first-out) or
market value. The components of inventories are as follows:
1996 1995
---- ----
Raw materials $15,346,437 $15,645,998
Work in process 3,861,573 3,888,456
Finished goods 14,579,737 17,543,455
----------- -----------
$33,787,747 $37,077,909
=========== ===========
(f) Property, Plant and Equipment
The Company provides for depreciation on the straight-line method over the
estimated useful lives of the assets. The range of estimated lives applicable to
the assets are as follows:
Building & building improvements 10 to 40 years
Machinery & equipment 3 to 15 years
Furniture & fixtures 3 to 10 years
-1-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(g) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(h) Research and Development
The Company has expended $4,559,000, $4,589,000 and $3,452,000 during 1996, 1995
and 1994, respectively, for research and development relating to the development
of new products, clinical and regulatory affairs, and quality control/assurance
of the Company's product lines. All costs associated with research and
development are expensed as incurred and included in selling and administrative
expenses in the accompanying consolidated statements of earnings.
(i) Advertising Costs
Advertising costs are expensed as incurred. Advertising expenses were
$27,000,000, $26,000,000 and $25,900,000 in 1996, 1995 and 1994, respectively.
(j) Earnings Per Share
For all years presented, 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. Primary earnings per common share was based on
6,483,000, 6,471,000 and 6,400,000 shares outstanding for 1996, 1995 and 1994,
respectively. Fully diluted earnings per common share was based on 6,669,000
shares outstanding for 1994. In 1996 and 1995, primary and fully diluted
earnings per common share were the same.
(k) Stock Splits
On October 29, 1996, the Company's Board of Directors approved a four for three
split of the Company's common stock which was effective November 8, 1996. In
addition, on May 25, 1995, the Company's Board of Directors approved a two for
one split of the Company's common stock which was effective June 16, 1995 and on
May 26, 1994, the Company's Board of Directors approved a four for three split
of the Company's common stock which was effective June 15, 1994. All share, per
share and conversion amounts relating to common stock and stock options included
in the accompanying consolidated financial statements and footnotes have been
restated to reflect the stock splits.
(l) Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees", and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation", which permits
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provision of APB Opinion No. 25 and provide
pro forma net income and pro forma earnings per share disclosures of employee
stock option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No.
123.
-2-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(m) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amounts of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of SFAS No. 121 gave rise to a charge to income of $2,775,000
(see Note 4).
(n) Reclassifications
Certain reclassifications were made to prior year amounts to conform with the
1996 presentation.
(o) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
(2) Supplemental Cash Flow Information
The following is supplemental information relating to the consolidated
statements of cash flows:
1996 1995 1994
---- ---- ----
Cash paid during the year for:
Interest $3,804,000 $3,822,000 $3,894,622
========== ========== ==========
Income taxes $7,173,000 $3,255,000 $3,787,000
========== ========== ==========
(3) Property, Plant and Equipment
The components of property, plant and equipment, at cost, are as follows:
1996 1995
---- ----
Land $ 2,290,479 $ 2,290,479
Building & building improvements 11,919,433 11,356,987
Machinery & equipment 24,753,261 24,633,952
Furniture & fixtures 4,452,862 3,878,507
----------- -----------
$43,416,035 $42,159,925
=========== ===========
Depreciation expense for 1996, 1995 and 1994 was $5,539,631, $5,534,945 and
$3,705,386, respectively.
In 1995, the Company changed, on a prospective basis, the maximum estimated
useful life utilized for tools, molds and dies from five years to four years.
The impact of this change in accounting estimate was to increase depreciation
expense and decrease operating income by approximately $858,000.
-3-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) Impairment of Long-Lived Assets
During 1996, the Company continually assessed the recoverability of the carrying
value of its long-lived assets. In the fourth quarter of 1996 the Company
concluded that the recoverability of the carrying value of long-lived assets
associated with its Naturistics brand of cosmetics and its Propa PH brand, was
impaired. The initial noncash charge upon the adoption of SFAS No. 121 was
$2,775,000 ($1,842,000 after tax or $.28 per share), which included $2,275,000
of tools, dies, molds and displays associated with the Naturistics brand of
cosmetics and $500,000 of goodwill associated with Propa PH. Of the $2,775,000
noncash charges, $902,000 was charged to cost of sales, while $1,873,000 was
charged to selling and administrative expenses.
This initial charge resulted from the Company grouping assets at a lower level
than under its previous accounting policy for evaluating and measuring
impairment. Under the Company's previous policy, each of the segment's
long-lived assets to be held and used by the segment were evaluated as a group
for impairment. Because of the strong operating performance and prospects for
each segment, no impairment evaluation had been required for in the past under
the Company's previous accounting policy. This initial charge represented a
reduction of the carrying amounts of the impaired assets (as defined in note 1)
to their estimated fair value, as determined by using discounted estimated cash
flows. Considerable management judgment is necessary to estimate discounted
future cash flows. Accordingly, actual results could vary significantly from
such estimates.
(5) Intangibles Arising From Acquisitions
Intangibles represent the excess of the purchase prices paid for companies and
product lines over amounts assigned to net tangible assets. Total intangibles
related to acquisitions prior to 1971 amount to $6,660,000, of which $378,000
was written off in 1995 due to a diminution in value. The remaining $6,282,000
has been determined to be recoverable under the provisions of SFAS No. 121,
therefore, no amortization has been provided for this amount. The portion of
intangibles, $3,350,000, acquired in 1980, attributable to Propa PH, had been
amortized using the straight-line method over 30 years. The Company reduced the
carrying value of goodwill associated with the Propa PH brand by $500,000, which
is included in amortization expense. The remaining asset value of $1,015,000
will be amoritzed over a five year period (see note 4). The trademarks acquired
in 1984, $3,000,000, are being amortized using the straight-line method over 20
years. Accumulated amortization amounted to $4,513,254, $3,751,054 and
$3,340,598 at December 31, 1996, 1995 and 1994, respectively. Amortization
expense amounted to $762,200, $410,456 and $306,751 for the years ended December
31, 1996, 1995 and 1994, respectively.
-4-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Income Taxes
The components of income tax expense (benefit) are as follows:
1996 Federal State Foreign Total
- ---- ------- ----- ------- -----
Current tax $ 7,102,000 $ 706,000 $ 74,000 $ 7,882,000
Deferred tax (1,295,000) (142,000) -- (1,437,000)
----------- ----------- ----------- -----------
$ 5,807,000 $ 564,000 $ 74,000 $ 6,445,000
=========== =========== =========== ===========
1995 Federal State Foreign Total
- ---- ------- ----- ------- -----
Current tax $ 5,560,000 $ 739,000 $ 74,000 $ 6,373,000
Deferred tax (1,356,000) (136,000) -- (1,492,000)
----------- ----------- ----------- -----------
$ 4,204,000 $ 603,000 $ 74,000 $ 4,881,000
=========== =========== =========== ===========
1994 Federal State Foreign Total
- ---- ------- ----- ------- -----
Current tax $ 3,834,000 $ 536,000 $ 74,000 $ 4,444,000
Deferred tax (588,000) 92,000 -- (496,000)
----------- ----------- ----------- -----------
$ 3,246,000 $ 628,000 $ 74,000 $ 3,948,000
=========== =========== =========== ===========
Total income tax expense differed from the statutory United States Federal
income tax rate of 34% of earnings before income tax as a result of the
following items:
1996 1995 1994
---- ---- ----
Tax provision at statutory rate: $5,425,000 $4,067,000 $3,274,000
Increases in taxes resulting from:
State income taxes, net of Federal
income tax benefit 373,000 398,000 433,000
Amortization of intangibles 208,000 51,000 51,000
Other 439,000 365,000 190,000
---------- ---------- ----------
Actual provision for income taxes $6,445,000 $4,881,000 $3,948,000
========== ========== ==========
-5-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. For presentation
purposes, certain of such tax assets and liabilities are shown net on the
accompanying balance sheets. Significant components of the Company's deferred
tax liabilities and assets as of December 31, are as follows:
1996 1995
---- ----
Deferred Tax Assets
Accounts receivable, principally
due to allowance for doubtful accounts $ 522,000 $ 594,000
Supplemental Executive Retirement Plan
(SERP) expense, principally due to
accrual for financial statement
purposes 713,000 611,000
Inventory principally due to reserves 1,280,000 543,000
Pension accrual for financial reporting purposes 511,000 270,000
Other 594,000 594,000
----------- -----------
Total gross deferred tax assets 3,620,000 2,612,000
Less valuation reserve -- --
----------- -----------
Net deferred tax assets 3,620,000 2,612,000
----------- -----------
Deferred Tax Liabilities
Plant, equipment and other amortizable
assets principally due to differences
in depreciation methods (2,399,000) (2,836,000)
Other assets, principally due to
different amortizable lives for
book purposes (52,000) (106,000)
Other (94,000) (32,000)
----------- -----------
Total gross deferred tax liabilities (2,545,000) (2,974,000)
----------- -----------
Net deferred tax asset (liability) $ 1,075,000 $ (362,000)
=========== ===========
Based upon its history of taxable income and the projections for future
earnings, management of the Company believes that it is more likely than not
that the Company will generate sufficient future taxable income to realize the
net deferred tax asset at December 31, 1996.
-6-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Long-Term Debt
Long-term debt is summarized as follows: 1996 1995
---- ----
9.5% promissory notes $40,000,000 $40,000,000
9.68% mortgage note due in monthly
installments of $6,259 through
December 1996 -- 70,395
----------- -----------
$40,000,000 $40,070,395
Less current portion -- 70,395
----------- -----------
$40,000,000 $40,000,000
=========== ===========
In June 1993, the Company issued to an institutional lender $40,000,000 of
senior notes due May 31, 2005 with interest at 9.5%. The proceeds of the loan
were used principally to repay the entire $35,000,000 principal amount of 11.04%
promissory notes with another institutional lender plus a prepayment premium of
$3,850,000. During the second quarter of 1993, the Company recorded an
extraordinary loss of $2,310,000 (net of an income tax benefit of $1,540,000) in
connection with the early retirement of the 11.04% promissory notes.
The 9.5% notes require annual principal repayment of $8,000,000 beginning May
31, 2001 through May 31, 2005.
In September 1985, the Company obtained $1,800,000 of financing through the
issuance of an Industrial Revenue Bond for the addition of a new production
facility. The bond bore interest at 9.56% and was required to be repaid in
twenty equal quarterly installments which began in 1990. The bond was repaid in
full in September 1995.
The terms of the various agreements include covenants which provide, among other
things, for the maintenance of certain financial covenants and ratios relating
to consolidated net worth and consolidated working capital as well as
restrictions on cash dividends and certain other expenditures. At December 31,
1996, retained earnings available for dividends and certain other expenditures
amounted to approximately $727,000. At December 31, 1996, the Company was in
compliance with all covenants.
(8) Financial Arrangements
At December 31, 1996, the Company had arrangements with banks providing
$27,500,000 of lines of credit. These lines, which are renewable annually, are
currently in force and are expected to be renewed at their respective expiration
dates. There were no borrowings under these lines during 1996 and 1995. No
compensating balances are required for these lines or for drawings thereunder
and there are no restrictive covenants.
-7-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Employee Retirement Plans
(a) Pension Plans
The Company maintains non-contributory defined benefit pension plans covering
all eligible employees. The Company also has a supplemental executive retirement
plan ("SERP") for certain of its executives. The SERP Plan is a non-qualified
plan under the Internal Revenue Code. The Company has made payments of $586,000,
$310,000 and $450,000 for 1996, 1995 and 1994, respectively, as determined by
the plans' actuaries in accordance with SFAS No. 87 "Employer's Accounting for
Pensions":
<TABLE>
<CAPTION>
1996
------------------------------------------
Del Non- Del LaCross
Union Plan Union Plan SERP
------------ ------------ ------------
<S> <C> <C> <C>
Actuarial present value of accumulated
plan benefit obligation:
Vested benefit obligation $ 11,833,895 $ 1,062,400 $ 2,426,641
Non-vested benefit obligation 210,127 5,893 44,561
------------ ------------ ------------
Accumulated benefit obligation $ 12,044,022 $ 1,068,293 $ 2,471,202
============ ============ ============
Projected benefit obligation for services
rendered to date $(14,843,169) $ (1,068,293) $ (2,558,003)
Plan assets at fair value 10,316,157 490,264 --
------------ ------------ ------------
Plan assets under projected
benefit obligation (4,527,012) (578,029) (2,558,003)
Unrecognized net loss (1) 3,019,273 230,935 145,384
Unrecognized net (asset) obligation at
December 31 being amortized (2) (377,393) 123,883 --
Unrecognized prior service cost 542,039 39,799 418,643
Additional minimum liability for unfunded
accumulated benefit obligation (3) (384,772) (394,617) (477,226)
------------ ------------ ------------
Estimated pension liability (4) $ (1,727,865) $ (578,029) $ (2,471,202)
============ ============ ============
Net pension expense is comprised of the
following components:
Service cost $ 902,914 $ 22,892 $ 29,339
Interest cost on projected benefit
obligation 802,656 60,209 143,132
Return on assets (734,832) (37,880) --
Amortization of net (assets) obligation (62,576) 24,776 --
Amortization of past service cost 56,156 6,902 88,020
Amortization of gain 252,304 12,007 21,286
------------ ------------ ------------
Net pension expense $ 1,216,622 $ 88,906 $ 281,777
============ ============ ============
</TABLE>
-8-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1995
------------------------------------------
Del Non- Del LaCross
Union Plan Union Plan SERP
------------ ------------ ------------
<S> <C> <C> <C>
Actuarial present value of accumulated
plan benefit obligation:
Vested benefit obligation $ 9,292,453 $ 928,193 $ 2,287,430
Non-vested benefit obligation 1,150,856 9,525 26,184
------------ ------------ ------------
Accumulated benefit obligation $ 10,443,309 $ 937,718 $ 2,313,614
============ ============ ============
Projected benefit obligation for services
rendered to date $(12,564,718) $ (937,718) $ (2,453,669)
Plan assets at fair value 9,150,406 472,506 --
------------ ------------ ------------
Plan assets under projected
benefit obligation (3,414,312) (465,212) (2,453,669)
Unrecognized net loss (1) 2,579,615 139,345 280,962
Unrecognized net (asset) obligation at
December 31 being amortized (2) (439,969) 148,659 --
Unrecognized prior service cost 598,195 46,702 460,508
Additional minimum liability for unfunded
accumulated benefit obligation (3) (616,432) (334,706) (601,415)
------------ ------------ ------------
Estimated pension liability (4) $ (1,292,903) $ (465,212) $ (2,313,614)
============ ============ ============
Net pension expense is comprised of the
following components:
Service cost $ 772,186 $ 27,356 $ 200,424
Interest cost on projected benefit
obligation 701,325 54,563 132,544
Return on assets (599,779) (35,958) --
Amortization of net (assets) obligation (62,576) 24,776 --
Amortization of past service cost 56,156 6,902 88,020
Amortization of gain 168,242 2,615 25,542
------------ ------------ ------------
Net pension expense $ 1,035,554 $ 80,254 $ 446,530
============ ============ ============
</TABLE>
-9-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1994
------------------------------------------
Del Non- Del LaCross
Union Plan Union Plan SERP
------------ ------------ ------------
<S> <C> <C> <C>
Actuarial present value of accumulated
plan benefit obligation:
Vested benefit obligation $ 6,779,868 $ 783,538 $ 1,892,729
Non-vested benefit obligation 872,899 6,287 7,594
----------- ----------- -----------
Accumulated benefit obligation $ 7,652,767 $ 789,825 $ 1,900,323
=========== =========== ===========
Projected benefit obligation for services
rendered to date $(9,070,799) $ (789,825) $(1,900,323)
Plan assets at fair value 7,387,240 448,685 --
----------- ----------- -----------
Plan assets under projected
benefit obligation (1,683,559) (341,140) (1,900,323)
Unrecognized net loss (1) 1,907,365 27,848 86,125
Unrecognized net (asset) obligation at
December 31 being amortized (2) (502,545) 173,435 --
Unrecognized prior service cost 125,322 53,605 548,528
Additional minimum liability for unfunded
accumulated benefit obligation (3) (112,110) (254,888) (634,653)
----------- ----------- -----------
Estimated pension liability (4) $ (265,527) $ (341,140) $(1,900,323)
=========== =========== ===========
Net pension expense is comprised of the
following components:
Service cost $ 545,249 $ 21,802 $ 168,095
Interest cost on projected benefit
obligation 603,876 54,281 120,853
Return on assets (699,344) (41,806) --
Amortization of net (assets) obligation (62,576) 24,776 --
Amortization of past service cost 20,887 6,902 88,020
Amortization of gain 42,551 -- 7,177
----------- ----------- -----------
Net pension expense $ 450,643 $ 65,955 $ 384,145
=========== =========== ===========
</TABLE>
(1) Represents the change in the value of the projected liabilities resulting
from using a lower discount interest rate than in prior years and changes
in the values of projected assets and liabilities resulting from experience
different than actuarial assumptions.
(2) Represents the difference between the assets and the projected benefit
obligation as of January 1, 1987 (the transition date), amortized over the
average future service period of the active plan members.
(3) Represents the additional minimum liability required to recognize the
excess of the unfunded accumulated benefit obligation over previously
accrued pension expense. In accordance with SFAS No. 87, a concomitant
intangible asset of an equal amount was recognized and included in
investments and other assets.
(4) The short-term portion of accrued pension expense is included in accrued
liabilities.
Total pension expense for the years ended December 31, 1996, 1995 and 1994
amounted to approximately $1,587,000, $1,562,000 and $901,000, respectively.
-10-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
For 1996, 1995, and 1994 the actuarial assumptions used for the weighted average
discount rate were 6.0%, 6.25% and 7.5% respectively; for the return on assets
8.0% was used for 1996 and 1995 and 9.5% was used for 1994; and for the rates of
increase in future compensation 5.5% was used for 1996, 1995 and 1994.
Assets held by these plans consist of cash and cash equivalents, fixed income
securities consisting of government and corporate bonds and common stock.
The Company contributes to a multi-employer (union) pension plan for the benefit
of its union employees not covered by the above plans. This plan is a defined
benefit plan based on years of service. The costs recognized for 1996, 1995 and
1994 were approximately $394,000, $419,000 and $358,000, respectively.
Effective January 1, 1991, the Company established a defined contribution plan
for the benefit of its Canadian employees not covered by the above plans. The
costs recognized for 1996, 1995 and 1994 were approximately $54,000, $50,000 and
$41,000 in U.S. dollars, respectively.
(b) Employee Stock Ownership Plan
The Company has an employee stock ownership plan and related trust, covering
substantially all full-time non-union employees. Under the terms of the plan,
the Company may make contributions to the trust in cash, shares of Company stock
or other property in amounts as may be determined by the Board of Directors. The
Board of Directors authorized contributions of $800,000, $400,000 and $250,000
for the years 1996, 1995 and 1994, respectively. At December 31, 1996 the trust
held 385,083 shares of Company common stock.
(c) Employee 401(k) Savings Plan
The Company maintains an Employee 401(k) Savings Plan. The plan is a defined
contribution plan which is administered by the Company. All regular, full-time
employees are eligible for voluntary participation upon completing six months of
service and having attained the age of twenty-one. The plan provides for growth
in savings through contributions and income from investments. It is subject to
the provisions of the Employee Retirement Income Security Act of 1974 (ERISA),
as amended. Plan participants are allowed to contribute a specified percentage
of their base salary. However, the Company retains the right to make optional
contributions for any plan year. No such optional contributions were made for
the years ended December 31, 1996, 1995 and 1994.
(10) Shareholders' Equity
(a) Stock Option Plans
The 1994 Stock Plan (the "1994 Plan") provides for the granting of incentive and
non-incentive options and other stock-based awards. A total of 877,793 shares
have been authorized for issuance under the 1994 Plan. At December 31, 1996,
non-incentive options have been the only awards issued under the 1994 Plan. The
exercise price of options granted under the 1994 Plan shall not be less than the
fair market value of the common stock at the date of the grant. The Compensation
Committee of the Board of Directors determines the persons to whom options will
be granted, the prices at which options may be exercised, the vesting period and
whether the options will be incentive or non-incentive. Incentive options, if
granted, are exercisable for a period of up to ten years from the date of the
grant. The exercise price of the shares to be purchased shall be paid either in
cash, delivery (i.e. surrender) of shares of common stock owned by the optionee
at the time of exercise of the option, in installments payable in cash if
permitted by the Committee or in any combination of the foregoing.
Shares received by an optionee upon exercise of a non-incentive option may not
be sold or otherwise disposed of for a period ("restricted period") determined
by the Committee upon grant of the option, which shall be not less than six
months or more than three years from the date of the exercise, during which
period the Company is entitled, in the event the employment of the optionee with
the Company terminates, to repurchase the shares at the exercise price.
Following the restricted period, the Company shall have a right of first refusal
to purchase the shares at fair market value. Shares issuable upon exercise of
options granted to date under the 1994 Plan are subject to a six month
restricted period.
-11-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
At December 31, 1996, 386,778 of the 710,446 options outstanding were
exercisable under the 1994 Plan, at a weighted-average exercise price of $14.56.
The 1984 Stock Option Plan, as amended (the "1984 Plan"), provided for the
granting of incentive and non-incentive options to purchase shares of the
Company's common stock at prices which are not less than the fair market value
of the common stock at the dates of grant. Options are exercisable as determined
by the Compensation Committee for a period up to ten years and one day from the
date of grant. Incentive options granted to a 10% stockholder must be granted at
110% of fair market value and may be exercised up to five years from the date of
grant. Payment of the exercise price of options may be made in the same manner
as provided by the 1994 Plan, and shares issued upon exercise are subject to a
restricted period similar to that provided under the 1994 Plan. At December 31,
1996, all 813,707 options outstanding under the 1984 Plan were exercisable at a
weighted-average exercise price of $6.75. No further options will be granted
under the 1984 Plan.
The Company's Restricted Stock Plan (1971), as amended (the "1971 Plan"),
provided for the granting of options at the fair market value of the common
stock at the date of grant, for a term up to ten years. Shares are subject to a
restricted period similar to that imposed by the 1994 Plan and 1984 Plan. At
December 31, 1996, there were no options outstanding under the 1971 Plan and no
additional options will be granted.
Limited stock appreciation rights also may be granted under the 1994 Plan and
1984 Plan, which will be effective only upon a change in control of the Company
(as defined). These plans also accelerate the exercisability of all unexercised
options or stock appreciation rights immediately in the event of a change in
control of the Company.
Shares outstanding and option prices under option and option transactions during
the last three years, are summarized below:
1994 Stock Plan
Weighted-average
Shares exercise price
------ --------------
Outstanding December 31, 1993 -- --
Granted 128,266 $ 9.93
Exercised -- --
Forfeited -- --
-------- ------
Outstanding December 31, 1994 128,266 9.93
Granted 376,026 16.09
Exercised (5,811) 9.96
Forfeited (22,480) 12.14
-------- ------
Outstanding December 31, 1995 476,001 14.69
Granted 239,432 21.01
Exercised (1,635) 14.30
Forfeited (3,352) 15.96
-------- ------
Outstanding December 31, 1996 710,446 $16.82
========
-12-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1984 Stock Option Plan Restricted Stock Plan (1971)
Weighted-average Weighted-average
Shares exercise price Shares exercise price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding December 31, 1993 1,777,580 $6.24 146,427 $5.97
Granted -- -- -- --
Exercised (240,626) 5.34 (2,488) 5.09
Forfeited (2,371) 6.64 -- --
--------- ----- ------- ----
Outstanding December 31, 1994 1,534,583 6.38 143,939 5.99
Granted -- -- -- --
Exercised (320,918) 6.07 (143,939) 5.99
Forfeited (16,018) 6.22 -- --
--------- ----- ------- ----
Outstanding December 31, 1995 1,197,647 6.47 -0- --
=======
Granted -- --
Exercised (383,940) 5.87
Forfeited -- --
--------- -----
Outstanding December 31, 1996 813,707 $6.75
=========
</TABLE>
At December 31, 1996, a total of 1,524,153 shares of common stock were subject
to outstanding options under its stock option plans.
The Company applies APB Opinion No. 25 and related Interpretations in accounting
for stock option plans. Accordingly, no compensation cost has been recognized.
Had compensation cost for the stock option plans been determined based on the
fair value at the grant dates for awards under the plans, consistent with the
alternative method set forth under SFAS No. 123, the Company's net income and
net income per share would have been reduced.
The pro forma amounts are indicated below:
Year Ended December 31 1996 1995
---------------------- ---- ----
Net Income
As reported $ 9,278,000 $ 7,025,000
Pro forma $ 8,324,000 $ 6,751,000
Net Income per share
As reported $ 1.43 $ 1.09
Pro forma $ 1.28 $ 1.04
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: dividend yields of
0.50% and 0.63%; expected volatility of 25.5% and 22.3%; risk-free interest
rates of 6.08% and 6.55%; and expected lives of 5.1 and 5.5 years. The
weighted-average fair value of options granted was $7.11 and $5.48 for the years
ended December 31, 1996 and 1995, respectively.
Pro forma net income reflects only options granted in 1996 and 1995. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro forma net income amounts presented above
because compensation cost is reflected over the options' vesting period and
compensation cost for options granted prior to January 1, 1995 is not
considered.
-13-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following table summarizes information about stock options at December 31,
1996:
<TABLE>
<CAPTION>
Outstanding Stock Options Exercisable Stock Options
-------------------------------------------- -------------------------
Exercisable Weighted- Weighted-average Weighted-
Range of remaining Exercise average
Exercise Prices Shares Contractual Life Price Shares Exercise Price
- ------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 4.00 to $ 8.00 647,195 2.44 $ 6.36 647,195 $ 6.36
$ 8.01 to $12.00 271,184 6.97 $ 8.86 271,184 $ 8.86
$12.01 to $16.00 148,936 5.81 $15.07 63,207 $ 14.80
$16.01 to $20.00 218,899 6.61 $16.78 218,899 $ 16.78
$20.01 to $24.00 237,939 6.76 $21.04 -- --
- ------------------------------------------------------------------------------------------
$ 4.00 to $24.00 1,524,153 4.85 $11.44 1,200,485 $ 9.27
==========================================================================================
</TABLE>
(b) Receivable for Stock Options Exercised
In 1984, the Company loaned an officer $367,000 in connection with the payment
of taxes arising from the exercise of stock options (the "1984" Loan). The
Company also loaned the officer $1,065,313 in 1988 (the "1988" Loan) and
$1,100,000 in 1990 (the "1990" Loan), each in connection with the exercise of
stock options and the tax liability arising therefrom. These loans were payable
in annual installments. In addition, the 1988 Loan and the 1990 Loan agreements
provided that, if the officer was employed by the Company at the time any
interest or debt payments were due, such payment would be forgiven.
Pursuant to an amendment to this officer's employment agreement, the 1984 Loan,
the 1988 Loan and the 1990 Loan were consolidated, effective as of January 1,
1994, with the aggregate principal balance to be repaid, with interest at the
rate of 6.0% per annum, in annual amounts of $130,000 in 1994, $140,000 for each
year during the period from 1995 through 2003 and a final payment of $642,250 on
January 20, 2004, provided that each payment of interest and principal will be
forgiven when due so long as the officer is then employed by, or then serves as
a consultant to the Corporation and, provided further, that the Corporation may
(but is not required to) forgive, during any year until 2003, in excess of
$140,000 of principal, so long as the aggregate of principal and interest
forgiven by the Corporation in any such year shall not exceed $360,000. This
loan must be secured by collateral with a fair value of 110% of the unpaid
principal. The loan balance at December 31, 1996 was $1,622,250 and was
collateralized by 85,484 shares of the Company's common stock.
During 1992, the Company loaned another officer $130,000 to enable him to
exercise an option for 7,289 shares. The loan bears interest at the prime rate
and is payable in quarterly installments commencing in 1993. The loan balance at
December 31, 1996 was $78,000 and was secured by a pledge of 8,500 shares of the
Company's common stock.
During 1992, the Company loaned an aggregate of $111,187 to two additional
officers to enable them to exercise options for 6,500 shares. The loans bear
interest at the prime rate and are payable in quarterly installments commencing
in 1993. One of the loans was repaid in full in April 1995. The balance of the
other loan at December 31, 1996 was $36,070 and was secured by 3,400 shares of
the Company's common stock.
-14-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
During 1993, the Company loaned an aggregate of $151,496 to two other officers
to enable them to exercise options for an aggregate of 8,889 shares. The loans
bear interest at the prime rate and are payable in quarterly installments
commencing in 1994. The loans were repaid in full in January 1995.
During 1993, the Company loaned two employees an aggregate of $54,800 to enable
them to exercise options for an aggregate of 2,666 shares. The loans bear
interest at the prime rate and are payable in quarterly installments which
commenced in 1994. The loans were repaid in full in January 1995.
The balance of all loans made to officers and employees is reflected as a
reduction of Shareholders' Equity in the accompanying consolidated financial
statements.
(c) Amendment to Certificate of Incorporation
On May 26, 1995, the Company's stockholders approved an amendment to the
Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 5,000,000 shares to 10,000,000 shares.
(11) Accrued Liabilities
Accrued liabilities at December 31, 1996 and 1995 consisted of the following:
1996 1995
---- ----
Salaries, wages, commissions & employee benefits $ 3,844,336 $ 2,771,037
Interest 316,667 317,243
Advertising and promotion costs 8,700,312 9,227,230
Other 2,033,315 2,179,214
----------- -----------
$14,894,630 $14,494,724
=========== ===========
(12) Commitments and Contingencies
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.
-15-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 March 1997, the parties agreed, subject to Court approval, to a proposed
settlement in which the Company's insurance carrier, on behalf of the individual
defendants, will pay $400,000 to the Company. The Company has agreed not to
oppose an application to the Court by the plaintiffs' attorneys for an
attorneys' fee of $150,000 which has been provided for in the consolidated
financial statements of the Company.
The defendants continue to deny all allegations of wrongdoing and have advised
the Company that they are entering into the proposed settlement to eliminate the
burden and expense of further litigation.
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.
The Company leases data processing equipment, transportation equipment and
warehouse space under terms of leases expiring through 2001. Rentals under these
operating leases aggregate approximately $1,993,000, $1,881,000, and $1,768,000
in 1996, 1995 and 1994, respectively. The Company's obligations under
non-cancelable leases are summarized as follows:
1997 $ 918,837
1998 274,736
1999 229,980
2000 163,811
2001 64,351
Thereafter 16,754
----------
$1,668,469
==========
(13) Financial Instruments
The carrying value of all financial instruments classified as a current asset or
current liability are deemed to approximate fair value because of the short
maturity of these instruments.
The difference between the fair value of long-term debt and its carrying value
at December 31, 1996 is not material. The fair value of the Company's long-term
debt is estimated based upon current rates offered to the Company for a similar
liability. Because considerable judgement is required in interpreting market
data to develop estimates of fair value, the estimates are not necessarily
indicative of the amounts that could be realized or would be paid in a current
market exchange. The effect of using different market assumptions or estimation
methodologies may be material to the estimated fair value amount. The carrying
value of all financial instruments approximates fair value.
-16-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(14) Segment Information
The following is a summary of segment information for 1996, 1995 and 1994 (in
thousands of dollars):
1996
----------------------------------------
Cosmetics Pharmaceutical Consolidated
--------- -------------- ------------
Sales to unaffiliated customers $179,031 $ 53,920 $232,951
======== ======== ========
Operating income $ 8,885 $ 10,120 $ 19,005
-------- -------- --------
Interest expense (net) $ 3,282
--------
Earnings before taxes $ 15,723
--------
Identifiable assets at December 31, 1996 $106,541 $ 15,841 $122,382
======== ======== ========
Depreciation and amortization $ 5,506 $ 796 $ 6,302
======== ======== ========
Capital expenditures $ 5,173 $ 154 $ 5,327
======== ======== ========
1995
----------------------------------------
Sales to unaffiliated customers $162,348 $ 49,700 $212,048
======== ======== ========
Operating income $ 6,358 $ 9,049 $ 15,407
-------- -------- --------
Interest expense (net) $ 3,501
--------
Earnings before taxes $ 11,906
--------
Identifiable assets at December 31, 1995 $ 97,714 $ 17,003 $114,717
======== ======== ========
Depreciation and amortization $ 5,617 $ 328 $ 5,945
======== ======== ========
Capital expenditures $ 7,377 $ 192 $ 7,569
======== ======== ========
1994
----------------------------------------
Sales to unaffiliated customers $141,687 $ 48,415 $190,102
======== ======== ========
Operating income $ 4,331 $ 8,939 $ 13,270
-------- -------- --------
Interest expense (net) $ 3,641
--------
Earnings before taxes $ 9,629
--------
Identifiable assets at December 31, 1994 $ 89,197 $ 15,760 $104,957
======== ======== ========
Depreciation and amortization $ 3,815 $ 197 $ 4,012
======== ======== ========
Capital expenditures $ 5,652 $ 175 $ 5,827
======== ======== ========
Sales to Wal-Mart Stores Inc. were 21.7%, 20.5% and 17.7% of consolidated net
sales for 1996, 1995 and 1994, respectively.
Two customers accounted for 31.4% and 35.1% of the Company's net accounts
receivables at December 31, 1996 and 1995, respectively.
-17-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) Unaudited Quarterly Financial Data
The following is a summary of quarterly operating results for 1996 and 1995 (in
thousands of dollars except per share amounts):
1996
----------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Net sales $56,094 $58,060 $60,354 $58,443
Cost of goods sold 22,815 24,216 27,612 22,877
Net earnings 2,388 2,197 2,575 2,118
Earnings per common share $ .37 $ .34 $ .40 $ .33
======= ======= ======= =======
1995
----------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Net sales $50,697 $52,656 $55,114 $53,581
Cost of goods sold 19,539 21,587 23,669 23,643
Net earnings 1,836 1,702 1,977 1,510
Earnings per common share $ .29 $ .26 $ .31 $ .24
======= ======= ======= =======
Earnings per share calculations for each of the quarters are based on weighted
average number of shares outstanding in each period. Therefore, the sum of the
quarters in a year does not necessarily equal the year's earnings per share.
(16) Subsequent Events
In March, 1997, the Company entered into an agreement to purchase land and
buildings in North Carolina. This property is to be used as a distribution
center, and is replacing leased facilities whose lease expires in 1997. The
Company expects to close on the property during the second quarter of 1997. The
cost of the property is $5,500,000 with the seller financing the transaction
interest free. The agreement calls for payments over the next three years, with
a final payment of $3,850,000 in April, 2000. When the closing is completed, the
Company will record the transaction based on the present value of the loan on
the date of closing and will accrete interest over the life of the loan. Any
remaining leasehold improvements related to the leased property will be fully
amortized by the end of the lease term.
-18-
<PAGE>
SCHEDULE II
DEL LABORATORIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1996, 1995 and 1994
Additions
Balance at charged to Balance at
beginning costs and end
Description of period expenses Deductions(1) of period
- ------------------- --------- -------- ---------- ----------
Year ended December 31, 1994
allowances for doubtful $1,100,000 $ 548,400 $ 348,400 $1,300,000
accounts ========== ========== ========== ==========
Year ended December 31, 1995
allowances for doubtful $1,300,000 $ 655,000 $ 255,000 $1,700,000
accounts ========== ========== ========== ==========
Year ended December 31, 1996
allowances for doubtful $1,700,000 $ 40,000 $ 240,000 $1,500,000
accounts ========== ========== ========== ==========
(1) Uncollectible accounts written off, net of recoveries.
-19-
<PAGE>
ITEM 11
Computation
Of
Earnings Per Share Information
<PAGE>
ITEM 11
DEL LABORATORIES, INC. AND SUBSIDIARIES
Years ended December 31, 1996, 1995 and 1994
Computation of Earnings Per Share Information
(Amounts in thousands, except per share data)
1994
----------------------
1996 (A) 1995 (A) Primary Fully Diluted
---- ---- ------- -------------
Net earnings $9,278 $7,025 $5,681 $5,681
Reduction of interest expense
net of tax effect -- -- 48 --
------ ------ ------ ------
Net earnings for computing
earnings per common share $9,278 $7,025 $5,729 $5,681
====== ====== ====== ======
Weighted average number of
common shares outstanding (B) 5,586 5,599 5,637 5,637
Net additional shares issuable
on conversion of stock options
net of 20% repurchase
limitation (B) 897 872 763 1,032
------ ------ ------ ------
Adjusted shares outstanding (B) 6,483 6,471 6,400 6,669
====== ====== ====== ======
Net earnings per common
share (B) $ 1.43 $ 1.09 $ .90 $ .86
====== ====== ====== ======
Earnings per common share for the years ended December 31, 1996, 1995 and 1994
were computed using 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 income increased for the
hypothetical interest expense savings or interest income, net of taxes.
(A) Primary and fully diluted earnings per common share were the same in
1996 and 1995.
(B) Adjusted to reflect 4-for-3 stock splits, effective November 8,
1996 and June 15, 1994 and a 2-for-1 stock split effective June 16,
1995.
Exhibit 1 to Annual
Report On Form 10-K
For the Year Ended
December 31, 1996
AMENDMENT NO. 1
TO
DEL LABORATORIES, INC.
AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
WHEREAS, effective January 1, 1988, Del Laboratories, Inc. (the
"Company") adopted the Del Laboratories, Inc. Supplemental Executive Retirement
Plan ("SERP") which provides for payment to selected employees of pension or
pension-related benefits which cannot be paid under the Del Laboratories, Inc.
Employees Pension Plan;
WHEREAS, the SERP was amended and restated in its entirety effective
January 1, 1994 (the "Restated SERP"); and
WHEREAS, the Company has determined that Section 3(a) of the
Restated SERP should be amended, effective as of January 1, 1997, to modify the
formula for determining the benefit payable under the Restated SERP to each of
the Initial Participants (as defined therein).
NOW, THEREFORE, the Company hereby amends, effective as of January
1, 1997, Section 3(a) of the Restated SERP to read in its entirety as follows:
"(a) Initial Participants. The Supplemental Benefit payable to
an Initial Participant under this Plan shall equal the excess, if
any, of (i) over (ii) where,
(i) is the benefit which would have been paid to such
Initial Participant, or to his
<PAGE>
- 2 -
beneficiary, under the Basic Plan, if the provisions of the Basic
Plan were administered without regard to the limitations set forth
in Sections 415(b), 415(e), and 401(a)(17) of the Code, except that
the benefit shall be calculated utilizing the Basic Plan formula in
effect on December 31, 1993, notwithstanding any change in such
formula following such date, and the Average Monthly Compensation
shall be the monthly average of all Compensation paid to such
Initial Participant in respect of the 1995 Plan Year; and
(ii) is the benefit which is payable to such Initial
Participant, or to his beneficiary, under the Basic Plan, as amended
and in effect on the date of determination of such Supplemental
Benefit."
IN WITNESS WHEREOF, Del Laboratories, Inc. has caused this Amendment
No. 1 to the Del Laboratories, Inc. Amended and Restated Supplemental Executive
Retirement Plan to be executed by its duly authorized officers and its corporate
seal to be affixed hereto.
DEL LABORATORIES, INC.
By: /s/ Dan K. Wassong
-----------------------
Dan K. Wassong
Chairman, President and
Chief Executive Officer
[Corporate Seal]
Attest:
Melvyn C. Goldstein
- -------------------
Melvyn C. Goldstein
Vice President-Finance
Exhibit 2 to Annual
Report On Form 10-K
For the Year Ended
December 31, 1996
April 22, 1996
Mr. Charles J. Hinkaty
c/o Del Laboratories, Inc.
565 Broad Hollow Road
Farmingdale, New York 11735
Dear Mr. Hinkaty:
This will confirm that your Employment Agreement, as amended and
extended, is further extended to March 31, 1999.
In all other respects the Employment Agreement, as amended and
extended, shall continue in full force and effect. Other changes to the
Employment Agreement may be made at a later date.
Please signify your agreement with the foregoing by counter-signing
the copy of this letter and returning it to me.
Very truly yours,
DEL LABORATORIES, INC.
By: /s/ Dan K. Wassong
---------------------
Dan K. Wassong
Chairman of the Board
ACCEPTED AND AGREED:
/s/ Charles J. Hinkaty
- ----------------------
Charles J. Hinkaty
Exhibit 3 to Annual
Report On Form 10-K
For the Year Ended
December 31, 1996
April 22, 1996
Mr. Harvey P. Alstodt
c/o Del Laboratories, Inc.
565 Broad Hollow Road
Farmingdale, New York 11735
Dear Mr. Alstodt:
This will confirm that your Employment Agreement, as amended and
extended, is further extended to March 31, 1999.
In all other respects the Employment Agreement, as amended and
extended, shall continue in full force and effect. Other changes to the
Employment Agreement may be made at a later date.
Please signify your agreement with the foregoing by counter-signing
the copy of this letter and returning it to me.
Very truly yours,
DEL LABORATORIES, INC.
By: /s/ Dan K. Wassong
---------------------
Dan K. Wassong
Chairman of the Board
ACCEPTED AND AGREED:
/s/ Harvey P. Alstodt
- ---------------------
Harvey P. Alstodt
Exhibit 4 to Annual
Report On Form 10-K
For the Year Ended
December 31, 1996
April 22, 1996
Mr. William McMenemy
c/o Del Laboratories, Inc.
565 Broad Hollow Road
Farmingdale, New York 11735
Dear Mr. McMenemy:
This will confirm that your Employment Agreement, as amended and
extended, is further extended to March 31, 2001.
In all other respects the Employment Agreement, as amended and
extended, shall continue in full force and effect. Other changes to the
Employment Agreement may be made at a later date.
Please signify your agreement with the foregoing by counter-signing
the copy of this letter and returning it to me.
Very truly yours,
DEL LABORATORIES, INC.
By: /s/ Dan K. Wassong
---------------------
Dan K. Wassong
Chairman of the Board
ACCEPTED AND AGREED:
/s/ William McMenemy
- --------------------
William McMenemy
Exhibit 5 to Annual
Report On Form 10-K
For the Year Ended
December 31, 1996
April 22, 1996
Mr. Melvyn C. Goldstein
c/o Del Laboratories, Inc.
565 Broad Hollow Road
Farmingdale, New York 11735
Dear Mr. Goldstein:
This will confirm that your Employment Agreement, as amended and
extended, is further extended to March 31, 1999.
In all other respects the Employment Agreement, as amended and
extended, shall continue in full force and effect. Other changes to the
Employment Agreement may be made at a later date.
Please signify your agreement with the foregoing by counter-signing
the copy of this letter and returning it to me.
Very truly yours,
DEL LABORATORIES, INC.
By: /s/ Dan K. Wassong
---------------------
Dan K. Wassong
Chairman of the Board
ACCEPTED AND AGREED:
/s/ Melvyn C. Goldstein
- -----------------------
Melvyn C. Goldstein
Independent Auditors' Consent
The Board of Directors and Stockholders
Del Laboratories, Inc.:
We consent to the incorporation by reference in the Registration Statement (No.
33-27777) on Form S-8 and Registration Statement (No. 33-64777) on Form S-8 of
Del Laboratories, Inc. or our report dated February 13, 1997, relating to the
consolidated balance sheets of Del Laboratories, Inc. and subsidiaries as of
December 31, 1996 and 1995 and the related consolidated statements of earnings,
shareholders' equity, and cash flows and related financial statement schedule II
for each of the years in the three-year period ended December 31, 1996, which
report appears in the December 31, 1996 annual report on Form 10-K of Del
Laboratories, Inc.
Our report refers to a change in the method of accounting for long-lived assets.
Jericho, New York
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 14,515,947
<SECURITIES> 0
<RECEIVABLES> 30,781,594
<ALLOWANCES> 1,500,000
<INVENTORY> 33,787,747
<CURRENT-ASSETS> 83,499,334
<PP&E> 26,628,250
<DEPRECIATION> 16,787,785
<TOTAL-ASSETS> 122,382,349
<CURRENT-LIABILITIES> 33,233,008
<BONDS> 0
0
0
<COMMON> 8,784,514
<OTHER-SE> 36,057,527
<TOTAL-LIABILITY-AND-EQUITY> 122,382,349
<SALES> 232,951,382
<TOTAL-REVENUES> 0
<CGS> 97,520,017
<TOTAL-COSTS> 213,946,293
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 40,000
<INTEREST-EXPENSE> 3,282,151
<INCOME-PRETAX> 15,722,938
<INCOME-TAX> 6,445,000
<INCOME-CONTINUING> 9,277,938
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,277,938
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 0
</TABLE>
