<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(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, 1997
-----------------
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
------
DEL LABORATORIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 13-1953103
----------
(State or other jurisdiction of (I.R.S. Employer I.D. Number)
incorporation or organization)
178 EAB Plaza, Uniondale, NY 11556
- ---------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (516) 844-2020
--------------
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 Common Stock held by non-affiliates of the
Registrant on March 27, 1998 was $155,518,165. On such date, the average bid
and asked price for the Common Stock was $33.13 per share.
The number of shares of Common Stock outstanding as of March 27, 1998 was
7,616,041 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Part of the Form 10-K into
which the Document is
Document Incorporated
- -------- ------------
Definitive Proxy Statement for 1998 Annual Part III, Items 10, 11,
Meeting of Stockholders 12 and 13
<PAGE>
Part I
- ------
Item 1 - Business
- -----------------
Del Laboratories, Inc. (the "Company") manufactures, markets and distributes
cosmetics and proprietary over-the-counter pharmaceuticals. The Company's
principal cosmetics products are nail care products, nail color, color
cosmetics, beauty implements, bleach and depilatories, personal care
products, and other related cosmetics items. The Company's cosmetics
products are marketed under such well-known brand names as Sally Hansen "Hard
as Nails" and Sally Hansen Professional Nail (nail care and nail color
products), Naturistics (bath and body care) and LaCross (beauty implements).
The Company's proprietary pharmaceutical products include oral analgesics,
acne treatment products and ear drop medications. The Company's
pharmaceutical products are marketed under such well-known brand names as
Orajel and Tanac (oral analgesics), Propa PH (acne treatment), Pronto
(pediculicides), Arthricare (topical arthritis treatment) and Auro-Dri (ear
remedy). The Company's products are sold principally in the United States
and Canada to wholesalers and independent and chain drug, variety and food
stores.
The Company seeks to increase sales by aggressively marketing its products
under established brand names. The Company targets the mass market, which
accounts for a major portion of the decorative color cosmetics market and the
majority of the over-the-counter pharmaceuticals market. The Company's
customers in the mass market channel include Walgreens, Rite Aid, CVS, and
Eckerd and Revco, major drug store chains; Wal-Mart, K-Mart and Target, major
national chain mass merchandisers; and numerous regional chain drug stores
and mass merchandisers. The Company also distributes its pharmaceutical
products to drug wholesalers, including McKesson Drug and Bergen Brunswig and
national food chains, including Kroger. Other than Wal-Mart Stores, Inc.,
which accounted for 22.7%, 21.7% and 20.5% of the Company's total net sales
for 1997, 1996 and 1995, respectively, no single customer accounted for more
than 10% of the Company's total net sales.
The Company advertises its products on television and radio and in magazines.
In-store displays and promotional activities are also utilized to attract
consumer attention and to inform them of the products available under the
Company's various brands. Cooperative advertising programs with retailers
are also employed to further enhance consumer awareness of the Company's
products and brands. Advertising expenditures were $33.0 million in 1997, or
12.5% as a percentage of total net sales.
The Company utilizes two in-house national sales organizations, one for its
cosmetics product lines and one for its pharmaceutical product lines. The
Company also employs independent manufacturers' representatives in selected
geographic areas where a full-time sales employee would not be economically
justified.
Certain financial information regarding the Company's industry segments is
set forth in the table below:
Industry Segments (In thousands of dollars)
-----------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C>
Sales to unaffiliated customers:
Cosmetics $207,260 $179,031 $162,348
Pharmaceuticals 55,750 53,920 49,700
Operating income:
Cosmetics 15,424 8,885 6,358
Pharmaceuticals 9,828 10,120 9,049
Identifiable assets:
Cosmetics 132,679 106,541 97,714
Pharmaceuticals 16,635 15,841 17,003
</TABLE>
The Company was incorporated in Delaware in 1961. The Company's cosmetics
business is conducted primarily by the Company and its wholly-owned
subsidiary, Del Laboratories (Canada) Inc., which sells the Company's
cosmetics products to the Canadian market. The Company's pharmaceuticals
business is conducted primarily by the Company's wholly-owned subsidiary, Del
Pharmaceuticals, Inc., and its indirect wholly-owned subsidiary, Del
Pharmaceutics (Canada) Inc., which sell the Company's pharmaceutical
products to the Canadian market.
<PAGE>
The Company's products are sold in a limited number of foreign countries.
Export net sales (which exclude sales in Canada and Puerto Rico) have
historically not exceeded 5.0% of total net sales in any year. In 1997, export
net sales represented approximately 2.0% of the Company's total net sales.
The Company has formed a limited number of subsidiaries to conduct its
business in certain foreign countries. In certain other foreign countries,
the Company licenses local representatives to sell the Company's products.
The Company sells standard packaged cosmetic and over-the-counter
pharmaceutical products. The Company's customers expect quick response on
standard merchandise orders. The Company does not have a material amount of
order backlog. Consistent with the packaged goods industry, the Company
accepts authorized returns of unmerchantable, defective or discontinued
products.
The Company purchases raw materials used in its manufacturing processes from
various other manufacturers, paper board suppliers and bottle distributors.
The Company has not experienced any difficulty obtaining raw materials and
believes that such materials are readily available.
The Company expended $5,038,000, $4,559,000 and $4,589,000 in 1997, 1996 and
1995, respectively, on research activities relating to the development of new
products, clinical and regulatory affairs and quality control, all of which
activities are conducted internally by the Company.
Competition in both the cosmetics and over-the-counter pharmaceuticals
markets is intense. Many of the principal competitors in each of the
Company's industry segments are well-established firms with greater financial
and marketing resources. Frequent new product introductions and attendant
advertising characterize both industry segments in which the Company
operates. Consumer brand preferences in the Company's industry segments are
generally influenced by advertising, promotional support and price. The
cosmetics industry is sensitive to consumer purchasing power. The Company's
competitors in the cosmetics market include Revlon, Inc., Proctor and
Gambles' Cover Girl, Cosmair's Maybelline and L'Oreal and in the
over-the-counter pharmaceuticals market, include, Whitehall-Robbins Division
of American Home Products Corp., Warner-Lambert Company, Pfizer, Thompson
Medical, Procter and Gamble Co., SmithKline Beecham, Bristol Myers Squibb,
and Johnson and Johnson.
The Company's major trademarks are registered in the United States and in
many countries throughout the world. The Company has been issued several
United States patents, expiring at various times through 2010. The
Company considers the continued protection and registration of its principal
trademarks and patents to be important to its business.
The Company currently has approximately 1,480 employees. Approximately 450
of the Company's employees are represented by two labor unions. The Company
has not experienced any work stoppages and considers its employee and labor
relations to be satisfactory.
Item 2 - Properties
- -------------------
The Company's corporate offices are located in 44,000 square feet of leased
space in Uniondale, New York.
The Company's 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 Company.
The Company 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 Company 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 Company 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 used by the cosmetics segment.
The Company 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 subsidiaries.
The Company 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 Company owns
a second building located in close proximity to the Little Falls facility
described above. 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.
<PAGE>
The Company's distribution center is located in two owned buildings,
purchased in 1997, containing approximately 225,000 square feet, in Rocky
Point, North Carolina. Both buildings are of insulated metal construction.
The buildings and land are subject to a first mortgage. The distribution
center services both the cosmetics and pharmaceutical segments.
The Company also has short-term leases for space in public warehouses. The
space is primarily used for the cosmetics segment.
The Company believes that its facilities are adequate to meet the needs of
the Company, operating at reasonable levels of production.
Item 3 - Legal Proceedings
- --------------------------
None.
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not applicable.
Part II
- -------
Item 5 - Market for Company's Common Equity and Related Stockholder Matters
- ---------------------------------------------------------------------------
The Company's common stock is traded on the American Stock Exchange under the
symbol "DLI". 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:
<TABLE>
<CAPTION>
1997 1996
---- ----
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $16.69 $15.38 $17.02 $11.39
Second Quarter $26.63 $15.56 $16.46 $14.69
Third Quarter $30.00 $24.94 $16.52 $15.33
Fourth Quarter $30.75 $25.50 $16.60 $14.98
</TABLE>
There were 513 holders of record of the Company's common stock at December
31, 1997. This does not include beneficial holders whose shares are held of
record by nominees, such number not being known by the Company. The Company
paid regular quarterly dividends of $.02 from January 1996 through December
1996 and $.026 from January 1997 through December 1997. On February 10,
1998, the Company raised its quarterly dividend to $.035. The Company has
paid uninterrupted dividends for the past twenty-four years. The Company
expects to pay comparable cash dividends for the foreseeable future. The per
share information set forth above has been adjusted for a 4-for-3 stock split
on February 20, 1998, and a 4-for-3 stock split effective November 8, 1996,
both effected in the form of a stock dividend.
The terms of the Company's various borrowing agreements provide, among other
things, for restrictions on the payment of cash dividends and certain other
expenditures. At December 31, 1997, amounts available for dividends and the
repurchase of treasury stock amounted to approximately $7,121,000.
<PAGE>
Item 6 - Selected Financial Data
- --------------------------------
(Amounts in Thousands Except Per Share and Employee Data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $263,010 $232,951 $212,048 $190,102 $166,496
Net earnings before
extraordinary item 13,127 9,278 7,025 5,681 4,173
Extraordinary item (b) - - - - (2,310)
Net earnings 13,127 9,278 7,025 5,681 1,863
Earnings before extraordinary item
per common share (a)
Basic 1.73 1.25 .94 .76 .55
Diluted 1.59 1.14 .86 .71 .52
Extraordinary item per common share (a)(b)
Basic - - - - (.30)
Diluted - - - - (.29)
Earnings per common share (a)
Basic 1.73 1.25 .94 .76 .25
Diluted 1.59 1.14 .86 .71 .23
Cash dividends per share (a) .105 .079 .079 .074 .068
Weighted average common shares
outstanding (a)
Basic 7,593 7,449 7,465 7,516 7,576
Diluted 8,250 8,157 8,165 8,033 7,987
Other data:
Capital additions $ 15,230 $ 5,327 $ 7,569 $ 5,827 $ 4,802
Total assets 149,314 122,382 114,717 104,957 95,186
Long-term debt 43,879 40,000 40,000 40,070 40,637
Working capital 53,576 51,266 42,034 38,813 38,777
Shareholders' equity 54,530 44,842 38,021 34,203 30,913
Approximate # of employees 1,390 1,329 1,243 1,175 1,080
</TABLE>
(a) Adjusted to reflect 4-for-3 stock splits effective February 20, 1998 and
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) 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
- ---------------------
RESULTS OF OPERATIONS
- ---------------------
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
- ---------------------------------------------------------------------
Net Sales. Net sales were $263.0 million and $233.0 million for 1997 and
1996, respectively, an increase of $30.0 million or 12.9%. Net cosmetics
sales were $207.3 million and $179.0 million for 1997 and 1996, respectively,
an increase of $28.3 million or 15.8%. The increase in net cosmetics sales
resulted primarily from volume growth in existing products and new product
introductions in the Sally Hansen, Sally Hansen Professional Nails, LaCross
and Naturistics brands and increased advertising and promotional support. Net
pharmaceutical sales were $55.8 million and $53.9 million for 1997 and 1996,
respectively, an increase of $1.9 million or 3.5%. The increase in net
pharmaceutical sales resulted primarily from volume growth in the Orajel
family of products and the Pronto line of pediculicides. Pharmaceutical net
sales were negatively impacted during 1997 by consolidations within the drug
wholesaler market segment and the increasing importance of competing private
label products in categories in which the Company enjoys a leadership
position.
Cost of Sales. As a percentage of net sales, cost of sales was 38.4% for
1997 compared to 41.9% for 1996. In 1996, the Company recorded an additional
charge to cost of sales of $2.5 million for excess fashion oriented color
cosmetics and natural based beauty products inventory. No such charge was
included in 1997. Absent the charge in 1996, cost of sales would have
improved from 40.8% in 1996 to 38.4% in 1997, primarily due to improved
product mix within certain brands and the benefits of improved overhead
absorption resulting from higher production volumes.
Selling and Administrative Expenses. As a percentage of sales, selling and
administrative expenses were 52.0% for 1997 and 50.0% for 1996. The Company
increased advertising, promotions, and research and development in 1997
compared to 1996 to support growth in existing products and new product
launches as well as incurred a higher level of expenses related to the
purchase of promotional and merchandise displays. Advertising expenses
increased by 22.2% to $33.0 million or 12.5% of net sales compared to $27.0
million or 11.6% of net sales in 1996.
Operating Income. As a result of the above, operating income increased by
32.9% to $25.3 million or 9.6% of net sales compared to $19.0 million or 8.2%
of net sales in 1996.
Net Interest Expense. Net interest expense was $3.4 million in 1997
compared to $3.3 million in 1996. Interest expense increased $195,000 to
$4.0 million in 1997 from $3.8 million in 1996 due to imputed interest
(non-cash expense) related to the Company's purchase of land and buildings in
North Carolina. Partially offsetting this increase were higher levels of
interest income.
Income Taxes. The Company's effective tax rate was 40.0% in 1997 compared
to 41.0% in 1996.
Net Earnings. Net earnings increased by 41.5% to $13.1 million or 5.0% of
net sales compared to $9.3 million or 4.0% of net sales in 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
- ---------------------------------------------------------------------
Net Sales. In 1996, net sales were $233.0 million, 9.9% above 1995 net
sales of $212.0 million. Net cosmetics sales in 1996 were $179.0 million, a
10.3% increase from the $162.3 million in 1995. The net sales increase in
cosmetics is largely attributable to increased volume in the Sally Hansen,
Sally Hansen Professional Nails and La Cross brands. Net pharmaceutical
sales were $53.9 million or an 8.5% increase from $49.7 million in 1995. The
net sales increase in pharmaceuticals is primarily attributable to increased
volume in the Orajel and Arthricare brands.
Cost of Sales. Cost of sales was 41.9% and 41.7% of net sales in 1996 and
1995, respectively. Absent the inventory charge discussed above, cost of
sales improved from 41.7% in 1995 to 40.8% in 1996.
Selling and Administrative Expenses. Selling and administrative expenses
increased in 1996, but decreased as a percentage of net sales to 50.0% in
1996, as compared to 51.0% in 1995. Included in selling and administrative
expenses in 1996 are $1.9 million of costs attributable to the impairment of
long-lived assets. Without these costs in 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 programs which resulted in relatively small increases in
shipping and travel, and a leveling of advertising expenditures, are the
primary reasons for the decreased percentage in 1996. Advertising
expenditures of $27.0 million in 1996 were 3.8% higher when compared with
$26.0 million in 1995.
Operating Income. As a result of the above, in 1996 operating income
increased by 23.4% to $19.0 million or 8.2% of net sales compared to $15.4
million or 7.3% of net sales in 1995.
<PAGE>
Net Interest Expense. Net interest expense was $3.3 million in 1996,
compared with $3.5 million in 1995. The decrease in 1996 is primarily
attributable to increased interest income.
Income Taxes. The Company's effective tax rate was 41.0% in both 1996 and
1995.
Net Earnings. Net earnings for 1996 were $9.3 million (4.0% of net sales),
32.1% above the $7.0 million (3.0% of net sales) reported for 1995.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At December 31, 1997, the Company had cash and cash equivalents of $15.0
million as compared to $14.5 million at December 31, 1996.
Net cash provided by operating activities was $17.9 million, $16.2 million
and $12.1 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The increase of $1.7 million in net cash provided by
operating activities for 1997 compared to 1996 resulted primarily from higher
net earnings offset mainly by an increased investment in inventories and
promotional and merchandise display units. The Company's inventories
increased $13.9 million over 1996 as a result of new cosmetic product
launches and growth in existing product sales. The increase of $4.1 million
in net cash provided by operating activities for 1996 compared to 1995
resulted from higher net earnings and a $3.3 million reduction in inventories
partially offset by higher accounts receivable balances.
Cash used for property, plant and equipment additions was $10.8 million, $5.3
million and $7.6 million for 1997, 1996 and 1995, respectively. Cash and
non-cash capital expenditures totaled $15.2 million in 1997. The Company
exchanged a non-interest bearing purchase money promissory note discounted to
$4.4 million for land and buildings in North Carolina to be used for a new
distribution facility. Cash used for capital expenditures in 1997 included
$2.0 million of equipment for the Company's new distribution facility. The
balance of $8.8 million was invested primarily in manufacturing machinery and
equipment. Capital expenditures for 1997 and 1996 were primarily for
manufacturing machinery and equipment.
Net cash used in financing activities was $6.6 million, $4.9 million and
$6.1 million for 1997, 1996 and 1995, respectively. Cash was used primarily
for acquisition of shares of the Company's common stock aggregating $5.9
million, $4.3 million and $5.7 million in 1997, 1996 and 1995, respectively,
and dividend payments of $.7 million, $.6 million and $.6 million in 1997,
1996 and 1995, respectively. From time to time, the Company has acquired
shares of its common stock pursuant to a plan approved by the Board of
Directors in 1987. The Company will generally undertake such purchase if
management believes that the prevailing market price for its common stock
does not adequately reflect the intrinsic value of the Company's business.
All shares purchased in 1997, 1996 and 1995, were placed in treasury. The
shares purchased were predominantly from employees who held shares issued
pursuant to the Company's stock option plans, with the balance through open
market purchases. As of December 31, 1997, the Company was authorized to
purchase up to 146,227 additional shares based on the existing Board
authorization.
Estimated cash flow from operations and available working capital lines of
credit along with leasing transactions, are expected to be adequate to fund
the Company's anticipated working capital requirements, spending for
property, plant and equipment, dividend payments and common share repurchases
in the foreseeable future.
The Company believes that general inflation has had no significant impact on
its income from operations during the last three years.
Forward-Looking Statements
- --------------------------
Management's Discussion and Analysis of the Results of Operations and
Financial Condition and other sections of this Annual Report include
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities and Exchange Act of
1934 (the "Exchange Act"). All statements other than statements of historical
information provided herein are forward-looking statements and may contain
information about financial results, economic conditions, trends and known
uncertainties. The forward-looking statements contained herein are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements. Factors
that might cause such a difference include, but are not limited to, delays in
introducing new products or failure of consumers to accept new products,
actions by competitors which may result in mergers, technology improvement or
new product introductions, the dependence on certain national chain drug
stores and mass merchandiser relationships due to the concentration of sales
generated by such chains, changes in fashion oriented color cosmetics trends,
and trends in the general economy.
Readers are cautioned not to place undo reliance on these forward-looking
statements, which reflect management's analysis, judgment, belief or
expectation only as of the date hereof. The Company undertakes no obligation
to publicly revise these forward-looking statements to reflect events or
circumstances that arise after the date hereof. In addition to the
disclosure contained herein, readers should carefully review any disclosure
of risks and uncertainties contained in other documents the Company files or
has filed from time to time with the Securities and Exchange Commission
pursuant to the Exchange Act.
<PAGE>
Year 2000 Conversion
- --------------------
The Company is evaluating the risks and costs associated with the year 2000
conversion. Based on the Company's ongoing evaluation, management currently
believes that the costs to achieve year 2000 compliance will not result in
costs significantly in excess of historical levels of capital expenditures.
The Company intends to communicate with its customers, suppliers, financial
institutions and others with which it does business to ensure that year 2000
issues will be resolved in a timely manner. If necessary modifications and
conversions by those with which the Company does business are not completed
timely, the year 2000 conversion issue may have a material adverse effect on
the Company's consolidated financial position and results of operations.
New Accounting Pronouncements
- -----------------------------
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income" (SFAS No. 130),
which is effective for fiscal years beginning after December 15, 1997. SFAS
No. 130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The management of the Company does not believe that
the implementation of SFAS No. 130 will have a significant impact on its
financial position or results of operations.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 131, "Disclosures about Statement of an Enterprise
and Related Information" (SFAS No. 131). SFAS No. 131 established standards
to report information about operating segments and related discussions about
products and services, geographic areas and major customers. SFAS No. 131 is
effective for financial statements for the reporting periods beginning after
December 15, 1997. This statement permits early application and requires
restatement for all prior periods. The Company is currently evaluating the
requirements of SFAS No. 131 and believes that the adoption of the statement
will not have a material impact on previously reported segment information.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" (SFAS No. 132). SFAS No. 132 revises disclosures
about pension and other postretirement benefit plans. Management of the
Company does not believe that the implementation of SFAS No. 132 will have a
significant impact on previously reported information regarding its employee
retirement plans.
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
Not applicable.
Item 8 - Financial Statements and Supplementary Data
- ----------------------------------------------------
See Consolidated Financial Statements and Schedule included separately herein.
Item 9 - Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
- --------------------
None.
<PAGE>
Part III
- --------
Item 10 - Directors and Executive Officers of the Company
- ---------------------------------------------------------
(a) The information required with respect to Directors is set forth under the
caption "Election of Directors - Information Concerning Directors" in
Company's definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A and incorporated herein
by reference.
(b) The executive officers of the Company, the positions held by them,
their ages and the years in which they began to serve in the position or
office held as of December 31, 1997 are as follows:
<TABLE>
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 67 1969
Charles J. Hinkaty Vice President, President of
Del Pharmaceuticals, Inc.,
Director 48 1985
Charles H. Abdalian Vice President and Chief
Financial Officer 47 1997
William H. McMenemy Executive Vice President of Marketing,
Cosmetics Division, North America 51 1980
Harvey P. Alstodt Executive Vice President of Sales,
Cosmetics Division, North America 58 1988
James F. Lawrence Group Vice President - Operations 63 1993
Joseph Kanapka Senior Vice President - Scientific Affairs 52 1996
Shawn A. Smith Vice President - General Counsel 39 1996
Thomas Redder Vice President - Chief Information Officer 50 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 Company 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 Company.
During the past five years, the principal occupation and employment of each
of the Company's executive officers has been his service in the respective
position shown for him in the above table, except as follows:
Charles H. Abdalian has been Vice President and Chief Financial Officer of
the Company since October 1997. From June 1994 to February 1997, he served
as Vice President and Chief Financial Officer of W.R. Grace & Co.'s medical
products manufacturing subsidiary. From 1987 to June 1994, he was a Partner
with Coopers & Lybrand.
James F. Lawrence has been Group Vice President-Operations of the Company
since April 1993. Prior to that time, Mr. Lawrence served as an independent
consultant from September 1992 to April 1993, Vice President, Operations of
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.
Dr. Joseph Kanapka has been Senior Vice President-Scientific Affairs of the
Company since February 1996. From 1989 to 1996, he was employed by Unilever,
where his most recent position was Senior Principal Scientist and Head of
Dental Development for the Unilever Personal Products Group, Italy.
Shawn A. Smith has been Vice President-General Counsel of the Company since
August 1996. From 1988 through 1995, she served as Secretary and Corporate
Counsel of Data Switch Corporation.
Thomas Redder has served as Vice President-Chief Information Officer of the
Company since February 1996. From 1986 through 1995, he was employed by
Newsday as Vice President, Information Systems.
Item 11 - Executive Compensation
- --------------------------------
The information required is set forth under the caption "Executive
Compensation" in the Company's definitive Proxy Statement for the 1998 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A and is
incorporated herein by reference.
<PAGE>
Item 12 - 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 the Company's definitive Proxy Statement
for the 1998 Annual Meeting of Stockholders to be filed pursuant to
Regulation 14A and is incorporated herein by reference.
Item 13 - Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required is set forth under the caption "Executive
Compensation" in the Company's definitive Proxy Statement for the 1998 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A and is
incorporated herein by reference.
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 Consolidated Financial Statements and Schedule included
herein.
(3) Exhibit Index
<PAGE>
<TABLE>
Item No. Item Title Exhibit No. Description
- -------- ---------- ----------- -----------
<C> <C> <C> <S>
3 Articles of 3.1 (a) Restated Certificate of Incorporation as filed
Incorporation with the Delaware Secretary of State on
and By-Laws March 29, 1996.
3.2 (b) Certificate of Amendment filed with the Delaware
Secretary of State on June 4, 1996.
3.3 (c) By-Laws as amended through December 14, 1995.
10 Material 10.1 (c) Employee Pension Plan, effective January 1, 1989
Contracts (amended and restated).*
10.2 (d) Employee's Stock Ownership Plan, effective
January 1, 1989.*
10.3 (e) Amendment No. 1 to Employee's Stock Ownership Plan.*
10.4 (c) Amendment No. 2 to Employee's Stock Ownership Plan.*
10.5 (e) 1984 Stock Option Plan, as amended to date.*
10.6 (f) 1994 Stock Plan.*
10.7 (f) Annual Incentive Plan.*
10.8 (e) Loan Agreement with Dan K. Wassong dated as of
August 22, 1984 and related promissory notes.
10.9 (c) Loan Agreement with Dan K. Wassong, dated as of
April 9, 1988.
10.10 (g) Loan Agreement with Dan K. Wassong, dated as of
November 14, 1990.
10.11 (c) 401(k) Plan effective January 1, 1989 (amended and
restated).*
10.12 (c) Supplemental Executive Retirement Plan (amended and
restated).*
10.13 (o) Amendment effective January 1, 1997 to Supplemental
Executive Retirement Plan.*
10.14 (h) Employment Agreement with Dan K. Wassong, dated as of
November 13, 1992.*
10.15 (c) Amendment to Employment Agreement with Dan K. Wassong,
dated March 21, 1994.*
10.16 Amendment No. 2 to Employment Agreement with
Dan K. Wassong, dated March 31, 1997.*
10.17 (i) Loan Agreement dated as of May 26, 1993 with Jackson
National Life Insurance Company and Jackson National
Life Insurance Company of Michigan.
</TABLE>
* Constitutes a "management contract or compensatory plan or arrangement"
required to be filed pursuant to Item 14 (c) of the Form 10-K.
<PAGE>
<TABLE>
Item No. Item Title Exhibit No. Description
- -------- ---------- ----------- -----------
<C> <C> <C> <S>
10.18 (e) Employment Agreement with Charles J. Hinkaty,
as amended.*
10.19 (l) Amendment to Employment Agreement with Charles J.
Hinkaty dated April 22, 1996.*
10.20 (e) Employment Agreement with Harvey P. Alstodt,
as amended.*
10.21 (m) Amendment to Employment Agreement with Harvey P.
Alstodt dated April 22, 1996.*
10.22 Amendment to Employment Agreement with Harvey P.
Alstodt dated December 30, 1997.*
10.23 (e) Employment Agreement with William H. McMenemy,
as amended.*
10.24 (n) Amendment to Employment Agreement with William H.
McMenemy dated April 22, 1996.*
10.25 (e) Life Insurance Agreement with Robert H. Haines,
as trustee, dated as of February 18, 1993.*
10.26 (k) Lease between Registrant and Coliseum Towers
Associates.
10.27 (k) Purchase Money Promissory Note with Carver Boat Corporation.
10.28 Amendment to Loan Agreement, dated March 31, 1997,
to the Loan Agreement, dated May 26, 1993 with Jackson
National Life Insurance Company and Jackson National
Life Insurance Company of Michigan.
10.29 Employment Agreement with Charles H. Abdalian,
dated November 25, 1997.*
21 Subsidiaries of 21.1 (j) Listing of Subsidiaries.
Registrant
23 Consents of 23.1 Consent of KPMG Peat Marwick LLP dated March 27, 1998.
Experts and
Counsel
</TABLE>
- ----------------------
(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
Employee's 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.
<PAGE>
(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 Employee's
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; 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.
(k) These exhibits were filed on November 14, 1997 as exhibits to the
Registrant's Form 10-Q for the quarter ended September 30, 1997 (File No.
1-5439) and are incorporated herein by reference. The exhibit numbers in
such Form 10-Q are as follows: Lease between Registrant and Coliseum Towers
Associates, Exhibit 10.1; Purchase Money Promissory Note with Carver Boat
Corporation, Exhibit 10.2.
(l) This exhibit was filed on March 28, 1997, as exhibit 2 to the
Registrant's Form 10-K for the year ended December 31, 1996.
(m) This exhibit was filed on March 28, 1997, as exhibit 3 to the
Registrant's Form 10-K for the year ended December 31, 1996.
(n) This exhibit was filed on March 28, 1997, as exhibit 4 to the
Registrant's Form 10-K for the year ended December 31, 1996.
(o) This exhibit was filed on March 28, 1997, as exhibit 1 to the
Registrant's Form 10-K for the year ended December 31, 1996.
<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 27, 1998
------------------------------
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 in the capacities and on the dates indicated.
By /s/ Dan K. Wassong March 27, 1998
------------------------------
Dan K. Wassong, Chairman, President &
Chief Executive Officer (Principal Executive Officer)
By /s/ Charles Hinkaty March 27, 1998
------------------------------
Charles Hinkaty, Director, Vice President
By /s/ Martin E. Revson March 27, 1998
------------------------------
Martin E. Revson, Director
By /s/ Robert H. Haines March 27, 1998
------------------------------
Robert H. Haines, Director
By /s/ Robert A. Kavesh March 27, 1998
------------------------------
Robert A. Kavesh, Director
By /s/ Steven Kotler March 27,1998
------------------------------
Steven Kotler, Director
By /s/ Marcella Maxwell March 27, 1998
------------------------------
Marcella Maxwell, Director
By /s/ Jack Futterman March 27, 1998
------------------------------
Jack Futterman, Director
By /s/ Charles H. Abdalian March 27, 1998
------------------------------
Charles H. Abdalian, Vice President,
Chief Financial Officer
(Principal Financial and 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, 1997 and 1996.
Consolidated Statements of Earnings for the years ended December 31, 1997,
1996 and 1995.
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
Schedule:
II Valuation and Qualifying Accounts for the years ended December 31,
1997, 1996 and 1995.
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>
Independent Auditors' Report
The Board of Directors and Shareholders
Del Laboratories, Inc.:
We have audited the accompanying consolidated financial statements of Del
Laboratories, Inc. and subsidiaries (the Company) 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, 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
to Be Disposed Of", in 1996.
KPMG PEAT MARWICK LLP
Jericho, New York
February 10, 1998
F-2
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 14,978,616 $ 14,515,947
Accounts receivable, less allowance for doubtful accounts
of $1,300,000 in 1997 and $1,500,000 in 1996 30,708,083 30,781,594
Inventories 47,687,154 33,787,747
Income taxes receivable - 323,856
Deferred income taxes, net 2,126,565 2,250,190
Prepaid expenses and other current assets 1,858,368 1,840,000
-------------- --------------
Total current assets 97,358,786 83,499,334
-------------- --------------
Property, plant and equipment, at cost 54,489,263 43,416,035
Less accumulated depreciation and amortization (18,097,510) (16,787,785)
-------------- --------------
Net property, plant and equipment 36,391,753 26,628,250
Intangibles arising from acquisitions, net 8,143,875 8,496,850
Other assets 7,419,272 3,757,915
-------------- --------------
Total assets $ 149,313,686 $ 122,382,349
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 496,313 $ -
Accounts payable 28,501,167 17,338,378
Accrued liabilities 13,967,459 14,894,630
Income taxes payable 817,753 -
-------------- --------------
Total current liabilities 43,782,692 32,233,008
Long-term pension liability, less current portion 5,801,308 4,132,300
Deferred income taxes, net 1,320,500 1,175,000
Long-term debt, less current portion 43,879,464 40,000,000
-------------- --------------
Total liabilities 94,783,964 77,540,308
-------------- --------------
Shareholders' equity:
Preferred stock $.01 par value, authorized - -
1,000,000 shares; no shares issued
Common stock $1 par value, authorized 10,000,000 8,784,514
10,000,000 shares; issued 10,000,000 shares
Additional paid-in capital 699,000 4,321,131
Cumulative translation adjustment (819,146) (547,028)
Retained earnings 71,187,777 61,353,458
-------------- --------------
81,067,631 73,912,075
Less: Treasury stock at cost, 3,070,954 shares in 1997
and 3,141,949 shares in 1996 (24,990,659) (27,333,714)
Receivables for stock options exercised (1,547,250) (1,736,320)
-------------- --------------
Total shareholders' equity 54,529,722 44,842,041
-------------- --------------
Total liabilities and shareholders' equity $ 149,313,686 $ 122,382,349
-------------- --------------
-------------- --------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-3
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales $ 263,010,452 $ 232,951,382 $ 212,047,952
Cost of goods sold 101,089,472 97,520,017 88,437,543
Selling and administrative expenses 136,668,570 116,426,276 108,203,207
-------------- -------------- --------------
Operating income 25,252,410 19,005,089 15,407,202
Interest expense 3,998,057 3,803,218 3,830,954
Interest income (623,287) (521,067) (329,465)
-------------- -------------- --------------
Interest expense, net 3,374,770 3,282,151 3,501,489
-------------- -------------- --------------
Earnings before income taxes 21,877,640 15,722,938 11,905,713
Income taxes 8,751,000 6,445,000 4,881,000
-------------- -------------- --------------
Net earnings $ 13,126,640 $ 9,277,938 $ 7,024,713
-------------- -------------- --------------
-------------- -------------- --------------
Earnings per common share:
Basic $ 1.73 $ 1.25 $ .94
-------------- -------------- --------------
-------------- -------------- --------------
Diluted $ 1.59 $ 1.14 $ .86
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average common shares outstanding:
Basic 7,593,000 7,449,000 7,465,000
-------------- -------------- --------------
-------------- -------------- --------------
Diluted 8,250,000 8,157,000 8,165,000
-------------- -------------- --------------
-------------- -------------- --------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-4
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $13,126,640 $9,277,938 $7,024,713
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 5,819,437 6,301,831 5,945,401
Deferred income taxes 269,125 (1,437,053) (1,491,675)
Provision for doubtful accounts 65,000 40,000 655,000
Other non-cash operating items 67,679 85,661 192,161
Changes in operating assets and liabilities:
Accounts receivable 8,511 (6,195,412) (6,588,189)
Inventories (13,899,407) 3,290,162 (2,389,725)
Prepaid expenses and other current assets (54,611) (557,536) 676,453
Other assets and other liabilities (1,992,349) 2,216,167 996,786
Accounts payable 11,109,182 2,190,641 208,200
Accrued liabilities (927,171) 399,906 3,791,240
Income taxes 4,259,815 617,136 3,048,612
---------- ---------- ---------
Net cash provided by operating activities 17,851,851 16,229,441 12,068,977
---------- ---------- ----------
Cash flows used in investing activities:
Property, plant and equipment additions (10,827,246) (5,327,085) (7,569,461)
----------- ---------- ---------
Net cash used in investing activities (10,827,246) (5,327,085) (7,569,461)
---------- ---------- ---------
Cash flows used in financing activities:
Principal payments of long-term debt (219,572) (70,395) (334,754)
Exercise of stock options 264,507 4,393 255,756
Decrease in receivables for stock options exercised 15,672 18,344 265,656
Acquisition of treasury stock (5,875,068) (4,313,371) (5,690,123)
Dividends paid (740,308) (584,054) (559,494)
Other financing activities - (4,500) -
---------- ---------- ---------
Net cash used in financing activities (6,554,769) (4,949,583) (6,062,959)
---------- ---------- ---------
Effect of exchange rate changes on cash (7,167) (201) 1,250
---------- ---------- ---------
Net increase (decrease) in cash and cash equivalents 462,669 5,952,572 (1,562,193)
Cash and cash equivalents at beginning of year 14,515,947 8,563,375 10,125,568
---------- ---------- ---------
Cash and cash equivalents at end of year $14,978,616 $14,515,947 $8,563,375
---------- ---------- ---------
---------- ---------- ---------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-5
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additional Cumulative
Common Paid-in Translation Retained Treasury
Stock Capital Adjustment Earnings Stock
---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994 $8,784,514 $ 699,744 $(546,242) $46,203,176 $(18,637,618)
Cumulative translation adjustment - - 53,411 - -
Issuance of treasury stock upon exercise of stock options
(470,668 shares) - (204,311) - - 3,015,696
Purchase of treasury stock (517,705 shares) - - - - (8,245,752)
Income tax benefit arising from stock options exercised - 2,336,537 - - -
Payment for stock options exercised - - - - -
Dividends declared ($.105 per share) - - - (567,969) -
Net earnings for the year - - - 7,024,713 -
---------- ----------- ----------- ---------- -----------
Balances at December 31, 1995 8,784,514 2,831,970 (492,831) 52,659,920 (23,867,674)
Cumulative 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 ($.105 per share) - - - (584,400) -
Net earnings for the year - - - 9,277,938 -
Cash paid for fractional shares - (4,500) - - -
---------- ----------- ----------- ---------- -----------
Balances at December 31, 1996 8,784,514 4,321,131 (547,028) 61,353,458 (27,333,714)
Cumulative translation adjustment - - (272,118) - -
Issuance of treasury stock upon exercise of stock options
(347,633 shares) - (592,898) - - 3,282,807
Purchase of treasury stock (276,638 shares) - - - - (8,370,111)
Income tax benefit arising from stock options exercised - 3,118,206 - - -
Payment for stock options exercised - - - - -
Dividends declared ($.14 per share) - - - (793,915) -
Four-for-three stock split (note 1(k)) 1,215,486 (6,147,439) - (2,498,406) 7,430,359
Net earnings for the year - - - 13,126,640 -
---------- ----------- ----------- ---------- -----------
Balances at December 31, 1997 $10,000,000 $ 699,000 $(819,146) $71,187,777 $(24,990,659)
---------- ----------- ----------- ---------- -----------
---------- ----------- ----------- ---------- -----------
<CAPTION>
Receivables
for
Stock Options Shareholders'
Exercised Equity
------------- -------------
<S> <C> <C>
Balances at December 31, 1994 $(2,300,320) $34,203,254
Cumulative translation adjustment - 53,411
Issuance of treasury stock upon exercise of stock options
(470,668 shares) - 2,811,385
Purchase of treasury stock (517,705 shares) - (8,245,752)
Income tax benefit arising from stock options exercised - 2,336,537
Payment for stock options exercised 405,656 405,656
Dividends declared ($.105 per share) - (567,969)
Net earnings for the year - 7,024,713
------------- -------------
Balances at December 31, 1995 (1,894,664) 38,021,235
Cumulative 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 ($.105 per share) - (584,400)
Net earnings for the year - 9,277,938
Cash paid for fractional shares - (4,500)
------------- -------------
Balances at December 31, 1996 (1,736,320) 44,842,041
Cumulative translation adjustment - (272,118)
Issuance of treasury stock upon exercise of stock options
(347,633 shares) - 2,689,909
Purchase of treasury stock (276,638 shares) - (8,370,111)
Income tax benefit arising from stock options exercised - 3,118,206
Payment for stock options exercised 189,070 189,070
Dividends declared ($.14 per share) - (793,915)
Four-for-three stock split (note 1(k)) - -
Net earnings for the year - 13,126,640
------------- -------------
Balances at December 31, 1997................................... $(1,547,250) $54,529,722
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
<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, nail color, 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 first aid products.
(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. Cash equivalents consisted of marketable
securities of $14,181,000 and $10,122,000 as of December 31, 1997 and 1996,
respectively. For purposes of the consolidataed statements 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 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 returns, trade discounts and customer allowances. Merchandise returns are
accrued at the earlier of customer deduction or receipt of goods. 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:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Raw materials $ 22,563,304 $ 15,346,437
Work in process 4,325,842 3,861,573
Finished goods 20,798,008 14,579,737
------------- -------------
$ 47,687,154 $ 33,787,747
------------- -------------
------------- -------------
</TABLE>
(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:
<TABLE>
<S> <C>
Building & building improvements 10 to 50 years
Machinery & equipment 3 to 15 years
Furniture & fixtures 3 to 10 years
</TABLE>
F-7
<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 $5,038,000, $4,559,000 and $4,589,000 during 1997, 1996
and 1995, 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
approximately $33,000,000, $27,000,000 and $26,000,000 in 1997, 1996 and 1995,
respectively.
(j) Earnings Per Share
------------------
Earnings per share is computed in accordance with the provisions of SFAS No.
128, "Earnings per Share", which became effective for the Company as of
December 31, 1997. As required by SFAS No. 128, earnings per share for all
prior periods presented have been restated. Basic earnings per share is
computed by dividing income available to common shareholders (which for the
Company equals its recorded net income) by the weighted average number of
common shares outstanding during the period. For the years ended December 31,
1997, 1996 and 1995, the weighted average number of common shares outstanding
was 7,593,000, 7,449,000 and 7,465,000, respectively. Such shares outstanding
exclude the weighted average number of unallocated shares of common stock
held by the Company's employee stock ownership plan which totaled 513,000,
513,000 and 499,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock, such as
stock options, were exercised, converted into common stock or otherwise resulted
in the issuance of common stock. For the years ended December 31, 1997, 1996 and
1995, the weighted average number of shares of diluted common stock outstanding
was 8,250,000, 8,157,000 and 8,165,000, respectively.
(k) Stock Splits
------------
On February 6, 1998, the Company's Board of Directors approved a four-for-three
common stock split to be distributed in the form of a stock dividend. As a
result, 1,908,377 shares were issued on March 10, 1998 to shareholders of record
on February 20, 1998, of which 692,891 shares represented treasury stock of the
Company. Accordingly, the effect of the four-for-three stock split has been
reflected on the consolidated balance sheet and consolidated statement of
shareholders' equity as of December 31, 1997. In addition, all references to
number of shares, per share amounts and stock option data, excluding share and
per share amounts reflected on the consolidated statement of shareholders'
equity, have been restated. In connection with the stock dividend, treasury
stock was reduced by $7,430,359, with a corresponding reduction in retained
earnings of $2,498,406 and a reduction in additional paid-in-capital of
$6,147,439.
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. Both stock splits were effected in the form of a
stock dividend. 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.
F-8
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(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 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.
(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) in the year ended December 31, 1996.
(n) Reclassifications
-----------------
Certain reclassifications were made to prior year amounts to conform with the
1997 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:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash transactions:
Interest $ 3,805,000 $ 3,804,000 $ 3,822,000
------------ ------------ ------------
------------ ------------ ------------
Income taxes $ 4,171,000 $ 7,173,000 $ 3,255,000
------------ ------------ ------------
------------ ------------ ------------
Non-cash transactions:
Income tax benefit arising from stock options
exercised $ 3,118,000 $ 2,337,000 $ 2,337,000
------------ ------------ ------------
------------ ------------ ------------
Purchase of North Carolina property $ 4,403,000 - -
------------ ------------ ------------
------------ ------------ ------------
Shares tendered to exercise stock options $ 2,495,000 $ 2,271,000 $ 2,556,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-9
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Property, Plant and Equipment
-----------------------------
The components of property, plant and equipment, at cost, are as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Land $ 2,790,479 $ 2,290,479
Building & building improvements 16,982,845 11,919,433
Machinery & equipment 29,569,208 24,753,261
Furniture & fixtures 5,146,731 4,452,862
------------- -------------
$ 54,489,263 $ 43,416,035
------------- -------------
------------- -------------
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1996 and 1995 was
$5,466,462, $5,539,631 and $5,534,945, respectively.
In 1997, the Company purchased for $4,403,000 land and buildings in North
Carolina to be used as a warehouse and distribution center, which replaced the
Company's leased facility in Huntington, New York.
(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 $.25 basic earnings per common
share and $.23 diluted earnings per common 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. During 1997,
purchases of approximately $725,000 and $2,861,000 for Naturistics cosmetics,
tools, dies, molds and displays were charged to cost of sales and selling and
administrative expenses, respectively.
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 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. In 1996 the Company
reduced the carrying value of goodwill associated with the Propa PH brand by
$500,000, which is included in amortization expense, and accelerated
amortization of the remaining net book value ($1,015,000 at December 31, 1996)
over a five-year period. The trademarks acquired in 1984, $3,000,000, are being
amortized using the straight-line method over 20 years. Accumulated amortization
amounted to $4,866,229, $4,513,254 and $3,751,054 at December 31, 1997, 1996 and
1995, respectively. Amortization expense amounted to $352,975, $762,200 and
$410,456 for the years ended December 31, 1997, 1996 and 1995, respectively.
F-10
<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:
<TABLE>
<CAPTION>
Federal State Foreign Total
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
1997
Current tax $ 7,206,000 $ 988,000 $ 288,000 $ 8,482,000
Deferred tax 241,000 28,000 - 269,000
------------ ------------ ---------- ------------
$ 7,447,000 $ 1,016,000 $ 288,000 $ 8,751,000
------------ ------------ ---------- ------------
------------ ------------ ---------- ------------
1996
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
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
------------ ------------ ---------- ------------
------------ ------------ ---------- ------------
</TABLE>
Total income tax expense differed from the statutory United States Federal
income tax rate of 35% for the year ended December 31, 1997 and 34% for the
years ended December 31, 1996 and 1995 of earnings before income taxes as a
result of the following items:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Tax provision at statutory rate $ 7,658,000 $ 5,425,000 $ 4,067,000
Increases in taxes resulting from:
State income taxes, net of Federal income tax
benefit 661,000 373,000 398,000
Amortization of intangibles 124,000 208,000 51,000
Other, net 308,000 439,000 365,000
------------ ------------ ------------
Actual provision for income taxes $ 8,751,000 $ 6,445,000 $ 4,881,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-11
<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 assets and liabilities as of December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful accounts $ 470,000 $ 522,000
Supplemental Executive Retirement Plan (SERP) expense, principally due to accrual
for financial statement purposes 988,000 713,000
Inventory principally due to reserves 1,294,000 1,280,000
Pension accrual for financial reporting purposes 763,000 511,000
Other 684,000 594,000
------------- -------------
Total gross deferred tax assets 4,199,000 3,620,000
Less valuation allowance - -
------------- -------------
Net deferred tax assets 4,199,000 3,620,000
------------- -------------
Deferred tax liabilities:
Property, plant and equipment, principally due to differences in depreciation
methods (2,923,000) (2,451,000)
Other (470,000) (94,000)
------------- -------------
Total gross deferred tax liabilities (3,393,000) (2,545,000)
------------- -------------
Net deferred tax asset $ 806,000 $ 1,075,000
------------- -------------
------------- -------------
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of these deductible
differences.
F-12
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Long-Term Debt
--------------
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
9.5% senior notes $ 40,000,000 $ 40,000,000
Purchase money promissory note 4,375,777 -
-------------- --------------
$ 44,375,777 $ 40,000,000
Less current portion 496,313 -
-------------- --------------
$ 43,879,464 $ 40,000,000
-------------- --------------
-------------- --------------
</TABLE>
The senior notes, as amended, require annual principal repayments of $8,000,000
beginning May 31, 2001 through May 31, 2005. The terms of the agreement include
covenants which provide, among other things, for the maintenance of certain
financial covenants and ratios relating to consolidated net worth and working
capital as well as restrictions on cash dividends and certain other
expenditures. During 1997, this agreement was amended, which increased the limit
on amounts available for dividends and the repurchase of treasury stock. At
December 31, 1997, amounts available for dividends and the repurchase of
treasury stock was approximately $7,121,000. The Company was in compliance with
all covenants at December 31, 1997.
In conjunction with the 1997 purchase of land and buildings in North Carolina
(note 3), the Company issued a non-interest bearing purchase money promissory
note to the seller of the property for $5,225,000 which is collateralized by the
land and buildings in North Carolina. The Company recorded the note payable at
its present value using an interest rate of 7.3% which approximates the
Company's incremental borrowing rate. Interest expense is being recognized over
the term of the note based upon the effective yield method. The repayment terms
of the note include $1,375,000 to be repaid over three years ($225,000 in 1997,
$525,000 in 1998, $500,000 in 1999 and $125,000 in 2000) and a single lump sum
payment of $3,850,000 due on May 15, 2000.
The aggregate maturities of long-term debt for each of the five years subsequent
to December 31, 1997 are as follows: 1998, $525,000; 1999, $500,000; 2000,
$3,975,000; 2001, $8,000,000; and 2002, $8,000,000.
(8) Financial Arrangements
----------------------
At December 31, 1997, 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 the years ended
December 31, 1997, 1996 and 1995. No compensating balances are required for
these lines or for drawings thereunder and there are no restrictive covenants.
F-13
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Employee Retirement Plans
-------------------------
(a) Pension Plans
-------------
The Company maintains two non-contributory defined benefit pension plans
covering all U.S. eligible employees. The Del Non-Union Plan formula is based
on years of service and the employee's compensation during the five years
before retirement. The Del LaCross Union Plan formula is based on years of
service. The Company made contributions to these plans of $606,000, $586,000
and $549,000 for the years 1997, 1996 and 1995. The Company also has a
supplemental executive retirement plan (SERP) for certain of its executives.
The SERP is a non-qualified plan under the Internal Revenue Code. The plan
assets of the SERP are considered assets of the Company and, as such, are
included in other assets on the accompanying consolidated balance sheets. The
Company made contributions to the SERP of $750,000 and $310,000 for the years
1997 and 1995.
Total pension expense for the years ended December 31, 1997, 1996 and 1995
amounted to approximately $1,826,000, $1,587,000 and $1,562,000 ,
respectively. The funded status as of December 31, 1997 and 1996 and
components of net pension cost for the years ended December 31, 1997, 1996
and 1995 of the Company's domestic plans are set forth in the following
tables:
<TABLE>
<CAPTION>
1997
--------------------------------------------
Del Non- Del LaCross
Union Plan Union Plan SERP
-------------- ------------- -------------
<S> <C> <C> <C>
Actuarial present value of plan benefit obligations:
Vested benefit obligation $ (11,439,786) $ (1,040,623) $ (3,280,248)
-------------- ------------- -------------
Accumulated benefit obligation $ (11,736,698) $ (1,044,667) $ (3,291,432)
-------------- ------------- -------------
Projected benefit obligation $ (14,271,480) $ (1,044,667) $ (3,475,818)
Plan assets at fair value 12,190,109 508,921 -
-------------- ------------- -------------
Projected benefit obligation in excess of plan assets (2,081,371) (535,746) (3,475,818)
Unrecognized net loss (gain) (128,832) 128,616 (124,480)
Unrecognized prior service cost 485,883 53,632 1,153,098
Unrecognized net asset obligation (314,817) 99,106 -
Additional minimum liability for unfunded accumulated benefit
obligation(1) - (484,680) (1,109,649)
-------------- ------------- -------------
Net pension liability $ (2,039,137) $ (739,072) $ (3,556,849)
-------------- ------------- -------------
-------------- ------------- -------------
Net pension cost included the following components:
Service cost of benefits earned during the period $ 1,020,529 $ 22,419 $ 53,381
Interest cost on projected benefit obligation 888,092 70,859 207,823
Actual return on plan assets (1,784,654) (18,052) -
Net amortization and deferral 1,140,827 32,754 192,020
-------------- ------------- -------------
Net pension cost $ 1,264,794 $ 107,980 $ 453,224
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
F-14
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1996
--------------------------------------------
Del Non- Del LaCross
Union Plan Union Plan SERP
-------------- ------------- -------------
<S> <C> <C> <C>
Actuarial present value of plan benefit obligations:
Vested benefit obligation $ (11,833,895) $ (1,062,400) $ (2,426,641)
-------------- ------------- -------------
Accumulated benefit obligation $ (12,044,022) $ (1,068,293) $ (2,471,202)
-------------- ------------- -------------
Projected benefit obligation $ (14,843,169) $ (1,068,293) $ (2,558,003)
Plan assets at fair value 10,316,157 490,264 -
-------------- ------------- -------------
Projected benefit obligation in excess of plan assets (4,527,012) (578,029) (2,558,003)
Unrecognized net loss 3,019,273 230,935 145,384
Unrecognized prior service cost 542,039 39,799 418,643
Unrecognized net asset obligation (377,393) 123,883 -
Additional minimum liability for unfunded accumulated benefit
obligation(1) (384,772) (394,617) (477,226)
-------------- ------------- -------------
Net pension liability $ (1,727,865) $ (578,029) $ (2,471,202)
-------------- ------------- -------------
-------------- ------------- -------------
Net pension cost included the following components:
Service cost of benefits earned during the period $ 902,914 $ 22,892 $ 29,339
Interest cost on projected benefit obligation 802,656 60,209 143,132
Actual return on plan assets (1,152,419) (24,183) -
Net amortization and deferral 663,471 29,988 109,306
-------------- ------------- -------------
Net pension cost $ 1,216,622 $ 88,906 $ 281,777
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
F-15
<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>
Net pension cost included the following components:
Service cost of benefits earned during the period $ 772,186 $ 27,356 $ 200,424
Interest cost on projected benefit obligation 701,325 54,563 132,544
Actual return on plan assets (1,620,433) (22,243) -
Net amortization and deferral 1,182,476 20,578 113,562
----------- ----------- ----------
Net pension cost $ 1,035,554 $ 80,254 $ 446,530
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
(1) 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 other assets.
The actuarial assumptions used as of December 31, 1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- ---------
<S> <C> <C> <C>
Discount rates 7.0% 6.0% 6.25%
Rates of increase in compensation levels 5.5% 5.5% 5.5%
Expected long-term rate of return on assets 8.0% 8.0% 8.0%
</TABLE>
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 the years ended
December 31, 1997, 1996 and 1995 were approximately $447,000, $394,000 and
$419,000, 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 the years ended December 31, 1997, 1996 and 1995 were
approximately $57,000, $54,000 and $50,000 in U.S. dollars, respectively.
F-16
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(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 $525,000,
$800,000 and $400,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. At December 31, 1997 the trust held 513,000 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, 1997, 1996 and 1995.
(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 1,379,923 shares
have been authorized for issuance under the 1994 Plan. At December 31, 1997,
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 (the Committee) 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.
At December 31, 1997, 589,681 of the 1,083,776 options outstanding were
exercisable under the 1994 Plan, at a weighted-average exercise price of $11.93.
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 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, 1997, all 701,743 options outstanding under the 1984 Plan
were exercisable at a weighted-average exercise price of $5.12. No further
options will be granted under the 1984 Plan.
F-17
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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, option prices and option transactions during the last three
years, are summarized below:
<TABLE>
<CAPTION>
1994 Stock Plan
-----------------------------
Weighted-average
Shares exercise price
---------- -----------------
<S> <C> <C>
Outstanding December 31, 1994 171,021 $ 7.45
Granted 501,368 12.07
Exercised (7,748) 7.47
Forfeited (29,973) 9.11
----------
Outstanding December 31, 1995 634,668 11.02
Granted 319,243 15.76
Exercised (2,180) 10.73
Forfeited (4,469) 11.97
----------
Outstanding December 31, 1996 947,262 12.61
Granted 303,667 23.77
Exercised (80,311) 9.81
Forfeited (86,842) 18.40
----------
Outstanding December 31, 1997 1,083,776 $ 15.48
----------
----------
</TABLE>
F-18
<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, 1994 2,046,111 $ 4.79 191,919 $ 4.49
Granted - - - -
Exercised (427,891) 4.55 (191,919) 4.49
Forfeited (21,357) 4.67 - -
---------- ----------
Outstanding December 31, 1995 1,596,863 4.85 -0- -
Granted - - ----------
Exercised (511,920) 4.40 ----------
Forfeited - -
----------
Outstanding December 31, 1996 1,084,943 5.06
Granted - -
Exercised (383,200) 4.96
Forfeited - -
----------
Outstanding December 31, 1997 701,743 $ 5.12
----------
----------
</TABLE>
At December 31, 1997, a total of 1,785,519 shares of common stock were subject
to outstanding options under all stock option plans.
The Company applies APB Opinion No. 25 and 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:
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
- -------------------------------------------------- ------------- ------------ ------------
<S> <C> <C> <C>
Net earnings
As reported $ 13,127,000 $ 9,278,000 $ 7,025,000
Pro forma $ 12,495,000 $ 8,324,000 $ 6,751,000
Basic net earnings per share
As reported $ 1.73 $ 1.25 $ .94
Pro forma $ 1.65 $ 1.12 $ .90
Diluted net earnings per share
As reported $ 1.59 $ 1.14 $ .86
Pro forma $ 1.51 $ 1.02 $ .83
</TABLE>
The fair value of each option grant was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for 1997, 1996 and 1995, respectively: dividend yields .46%, .50%,
and .63%; expected lives of 5.3, 5.1 and 5.5 years; risk-free interest rates of
6.40%, 6.08% and 6.55%; and expected volatility of 26.6%, 25.5% and 22.3%. The
weighted-average fair value of options granted during 1997, 1996 and 1995 were
$8.60, $5.33 and $4.11, respectively.
F-19
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following table summarizes information about stock options at December 31,
1997:
<TABLE>
<CAPTION>
Outstanding stock options Exercisable stock options
------------------------------------------------ -------------------------
<S> <C> <C> <C> <C> <C>
Weighted-
Weighted- Weighted-average average
Range of remaining exercise exercise
exercise prices Shares contractual life price Shares price
- ------------------ ---------- ----------------- ----------------- ---------- -------------
$0.01 to $4.00 135,627 3.21 $ 3.05 135,627 $ 3.05
$4.01 to $8.00 671,888 2.96 $ 5.88 671,888 $ 5.88
$8.01 to $12.00 171,464 4.88 $ 11.41 116,413 $ 11.38
$12.01 to $16.00 516,837 5.78 $ 14.06 351,569 $ 13.31
$16.01 to $20.00 82,989 5.94 $ 17.87 15,927 $ 16.31
$20.01 to $24.00 106,281 6.39 $ 22.13 - -
$24.01 to $28.00 20,754 8.84 $ 26.66 - -
$28.01 to $32.00 79,679 8.17 $ 30.07 - -
- -----------------------------------------------------------------------------------------------
$ 0.01 to $32.00 1,785,519 4.62 $ 11.41 1,291,424 $ 8.23
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
(b) Receivables 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 $140,000 for each year during the
period from 1995 through 2005 and a final payment of $362,250 on January 20,
2006, 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 Company and, provided further, that the Company may (but is not required
to) forgive, during any year until 2005, in excess of $140,000 of principal, so
long as the aggregate of principal and interest forgiven by the Company 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, 1997 was $1,482,250 and was collateralized by 54,349 shares of the Company's
common stock.
During 1992, the Company loaned another officer $130,000 to enable him to
exercise an option for 9,719 shares. The loan bears interest at the prime rate
and is payable in quarterly installments. The loan balance at December 31, 1997
was $65,000 and was secured by a pledge of 11,333 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 8,667 shares. The loans bear
interest at the prime rate and are payable in quarterly installments. One of the
loans was repaid in full in April 1995. The second loan was repaid in full in
November 1997.
F-20
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Salaries, wages, commissions & employee benefits $ 3,618,762 $ 3,844,336
Interest 316,667 316,667
Advertising and promotion costs 7,113,385 8,700,312
Other 2,918,645 2,033,315
------------- -------------
$ 13,967,459 $ 14,894,630
------------- -------------
------------- -------------
</TABLE>
(12) Earnings Per Share
------------------
As discussed in note 1(j), the Company adopted SFAS No. 128, which replaces
the calculation of primary and fully diluted earnings per share, with basic
and diluted earnings per share. Prior periods have been restated to conform
to SFAS No. 128 requirements. A reconciliation between the numerators and
denominators of the basic and diluted income per common share is as follows:
<TABLE>
<CAPTION>
(Amounts in thousands, except
per share data)
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net earnings (numerator) $ 13,127 $ 9,278 $ 7,025
--------- --------- ---------
Weighted average common shares (denominator for basic earnings
per share) 7,593 7,449 7,465
Effect of dilutive securities:
Employee stock options 657 708 700
Weighted average common and potential common shares outstanding
(denominator for dilutive earnings per share) 8,250 8,157 8,165
--------- --------- ---------
Basic earnings per share $ 1.73 $ 1.25 $ .94
--------- --------- ---------
Diluted earnings per share $ 1.59 $ 1.14 $ .86
--------- --------- ---------
</TABLE>
Employee stock options for 107,000, 261,000 and 398,000 shares for the years
ended December 31, 1997, 1996 and 1995, respectively, were not included in
the net earnings per share because their effect would have been anti-dilutive.
F-21
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(13) Commitments and Contingencies
-----------------------------
In June 1997, the Company entered into a settlement agreement with respect to a
shareholders' derivative action against members of the Company's Board of
Directors in which, among other things, the Company's insurance carrier agreed
to pay $400,000 to the Company on behalf of the individual defendants, and the
Company paid $150,000 in connection with plaintiff's attorney's fees. The
stipulation of settlement expressly acknowledges that the settlement does not
constitute an admission by the defendants of any liability or wrongdoing by
them, but was entered into by the defendants to avoid the burden and costs of
further litigation.
The Company is involved in various other claims and legal actions arising in the
ordinary course of business, including environmental matters. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity.
The Company leases executive office space, furniture, data processing
equipment, transportation equipment and warehouse space under terms of
leases expiring through 2004. Rentals under these operating leases aggregated
approximately $2,491,000, $1,993,000 and $1,881,000 in the years ended
December 31, 1997, 1996 and 1995, respectively. The Company's obligations
under non-cancelable leases are summarized as follows:
<TABLE>
<S> <C>
1998 $1,768,248
1999 1,755,743
2000 1,706,172
2001 1,615,136
2002 1,507,015
Thereafter 2,395,400
----------
$10,747,714
----------
----------
</TABLE>
(14) 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, 1997 is approximately $5.0 million. The fair value of
long-term debt is based upon discounted cash flows using rates available to
the Company for debt with similar terms and maturities. The Company
continually evaluates the benefits of refinancing versus the related
prepayment penalties. 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.
F-22
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) Segment Information
-------------------
The following is a summary of segment information for 1997, 1996 and 1995 (in
thousands of dollars):
<TABLE>
<CAPTION>
1997
----------------------------------------
Cosmetics Pharmaceutical Consolidated
---------- -------------- ------------
<S> <C> <C> <C>
Sales to unaffiliated customers $ 207,260 $ 55,750 $ 263,010
---------- ------- ------------
---------- ------- ------------
Operating income $ 15,424 $ 9,828 $ 25,252
---------- -------
Interest expense (net) $ 3,375
-----------
Earnings before taxes $ 21,878
-----------
-----------
Identifiable assets at December 31, 1997 $ 132,679 $ 16,635 $ 149,314
---------- ------- ------------
---------- ------- ------------
Depreciation and amortization $ 5,418 $ 401 $ 5,819
---------- ------- ------------
---------- ------- ------------
Capital expenditures(1) $ 10,574 $ 253 $ 10,827
---------- ------- ------------
---------- ------- ------------
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------------------
Cosmetics Pharmaceutical Consolidated
---------- -------------- ------------
<S> <C> <C> <C>
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
---------- ------- ------------
---------- ------- ------------
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------------------
Cosmetics Pharmaceutical Consolidated
---------- -------------- ------------
<S> <C> <C> <C>
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
---------- ------- ------------
---------- ------- ------------
</TABLE>
(1) Excludes non-cash purchase of North Carolina property.
Sales to Wal-Mart Stores Inc. were 22.7%, 21.7% and 20.5% of consolidated net
sales for 1997, 1996 and 1995, respectively.
Two customers accounted for 31.1% and 31.4% of the Company's net accounts
receivables at December 31, 1997 and 1996, respectively.
F-23
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(16) Unaudited Quarterly Financial Data
----------------------------------
The following is a summary of quarterly operating results (in thousands of
dollars except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31, 1997
------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 61,319 $ 67,989 $ 68,865 $ 64,837
Cost of goods sold 23,809 26,719 26,541 24,020
Net earnings 3,295 3,193 3,675 2,964
Earnings per common share
Basic $ .44 $ .42 $ .49 $ .39
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted $ .41 $ .39 $ .44 $ .36
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
------------------------------------------
<S> <C> <C> <C> <C>
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
Basic $ .32 $ .29 $ .35 $ .29
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted $ .29 $ .27 $ .32 $ .26
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
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.
F-24
<PAGE>
SCHEDULE II
DEL LABORATORIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additions
Balance At Charged To Balance At
Beginning Costs And End
Description Of Period Expenses Deductions(1) Of Period
- ------------ ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C>
Year ended December 31, 1995 allowances for doubtful
accounts $ 1,300,000 $ 655,000 $ 255,000 $ 1,700,000
------------ ---------- ------------- ------------
------------ ---------- ------------- ------------
Year ended December 31, 1996 allowances for doubtful
accounts $ 1,700,000 $ 40,000 $ 240,000 $ 1,500,000
------------ ---------- ------------- ------------
------------ ---------- ------------- ------------
Year ended December 31, 1997 allowances for doubtful $ 1,500,000 $ 65,000 $ 265,000 $ 1,300,000
accounts ------------ ---------- ------------- ------------
------------ ---------- ------------- ------------
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
S-1
<PAGE>
Exhibit 10.16
AMENDEMENT NO. 2
TO
EMPLOYMENT AGREEMENT
--------------------
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT, dated March 31, 1997, by and
between DEL LABORATORIES, INC., a Delaware corporation (the "Corporation"), with
principal offices at 565 Broad Hollow Road, Farmingdale, New York, and DAN K.
WASSONG (the "Executive"), residing at 35 East 76th Street, New York, New York.
W I T N E S S E T H:
--------------------
WHEREAS, Executive and the Corporation are parties to an employment
agreement dated as of November 13, 1992 and an amendment thereto dated march 21,
1994 (collectively, the "Employment Agreement") pursuant to which Executive is
serving as Chairman of the Board, President and Chief Executive Officer of the
Corporation for a term expiring on December 31, 2003 at a current Minimum Salary
(as defined in the Employment Agreement) of $674,000; and
WHEREAS, Section 2 (b) of the Employment Agreement provides for the
repayment of certain loans made by the Corporation to the Executive in
accordance with the amortization schedules set forth therein, and further
provides for forgiveness of certain of such loans in the event of the
Executive's
<PAGE>
Continued employment with the Corporation or under certain other circumstances;
and
WHEREAS, the Corporation and the Executive desire to amend the
Employment Agreement, effective January 1, 1997, to (i) extend the term of the
Employment Agreement to December 31, 2005, (ii) revise the Minimum Salary under
the Employment Agreement to $688,000 and (iii) amend the terms on which the
loans referred to in Section 2(b) of the Employment Agreement will be repaid
and/or forgiven.
NOW, THEREOFRE, in consideration of the premises and mutual promises
and agreements hereinafter set forth, it is agreed as follows:
(1) The first sentence of Section 1(a) of the Employment Agreement
shall be deemed amended to read as follows:
"The Corporation hereby employs Executive as its Chairman of the
Board of Directors, President and Chief Executive Officer and the
Executive hereby accepts such employment with the Corporation for a
term commencing on the date of this Agreement and expiring on
December 31, 2005."
(2) The second sentence of Section 2(a) of the Employment Agreement
shall be deemed amended to read as follows:
"The Minimum Salary shall be $688,000 as of January 1, 1997."
2
<PAGE>
(3) Section 2(b)(i) of the Employment Agreement shall be deemed amended
to read in its entirety as follows:
"(b)(i) As of January 1, 1997, the Executive is indebted to the
Corporation in the principal amount of $1,622,250 (the "Existing
Balance"), which is the remaining principal balance, as of that
date, of loans made by the Corporation to the Executive in 1984,
1988 and 1990 (the "Prior Loans"). Subject to the provisions of
subparagraph (iii) below, the Existing Balance is to be repaid as
follows:
<TABLE>
<CAPTION>
Principal Due Date Amount Due
----------------- ----------
<S> <C>
January 20, 1997 140,000.00
January 20, 1998 140,000.00
January 20, 1999 140,000.00
January 20, 2000 140,000.00
January 20, 2001 140,000.00
January 20, 2002 140,000.00
January 20, 2003 140,000.00
January 20, 2004 140,000.00
January 20, 2005 140,000.00
January 20, 2006 362,250.00"
</TABLE>
(4) Section 2(b)(iii) of the Employment Agreement shall be deemed
amended to read in its entirety as follows:
3
<PAGE>
"(iii) Notwithstanding anything to the contrary set forth in (i)
above, the Corporation agrees to forgive any principal and interest payments
required to be made in respect of the Existing Balance as provided in (i)
above so long as the Executive is employed by the Corporation under this
Agreement at the time any such payment is due or he is serving as a
consultant to the Corporation pursuant to Section 1 (d) hereof. Furthermore,
the Corporation may, but is not required to, forgive in any calendar year
amounts in excess of the principal and interest payments due during that
year; provided however, that the Corporation shall in no event forgive,
during any calendar year other than 2006, in excess of an aggregate of
$360,000 of principal and interest. In the event the Corporation forgives in
any year any principal amount in excess of the principal required to be paid in
that year as set forth in subparagraph (i) above, such excess amount shall be
applied to the principal payments in the inverse order in which they are due."
(5) Section 9(a)(v) of the Employment Agreement shall be deemed amended
to read in its entirety as follows:
4
<PAGE>
"(v) In the event this Agreement expires without the negotiation of
a new contract of employment, or employment continues on and after December 31,
2005, without negotiation of a new agreement and thereafter terminates at any
time and for any reason, the Corporation shall pay the Executive the Deferred
Compensation commencing on the Termination Date."
(6) In all other respects, the Employment Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
DEL LABORATORIES, INC.
By: /s/ Robert H. Haines
--------------------
Name: Robert H. Haines
Title: Secy
/s/ Dan K. Wassong
-----------------------
Dan K. Wassong
5
<PAGE>
Exhibit 10.22
[Del Labs letterhead]
December 30, 1997
Mr. Harvey P. Alstodt
C/o Del Laboratories, Inc.
565 Broad Hollow Road
Farmingdale, NY 11735
Dear Harvey:
This will confirm that your Employment Agreement, as amended, is hereby further
amended and extended as follows:
1. The term of the Agreement is hereby extended to March 31, 2001.
2. Your annual base salary shall not be less than $250,000 per year.
3. You agree that you will give Del at least one hundred twenty (120) days'
notice prior to any voluntary termination of your employment hereunder.
4. The following new paragraph 16 is hereby added to the Agreement:
Except as set forth in Paragraphs 6 and 7 to this Agreement, any claim
or controversy arising out of or relating to this Agreement, or any
breach thereof, or otherwise relating to your employment, compensation
and benefits with the Company, or the termination thereof, shall be
settled by arbitration in New York, New York in accordance with the rules
established by the American Arbitration Association; provided, however,
that you and Del agree that (i) the arbitrator shall be prohibited from
disregarding, adding to or modifying the terms of this Agreement; (ii)
the arbitrator shall be required to follow established principles of
substantive law and the law governing burdens of proof; (iii) only
legally protected rights may be enforced in arbitration; (iv) the
arbitrator shall be without authority to award punitive or exemplary
damages; (v) the arbitrator shall be an attorney licensed to practice law
in New York who has experience in similar matters; and (vi) any demand
for arbitration must be filed and served, if at all, within 180 days of
the occurrence of the act or omission complained of. Any claim or
controversy not submitted to arbitration in accordance with this
Paragraph 18 shall be considered waived and, thereafter, no arbitration
panel or tribunal or court shall have the power to rule or make any award
on any such claim or controversy. The award rendered in any
<PAGE>
arbitration proceeding held under this Agreement shall be final and
binding, and judgment upon the award may be entered in any court having
jurisdiction thereof, provided it conforms to established principles of
law and is supported by substantial record evidence.
Please indicate your acceptance of the foregoing by signing a copy of
this letter in the space indicated below and returning it to me.
Very truly yours,
/s/ Dan K. Wassong
---------------------------
Dan K. Wassong
Chairman of the Board, President
And Chief Executive Officer
AGREED AND ACCEPTED:
/s/ Harvey P. Alstodt
- ------------------------
Harvey P. Alstodt
<PAGE>
EX-10.28
DEL LABORATORIES, INC.
----------
FIRST AMENDMENT
TO LOAN AGREEMENT
----------
FIRST AMENDMENT, dated as of March 31, 1997 (this "Amendment"), to the
Loan Agreement, dated as of May 26, 1993 (the "Loan Agreement"), by and among
Del Laboratories, Inc., a Delaware corporation (the "Company"), Jackson National
Life Insurance Company, a Michigan insurance corporation and Jackson National
Life Insurance Company of Michigan, a Michigan insurance corporation (Jackson
National Life Insurance Company and Jackson National Life Insurance Company of
Michigan are collectively referred to herein as "Lenders").
RECITALS:
WHEREAS, the Company has requested that Lenders consent to modify the Loan
Agreement in order to increase the ability of the Company to redeem certain of
its capital stock; and
WHEREAS, Lenders have agreed that upon this Amendment becoming effective
certain provisions of the Loan Agreement will be amended as provided below;
NOW, THEREFORE, the parties agree as follows:
A. Defined Terms. Terms defined in the Loan Agreement and used herein
shall have the same meanings given to them in the Loan Agreement.
B. Amendments to Loan Agreement.
1. Clause (A) in Section 5.8 of the Loan Agreement shall be deleted
in its entirety and replaced with the following:
"(A) the aggregate amount of all Restricted Payments made during the
period commencing on January 1, 1993, and ending on and including the date
of any action (the "Computation Period") shall not exceed the sum of
(1) $6,000,000, plus
<PAGE>
(2) 50% (or, in the case of a net loss, minus 100%) of Consolidated
Net Income for the Computation Period, plus
(3) the amount of the net proceeds, in excess of the first
$6,500,000 of net proceeds, received by the Company at any time during the
period commencing on January 1, 1997, and ending on and including the date
of such Restricted Payment, directly from the issuance of any of the
Company's shares of capital stock, including but not limited to the net
proceeds received by the Company upon the exercise of any stock options or
other rights to purchase capital stock of the Company, less the amount of
all outstanding loans and advances made by the Company or any of its
Affiliates to employees of the Company or other Persons during such period
for the purpose of permitting such Persons to purchase shares or exercise
stock options of the Company, and less the amount of all purchases,
redemptions and retirements of shares of the Company effected
substantially concurrently with the issuance of any shares of the capital
stock of the Company during such period which do not qualify as a
"Restricted Payment" by virtue of Section (B)(2) of the definition
thereof, plus
(4) the amount of all Restricted Payments made by the Company, up to
a maximum of $6,500,000, either directly or indirectly through a
registered broker-dealer or an employee stock ownership trust (an "ESOT"),
to purchase, repurchase or redeem shares of capital stock of the Company
held by employees or former employees of the Company and its Subsidiaries
(or their respective heirs, personal representatives, successors or
assigns) during the period commencing on October 1, 1996, and ending on
and including the date of the Restricted Payment, provided that
(a) the total amount of all payments made to, and stock
purchase made from, Martin E. Revson not exceed $1,500,000 (any
excess payment being a prohibited Restricted Payment),
(b) any such payment or purchase of capital stock is otherwise
made in compliance with the terms of the Loan Agreement, and
(c) payments made in cash to any employee or former employee
of the Company or any of its Subsidiaries (or to such person's
heirs, personal representatives, successors or assigns) in
satisfaction of such employee's or former employee's account
balances under the Company's ESOT shall not be considered Restricted
Payments for purposes of this Agreement provided that such cash
payments are made consistent in all respects with the terms of the
ESOT and its past practices and are not made for the purpose,
directly or indirectly, of purchasing or redeeming capital stock of
the Company, and".
2. Section 5.14 of the Loan Agreement shall be amended by adding the
following clause at the end of that Section:
2
<PAGE>
"provided, however, that with respect to purchases of shares of the
capital stock of the Company from Affiliates, any purchase made for cash
at a price not greater than the average daily closing price of such shares
on all national securities exchanges and/or reported through the automated
quotation system of a registered securities association during the ten
business day period immediately preceding the date or the purchase shall
be deemed to have been made on an arm's length basis."
C. Conditions to Effectiveness. This Amendment shall become effective on
the date (the "Amendment Effective Date") on which the following conditions
precedent have been satisfied or waived:
1. The Company shall have executed and delivered this Amendment to
the Lenders.
2. The Lenders shall have received a Later Date Certificate, dated
as of the Amendment Effective Date, signed by the Secretary of the Company,
certifying such facts concerning the Company, the incumbency of its officers,
and its authority to enter into this Amendment as the Lenders may reasonably
require.
3. The Lenders shall have received the executed legal opinion, dated
the Amendment Effective Date, of Zimet, Haines, Friedman & Kaplan, counsel to
the Company, or such other law firm as may be acceptable to the Lenders,
satisfactory in form and substance to the Lenders, which shall cover such
matters incident to this Amendment or the other loan documents as the Lenders
may reasonably require.
D. General.
1. Representation and Warranties. To induce the Lenders to enter
into this Amendment, the Company hereby represents and warrants to the Lenders
as of the Amendment Effective Date that:
(a) No Material Adverse Change or Default. Since May 26, 1993, there
has been no development or event nor any prospective development or event, which
has had or could reasonably be expected to have a material adverse effect on the
assets, business or financial condition of the Company. No Event of Default has
occurred and will be continuing after giving effect to this Amendment.
(b) Corporate Power; Authorization; Enforceable Obligations.
(i) The Company has the corporate power and authority, and the legal
right, to make and deliver this Amendment and to perform all of its obligations
under the Loan Agreement, as amended by this Amendment, and the other loan
documents, and has taken all
3
<PAGE>
necessary corporate action to authorize the execution and delivery of this
Amendment and the performance of the loan documents, as so amended.
(ii) No consent or authorization of, approval by, notice to, filing
with or other act by or in respect of, any governmental authority or any other
Person is required in connection with the execution and delivery of this
Amendment or with the performance, validity or enforceability of the loan
documents, as amended by this Amendment.
(iii) When executed and delivered, this Amendment and the Loan
Agreement, as amended by this Amendment, will constitute a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as affected by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting the enforcement of creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
(c) No Legal Bar. The execution and delivery of this Amendment and
the performance of the Company's obligations under the loan documents, as
amended by this Amendment, will not violate any statute, rule, law, ordinance,
regulation or order (statutes, rules, laws, ordinances, regulations and orders
are collectively referred to as, "Governmental Rule") applicable to the Company
or any material contractual obligation of the Company and will not result in, or
require, the creation or imposition of any Encumbrance on any of its properties
or revenues pursuant to any such Governmental Rule or contractual obligation
which could reasonably be expected to have a material adverse effect on the
assets, business or financial condition of the Company.
(d) Representation and Warranties. The representations and
warranties made by the Company in the Loan Agreement and in Exhibit B thereto
are true and correct in all material respects on and as of the Amendment
Effective Date, before and after giving effect to the effectiveness of this
Amendment, as if made on and as of the Amendment Effective Date, other than
those that relate to an earlier or specific date provided, however, that the
Company makes no representation as to the continued accuracy of the information
contained in Schedules D-1 through D-8 of the Loan Agreement.
2. Payment of Expenses. The Company agrees to pay or reimburse
Lenders for all of their out-of-pocket costs and reasonable expenses incurred
in connection with this Amendment, any other documents prepared in connection
herewith and the transactions contemplated hereby, including, without
limitation, the reasonable fees and disbursements of counsel to Lenders.
3. No Other Amendments; Confirmation.
4
<PAGE>
(a) Except as expressly amended, modified and supplemented hereby, the
provisions of the Loan Agreement and each of the other loan documents are and
shall remain in full force and effect. The Company may not rely in any way upon
the Lenders' willingness to enter into this Amendment or assume that the Lenders
will agree to any future amendment of the Loan Agreement or other loan
documents.
(b) The Company hereby confirms its obligations under the Loan Agreement
and acknowledges that it has no defenses, claims or set-offs to the enforcement
by the Lenders of any of the Company's stated obligations thereunder.
4. Governing Law; Counterparts.
(a) This Amendment and the rights and obligations of the parties
hereto shall be governed by, and construed and interpreted in accordance with,
the internal, substantive laws of the State of Illinois without regard to its
conflicts of law doctrine.
(b) This Amendment may be executed by one or more of the parties to
this Amendment on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Amendment signed by all the parties
shall be lodged with the Company and with the Lenders. This Amendment may be
delivered by facsimile transmission of the relevant signature pages hereof.
[The next page is the signature page]
5
<PAGE>
IN WITNESS HEREOF, the parties hereto have caused this First
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the date and year first above written.
DEL LABORATORIES, INC. a Delaware
corporation
By: /s/ Melvyn C. Goldstein
----------------------------------
Its: Vice President Finance
JACKSON NATIONAL LIFE INSURANCE
COMPANY, a Michigan insurance corporation
By: PPM America, Inc., its agent
By: /s/ Ben James
-----------------------------
Its: Senior Vice President
Jackson National Life Insurance Company as
successor by merger to
JACKSON NATIONAL LIFE INSURANCE COMPANY OF
MICHIGAN, a Michigan insurance
corporation
By: PPM America, Inc., its agent
By: /s/ Ben James
-----------------------------
Its: Senior Vice President
6
<PAGE>
EX-10.29
[LETTERHEAD OF DEL LABORATORIES, INC.]
November 25, 1997
Mr. Charles H. Abdalian, Jr.
8 Old Chimney Road
Upper Saddle River, NJ 07458
Dear Chuck:
This is to confirm our understanding relative to your employment with Del
Laboratories, Inc. ("Del").
1. You will be employed as Vice President, Chief Financial Officer of Del,
effective as of October 1, 1997. After the successful completion of your first
ninety (90) days of employment, this Agreement will be effective for an initial
term ending December 31, 1999, unless sooner terminated pursuant to paragraph 12
herein. Del will provide you with at least six (6) months' notice in the event
that it desires not to renew this Agreement past December 31, 1999.
2. In your capacity as Vice President, Chief Financial Officer, you shall
faithfully adhere to, execute and fulfill all policies established by Del. You
shall devote all of your business time and attention to the affairs of Del.
3. You shall be compensated at the annual base rate of not less than
$210,000. Any and all compensation payments required by this Agreement shall be
payable in accordance with Del policy during the stated term of this Agreement.
4. Del will furnish to you for use, in connection with company business,
an automobile in a class comparable to executives of your rank. Del shall pay
for all of the operating and maintenance costs of such automobile, including all
insurance charges. You shall be responsible for all tax liability arising from
income reportable by Del to federal, state and local tax authorities and
attributable to your non-business use of the automobile furnished by Del. In
addition, Del will assist you in your relocation from New Jersey to Long Island
in accordance with Del's standard relocation policy for executives.
5. Del will reimburse you for all properly documented necessary and
reasonable business expenses in accordance with Del policy.
6. You shall participate, subject to eligibility, in such vacation,
profit-sharing, pension, group insurance, executive medical, hospitalization or
other incentive benefit plans or arrangements as Del may now or in the future
maintain for its executives of comparable rank to you. Nothing herein shall be
construed to require Del to establish or continue such plan. Rather, the
establishment and/or continuance of any such plan is within the sole discretion
of
<PAGE>
Del. Notwithstanding the foregoing, in connection with the first twelve (12)
months of your employment, you will receive a minimum guaranteed bonus of
$60,000; such bonus will be payable on a pro rated annualized basis at the times
that Del pays annual bonuses to other executives of your rank. During the period
of your employment hereunder, Del shall provide a policy of life insurance in
the principle amount of not less than $500,000, payable to your designee,
provided that you are insurable at normal rates for a person of your age and
sex. You will cooperate in enabling Del to obtain such a policy.
7. (a) You recognize that as an executive of Del you will have access to,
acquire or assist in the development of secret and confidential information
regarding Del, its products, customers and plans, the disclosure of which to the
competitors of Del or others would cause Del to suffer substantial and
irreparable damage. You acknowledge that such information is of great value to
Del, is the sole property of Del and that such information has been and will be
acquired by you in confidence. In consideration of the obligations undertaken by
Del as set forth herein, you will not, at any time, during or after your
employment hereunder, publish, disclose or use, or authorize any other person or
entity to publish, disclose or use, any secret or confidential information,
whether patentable or not, of or about Del, including trade secrets (as that
term is defined below) and any other secret or confidential information of which
you become aware of or informed during the term of your employment, whether or
not developed by you, except as required in your duties to Del. For purposes
hereof, "trade secrets" shall include, without limitation, compilations,
studies, strategies, programs, methods, techniques and processes of or about Del
and its affiliates or their business, customers or suppliers, which derive
independent economic value, actual or potential, from not being generally known
to, and not being readily ascertainable by, other persons who can obtain
economic value from their disclosure or use and which are the subject of efforts
to maintain their secrecy that are reasonable under the circumstances. Some
examples are information relating to (i) special needs and characteristics of
customers of Del and its affiliates, (ii) computer programs and controls, (iii)
existing and new or envisioned products, formulas, ingredients, devices,
methods, processes and techniques, (iv) laboratory tests and data, studies and
analyses, research and development data and projections, (v) marketing, sales,
pricing, costs and other financial data and projections, (vi) marketing,
promotional and advertising studies, programs and strategies, (vii) names of
current, former and prospective customers and suppliers of Del.
(b) Upon termination of your employment with Del, you shall promptly
deliver to Del all files, records, documents, drawings, blueprints, product
samples, tests, test results, manuals, letters, notes, notebooks and reports of
Del, and all copies thereof, and all other materials of a secret or confidential
nature relating to Del's business.
8. (a) You recognize that the services to be performed by you hereunder
are special, unique and extraordinary. The parties confirm that it is reasonably
necessary for the protection of Del that you agree, and accordingly, you do
hereby agree that, unless you have obtained the prior written consent of Del,
you will not, directly or indirectly, at any time during your employment
hereunder and thereafter for the remaining stated term of the
2
<PAGE>
Agreement or six months from the date of termination of your employment,
whichever is longer (provided that, if this Agreement is terminated without
cause by Del, the provisions of this paragraph 8 shall only be applicable while
you are being paid by Del as an employee or consultant):
i) become an officer, director, stockholder, principal,
associate, partner, employee, owner, agent, creditor, independent contractor or
co-venturer of, or engage or participate in any other individual or
representative capacity whatsoever, in the conduct or management of, or own or
have any stock or other proprietary or financial interest in, or any other way
be interested in or associated with any other corporation, firm or business
engaged in the same or an similar business competitive with that of Del except
that you shall be free without such consent to own up to 3% of the capital stock
of corporations whose securities are publicly owned and regularly traded on any
national exchange or in the over-the-counter market; or
ii) solicit, or cause or authorize any other person or entity
to solicit, for or on behalf of yourself or any third party, persons or entities
who were customers of Del at any time within one year prior to the cessation of
our employment hereunder for any business similar to the business transacted by
Del with such customer; or
iii) sell to or accept, or cause or authorize any other person
or entity to sell to or accept, for or on behalf of you or any third party, any
such business from any such customers of Del.
9. For a period of two (2) years after the termination of your
employment with Del, you will not solicit, or cause or authorize any other
person or entity to solicit, advise, recommend, or in any way participate in
the hiring process of, any employee, consultant or contractor of Del, or any
other person, who was at any time within one year prior to the cessation of
your employment hereunder then under contract with or rendering services to
Del, to terminate his or her employment by, or consulting or contractual
relationship with Del, or to refrain from extending or renewing the same
(upon the same or new terms), to refrain from rendering services to Del, or
to become employed or retained by or to enter into contractual relations with
persons or entities other than Del.
10. All inventions, ideas, processes, designs, or discoveries relating
to the business of Del, whether or not patentable or entitled to trademark,
copyright or other protection, which you conceive, produce or make, alone or
jointly with others, during your employment with Del or at any time
thereafter if you use Del's trade secrets or other confidential information
which in any way relates to the present or anticipated business, development,
tests, products or activities of Del, or which in any way results from or are
suggested by or connected with your employment with Del, are and shall be the
property of Del. You also agree to, and hereby do, assign and transfer to Del
all of your rights, title and interest in and to such inventions, and in any
and all Letter Patents and/or patent applications with respect thereto, and
you further agree that whenever requested by Del, either during or subsequent
to your employment, you
3
<PAGE>
shall execute patent and/or copyright applications, and other instruments
considered necessary or desirable by Del, to apply for and obtain Letters Patent
and/or copyrights of the United States and foreign countries covering such
inventions, processes, designs, discoveries, and/or ideas, and you shall make
assignments and execute any other instruments necessary to convey to Del
ownership and exclusive rights to such inventions, discoveries, patent
applications, patents and copyrights. Del shall bear all expenses connected with
such patent, patent applications and maintenance of patent protection, and
copyrights, and if services in connection therewith are performed by you at the
request of Del after the termination of your employment, Del shall pay
reasonable compensation for such services.
11. (a) You agree that any breach or threatened breach by you of any
provisions of paragraphs 7, 8, 9 or 10 would result in irreparable harm to Del
and could not reasonably or adequately be compensated in damages and that, in
the event of any such breach or threatened breach, Del shall be entitled to (i)
equitable relief, including but not limited to temporary, preliminary and
permanent injunctive relief enforcing the specific performance by you of this
Agreement or enjoining or restraining you from any violation or threatened
violation of the terms of this Agreement, and an equitable accounting of all
earnings, profits and other benefits arising from such breach, and (ii) recover
from you an amount equal to all profits, commissions or other compensation or
remuneration received or earned, directly or indirectly, by you from or on
account of any violation of your obligations under paragraphs 7, 8, 9 and 10 of
this Agreement. You further agree that if it is determined that you have
breached the restrictions contained in paragraphs 7, 8, 9 and 10 of this
Agreement, Del shall be entitled to recover from you all costs and reasonable
attorney's fees incurred as a result of its attempts to redress such breach or
enforce its rights and protect its legitimate interest. If any of the
restrictions contained in paragraph 8 or 9 shall be deemed to be unenforceable
by reason of the extent, duration or geographical scope thereof, or otherwise,
then the court making such determination shall have the right to reduce such
extent, duration, geographical scope, or other provisions thereof, and in its
reduced form such paragraph shall then be enforceable in the manner contemplated
hereby.
(b) Paragraphs 7, 8, 9 and 10 shall survive the termination of your
employment hereunder for the periods therein provided.
(c) For purposes of paragraphs 7, 8, 9 and 10, "Del" shall mean Del
and its affiliates.
12. (a) This Agreement shall terminate upon your death and may be
terminated by Del upon your permanent disability. Permanent disability shall be
deemed to exist if in the judgment of a physician licensed to practice in the
State of New York selected by Del, you have been unable or will be unable, due
to mental or physical incapacity, disease or injury to perform your duties or
services to Del for a period of not less than three consecutive months. If this
Agreement terminates due to your death, Del shall pay you or your legal
representative, as the case may be, an amount equal to your base salary for
three months. If the Agreement terminates due to your permanent disability, Del
shall pay you or your legal representative, as
4
<PAGE>
the case may be, an amount equal to your base salary for the greater of three
months or until you are eligible for long term disability coverage under Del's
long term disability plan (provided, however, that such period shall not exceed
six months). Such amounts shall be paid in monthly installments.
(b) Del may terminate this Agreement for cause in the event you:
(i) commit any act of fraud or dishonesty in connection with
your employment or otherwise involving Del;
(ii) fail, refuse or neglect to perform any material duty or
obligation to Del or fail, refuse or neglect to carry out any
written instructions or directions of Del;
(iii) engage in conduct which, in Del's good faith opinion, is
detrimental to Del's interests;
(iv) commit a material breach of any provision of this
Agreement or any fiduciary or other duty to Del;
(v) engage in misconduct in connection with your employment;
(vii) violate paragraphs 7, 8, 9 and 10 above; or
(viii) misrepresent or fail to disclose any material fact,
information or statement to Del.
(c) In the event Del terminates this Agreement for cause, or with
notice of termination as provided in Paragraph 1 above, Del's obligations (other
than those, if any, pursuant to paragraph 13 below) shall cease and terminate as
of the date of such termination.
(d) In the event Del terminates this Agreement during the initial
term without cause, you shall be entitled to receive as liquidated damages and
in lieu of any other payment from or claim against Del, your base salary for the
remainder of the initial term, less appropriate deductions as required by law.
13. You agree that you will give Del at least one hundred twenty (120)
days' notice prior to any voluntary termination of your employment hereunder. In
the event of the termination of your employment hereunder for any reason, Del
shall have the option, in its sole discretion, to retain your services as a
consultant for a period of up to six (6) months from the date of such
termination, at the annual base rate set forth in paragraph 3 of this Agreement.
Your duties as a consultant shall be determined by Del, and you shall spend such
time during normal business hours as is reasonably necessary to accomplish those
duties. If you fail or refuse to act as a consultant during such period, Del may
elect to terminate your consultancy
5
<PAGE>
by notice in accordance herewith. During any period when you are receiving
compensation hereunder, including periods when Del has tendered such
compensation despite your failure or refusal to act, you shall continue to be
bound by the provisions of paragraphs 7, 8, 9 and 10 of this Agreement. Payments
pursuant to this paragraph are in lieu of, and supersede, any other obligations
Del has to you pursuant to this Agreement. During the period of such
consultancy, you shall not accept any other employment so long as Del continues
to pay you as herein provided.
14. You have represented and hereby represent and warrant to Del that
there are no restrictions, covenants, agreements or limitations on your right or
ability to enter into and perform the terms of this Agreement, and agree to
indemnify and save the Company harmless from any liability, cost or expense,
including attorneys' fees, based upon or arising out of any such restrictions,
covenants, agreements or limitations that may be found to exist.
15. You agree that during the period you are employed by Del, and at all
reasonable times thereafter, you will assist and cooperate with Del in
connection with any ongoing or future investigation, dispute or claim of any
kind involving Del, including any proceeding before any arbitral,
administrative, regulatory, judicial, legislative or other body or agency, to
the extent that such claims, investigations or proceedings relate to services
performed or required to be performed by you, pertinent knowledge possessed by
you or any act or omission by you.
16. In connection with your employment with Del, you shall comply in all
material respects with all federal, state and local laws, rules and regulations
applicable to Del's business.
17. This Agreement is personal and non-assignable to you. It shall extend
to, and be binding upon any corporation or other entity with which Del shall
merge or consolidate or to which Del shall lease or sell all or substantially
all of its assets and may be assigned by Del to any affiliate of Del or to any
corporation or entity with which such affiliate shall merge or consolidate or to
which such affiliate shall lease or sell all or substantially all of its assets.
18. Any notices or other communications required by permitted to be given
hereunder shall be in writing, and shall be duly given if delivered personally
or sent by registered or certified mail, return receipt requested, to Del at 565
Broad Hollow Road, Farmingdale, New York 11735, Attention: Dan K. Wassong,
President and to you at your address first set forth above, or to such other
address as either party shall designate by written notice to the other.
19. Except as set forth in Paragraphs 7, 8 and 9 above, any claim or
controversy arising out of or relating to this Agreement, or any breach thereof,
or otherwise relating to your employment, compensation and benefits with the
Company, or the termination thereof, shall be settled by arbitration in New
York, New York in accordance with the rules established by the American
Arbitration Association; provided, however, that you and Del agree that (i) the
arbitrator shall be prohibited from disregarding, adding to or modifying the
terms of this
6
<PAGE>
Agreement; (ii) the arbitrator shall be required to follow established
principles of substantive law and the law governing burdens of proof; (iii) only
legally protected rights may be enforced in arbitration; (iv) the arbitrator
shall be without authority to award punitive or exemplary damages; (v) the
arbitrator shall be an attorney licensed to practice law in New York who has
experience in similar matters; and (vi) any demand for arbitration must be filed
and served, if at all, within 180 days of the occurrence of the act or omission
complained of. Any claim or controversy not submitted to arbitration in
accordance with this Paragraph 18 shall be considered waived and, thereafter, no
arbitration panel or tribunal or court shall have the power to rule or make any
award on any such claim or controversy. The award rendered in any arbitration
proceeding held under this Paragraph 19 shall be final and binding, and judgment
upon the award may be entered in any court having jurisdiction thereof, provided
it conforms to established principles of law and is supported by substantial
record evidence.
20. This agreement constitutes the entire agreement between us in any way
relating to your employment, compensation and benefits with Del and supersedes
all prior agreements and understandings between us. This agreement may not be
altered or amended except by a writing signed by you and the Chief Executive
Officer of Del.
21. This Agreement shall be governed by, construed and interpreted in
accordance with the laws of the State of New York, without reference to choice
of law principles.
Very truly yours,
DEL LABORATORIES, INC.
By: /s/ Dan K. Wassong
----------------------------------
Dan K. Wassong
Chairman of the Board,
President and Chief Executive Officer
AGREED:
By: /s/ Charles H. Abdalian
----------------------------
Charles H. Abdalian, Jr.
7
<PAGE>
Exhibit 23
Independent Auditors' Consent
-----------------------------
The Board of Directors and Shareholders
Del Laboratories, Inc.:
We consent to 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. of our report dated February 10, 1998, relating to
the consolidated balance sheets of Del Laboratories, Inc. and subsidiaries as
of December 31, 1997 and 1996 and the related consolidated statements of
earnings, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1997, and the related schedule which
report appears in the December 31, 1997 annual report on Form 10-K of Del
Laboratories, Inc.
Jericho, New York
March 27, 1998
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<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<PERIOD-START> JAN-01-1997 APR-01-1997 JUL-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 15,259 12,701 14,128
<SECURITIES> 0 0 0
<RECEIVABLES> 35,846 34,983 30,412
<ALLOWANCES> 1,450 1,450 1,400
<INVENTORY> 36,069 36,589 46,296
<CURRENT-ASSETS> 89,530 89,141 93,272
<PP&E> 44,758 51,575 53,251
<DEPRECIATION> 18,096 19,445 19,703
<TOTAL-ASSETS> 128,642 136,350 141,664
<CURRENT-LIABILITIES> 35,455 37,111 39,879
<BONDS> 40,000 43,960 43,920
0 0 0
0 0 0
<COMMON> 8,785 8,785 8,785
<OTHER-SE> 39,095 41,187 43,773
<TOTAL-LIABILITY-AND-EQUITY> 128,642 136,350 141,664
<SALES> 61,319 129,308 198,174
<TOTAL-REVENUES> 61,319 129,308 198,174
<CGS> 23,809 50,528 77,070
<TOTAL-COSTS> 55,005 116,770 178,654
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 16 32 48
<INTEREST-EXPENSE> 822 1,724 2,581
<INCOME-PRETAX> 5,492 10,814 16,939
<INCOME-TAX> 2,197 4,326 6,776
<INCOME-CONTINUING> 3,295 6,488 10,163
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 3,295 6,488 10,163
<EPS-PRIMARY> .44 .86 1.34
<EPS-DILUTED> .41 .80 1.24
</TABLE>
