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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q/A
(Amendment I)
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File No. 1-5439
DEL LABORATORIES, INC.
------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-1953103
- ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
565 Broad Hollow Road, Farmingdale, New York 11735
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 844-2020
-------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES (X) NO ( )
The number of shares of Common Stock, $1 par value, outstanding as of August 6,
1997 was 5,683,689.
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DEL LABORATORIES, INC. AND SUBSIDIARIES
Index
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<CAPTION>
Page No.
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PART I. FINANCIAL INFORMATION:
<S> <C> <C>
Item 1. Financial Statements:
Consolidated Condensed Statements of Earnings for the
three months ended June 30, 1997 and 1996 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
SIGNATURE 9
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EACH OF THE ABOVE LISTED ITEMS IS HEREBY AMENDED BY DELETING THE ITEM IN ITS
ENTIRETY AND REPLACING IT WITH THE ATTACHED ITEMS.
THE INFORMATION CONTAINED HEREIN HAS BEEN RESTATED ON MAY 15, 1998 TO REFLECT
SHIPMENTS OF FINISHED PRODUCTS WHICH SHOULD HAVE BEEN RECOGNIZED IN THE
SECOND QUARTER OF 1997 INSTEAD OF THE FIRST QUARTER OF 1997 (SEE NOTE 4 - OF
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS). ALL SHARE AND PER
SHARE INFORMATION HAS BEEN RESTATED TO REFLECT A FOUR-FOR-THREE COMMON STOCK
SPLIT APPROVED BY THE BOARD OF DIRECTORS IN FEBRUARY 1998 AND DISTRIBUTED IN
THE FORM OF A STOCK DIVIDEND IN MARCH 1998. IN ADDITION, EARNINGS PER COMMON
SHARE AND WEIGHTED AVERAGE COMMON SHARES OUTSTANDING HAVE BEEN RESTATED FOR
THE ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128,
"EARNINGS PER SHARE".
2
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DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(In thousands except for per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30 June 30
1997 1996
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<S> <C> <C>
Net sales $ 75,093 $ 58,060
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Cost of goods sold 29,142 24,217
Selling and administrative expenses 36,004 29,289
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65,146 53,506
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Operating income 9,947 4,554
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Interest expense 991 951
Interest income (89) (120)
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Interest expense, net 902 831
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Earnings before income taxes 9,045 3,723
Income taxes 3,618 1,526
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Net earnings $ 5,427 $ 2,197
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----------------- -----------------
Earnings per common share (A)
Basic $ 0.72 $ 0.29
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Diluted $ 0.66 $ 0.27
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----------------- -----------------
Weighted average common shares
outstanding (A)
Basic 7,559,000 7,425,000
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----------------- -----------------
Diluted 8,203,000 8,160,000
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----------------- -----------------
Dividends per common share (A) $ 0.026 $ 0.020
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(A) Adjusted to reflect 4-for-3 stock splits effective November 8, 1996 and February 20, 1998.
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
4
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DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the
financial position as of June 30, 1997, the results of operations for
the three and six months ended June 30, 1997 and 1996 and the
statements of cash flows for the six months ended June 30, 1997 and
1996.
Results for an interim period are not necessarily indicative of results
for the entire year and such results are subject to year-end
adjustments and independent audit.
These financial statements should be read in conjunction with the
consolidated financial statements of the Company contained in the
Company's Form 10-K for the year ended December 31, 1996.
2. Classification of inventories at June 30, 1997 and December 31, 1996
were as follows (in thousands):
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<CAPTION>
1997 1996
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<S> <C> <C>
Raw Materials $ 20,381 $ 15,346
Work In Process 3,850 3,862
Finished Goods 12,358 14,580
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$ 36,589 $ 33,788
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3. In June 1997, the Company purchased land and buildings in North
Carolina to be used as a distribution center. This distribution center
will replace the Company's current leased facility. The lease expires
in October 1997 with all remaining leasehold improvements fully
amortized by the end of the lease term. The purchase price of the
property is $5,500,000, of which $275,000 was paid at closing and
$5,225,000 is being financed through a non-interest bearing note with
the seller of the property. The Company recorded the note payable at
its present value using an interest rate of 7.3% which approximates
the Company's incremental borrowing rate. The repayment terms of the
note include $1,375,000 to be repaid over three years and a single
lump sum payment of $3,850,000 on May 15, 2000. The issuance of the
note for the property represents a non-cash transaction and is
supplemental information related to the consolidated statement of cash
flows.
5
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4. The Company has restated previously issued financial results for each
of the first and second quarters of the year ended December 31, 1997.
The first quarter of 1997 was restated to reflect a $7.1 million
reduction in net sales and a $2.2 million ($0.30 per basic share)
reduction in net earnings resulting from shipments of finished
products which should have been recognized in the second quarter of
1997 instead of the first quarter of 1997. There was a
corresponding increase of $7.1 million in net sales and a $2.2
million ($0.30 per basic share) increase in net earings for the
second quarter of 1997. The shift did not impact reported results
for the six months ended June 30, 1997 or the year ended December
31, 1997. The following summarizes the impact of the restatement on
the three months ended March 31 and June 30, 1997:
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<CAPTION>
Three Months Ended
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March 31, 1997 June 30, 1997
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<S> <C> <C>
Net sales
As previously reported $61,319 $67,989
As restated 54,215 75,093
Cost of goods sold
As previously reported 23,809 26,719
As restated 21,386 29,142
Selling and administrative expenses
As previously reported 31,196 35,046
As restated 30,238 36,004
Net earnings
As previously reported 3,295 3,193
As restated 1,061 5,427
Earnings per common share - Basic
As previously reported (1) .44 .42
As restated .14 .72
Earnings per common share - Diluted
As previously reported (1) .41 .39
As restated .13 .66
Retained earnings
As previously reported 64,451 67,445
As restated 62,217 67,445
</TABLE>
(1) Restated for February 1998 stock split and FASB No. 128 implementation.
6
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-----------------------------------
(1) LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Under its institutional debt covenants, the Company is permitted a
level of short-term borrowing not to exceed $15,000,000. Currently,
the Company has arrangements with banks which provide up to
$27,500,000 of short-term lines of credit at the prime rate of
interest. There were no borrowings under these lines during the six
months ended June 30, 1997 or the year ended December 31, 1996.
The Company has, from time to time, acquired shares of its common
stock pursuant to a plan approved by the Board of Directors in 1987.
The Company will generally undertake such purchases if, as and when
management believes that the prevailing market price for its Common
Stock does not adequately reflect the intrinsic value of the Company's
business. During the six months ended June 30, 1997 the Company
purchased 198,857 shares at an average cost of $27.15 per share, and
such shares were placed in treasury. The shares purchased were
predominantly from employees who held shares issued pursuant to the
Company's stock option plans, with the balance through open market
purchases. As of June 30, 1997 the Company was authorized to purchase
up to 149,625 additional shares based on the then existing Board
authorization.
Net accounts receivable at June 30, 1997 increased by $2,752,000 from
the December 31, 1996 level. The increase is attributable to a sales
concentration in the latter part of the quarter. Inventories at June
30, 1997 increased by $2,801,000 from December 31, 1996.
During the six months ended June 30, 1997, the Company generated
$3,534,000 cash from operations. The Company believes that cash from
future operations, cash on hand and amounts available from short-term
lines of credit , referred to above, will be sufficient to satisfy the
Company's liquidity needs for the foreseeable future.
In June 1997, the Company purchased land and buildings in North
Carolina to be used as a distribution center. This distribution center
will replace the Company's current leased facility. The lease expires
in October 1997 with all remaining leasehold improvements fully
amortized by the end of the lease term. The purchase price of the
property is $5,500,000, of which $275,000 was paid at closing and
$5,225,000 is being financed through a non-interest bearing note with
the seller of the property. The Company recorded the note payable at
its present value using an interest rate of 7.3% which approximates
the Company's incremental borrowing rate. The repayment terms of the
note include $1,375,000 to be repaid over three years and a single
lump sum payment of $3,850,000 on May 15, 2000.
(2) RESULTS OF OPERATIONS
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Sales
-----
Sales for the second quarter of 1997 were $75.1 million, 29.3% above
the $58.1 million of sales for the second quarter of 1996. Sales for
the six months ended June 30, 1997 were $129.3 million, 13.3% above
the $114.2 million of sales for the six months ended June 30, 1996.
The second quarter and six months of 1997 results reflect a sales
increase in the Cosmetics Division and a decrease in sales for the
Pharmaceutical Division.
Cost of Sales
-------------
Cost of sales for the second quarter of 1997, as a percentage of net
sales, decreased to 38.8%, as compared with 41.7 % in the
corresponding period of 1996. Cost of sales for the six months ended
June 30, 1997, as a percentage of net sales, was 39.1% compared with
41.2% in the corresponding period of 1996.
The decrease in cost of sales resulted from decreases in both the
Cosmetics and Pharmaceutical Divisions. These decreases were the
result of increased production levels and production efficiencies that
allowed a greater absorption of manufacturing overhead. In addition,
the Company constantly reviews product cost in order to produce its
products at the lowest possible cost.
7
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Selling and Administrative Expenses
-----------------------------------
Selling and administrative expenses increased by $6.7 million in the
second quarter of 1997 versus the second quarter of 1996 but decreased
as a percentage of net sales to 47.9% from 50.4%. For the six months
ended June 30, 1997, selling and administrative expenses increased by
$8.6 million versus the comparable period in 1996 and also increased
as a percentage of net sales to 51.2% from 50.5%.
The increase of .7% as a percentage of sales is attributable to
increased advertising and promotional expenses during the first
quarter of the 1997 period.
Net Interest Expense
--------------------
Net interest expense for the second quarter of 1997 was $902,000
compared with $831,000 incurred in the second quarter of 1996. Net
interest expense for the six months ended June 30, 1997 was $1,724,000
compared with $1,701,000 for the six months ended June 30, 1996.
Provision for Income Taxes
--------------------------
The provision for income taxes is based on the Company's expected
effective tax rate for the year, which is 40% of earnings in 1997. In
1996, the Company's effective tax rate was 41%.
Net Earnings
------------
Net earnings for the second quarter of 1997 were $5,427,000, 147%
above the $2,197,000 reported for the second quarter of 1996. Net
earnings for the six months ended June 30, 1997 were $6,488,000, 41.5%
above the $4,586,000 reported for the six months ended June 30, 1996.
Legal Matters
-------------
In June 1997, the Company entered into a settlement agreement with
respect to a stockholders' derivative action against the members of
the Company's Board of Directors, in which, among other things, the
Company's insurance carrier agreed to pay $400,000 to the Company on
behalf of the individual defendants, and the Company paid $150,000 in
connection with plaintiffs' attorneys' fees (see Part II, Item I,
Legal Proceedings).
New Accounting Pronouncements
-----------------------------
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131
established standards to report information about operating segments
and related discussions about products and services, geographic areas
and major customers. SFAS No. 131 is effective for financial
statements for the period beginning after December 15, 1997. This
statement permits early application and requires restatement of all
prior periods. The Company is currently evaluating the requirements of
SFAS No. 131 and believes that the adoption of the statement will not
have a material impact on previously reported segment information.
8
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SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEL LABORATORIES, INC.
-----------------------
(Registrant)
Date: May 15, 1998 /s/ Charles H. Abdalian
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Charles H. Abdalian
Vice President and Chief Financial Officer
(Principal Accounting Officer)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 15,259
<SECURITIES> 0
<RECEIVABLES> 27,640
<ALLOWANCES> 1,450
<INVENTORY> 38,492
<CURRENT-ASSETS> 85,197
<PP&E> 44,758
<DEPRECIATION> 18,096
<TOTAL-ASSETS> 124,309
<CURRENT-LIABILITIES> 33,356
<BONDS> 40,000
0
0
<COMMON> 8,785
<OTHER-SE> 36,861
<TOTAL-LIABILITY-AND-EQUITY> 124,309
<SALES> 54,215
<TOTAL-REVENUES> 54,215
<CGS> 21,386
<TOTAL-COSTS> 51,624
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 52
<INTEREST-EXPENSE> 822
<INCOME-PRETAX> 1,769
<INCOME-TAX> 708
<INCOME-CONTINUING> 1,061
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,061
<EPS-PRIMARY> .14
<EPS-DILUTED> .13
</TABLE>
