<PAGE>
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 March 31, 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)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 13-1953103
------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
565 Broad Hollow Road, Farmingdale, New York 11735
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 844-2020
-------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES /X/ NO / /
The number of shares of Common Stock, $1 par value, outstanding as of May 9,
1997 was 5,666,157.
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets as of
March 31, 1997 and December 31, 1996 3
Consolidated Condensed Statements of Earnings for the
three months ended March 31, 1997 and 1996 4
Consolidated Condensed Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
SIGNATURES 11
</TABLE>
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 3 - 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
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(In thousands except for share and per share data)
<TABLE>
<CAPTION>
March 31 December 31
Assets 1997 1996
------ ------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 15,259 $ 14,516
Accounts receivable-less allowance for
doubtful accounts of $1,450
and $1,500, respectively 27,640 30,781
Inventories 38,492 33,788
Income taxes receivable - 324
Deferred income taxes 2,250 2,250
Prepaid expenses and other current assets 1,556 1,840
------------- -------------
Total current assets 85,197 83,499
Property, plant and equipment, net 26,662 26,628
Intangibles arising from acquisitions, net 8,409 8,497
Other assets 4,041 3,758
------------- -------------
Total assets $ 124,309 $ 122,382
============= =============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 17,778 $ 17,338
Accrued liabilities 15,555 14,895
Income taxes payable 23 -
------------- -------------
Total current liabilities 33,356 32,233
Long-term pension liability, less current portion 4,132 4,132
Deferred income taxes 1,175 1,175
Long-term debt, less current portion 40,000 40,000
------------- -------------
Total liabilities 78,663 77,540
------------- -------------
Shareholders' equity:
Preferred stock $.01 par value, authorized
1,000,000 shares; no shares issued - -
Common stock $1 par value, authorized
10,000,000 shares; issued 8,784,514 shares 8,785 8,785
Additional paid-in capital 4,321 4,321
Cumulative translation adjustment (406) (547)
Retained earnings 62,217 61,353
------------- -------------
74,917 73,912
Less: Treasury stock, at cost, 3,157,367 shares
and 3,141,949 shares, respectively (27,679) (27,334)
Receivables for stock options exercised (1,592) (1,736)
------------- -------------
Total shareholders' equity 45,646 44,842
------------- -------------
Total liabilities and shareholders' equity $ 124,309 $ 122,382
============= =============
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
3
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(In thousands except for per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 MARCH 31
1997 1996
------------- -------------
<S> <C> <C>
Net sales $ 54,215 $ 56,094
------------- -------------
Cost of goods sold 21,386 22,815
Selling and administrative expenses 30,238 28,361
------------- -------------
51,624 51,176
------------- -------------
Operating income 2,591 4,918
------------- -------------
Interest expense 950 952
Interest income (128) (82)
------------- -------------
Interest expense, net 822 870
------------- -------------
Earnings before income taxes 1,769 4,048
Income taxes 708 1,660
------------- -------------
Net earnings $ 1,061 $ 2,388
============= =============
Earnings per common share (A)
Basic $ 0.14 $ 0.32
============= =============
Diluted $ 0.13 $ 0.29
============= =============
Weighted average common shares outstanding (A)
Basic 7,517,000 7,425,000
============= =============
Diluted 8,079,000 8,159,000
============= =============
Dividends per common share (A) $ 0.026 $ 0.020
============= =============
(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
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 MARCH 31
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,061 $ 2,388
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,396 1,199
Provision for doubtful accounts 52 138
Other non-cash operating items 282 77
Changes in operating assets and liabilities:
Accounts receivable 3,089 (6,935)
Inventories (4,704) (2,178)
Prepaid expenses and other current assets 284 878
Other assets and other liabilities (283) 260
Accounts payable 440 2,661
Accrued liabilities 660 2,983
Income taxes 347 258
------------- -------------
Net cash provided by operating activities 2,624 1,729
------------- -------------
Cash flows used in investing activities:
Property, plant and equipment additions (1,341) (1,353)
------------- -------------
Net cash used in investing activities (1,341) (1,353)
------------- -------------
Cash flows used in financing activities:
Principal payments of long-term debt - (17)
Proceeds from issuance of common stock
upon exercise of options 9 136
Decrease in receivable for stock
options exercised 5 145
Purchase of treasury stock (355) (362)
Dividends paid (197) (292)
------------- -------------
Net cash used in financing activities (538) (390)
------------- -------------
Effect of exchange rate changes on cash (2) -
------------- -------------
Net increase (decrease) in cash and cash equivalents 743 (14)
Cash and cash equivalents at beginning of year 14,516 8,563
------------- -------------
Cash and cash equivalents at end of period $ 15,259 $ 8,549
============= =============
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
5
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
(UNAUDITED)
1. In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the
financial position as of March 31, 1997, the results of operations for
the three months ended March 31, 1997 and 1996 and the statements of
cash flows for the three months ended March 31, 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 March 31, 1997 and December 31, 1996
were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Raw Materials $ 18,173 $ 15,346
Work In Process 3,853 3,862
Finished Goods 16,466 14,580
------------- -------------
$ 38,492 $ 33,788
============= =============
</TABLE>
3. 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:
6
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 1997 June 30, 1997
-------------- -------------
<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.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-----------------------------------
(1) LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Under its institutional debt covenants, the Company is permitted a level of
short-term borrowing not to exceed $15,000,000. Currently, the Company has
arrangements with banks which provide up to $27,500,000 of short-term lines
of credit at the prime rate of interest. There were no borrowings under
these lines during the quarter ended March 31, 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 quarter
ended March 31, 1997 the Company purchased 17,000 shares at an average cost
of $20.88 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 March 31, 1997 the Company was authorized to purchase up to
170,725 additional shares based on the then existing Board authorization.
Net accounts receivable at March 31, 1997 decreased by $3,141,000 from the
December 31, 1996 level. The decrease is attributable to a reduced sales
level in the quarter. Inventories at March 31, 1997 increased by $4,704,000
from December 31, 1996.
During the quarter ended March 31, 1997, the Company generated $2,624,000
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 March 1997, the Company entered into an agreement to purchase land and
buildings in North Carolina. This property is to be used as a distribution
center and is replacing facilities leased under a lease expiring in 1997.
The Company expects to close on the property during the second quarter of
1997. The cost of the property is $5,500,000 with the seller financing the
transaction interest free. The agreement calls for payments over the next
three years, with a final payment of $3,850,000 in April 2000. When the
closing is completed, the Company will record the transaction based on the
present value of the loan on the date of closing and will accrete interest
over the life of the loan. Any remaining leasehold improvements related to
the leased facility will be fully amortized by the end of the lease term.
(2) RESULTS OF OPERATIONS
---------------------
Sales
-----
Sales for the first quarter of 1997 were $54.2 million, 3.3% below the $56.1
million of sales for the first quarter of 1996.
Sales declined from the first quarter of 1996 primarily due to the
availability of products for shipment, which was negatively impacted by
production start up delays associated with new product introductions.
8
<PAGE>
Cost of Sales
-------------
Cost of sales for the first quarter of 1997, as a percentage of net sales,
decreased to 39.4%, as compared with 40.7% 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.
Selling and Administrative Expenses
-----------------------------------
Selling and administrative expenses increased by $1.9 million in the first
quarter of 1997 versus the first quarter of 1996 and also increased as a
percentage of net sales to 55.8% from 50.6%. The increase of 5.2% as a
percentage of sales is attributable to increased advertising and promotional
expenses during the 1997 period.
Net Interest Expense
--------------------
Net interest expense for the first quarter of 1997 was $822,000 compared
with $870,000 incurred in the first quarter of 1996. This reduction was
attributable to increased interest income from investment of cash balances.
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 first quarter of 1997 were $1,061,000, compared to
the $2,388,000 reported for the first quarter of 1996. This reduction was
primarily attributable to the reduced sales level discussed above.
Legal Matters
-------------
In July 1994, the Equal Employment Opportunity Commission ("EEOC") filed
suit against the Company in the United States District Court for the Eastern
District of New York alleging sexual discrimination against certain present
and former employees of the Company, in violation of Title VII of the Civil
Rights Act of 1964, as amended. On August 3, 1995, the Court approved a
consent decree between the Company and the EEOC settling the case. The
Company denied that it engaged in any unlawful conduct, and the consent
decree expressly acknowledges that the settlement does not constitute an
admission by the Company of any violation of any law, rule or regulation
relating to employment discrimination. The Board of Directors determined
that the settlement was in the best interest of the Company and its
shareholders, considering the expense that would have resulted from
continued litigation and the time and attention of management and employees
that would necessarily have been required.
Pursuant to the settlement, the Company agreed to pay 15 former employees a
total sum of $1,185,000. The settlement also incorporated the Company's
revised sexual harassment policy which includes a revised complaint
procedure.
In August 1995, two stockholder derivative actions were filed in the State
of Delaware Chancery Court against the members of the Company's Board of
Directors, alleging breaches of fiduciary duties and waste of corporate
assets in connection with the Company's settlement with the EEOC relating to
claims of sexual harassment by an executive of the Company. This action was
consolidated into a single action, In Re Del Laboratories, Inc., Derivative
Litigation, Consolidated C.A. No. 14466.
In March 1997, the parties agreed, subject to Court approval, to a proposed
settlement in which the Company's insurance carrier, on behalf of the
individual defendants, will pay $400,000 to the Company, and the Board will
make the Human Resources Committee a permanent committee of the Board to be
composed only of "independent" directors (as defined in the Internal Revenue
Code).
9
<PAGE>
The Human Resources Committee will be charged with review and oversight of
the Company's compliance with the requirements of Title VII relating to
employment practices, including discrimination, wrongful discharge and
retaliation. The Company has agreed not to oppose an application to the
Court by the plaintiffs' attorneys for an attorneys' fee of $150,000 which
has been provided for in the consolidated financial statements of the
Company.
The defendants continue to deny all allegations of wrongdoing and have
advised the Company that they are entering into the proposed settlement to
eliminate the burden and expense of further litigation.
The Company is of the opinion, on the basis of currently available
information, that none of the matters referred to above will have a material
effect on the Company's results of operations or financial condition.
10
<PAGE>
SIGNATURE
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
- ------------------ -----------------------------
Charles H. Abdalian
Vice President and Chief Financial Officer
(Principal Accounting Officer)
11
