UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
|_| 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.)
178 EAB Plaza, Uniondale, New York 11556
------------------------------------------
(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 14,
1998 was 7,565,787.
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Index
Part I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements:
Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997 3
Consolidated Statements of Earnings for the three and
six months ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the
six months ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION 11
SIGNATURES 12
All other schedules and compliance information called for by the instructions to
Form 10-Q have been omitted since the required information is not present or not
present in amounts sufficient to require submission.
-2-
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(In thousands except for share and per share data)
<TABLE>
<CAPTION>
Assets June 30 December 31
1998 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 345 $ 14,979
Accounts receivable, less allowance for
doubtful accounts of $1,300 and $1,300, respectively 41,311 30,708
Inventories 56,267 47,687
Deferred income taxes 2,127 2,127
Prepaid expenses and other current assets 478 1,858
--------- ---------
Total current assets 100,528 97,359
Property, plant and equipment, net 36,324 36,392
Intangibles arising from acquisitions, net 18,728 8,144
Other assets 7,025 7,419
--------- ---------
Total assets $ 162,605 $ 149,314
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 382 $ 496
Short-term borrowing 7,750 --
Accounts payable 26,057 28,501
Accrued liabilities 16,589 13,968
Income taxes payable 698 818
--------- ---------
Total current liabilities 51,476 43,783
Long-term pension liability, less current portion 5,801 5,801
Deferred income taxes, net 1,321 1,321
Long-term debt, less current portion 43,865 43,879
--------- ---------
Total liabilities 102,463 94,784
--------- ---------
Shareholders' equity:
Preferred stock $.01 par value, authorized
1,000,000 shares; no shares issued -- --
Common stock $1 par value, authorized
20,000,000 and 10,000,000 shares, respectively;
issued 10,000,000 shares 10,000 10,000
Additional paid-in capital 1,725 699
Accumulated other comprehensive income (853) (819)
Retained earnings 78,324 71,188
--------- ---------
89,196 81,068
Less: Treasury stock, at cost, 2,419,722 shares
and 3,070,954 shares, respectively (27,653) (24,991)
Receivables for stock options exercised (1,401) (1,547)
--------- ---------
Total shareholders' equity 60,142 54,530
--------- ---------
Total liabilities and shareholders' equity $ 162,605 $ 149,314
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-3-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(In thousands except for share and per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30 June 30 June 30 June 30
1998 1997 1998 1997
------- ------- ------- -------
Restated
(Note 6)
<S> <C> <C> <C> <C>
Net sales $ 73,971 $ 75,093 $ 139,387 $ 129,308
Cost of goods sold 29,420 29,142 54,858 50,528
Selling and administrative expenses 36,030 36,004 69,596 66,242
----------- ----------- ----------- -----------
Operating income 8,521 9,947 14,933 12,538
Interest expense 1,101 991 2,124 1,941
Interest income (33) (89) (155) (217)
----------- ----------- ----------- -----------
Interest expense, net 1,068 902 1,969 1,724
----------- ----------- ----------- -----------
Earnings before income taxes 7,453 9,045 12,964 10,814
Income taxes 3,048 3,618 5,308 4,326
----------- ----------- ----------- -----------
Net earnings $ 4,405 $ 5,427 $ 7,656 $ 6,488
=========== =========== =========== ===========
Earnings per common share:
Basic $ 0.58 $ 0.72 $ 1.01 $ 0.86
=========== =========== =========== ===========
Diluted $ 0.54 $ 0.66 $ 0.93 $ 0.80
=========== =========== =========== ===========
Weighted average common
shares outstanding:
Basic 7,593,000 7,559,000 $ 7,610,000 7,537,000
=========== =========== =========== ===========
Diluted 8,219,000 8,203,000 $ 8,250,000 8,155,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-4-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30 June 30
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 7,656 $ 6,488
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 3,213 2,834
Provision for doubtful accounts 300 50
Other non-cash operating items 109 275
Changes in operating assets and liabilities:
Accounts receivable (10,903) (2,802)
Inventories (7,580) (2,801)
Prepaid expenses and other current assets 1,381 (300)
Other assets and other liabilities 394 (3,001)
Accounts payable (2,244) 4,019
Accrued liabilities 2,622 376
Income taxes 1,152 (1,604)
-------- --------
Net cash provided by (used in) operating activities (3,900) 3,534
Cash flows used in investing activities:
Property, plant and equipment additions (2,879) (3,716)
Purchase of intangibles and other assets (11,851) --
-------- --------
Net cash used in investing activities (14,730) (3,716)
Cash flows used in financing activities:
Increase in short-term borrowings 7,750 --
Principal payments of long-term debt (129) --
Exercise of stock options 45 2,396
Acquisition of treasury stock (2,934) (3,632)
Dividends paid (732) (396)
-------- --------
Net cash provided by (used in) financing activities 4,000 (1,632)
-------- --------
Effect of exchange rate changes on cash (4) (1)
Net decrease in cash and cash equivalents (14,634) (1,815)
Cash and cash equivalents at beginning of year 14,979 14,516
-------- --------
Cash and cash equivalents at end of period $ 345 $ 12,701
======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-5-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements of Del
Laboratories, Inc. and Subsidiaries (the Company) have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. Interim results are not necessarily indicative of results for
a full year.
A summary of the Company's significant accounting policies is presented in
its 1997 Annual Report to Shareholders. Users of financial information
produced for interim periods are encouraged to refer to the footnotes
contained in the Annual Report to Shareholders when reviewing interim
financial results.
In the opinion of management, the accompanying interim financial
statements contain all material adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the consolidated
financial position, results of operations and cash flows of Del
Laboratories, Inc. for interim periods.
On February 6, 1998, the Company's Board of Directors approved a
four-for-three common stock split 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 as of December 31, 1997. All references to number of shares and per
share amounts have been restated, including those contained in Note 6. 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.
Certain reclassifications were made to prior year amounts to conform with
the 1998 presentation.
2. Inventory
Classification of inventories at June 30, 1998 and December 31, 1997 were
as follows (in thousands):
1998 1997
------ ------
Raw Materials $ 32,768 $ 22,563
Work In Process 4,408 4,326
Finished Goods 19,091 20,798
-------- --------
$ 56,267 $ 47,687
======== ========
3. Earnings Per Share
Earnings per share is computed in accordance with the provisions of
Statement of Financial Accounting Standards (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 (including those in Note 6) 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. 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 507,000 and 513,000 for the periods ended June 30, 1998 and 1997,
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.
-6-
<PAGE>
4. New Accounting Pronouncements
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This Statement requires that all items recognized
under accounting standards as components of comprehensive income be
reported in an annual financial statement that is displayed with the same
prominence as other annual financial statements. Other comprehensive
income may include foreign currency translation adjustments, minimum
pension liability adjustments and unrealized gains and losses on
marketable securities classified as available-for-sale. The Company's only
item of other comprehensive income is foreign currency translation
adjustments. Annual financial statements for prior periods will be
reclassified, as required. The Company's total comprehensive income was as
follows (in thousands):
Six Months Ended June 30
1998 1997
------ ------
Net earnings $ 7,656 $ 6,488
Foreign currency translation adjustment (34) 134
------- -------
Total comprehensive income $ 7,622 $ 6,622
======= =======
5. Cornsilk Acquisition
On May 12, 1998, the Company acquired the intellectual property rights and
other assets of the Cornsilk brand of facial make-up for approximately
$10.9 million and $1.0 million in cash, respectively. The intellectual
property rights are being amortized over 20 years in accordance with
company policy. Amortization of $90 thousand was recorded during the three
months ended June 30, 1998.
6. Restatement of Prior Period Results
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 earnings 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 (in thousands, except per share data):
-7-
<PAGE>
Three Months Ended
March 31, 1997 June 30,1997
-------------- ------------
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
(1) Restated for February 1998 stock split and SFAS No. 128 implementation.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(1) RESULTS OF OPERATIONS
Six Months Ended June 1998 versus June 1997
Net Sales
Net sales for the first six months of 1998 were $139.4 million, an
increase of 7.8% compared to $129.3 million in 1997.
Cosmetics Division net sales for the first six months of 1998 were $110.5
million, an increase of 6.8% compared to $103.5 in 1997. The increase was
principally attributable to the introduction of the new Sally Hansen
Colorfast nail enamel and volume growth in the Sally Hansen nail care and
La Cross brands.
Pharmaceutical Division net sales were $28.9 million for the first six
months of 1998, an increase of 12.0% compared to $25.8 million in 1997.
The increase was due primarily to volume growth in the Orajel family of
products.
Cost of Sales
Cost of sales for the first six months of 1998, as a percentage of net
sales, was 39.4%, as compared with 39.1% in 1997.
Selling and Administrative Expenses
Selling and administrative expenses for the first six months of 1998 were
$69.6 million compared to $66.2 million in 1997. The increase was
primarily attributable to increased advertising and promotional expenses.
Net Interest Expense
Interest expense, net of interest income, for the first six months of 1998
was $2.0 million compared to $1.7 million in 1997. The increase is
principally due to imputed interest (non-cash expense) related to the
purchase of land and buildings in North Carolina in May, 1997.
Provision for Income Taxes
The provision for income taxes is based on the Company's expected
effective annual tax rate of 41% in 1998 compared to 40% in 1997.
Net Earnings
Net earnings for the first six months of 1998 were $7.7 million compared
to $6.5 million reported for the first six months of 1997.
Second Quarter Ended June 1998 versus June 1997
Net Sales
Net sales for the second quarter of 1998 were $74.0 million, compared to
$75.1 million in 1997. The second quarter of 1998 results reflect a sales
increase in the Pharmaceutical Division and a sales decrease in the
Cosmetics Division compared to the second quarter of 1997.
-9-
<PAGE>
Cost of Sales
Cost of sales for the second quarter of 1998, as a percentage of net
sales, was 39.8%, as compared with 38.8% in 1997. The increase in cost of
sales, as a percentage of net sales, in the second quarter, over the
comparable period in 1997 is primarily attributable to the mix of business
within the Cosmetics and Pharmaceutical Divisions.
Selling and Administrative Expenses
Selling and administrative expenses were $36.0 million for the second
quarter of 1998 and 1997.
Net Interest Expense
Interest expense, net of interest income, was $1.1 million in the second
quarter of 1998 compared to $.9 million in 1997. The increase was due to
imputed interest (non-cash expense) related to the purchase of land and
buildings in North Carolina in May, 1997 and interest expense related to
short-term borrowing in 1998.
Provision for Income Taxes
The provision for income taxes is based on the Company's expected
effective annual tax rate of 41% in 1998 compared to 40% in 1997.
Net Earnings
Net earnings for the second quarter of 1998 were $4.4 million compared to
$5.4 million reported for the second quarter of 1997. The decrease was due
primarily to lower volume.
(2) LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had cash and cash equivalents of $.3 million
as compared to $12.7 million and $15.0 million at June 30, 1997 and
December 31, 1997, respectively.
Net cash provided by operating activities for the six months ended June
30, 1998 decreased $7.4 million due primarily to increases in accounts
receivable and inventories and a decrease in accounts payable.
Cash used for property, plant and equipment additions was $2.9 million for
the six months ended June 30, 1998 compared to $3.7 million in the prior
year.
On May 12, 1998, the Company acquired the intellectual property rights and
other assets of the Cornsilk brand of facial makeup for approximately
$11.9 million in cash (see Note 5 to the consolidated financial
statements), which was financed by utilizing existing cash and unused
short-term credit facilities. The Company intends to refinance the
purchase on a long-term basis.
Net cash provided by financing activities was $4.0 million for the six
months ended June 30, 1998 due primarily to an increase in short term
borrowings offset by treasury stock acquisitions.
The Company believes that cash from future operations, cash on hand and
amounts available from short-term credit facilities, referred to above,
will be sufficient to satisfy the Company's liquidity needs for the
foreseeable future.
-10-
<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.
Forward - Looking Statements
Management's Discussion and Analysis of the Results of Operations and
Financial Condition and other sections of this Form 10-Q 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 undue 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.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEL LABORATORIES, INC.
----------------------
(Registrant)
Date: August 14, 1998 /s/ Dan K. Wassong
- -------------------------------- ------------------
Dan K. Wassong
Chairman, President and
Chief Executive Officer
Date: August 14, 1998 /s/ Enzo J. Vialardi
- -------------------------------- --------------------
Enzo J. Vialardi
Executive Vice President and
Chief Financial Officer
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 345 345
<SECURITIES> 0 0
<RECEIVABLES> 42611 42611
<ALLOWANCES> 1300 1300
<INVENTORY> 56267 56267
<CURRENT-ASSETS> 100528 100528
<PP&E> 57368 57368
<DEPRECIATION> 21044 21044
<TOTAL-ASSETS> 162605 162605
<CURRENT-LIABILITIES> 51476 51476
<BONDS> 43865 43865
0 0
0 0
<COMMON> 10000 10000
<OTHER-SE> 50142 50142
<TOTAL-LIABILITY-AND-EQUITY> 162605 162605
<SALES> 73971 139387
<TOTAL-REVENUES> 73971 139387
<CGS> 29420 54858
<TOTAL-COSTS> 65450 124454
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 150 300
<INTEREST-EXPENSE> 1068 1969
<INCOME-PRETAX> 7453 12964
<INCOME-TAX> 3048 5308
<INCOME-CONTINUING> 4405 7656
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4405 7656
<EPS-PRIMARY> .58 1.01
<EPS-DILUTED> .54 .93
</TABLE>
