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 March 31, 1999
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 May 13,
1999 was 7,306,424.
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Index
Part I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements:
Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998 3
Consolidated Statements of Earnings for the three
months ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1999 and 1998 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 12
SIGNATURES 13
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
MARCH 31, 1999 AND DECEMBER 31, 1998
(In thousands except for share and per share data)
<TABLE>
<CAPTION>
Assets March 31 December 31
1999 1998
---------- -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,331 $ 3,731
Accounts receivable, less allowance for
doubtful accounts of $1,300 in 1999 and 1998, respectively 47,851 47,116
Inventories 61,021 55,620
Deferred income taxes, net 3,649 3,649
Prepaid expenses and other current assets 2,923 2,975
--------- ---------
Total current assets 116,775 113,091
Property, plant and equipment, net 37,356 37,915
Intangibles arising from acquisitions, net 18,224 18,450
Other assets 7,657 8,018
--------- ---------
Total assets $ 180,012 $ 177,474
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable to bank $ -- $ 3,500
Current portion of long-term debt 486 486
Accounts payable 34,480 35,781
Accrued liabilities 16,036 10,024
Income taxes payable 260 572
--------- ---------
Total current liabilities 51,262 50,363
Long-term pension liability, less current portion 7,895 7,895
Deferred income taxes, net 719 719
Long-term debt, less current portion 63,591 59,400
--------- ---------
Total liabilities 123,467 118,377
--------- ---------
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 1,850 1,850
Accumulated other comprehensive loss (1,494) (1,466)
Retained earnings 81,308 81,204
--------- ---------
91,664 91,588
Less: Treasury stock, at cost, 2,621,876 shares in 1999
and 2,490,823 shares in 1998 (33,864) (31,097)
Receivables for stock options exercised (1,255) (1,394)
--------- ---------
Total shareholders' equity 56,545 59,097
--------- ---------
Total liabilities and shareholders' equity $ 180,012 $ 177,474
========= =========
</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 MONTHS ENDED MARCH 31, 1999 AND 1998
(In thousands except for share and per share data)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31
--------
1999 1998
---- ----
Net sales $ 61,756 $ 65,416
Cost of goods sold 27,774 25,438
Selling and administrative expenses 33,895 33,566
----------- -----------
Operating income 87 6,412
Gain on sale of facility 1,734 --
Interest expense 1,228 1,024
Interest income (17) (123)
----------- -----------
Interest expense, net 1,211 901
----------- -----------
Earnings before income taxes 610 5,511
Income taxes 244 2,260
----------- -----------
Net earnings $ 366 $ 3,251
=========== ===========
Earnings per common share:
Basic $ 0.05 $ 0.43
=========== ===========
Diluted $ 0.05 $ 0.39
=========== ===========
Weighted average common
shares outstanding:
Basic 7,471,000 7,628,000
=========== ===========
Diluted 7,911,000 8,280,000
=========== ===========
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 THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(In thousands)
(UNAUDITED)
March 31
--------
1999 1998
---- ----
Cash flows from operating activities:
Net earnings $ 366 $ 3,251
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,758 1,543
Provision for doubtful accounts -- 50
Gain on sale of facility (1,734) --
Other non-cash operating items 166 114
Changes in operating assets and liabilities:
Accounts receivable (735) (5,816)
Inventories (5,401) (5,790)
Prepaid expenses and other current assets 52 326
Other assets 361 (664)
Accounts payable (1,326) (4,094)
Accrued liabilities 6,012 5,984
Income taxes payable (312) 1,473
-------- --------
Net cash used in operating activities (793) (3,623)
-------- --------
Cash flows provided by (used in) investing activities:
Proceeds from sale of facility 2,538 --
Property, plant and equipment additions (1,750) (1,678)
Additions to intangibles and other assets (26) --
-------- --------
Net cash provided by (used in) investing activities 762 (1,678)
-------- --------
Cash flows used in financing activities:
Borrowings under long-term debt, net of
principal payments of long-term debt 4,139 --
Repayment of short-term borrowings (3,500) (76)
Acquisition of treasury stock (2,480) (899)
Dividends paid (524) (466)
Other financing activities -- 34
-------- --------
Net cash used in financing activities (2,365) (1,407)
-------- --------
Effect of exchange rate changes on cash (4) 1
-------- --------
Net decrease in cash and cash equivalents (2,400) (6,707)
Cash and cash equivalents at beginning of year 3,731 14,979
-------- --------
Cash and cash equivalents at end of period $ 1,331 $ 8,272
======== ========
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 1998 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 the Company
for interim periods.
2. Inventory
---------
Classification of inventories were as follows (in thousands):
March 31 December 31
1999 1998
---- ----
Raw Materials $ 33,453 $ 26,912
Work In Process 6,003 6,247
Finished Goods 21,565 22,461
--------- --------
$ 61,021 $ 55,620
========= ========
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.
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. 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>
3. Earnings Per Share (continued)
------------------------------
A reconciliation between the numerators and denominators of the basic and
diluted income per common share is as follows:
(Amounts in thousands,
except per share data)
Three Months Ended
March 31
1999 1998
---- ----
Net earnings (numerator) $ 366 $3,251
------ ------
Weighted-average common shares
(denominator for basic earnings per share) 7,471 7,628
Effect of dilutive securities:
Employee stock options 440 652
Weighted-average common and potential
common shares outstanding
(denominator for diluted earnings per share) 7,911 8,280
------ ------
Basic earnings per share $ 0.05 $ 0.43
------ ------
Diluted earnings per share $ 0.05 $ 0.39
------ ------
Employee stock options for 237,000 and 1,600 shares for the periods ended
March 31, 1999 and 1998, respectively, were not included in the net
earnings per share because their effect would have been anti-dilutive.
4. Comprehensive Income
--------------------
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 a financial statement that is displayed with the same
prominence as other 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 components of
comprehensive income for the three months ended March 31, 1999 and 1998
are as follows:
Three Months Ended
March 31
1999 1998
---- ----
Net income $ 366 $ 3,251
Other comprehensive loss:
Foreign currency translation (28) (25)
------ -------
Total comprehensive income $ 338 $ 3,226
====== =======
-7-
<PAGE>
5. Gain on sale of facility
------------------------
In February, 1999, the Company sold a warehouse facility in Plainview, New
York for net proceeds of $2.7 million. At December 31, 1998, this facility
was included in property, plant and equipment and was accounted for as a
held for sale asset.
6. Segment Information
-------------------
At December 31, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". This statement
established standards for reporting information about operating segments
and related disclosure about products and services and geographic areas.
The Company operates in two segments, Cosmetic and Pharmaceutical, that
have been organized by the products and services they offer. The Cosmetic
segment's principal products are nail care, nail color, color cosmetics,
beauty implements, bleaches and depilatories, personal care products and
other related cosmetic items. The Pharmaceutical segment's principal
products are proprietary oral analgesics, acne treatment products and
first aid products. The accounting policies of the segments are the same
as those described in the summary of significant accounting policies. The
Company evaluates the performance of its operating segments based on
operating income. Certain assets, including property, plant and equipment
and deferred tax assets, are not allocated to the identifiable segments.
However, depreciation and amortization of unallocated assets are charged
to each segment.
For the period ended
March 31,
(in thousands)
------------
1999 1998
---- ----
Net sales
Cosmetic $ 46,701 $ 51,534
Pharmaceutical 15,055 13,882
-------- --------
Consolidated $ 61,756 $ 65,416
======== ========
Operating income (loss)
Cosmetic $ (2,200) $ 4,306
Pharmaceutical 2,287 2,106
-------- --------
Consolidated $ 87 $ 6,412
-------- --------
Gain on asset sale $ 1,734 $ --
-------- --------
Interest expense, net $ 1,211 $ 901
-------- --------
Earnings before taxes $ 610 $ 5,511
======== ========
Depreciation and amortization
Cosmetic $ 1,645 $ 1,431
Pharmaceutical 113 112
-------- --------
Consolidated $ 1,758 $ 1,543
======== ========
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(1) RESULTS OF OPERATIONS
Net Sales
---------
Net sales for the first quarter of 1999 were $61.8 million, a decrease of
5.5% compared to $65.4 million in 1998.
Cosmetic net sales for the first quarter of 1999 were $46.7 million, a
decrease of 9.3% compared to $51.5 million in 1998. The decrease is
principally due to lower shipments of the Naturistics cosmetics and bath &
body care line. Pharmaceutical net sales for the first quarter of 1999
were $15.1 million, an increase of 8.6% compared to $13.9 million in 1998.
The increase is due principally to volume growth in the Orajel family of
products.
Cost of Sales
-------------
Cost of Sales for the first quarter of 1999 were $27.8 million, or 45.0%
of net sales, as compared to $25.4 million, or 38.8% of net sales in 1998.
The increase in cost of sales, as a percentage of net sales, is
principally attributable to lower shipments and higher product returns of
the Naturistics cosmetics and bath & body care line and a change in the
mix of business within the Cosmetic division compared to prior year.
Selling and Administrative Expenses
-----------------------------------
Selling and administrative expenses for the first quarter of 1999 were
$33.9 million, or 54.9% of net sales, as compared to $33.6 million, or
51.4% of net sales in 1998.
Gain on Sale of Facility
------------------------
In February, 1999, the Company sold a warehouse facility in Plainview, New
York for $2.7 million. At December 31, 1998, this facility was included in
property, plant and equipment and was accounted for as a held for sale
asset.
Net Interest Expense
--------------------
Interest expense, net of interest income, for the first quarter of 1999
was $1.2 million, compared to $.9 million in 1998. The increase is due to
higher average borrowings during the first quarter of 1999, as compared to
the first quarter of 1998, principally due to the financing of the
acquisition of intellectual property rights and other assets of the
CornSilk brand of facial make-up in May 1998.
-9-
<PAGE>
Provision for Income Taxes
--------------------------
The provision for income taxes is based on the Company's expected
effective annual tax rate of 40% in 1999 compared to 41% in 1998.
Net Earnings
------------
Net earnings for the first quarter of 1999 were $.4 million, compared to
$3.3 million in 1998. The decrease is due primarily to a reduction in
gross margin as a result of the decrease in net sales of the Naturistics
cosmetics and bath & body care line and a change in the mix of business
within the Cosmetic division.
(2) LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had cash and cash equivalents of $1.3
million as compared to $8.3 million at March 31, 1998.
Net cash used in operating activities was $.8 million for the three months
ended March 31, 1999, primarily due to an increase in inventories of $5.4
million to support new product lines and promotional sales, and a decrease
in accounts payable of $1.3 million, partially offset by an increase in
accrued liabilities of $6.0 million.
Cash of $2.5 million was provided by the sale of a facility in the first
quarter of 1999. Cash used for property, plant and equipment additions was
$1.8 million for the three months ended March 31, 1999, compared to $1.7
million in 1998.
Net cash used in financing activities for the three months ended March 31,
1999 was $2.4 million, due primarily to the acquisition of treasury stock,
compared to $1.4 million used in financing activities in 1998.
The Company believes that cash from future operations, cash on hand and
amounts available from short-term credit facilities, will be sufficient to
satisfy the Company's liquidity needs for the foreseeable future.
Year 2000 Conversion
--------------------
The Company is addressing the issue of many existing computer programs
using only the last two digits to refer to a year. Therefore, these
computer programs do not properly recognize a year that begins with "20"
instead of the familiar "19". If not corrected, many computer applications
could fail or create erroneous results. A committee specifically created
to resolve Year 2000 issues, led by a member of the Board of Directors and
comprised of senior corporate executives and an outside expert, as well as
sub-committees and task forces meet regularly.
The Company's efforts to identify and address issues relating to its
readiness for Year 2000 have included the following: the identification
phase (100% complete) consisting of computer based systems, software,
third party programs and all hardware including embedded microprocessors.
The assessment phase (approximately 95% complete) has focused on those
applications most critical to the business including examination of all
coding used for date calculations. The remediation phase (approximately
85% complete) consists of systems changes, where necessary, by
replacement, modification or upgrade. The testing phase (approximately 45%
complete) includes full system tests planned during the second quarter of
1999 at which time systems dates will be rolled forward on test machines
to check performance and computational accuracy. All significant
suppliers, customers and financial institutions, as well as all customers
doing business electronically with the Company, have been contacted in
order to identify potential areas of concern. It is anticipated that all
of the above phases will be substantially completed by mid 1999.
-10-
<PAGE>
Year 2000 Conversion (continued)
--------------------------------
The Company currently estimates that remediation costs will not exceed
$1,000,000 for replacement systems, discovery tools and expenses necessary
to achieve Year 2000 compliance.
Improper or inadequate remediation of Year 2000 problems by parties with
whom the Company does business could adversely affect the Company's supply
chain and subsequently the ability to effectively manage production and
distribution activities. In addition, administrative functions essential
to the day to day operations of the business could be impaired if Year
2000 remediation is not completed in a timely manner. Due to the general
uncertainty inherent in the Year 2000 problem, resulting primarily from
the uncertainty of the Year 2000 readiness of parties with whom the
Company does business, the Company is unable to determine at this time
whether the consequences of Year 2000 failures will have a material impact
on the Company's results of operations, liquidity or financial condition.
The Company is currently identifying and documenting potential business
disruptions and continuity planning procedures. The focus of this activity
is on potential failures of internal and external systems required to
carry out normal business operations, including services provided by the
public infrastructure such as electric power, transportation and
telecommunications. The Company expects this activity to be an on-going
process well into the third quarter of 1999.
The above comments on the Year 2000 issue contain forward-looking
statements relating to the Company's plans, strategies, objectives,
intentions, and resources that should be read in conjunction with the
following disclosure on Forward-Looking Statements.
New Accounting Pronouncements
-----------------------------
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (SFAS No. 133), which is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 provides guidance for
accounting for all derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
management of the Company does not believe that the implementation of SFAS
No. 133 will have a significant impact on its financial position or
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.
-11-
<PAGE>
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
-12-
<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: May 14, 1999 /s/ Dan K. Wassong
------------------ ------------------
Dan K. Wassong
Chairman, President and
Chief Executive Officer
Date: May 14, 1999 /s/ Enzo J. Vialardi
------------------ --------------------
Enzo J. Vialardi
Executive Vice President and
Chief Financial Officer
-13-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 1,331
<SECURITIES> 0
<RECEIVABLES> 47,851
<ALLOWANCES> 1,300
<INVENTORY> 61,021
<CURRENT-ASSETS> 116,775
<PP&E> 37,356
<DEPRECIATION> 20,330
<TOTAL-ASSETS> 180,012
<CURRENT-LIABILITIES> 51,262
<BONDS> 63,591
0
0
<COMMON> 10,000
<OTHER-SE> 46,545
<TOTAL-LIABILITY-AND-EQUITY> 180,012
<SALES> 61,756
<TOTAL-REVENUES> 61,756
<CGS> 27,774
<TOTAL-COSTS> 61,669
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,211
<INCOME-PRETAX> 610
<INCOME-TAX> 244
<INCOME-CONTINUING> 366
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 366
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
