<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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.
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(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
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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 November
11, 1999 was 7,365,201.
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DEL LABORATORIES, INC. AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of
September 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations for the three and
nine months ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 13
SIGNATURES 14
</TABLE>
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.
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,549 $ 3,731
Accounts receivable, less allowance for doubtful
accounts of $1,300 in 1999 and 1998 46,897 47,116
Inventories 61,749 55,620
Deferred income taxes, net 3,649 3,649
Prepaid expenses and other current assets 5,446 2,975
--------- ---------
Total current assets 120,290 113,091
Property, plant and equipment, net 37,580 37,915
Intangibles arising from acquisitions, net 17,321 18,450
Other assets 8,298 8,018
--------- ---------
Total assets $ 183,489 $ 177,474
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ 14,750 $ 3,500
Current portion of long-term debt 3,953 486
Accounts payable 33,581 35,781
Accrued liabilities 11,850 10,024
Income taxes payable -- 572
--------- ---------
Total current liabilities 64,134 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 60,000 59,400
--------- ---------
Total liabilities 132,748 118,377
--------- ---------
Shareholders' equity:
Preferred stock $.01 par value, authorized
1,000,000 shares; no shares issued -- --
Common stock $1 par value, authorized
20,000,000 shares; issued 10,000,000 shares 10,000 10,000
Additional paid-in capital 1,232 1,850
Accumulated other comprehensive loss (1,023) (1,466)
Retained earnings 76,297 81,204
--------- ---------
86,506 91,588
Less: Treasury stock, at cost, 2,634,799 shares in 1999
and 2,490,823 shares in 1998 (34,517) (31,097)
Receivables for stock options exercised (1,248) (1,394)
--------- ---------
Total shareholders' equity 50,741 59,097
--------- ---------
Total liabilities and shareholders' equity $ 183,489 $ 177,474
========= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
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DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 64,586 $ 70,663 $ 196,899 $ 210,050
Cost of goods sold 34,748 30,527 93,245 85,385
Selling and administrative expenses 37,289 32,725 106,900 102,321
----------- ----------- ----------- -----------
Operating income (loss) (7,451) 7,411 (3,246) 22,344
Gain on sale of facility -- -- 1,734 --
Interest expense 1,528 1,065 4,270 3,189
Interest income (16) (57) (41) (212)
----------- ----------- ----------- -----------
Interest expense, net 1,512 1,008 4,229 2,977
----------- ----------- ----------- -----------
Earnings (loss) before income taxes (8,963) 6,403 (5,741) 19,367
Income taxes (2,897) 2,619 (1,608) 7,927
----------- ----------- ----------- -----------
Net earnings (loss) $ (6,066) $ 3,784 $ (4,133) $ 11,440
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings (loss) per common share:
Basic $ (0.82) $ 0.50 $ (0.56) $ 1.50
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted $ (0.82) $ 0.47 $ (0.56) $ 1.40
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average common
shares outstanding:
Basic 7,356,000 7,569,000 7,386,000 7,599,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted 7,356,000 8,004,000 7,386,000 8,150,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
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DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30
------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(4,133) $ 11,440
Adjustments to reconcile net earnings (loss) to net cash
used in operating activities:
Depreciation and amortization 5,167 4,891
Provision for doubtful accounts 73 118
Gain on sale of facility (1,734) -
Other non-cash operating items 719 97
Changes in operating assets and liabilities:
Accounts receivable (87) (13,995)
Inventories (6,242) (9,980)
Prepaid expenses and other current assets (2,471) 380
Other assets (280) (32)
Accounts payable (1,233) 1,825
Accrued liabilities 1,825 (1,026)
Income taxes payable (71) 1,729
------------- -------------
Net cash used in operating activities (8,467) (4,553)
------------- -------------
Cash flows provided by (used in) investing activities:
Proceeds from sale of facility 2,538 -
Property, plant and equipment additions (4,948) (4,833)
Additions to intangibles and other assets, net 85 (11,851)
------------- -------------
Net cash used in investing activities (2,325) (16,684)
------------- -------------
Cash flows provided by financing activities:
Borrowings under long-term debt, net of
principal payments of long-term debt 4,250 -
Borrowings under short-term lines of credit,
net of repayments 14,750 14,250
Repayment of short-term borrowings (3,829) (183)
Decrease in receivables for stock options exercised 7 -
Exercise of stock options - 48
Acquisition of treasury stock (4,539) (4,320)
Dividends paid (1,037) (997)
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Net cash provided by financing activities 9,602 8,798
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Effect of exchange rate changes on cash 8 (18)
------------- -------------
Net decrease in cash and cash equivalents (1,182) (12,457)
Cash and cash equivalents at beginning of year 3,731 14,979
------------- -------------
Cash and cash equivalents at end of period $2,549 $ 2,522
============= =============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
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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):
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
---- ----
<S> <C> <C>
Raw Materials $ 39,410 $ 26,912
Work In Process 5,182 6,247
Finished Goods 17,157 22,461
-------- ----------
$ 61,749 $ 55,620
======== ========
</TABLE>
3. INTANGIBLE ASSETS ARISING FROM ACQUISITION
In September 1999, the Company entered into an agreement with the former
owner of CornSilk, related to its fiscal 1998 acquisition of the CornSilk
brand of facial make-up. Under the provisions of this agreement
adjustments to the original purchase price were negotiated. As a
result the intangible assets arising from this acquisition were reduced by
approximately $482,000.
4. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing income (loss)
available to common shareholders (which for the Company equals its recorded
net income (loss)) 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.
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4. EARNINGS (LOSS) PER SHARE (CONTINUED)
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)
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net earnings (loss) (numerator) $(6,066) $ 3,784 $(4,133) $11,440
------- ------- ------- -------
Weighted-average common shares
(denominator for basic earnings (loss)
per share) 7,356 7,569 7,386 7,599
Effect of dilutive securities:
Employee stock options -- 435 -- 551
Weighted-average common and potential
common shares outstanding
(denominator for diluted earnings
(loss) per share) 7,356 8,004 7,386 8,150
------- ------- ------- -------
Basic earnings (loss) per share $ (0.82) $ 0.50 $ (0.56) $ 1.50
------- ------- ------- -------
Diluted earnings (loss) per share $ (0.82) $ 0.47 $ (0.56) $ 1.40
------- ------- ------- -------
</TABLE>
Employee stock options for 1,685,000 and 127,000 shares for the periods
ended September 30, 1999 and 1998, respectively, were not included in
the net earnings per share because their effect would have been
anti-dilutive.
5. COMPREHENSIVE INCOME (LOSS)
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 (loss) for the three months and
nine months ended September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings (loss) $ (6,066) $ 3,784 $ (4,133) $ 11,440
Other comprehensive income (loss):
Foreign currency translation 225 (27) 443 (61)
-------- -------- -------- --------
Total comprehensive income (loss) $ (5,841) $ 3,757 $ (3,690) $ 11,379
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
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6. GAIN ON SALE OF FACILITY
In February, 1999, the Company sold a warehouse facility in Plainview,
New York for net proceeds of $2.5 million. At December 31, 1998, this
facility was included in property, plant and equipment and was
accounted for as a held for sale asset.
7. 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.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Net sales
Cosmetic $ 48,403 $ 54,682 $ 149,902 $ 164,712
Pharmaceutical 16,183 15,981 46,997 45,338
--------- --------- --------- ---------
Consolidated $ 64,586 $ 70,663 $ 196,899 $ 210,050
--------- --------- --------- ---------
--------- --------- --------- ---------
Operating income (loss)
Cosmetic $ (10,307) $ 3,269 $ (10,034) $ 13,339
Pharmaceutical 2,856 4,142 6,788 9,005
--------- --------- --------- ---------
Consolidated $ (7,451) $ 7,411 $ (3,246) $ 22,344
--------- --------- --------- ---------
--------- --------- --------- ---------
Gain on asset sale $ -- $ -- $ 1,734 $ --
Interest expense, net $ 1,512 $ 1,008 $ 4,229 $ 2,977
--------- --------- --------- ---------
Earnings (loss) before taxes $ (8,963) $ 6,403 $ (5,741) $ 19,367
--------- --------- --------- ---------
--------- --------- --------- ---------
Depreciation and amortization
Cosmetic $ 1,681 $ 1,569 $ 4,838 $ 4,559
Pharmaceutical 114 109 329 332
--------- --------- --------- ---------
Consolidated $ 1,795 $ 1,678 $ 5,167 $ 4,891
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
8. FINANCING ARRANGEMENTS
Under the Company's senior note facility, the Company must meet an
earnings-based financial test in order to declare and pay cash
dividends. As a result of the net loss in the third quarter of 1999,
the Company is unable to meet this financial test and is therefore
restricted from paying a cash dividend for the third quarter of
1999. Further, under the Company's $20 million revolving credit
facility, the Company is prohibited from declaring cash dividends
until October 1, 2001.
As a result of the net loss in the third quarter of 1999, the
Company did not meet certain earnings-based financial covenants
contained in its $20 million revolving credit facility. As of
November 12, 1999, the lender under this facility waived compliance
by the Company with these covenants for the third quarter and amended
these covenants through October 1, 2001, the revised maturity date of
the facility.
9. ASSET HELD FOR SALE
The Company is in contract for the sale of land in Farmingdale, New
York with estimated proceeds of $2,250,000. At September 30, 1999, this
land was included in property, plant and equipment, with a net book
value of approximately $800,000.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(1) RESULTS OF OPERATIONS
THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 1999 VERSUS SEPTEMBER 1998
NET SALES
Net sales for the third quarter of 1999 were $64.6 million, a decrease of
8.6% compared to $70.7 million in 1998. Net sales for the first nine months
of 1999 were $196.9, a decrease of 6.3% compared to $210.1 million in 1998.
Cosmetic net sales for the third quarter were $48.4 million, a decrease of
11.5% compared to $54.7 million in 1998. Cosmetic net sales for the first
nine months of 1999 were $149.9 million, a decrease of 9.0% compared to
$164.7 million in 1998. The net sales decrease is due primarily to lower
shipments of the Naturistics cosmetics and bath & body care line and higher
product returns.
Pharmaceutical net sales for the third quarter of 1999 were $16.2 million,
an increase of 1.3% compared to $16.0 million in 1998. Pharmaceutical net
sales for the first nine months of 1999 were $47.0 million, an increase of
3.7% compared to $45.3 million in 1998. The increase is primarily due to
growth in the Orajel family of products.
COST OF SALES
Cost of sales for the third quarter of 1999 were $ 34.7 million, or 53.8% of
net sales, as compared to $30.5 million, or 43.2% of net sales in 1998. Cost
of sales for the nine months of 1999 were $93.2 million, or 47.3% of net
sales, compared to $85.4 million, or 40.6% of net sales in 1998. The
increase in cost of sales, as a percentage of net sales, is due primarily to
lower shipments of the Naturistics cosmetics and bath & body care line and
an increase in the provision for product returns due to the high level of
unanticipated returns the Company continues to experience. Also included in
the cost of sales for the third quarter of 1999 is an increase in the
inventory valuation reserve of $4.5 million to reflect the estimated market
value of the Naturistics inventory pursuant to the Company's plan to reduce
excess and slow moving inventory of such brands.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses for the third quarter of 1999 were $37.3
million, or 57.7% of net sales, compared to $32.7 million, or 46.3% of net
sales in 1998. Selling and administrative expenses for the first nine months
of 1999 were $106.9 million, or 54.3% of net sales, compared to $102.3
million or 48.7% in 1998. The increase in the third quarter was primarily
attributable to increased advertising and promotional expenses which are
subject to quarterly variability due to the timing of such expenses. The
increase as a percentage of net sales is also attributable to the negative
impact of product returns on net sales.
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 nine months of 1999
was $4.2 million, compared to $3.0 million in 1998. Interest expense, net of
interest income, for the third quarter of 1999 was $1.5 million compared to
$1.0 million in 1998. The increase is due to higher average borrowings
during the first nine months of 1999, as compared to the first nine months
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, and an increase in short-term borrowings with banks.
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PROVISION FOR INCOME TAXES
The Company recorded a tax benefit of $2.9 million and $1.6 million for
the three and nine months ended September 30, 1999, respectively, based on
an estimated 28% tax benefit for the year ending December 31, 1999,
compared to an effective annual tax rate of 41% in 1998. The tax benefit
recorded in the third quarter includes the reversal of $.4 million of
previously recorded tax provisions in the first and second quarter of 1999
as a result of the change in the estimated annual effective tax rate
(benefit).
NET EARNINGS
For the nine months ended September 30, 1999, the Company had a net loss
of $4.1 million, compared to net earnings in 1998 of $11.4 million. For
the three months ended September 30, 1999 the Company had a net loss of
$6.1 million, compared to net earnings of $3.8 million in 1998.The net
loss is primarily attributable to lower shipments of the Naturistics
cosmetics and bath & body care line, higher product returns, and an
increase in the inventory valuation reserve for the Naturistics brand.
(2) LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999 and 1998, the Company had cash and cash equivalents
of $2.5 million.
Net cash used in operating activities was $8.5 million for the nine months
ended September 30, 1999, primarily due to an increase in inventories of
$6.2 million to support new product lines and promotional sales.
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
$4.9 million for the nine months ended September 30, 1999, compared to
$4.8 million in 1998.
Net cash provided by financing activities for the nine months ended
September 30, 1999 was $9.6 million, due primarily to proceeds received
under a four year revolving credit agreement with a bank and short-term
borrowings under lines of credit with banks, partially offset by
repayments of short-term borrowings and acquisition of treasury stock.
Under the Company's senior note facility, the Company must meet an
earnings-based financial test in order to declare and pay cash
dividends. As a result of the net loss in the third quarter of 1999,
the Company is unable to meet this financial test and is therefore
restricted from paying a cash dividend for the third quarter of
1999. Further, under the Company's $20 million revolving credit
facility, the Company is prohibited from declaring cash dividends
until October 1, 2001.
As a result of the net loss in the third quarter of 1999, the Company did
not meet certain earnings-based financial covenants contained in its
$20 million revolving credit facility. As of November 12, 1999, the
lender under this facility waived compliance by the Company with these
covenants for the third quarter and amended these covenants through
October 1, 2001, the revised maturity date of the facility.
The Company currently is in discussion with lenders to refinance its
existing short-term and long-term financing arrangements in order to
provide sufficient liquidity to the Company for the foreseeable future,
when considered together with cash from future operations and cash on
hand. However, there can be no assurance that a new long-term financing
arrangement will become available to the Company or that the terms of
this new financing will be at least as favorable to the Company as the
terms of its existing financing arrangements.
YEAR 2000 CONVERSION
The Company has addressed the issue of many existing computer programs
using only the last two digits to refer to a year. Some of 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 meets regularly. It is
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.
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 development of an inventory of
computer based systems, software, third party programs and all hardware
including embedded microprocessors. The assessment phase (100% complete)
has focused on the identification of those applications most critical to
the business including examination of all coding used for date
calculations. The remediation phase (100% complete) consisting of systems
changes, where necessary, by replacement, modification or upgrade. The
testing phase (approximately 95% complete) includes unit tests of each
-10-
<PAGE>
application followed by fully integrated systems tests with dates 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. Final
integration tests are anticipated to be completed by December 1, 1999.
The Company currently estimates that remediation costs will approximate
$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 has identified and documented potential business disruptions
and continuity planning procedures. This activity has focussed 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 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) as amended by SFAS 137, which is
effective for quarters of fiscal years beginning after June 15, 2000. SFAS
No. 133 provides guidance for accounting for all derivative instruments,
including certain derivative instruments embedded in other contracts, and
for hedging activities. The Company does not believe that the
implementation of SFAS No. 137 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.
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<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.1 Second Amendment and Waiver, dated as of
November 12, 1999, to the Loan Agreement
dated as of December 31, 1998, as amended,
by and among the Company, Del Pharmaceuticals,
Inc. and The Chase Manhattan Bank.
Exhibit 27.1 Financial Data Schedule (filed previously).
(b) Reports on Form 8-K
None
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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: NOVEMBER 16, 1999 /s/ DAN K. WASSONG
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Dan K. Wassong
Chairman, President and
Chief Executive Officer
DATE: NOVEMBER 16, 1999 /s/ ENZO J. VIALARDI
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Enzo J. Vialardi
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
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Exhibit 10.1
SECOND AMENDMENT AND WAIVER dated as of November 12, 1999 to the LOAN AGREEMENT
dated as of December 30, 1998 as amended by the First Amendment and Waiver dated
as of June 10, 1999 (as may be further amended, supplemented or modified from
time to time in accordance with its terms, the "Loan Agreement") by and among
DEL LABORATORIES, INC. a Delaware corporation (the "Borrower"), DEL
PHARMACEUTICALS, INC. a Delaware corporation (a "Guarantor") and THE CHASE
MANHATTAN BANK (the "Bank").
WHEREAS, by an Agreement dated as of the 8th day of July, 1999 among Parfums
Schiaparelli, Inc., a New York corporation ("Parfums"), Royce & Rader, Inc., a
Delaware corporation ("Royce"), 565 Broad Hollow Realty Corp., a New York
corporation ("Broad Hollow") and the Bank, each of Parfums, Royce and Broad
Hollow agreed (i) to become a Guarantor and (ii) to become a party to, and be
bound by the provisions of, the Loan Agreement; and
WHEREAS, the Borrower and the Guarantors have requested and the Bank hereby
agrees, subject to the terms and conditions of this SECOND AMENDMENT AND WAIVER,
to waive compliance with and amend certain provisions of the Loan Agreement as
hereinafter set forth effective as of the date hereof;
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. WAIVER OF ARTICLE V. COVENANTS OF THE BORROWER AND THE GUARANTOR.
SECTION 5.03. FINANCIAL REQUIREMENTS. (a) MINIMUM CONSOLIDATED TANGIBLE
NET WORTH.
Compliance with Section 5.03 (a) of the Loan Agreement is hereby waived
for the fiscal nine month period ended September 30, 1999 to permit the
Consolidated Tangible Net Worth to fall below $35,000,000, provided,
however, Consolidated Tangible Net Worth was not less than $33,420,000
at any time during such fiscal period.
2. WAIVER OF ARTICLE V. COVENANTS OF THE BORROWER AND THE GUARANTOR.
SECTION 5.03. FINANCIAL REQUIREMENTS. (c) CONSOLIDATED LEVERAGE RATIO.
Compliance with Section 5.03 (c) of the Loan Agreement is hereby waived
for the fiscal nine month period ended September 30, 1999 to permit the
Consolidated Leverage Ratio to exceed 3.50 to 1.00, provided, however,
such ratio was not greater than 3.97 to 1.00 at any time during such
fiscal period.
3. WAIVER OF ARTICLE V. COVENANTS OF THE BORROWER AND THE GUARANTOR.
SECTION 5.03. FINANCIAL REQUIREMENTS. (d) CONSOLIDATED INTEREST
COVERAGE RATIO.
Compliance with Section 5.03 (d) of the Loan Agreement is hereby waived
for the fiscal nine month period ended September 30, 1999 to permit the
Consolidated Interest Coverage ratio to fall below 1.75 to 1.00,
provided, however, such ratio was not less than -0.27 to 1.00 at any
time during such fiscal period.
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4. WAIVER OF ARTICLE V. COVENANTS OF THE BORROWER AND THE GUARANTOR.
SECTION 5.03. FINANCIAL REQUIREMENTS. (e) CONSOLIDATED FIXED CHARGE
RATIO.
Compliance with Section 5.03 (e) of the Loan Agreement is hereby waived
for the fiscal nine month period ended September 30, 1999 to permit the
Consolidated Fixed Charge Ratio to fall below 0.20 to 1.00, provided,
however, such ratio was not less than -0.74 to 1.00 at any time during
such fiscal period.
5. WAIVER OF ARTICLE V. COVENANTS OF THE BORROWER AND THE GUARANTOR.
SECTION 5.03. FINANCIAL REQUIREMENTS. (f) DEBT TO EBITDA RATIO.
Compliance with Section 5.03 (f) of the Loan Agreement is hereby waived
for the fiscal nine month period ended September 30, 1999 to permit the
Debt to EBITDA Ratio to exceed 3.75 to 1.00, provided, however, such
ratio was not greater than 13.73 to 1.00 at any time during such fiscal
period.
6. AMENDMENT TO ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS. SECTION 1.01.
CERTAIN DEFINED TERMS.
(i) The definition of the term "Maturity Date" is hereby amended by
deleting the date "December 30, 2002" and by substituting
therefor the date "October 1, 2001".
(ii) Section 1.01 is hereby additionally amended by deleting the
following terms: "Applicable Margin", "Consolidated Funded Debt
(Applicable Margin)", and Debt to EBITDA Ratio (Applicable
Margin)".
7. AMENDMENT TO ARTICLE II. AMOUNT AND TERMS OF THE LOANS. SECTION 2.01.
THE REVOLVING CREDIT LOANS.
Section 2.01 (a) of the Loan Agreement is hereby amended by deleting it
in its entirety and by substituting therefor the following:
"(a) The Bank agrees, on the date of this Agreement, on the terms
and conditions of this Agreement and in reliance upon the
representations and warranties set forth in this Agreement,
to lend to the Borrower prior to the Maturity Date such
amounts as the Borrower may request from time to time
(individually, a Revolving Credit Loan" or collectively, the
"Revolving Credit Loans"), which amounts may be borrowed,
repaid and reborrowed, provided, however, that the aggregate
amount of such Revolving Credit Loans outstanding at any
time shall not exceed (i) from the date of this Agreement
through March 31, 2001, TWENTY MILLION ($20,000,000) DOLLARS
and (ii) from April 1, 2001 until the Maturity Date, TWELVE
MILLION ($12,000,000) DOLLARS (the "Commitment"), or such
lesser amount of the Commitment as may be reduced pursuant
to Section 2.08 hereof."
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8. AMENDMENT TO ARTICLE II. AMOUNT AND TERMS OF THE LOANS. SECTION 2.04.
PAYMENT OF INTEREST ON THE REVOLVING CREDIT NOTE.
(i) Section 2.04 (a) of the Loan Agreement is hereby amended by
deleting the first sentence thereof and by substituting
therefor the following:
"In the case of an Alternate Base Rate Loan, interest
shall be payable at a rate per annum (computed on the
basis of the actual number of days elapsed over a year of
360 days) equal to the Alternate Base Rate PLUS 3/4 of
1%."
(ii) Section 2.04 (b) of the Loan Agreement is hereby amended by
deleting the first sentence thereof and by substituting
therefor the following:
"In the case of a Eurodollar Loan, interest shall be
payable at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days)
equal to the Adjusted LIBOR Rate PLUS 2.75%."
9. AMENDMENT TO ARTICLE II. AMOUNT AND TERMS OF THE LOANS. SECTION 2.05.
APPLICABLE MARGIN.
Section 2.05 of the Loan Agreement is hereby amended by deleting it in
its entirety and by substituting therefor, "Intentionally Omitted".
10. AMENDMENT TO ARTICLE II. AMOUNT AND TERMS OF THE LOANS. SECTION 2.07.
COMMITMENT FEE.
Section 2.07 of the Loan Agreement is hereby amended by deleting it in
its entirety and by substituting therefor the following:
"COMMITMENT FEE. The Borrower agrees to pay to the Bank from
the date hereof and for as long as the Commitment remains outstanding,
on the last Business Day of each calendar quarter, a commitment fee
equal to 1/2 of 1% per annum (computed on the basis of the actual
number of days elapsed over a year of 360 days) on the average daily
unused amount of the Commitment, such commitment fee being payable for
the calendar quarter, or part thereof, preceding the payment date.
11. AMENDMENT TO ARTICLE II. AMOUNT AND TERMS OF THE LOANS.
Article II of the Loan Agreement is hereby amended by the addition of a
new Section 2.22 as follows:
"Section 2.22. MANDATORY REPAYMENT OF REVOLVING CREDIT LOANS. At
any time that the aggregate amount of Revolving Credit Loans
outstanding exceeds the Commitment, the Borrower shall, subject to
the provisions of Section 2.10 of the Loan Agreement, immediately
repay so much of the Revolving Credit Loans as shall exceed the
Commitment."
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12. AMENDMENT TO ARTICLE V. COVENANTS OF THE BORROWER AND THE GUARANTOR.
SECTION 5.02. NEGATIVE COVENANTS. (l) LOSSES.
Section 5.02 (l) of the Loan Agreement is hereby amended by deleting it
in its entirety and by substituting therefor the following:
"LOSSES. Incur a net loss for any fiscal year, provided,
however, the Borrower may incur a consolidated net
loss in an amount not to exceed $3,987,000 for its
fiscal year ending December 31, 1999."
13. AMENDMENT TO ARTICLE V. COVENANTS OF THE BORROWER AND THE GUARANTOR.
SECTION 5.03. FINANCIAL REQUIREMENTS. (a) MINIMUM CONSOLIDATED TANGIBLE
NET WORTH.
Section 5.03 (a) of the Loan Agreement is hereby amended by deleting it
in its entirety and by substituting therefor the following:
"(a) MINIMUM CONSOLIDATED TANGIBLE NET WORTH The Borrower will
maintain at all times Consolidated Net Worth (tested
quarterly) of not less than (i) from September 30, 1999
until December 30, 1999, $33,420,000 (ii) beginning on
December 31, 1999 through December 30, 2000, $33,684,000
and (iii) on December 31, 2000 and thereafter,
$38,909,000."
14. AMENDMENT TO ARTICLE V. COVENANTS OF THE BORROWER AND THE GUARANTOR.
SECTION 5.03. FINANCIAL REQUIREMENTS. (b) CONSOLIDATED CAPITAL
EXPENDITURES.
Section 5.03 (b) of the Loan Agreement is hereby amended by deleting it
in its entirety and by substituting therefor the following:
"(b) CONSOLIDATED CAPITAL EXPENDITURES The Borrower will not
make Consolidated Capital Expenditures, in the aggregate,
during any four (4) consecutive fiscal quarters of the
Borrower in excess of (i) $10,350,000 for the period of
four fiscal quarters ending December 31, 1999, (ii)
$12,300,000 during the period of four fiscal quarters
ending March 31, 2000, June 30, 2000 and September 30,
2000 and (iii) $8,000,000 during any period of four fiscal
quarters thereafter."
15. AMENDMENT TO ARTICLE V. COVENANTS OF THE BORROWER AND THE GUARANTOR.
SECTION 5.03. FINANCIAL REQUIREMENTS. (c) CONSOLIDATED LEVERAGE RATIO.
Section 5.03 (c) of the Loan Agreement is hereby amended by deleting it
in its entirety and by substituting therefor the following:
"(c) CONSOLIDATED LEVERAGE RATIO The Borrower will maintain at
all times a Consolidated Leverage Ratio (tested quarterly)
of not greater than (i) from September 30, 1999 through
September 29, 2000, 4.05 to 1.00, (ii) from September 30,
2000 through December 30, 2000, 3.70 to 1.00 and (ii) from
December 31, 2000 and thereafter, 3.49 to 1.00."
<PAGE>
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16. AMENDMENT TO ARTICLE V. COVENANTS OF THE BORROWER AND THE GUARANTOR.
SECTION 5.03. FINANCIAL REQUIREMENTS. (d) CONSOLIDATED INTEREST
COVERAGE RATIO.
Section 5.03 (d) of the Loan Agreement is hereby amended by deleting it
in its entirety and by substituting therefor the following:
"(d) CONSOLIDATED INTEREST COVERAGE RATIO. The Borrower will
maintain at all times a Consolidated Interest Coverage
Ratio of not less than (i) from September 30, 1999 through
December 30, 1999, -0.27 to 1.00, (ii) from December 31,
1999 through March 30, 2000, -0.49 to 1.00, (iii) from
March 31, 2000 through June 29, 2000, -0.42 to 1.00, (iv)
from June 30, 2000 through September 29, 2000, -0.36 to
1.00, (v) from September 30, 2000 through December 30,
2000, 1.13 to 1.00 and (vi) from December 31, 2000 and
thereafter, 1.80 to 1.00."
17. AMENDMENT TO ARTICLE V. COVENANTS OF THE BORROWER AND THE GUARANTOR.
SECTION 5.03. FINANCIAL REQUIREMENTS. (e) CONSOLIDATED FIXED CHARGE
RATIO.
Section 5.03 (e) of the Loan Agreement is hereby amended by deleting it
in its entirety and by substituting therefor the following:
"(e) CONSOLIDATED FIXED CHARGE RATIO. The Borrower will
maintain at all times a Consolidated Fixed Charge Ratio of
not less than (i) from September 30, 1999 through December
30, 1999, -0.74 to 1.00, (ii) from December 31, 1999
through March 30, 2000, -0.44 to 1.00, (iii) from March
31, 2000 through June 29, 2000, -0.21 to 1.00, (iv) from
June 30, 2000 through September 29, 2000, -0.03 to 1.00,
(iv) from September 30, 2000 through December 30, 2000,
0.58 to 1.00, (v) from December 31, 2000 through March 30,
2001, 0.76 to 1.00 and (vi) from March 31, 2001 and
thereafter, 1.25 to 1.00."
18. AMENDMENT TO ARTICLE V. COVENANTS OF THE BORROWER AND THE GUARANTOR.
SECTION 5.03. FINANCIAL REQUIREMENTS. (f) DEBT TO EBITDA RATIO.
Section 5.03 (f) of the Loan Agreement is hereby amended by deleting it
in its entirety and by substituting therefor the following:
"(f) DEBT TO EBITDA RATIO. The Borrower will maintain at all
times a Debt to EBITDA Ratio of not greater than (i) from
September 30, 1999 through December 30, 1999, 13.73 to
1.00, (ii) from December 31, 1999 through March 30, 2000,
11.46 to 1.00, (iii) from March 31, 2000 through June 29,
2000, 9.73 to 1.00, (iv) from June 30, 2000 through
September 29, 2000, 9.39 to 1.00, (iv) from September 30,
2000 through December 30, 2000, 4.18 to 1.00, (v) from
December 31, 2000 through March 30, 2001, 3.78 to 1.00 and
(vii) from March 31, 2001 and thereafter, 3.25 to 1.00."
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19. ADDITIONAL AMENDMENTS AND COVENANTS BINDING ON THE BORROWER AND THE
GUARANTORS.
(a) Notwithstanding anything to the contrary contained in Section
5.02 (d) of the Loan Agreement, the Borrower and the Guarantors
each agree that during the period from the date of this SECOND
AMENDMENT AND WAIVER through the Maturity Date, none of them
shall, nor will any of them permit any Subsidiary to make, or
engage in, any Permitted Acquisition.
(b) Notwithstanding anything to the contrary contained in Section
5.02 (f) of the Loan Agreement, the Borrower and the Guarantors
each agree that during the period from the date of this SECOND
AMENDMENT AND WAIVER through the Maturity Date, none of them
shall, nor will any of them permit any Subsidiary to make any
loans or advances to employees of the Borrower, any Guarantor or
any Subsidiary in excess of the sum of (i) $100,000 at any time
outstanding plus (ii) the amount of such loans and advances in
existence as of the date of this SECOND AMENDMENT AND WAIVER and
any repayments of existing loans and advances subsequently
received by the Borrower, any Guarantor or any Subsidiary shall
not be re-advanced.
(c) Notwithstanding anything to the contrary contained in Section
5.02 (e) of the Loan Agreement, the Borrower and the Guarantors
each agree that during the period from the date of this SECOND
AMENDMENT AND WAIVER through the Maturity Date, any net cash
proceeds received pursuant to the sale of assets permitted
pursuant to Section 5.02 (e) (iv) shall be utilized by the
Borrower to repay Revolving Credit Loans.
(d) Notwithstanding anything to the contrary contained in Section
5.02 (n) of the Loan Agreement, the Borrower and the Guarantors
each agree that during the period from the date of this SECOND
AMENDMENT AND WAIVER through the Maturity Date, it shall not (i)
declare or pay any cash dividends on its capital stock
including, without limitation in the context of Permitted
Dividends and (ii) make any repurchase of its common stock
including, without limitation, in the context of Permitted Stock
Repurchases, provided, however, the Borrower may make Permitted
Stock Repurchases pursuant to Section 5.02 (n) (ii) and (iii) of
the Loan Agreement.
This SECOND AMENDMENT AND WAIVER shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed in said State.
All capitalized terms not otherwise defined herein are used with the respective
meanings given to such terms in the Loan Agreement.
Except as expressly amended and waived hereby, the Loan Agreement and all other
Loan Documents executed in connection therewith shall remain in full force and
effect. The Loan Agreement and all other Loan Documents executed in connection
therewith, as previously amended and as amended hereby, are in all respects
ratified and confirmed. Nothing herein shall be read or construed as an
amendment, modification or waiver of any provision of the Loan Agreement or any
other Loan Document, including, without limitation, any provision of Article
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VI of the Loan Agreement, except as expressly provided for herein and nothing
contained herein shall be read or construed as a waiver or estoppel (except for
the waivers contained herein) of any rights or remedies which the Bank may have
under the Loan Agreement or any other Loan Document, in law or in equity,
whether arising out of the transactions described herein or otherwise.
The Borrower and the Guarantor hereby represent and warrant that, after giving
effect to this SECOND AMENDMENT AND WAIVER, (i) all of the representations and
warranties made by the Borrower or the Guarantors in the Agreement and in the
other Loan Documents shall be deemed restated and are true and correct in all
material respects as if made on the date hereof, except for those made with
respect to a particular date, which such representations and warranties are
restated as of such date (ii) no Event of Default or event which with the giving
of notice or lapse of time or both would constitute an Event of Default exists
under the Loan Agreement or any documents relating thereto, (iii) there are no
defenses or offsets to the Borrower or any Guarantors' obligations under the
Loan Agreement, the Note or any other Loan Documents or any other agreements in
favor of the Bank referred to in the Loan Agreement, and if any such defenses or
offsets exist without the knowledge of the Borrower or any Guarantor, the same
are hereby waived and (iv) the outstanding aggregate principal of the Loans as
evidenced by the Note is $20,000,000.
This SECOND AMENDMENT AND WAIVER may be executed in any number of counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one SECOND AMENDMENT AND WAIVER. This SECOND
AMENDMENT AND WAIVER shall become effective when the Bank shall have (i)
received payment of a fee in the amount of $50,000 in consideration of its
granting of this SECOND AMENDMENT AND WAIVER, (ii) received for its satisfactory
review, a copy of the Borrower's compliance certificate for the fiscal quarter
ended September 30, 1999 to be submitted to the holders of the Senior Notes and
(iii) received counterparts of this SECOND AMENDMENT AND WAIVER duly executed by
an authorized signer of each of the parties hereto.
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IN WITNESS WHEREOF, the Company, the Guarantors and the Bank have caused this
SECOND AMENDMENT AND WAIVER to be duly executed by their duly authorized
officers, all as of the day and year first above written.
DEL LABORATORIES, INC. DEL PHARMACEUTICALS, INC.
By: /s/ Enzo Vialardi By: /s/ Enzo Vialardi
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Title: Executive Vice President and Title: Executive Vice President and
Chief Financial Officer Chief Financial Officer
ROYCE & RADER, INC. 565 BROAD HOLLOW REALTY CORP.
By: /s/ Enzo Vialardi By: /s/ Enzo Vialardi
------------------------------- -------------------------------
Name: Enzo Vialardi Name: Enzo Vialardi
Title: Executive Vice President and Title: Executive Vice President and
Chief Financial Officer Chief Financial Officer
PARFUMS SCHIAPARELLI, INC.
By: /s/ Enzo Vialardi
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Name: Enzo Vialardi
Title: Executive Vice President and
Chief Financial Officer
THE CHASE MANHATTAN BANK
By: /s/ Christopher Zimmerman
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Title: Vice President
