<PAGE>
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, 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 August 11,
1999 was 7,355,982.
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Index
Part I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements:
Consolidated Balance Sheets as of
June 30, 1999 and December 31, 1998 3
Consolidated Statements of Earnings for the six
months ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the
six months ended June 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 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.
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<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS June 30 December 31
1999 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,320 $ 3,731
Accounts receivable, less allowance for doubtful
accounts of $1,300 in 1999 and 1998 55,580 47,116
Inventories 64,905 55,620
Deferred income taxes, net 3,649 3,649
Prepaid expenses and other current assets 2,275 2,975
--------- ---------
Total current assets 128,729 113,091
--------- ---------
Property, plant and equipment, net 37,305 37,915
Intangibles arising from acquisitions, net 18,012 18,450
Other assets 7,501 8,018
--------- ---------
Total assets $ 191,547 $ 177,474
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ 7,250 $ 3,500
Current portion of long-term debt 4,015 486
Accounts payable 40,172 35,781
Accrued liabilities 14,639 10,024
Income taxes payable (32) 572
--------- ---------
Total current liabilities 66,044 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 134,658 118,377
--------- ---------
Shareholders' equity:
Preferred stock $.01 par value, authorized
1,000,000 shares; no shares issued -- --
Common stock $1 par value, authorized
20,000,000; issued 10,000,000 shares 10,000 10,000
Additional paid-in capital 1,352 1,850
Accumulated other comprehensive loss (1,248) (1,466)
Retained earnings 82,620 81,204
--------- ---------
92,724 91,588
Less: Treasury stock, at cost, 2,644,018 shares in 1999
and 2,490,823 shares in 1998 (34,588) (31,097)
Receivables for stock options exercised (1,247) (1,394)
--------- ---------
Total shareholders' equity 56,889 59,097
--------- ---------
Total liabilities and shareholders' equity $ 191,547 $ 177,474
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------- -------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 70,557 $ 73,971 $ 132,313 $ 139,387
Cost of goods sold 30,723 29,420 58,497 54,858
Selling and administrative expenses 35,716 36,030 69,611 69,596
----------- ----------- ----------- -----------
Operating income 4,118 8,521 4,205 14,933
Gain on sale of facility -- -- 1,734 --
Interest expense 1,514 1,101 2,742 2,124
Interest income (8) (33) (25) (155)
----------- ----------- ----------- -----------
Interest expense, net 1,506 1,068 2,717 1,969
----------- ----------- ----------- -----------
Earnings before income taxes 2,612 7,453 3,222 12,964
Income taxes 1,045 3,048 1,289 5,308
----------- ----------- ----------- -----------
Net earnings $ 1,567 $ 4,405 $ 1,933 $ 7,656
=========== =========== =========== ===========
Earnings per common share:
Basic $ 0.21 $ 0.58 $ 0.26 $ 1.01
=========== =========== =========== ===========
Diluted $ 0.20 $ 0.54 $ 0.25 $ 0.93
=========== =========== =========== ===========
Weighted average common shares outstanding:
Basic 7,332,000 7,593,000 7,402,000 7,610,000
=========== =========== =========== ===========
Diluted 7,633,000 8,219,000 7,772,000 8,250,000
=========== =========== =========== ===========
</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, 1999 AND 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30
-------
1999 1998
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,933 $ 7,656
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization 3,372 3,213
Provision for doubtful accounts -- 300
Gain on sale of facility (1,734) --
Other non-cash operating items 446 109
Changes in operating assets and liabilities:
Accounts receivable (8,464) (10,903)
Inventories (9,285) (7,580)
Prepaid expenses and other current assets 700 1,381
Other assets 517 394
Accounts payable 4,654 (2,244)
Accrued liabilities 4,615 2,622
Income taxes payable (137) 1,152
------- --------
Net cash used in operating activities (3,383) (3,900)
------- --------
Cash flows provided by (used in) investing activities:
Proceeds from sale of facility 2,538 --
Property, plant and equipment additions (3,088) (2,879)
Additions to intangibles and other assets (40) (11,851)
------- --------
Net cash (used in) investing activities (590) (14,730)
------- --------
Cash flows provided by (used in) financing activities:
Proceeds under long-term debt 4,250 --
Proceeds under short term lines of credit 7,250 7,750
Repayments of short-term borrowings (3,721) (129)
Decrease in receivables for stock options exercised 7
Exercise of stock options -- 45
Acquisition of treasury stock (4,456) (2,934)
Dividends paid (780) (732)
------- --------
Net cash provided by financing activities 2,550 4,000
------- --------
Effect of exchange rate changes on cash 12 (4)
------- --------
Net decrease in cash and cash equivalents (1,411) (14,634)
Cash and cash equivalents at beginning of year 3,731 14,979
------- --------
Cash and cash equivalents at end of period $ 2,320 $ 345
======= ========
</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 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):
June 30 December 31
1999 1998
-------- --------
Raw Materials $ 36,938 $ 26,912
Work In Process 5,918 6,247
Finished Goods 22,049 22,461
-------- --------
$ 64,905 $ 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.
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<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:
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data)
Three Months ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net earnings (numerator) $1,567 $4,405 $1,933 $7,656
------ ------ ------ ------
Weighted-average common shares
(denominator for basic earnings per share) 7,332 7,593 7,402 7,610
Effect of dilutive securities:
Employee stock options 301 626 370 640
Weighted-average common and potential
common shares outstanding
(denominator for diluted earnings per share) 7,633 5,219 7,772 8,250
------ ------ ------ -----
Basic earnings per share $0.21 $0.58 $ 0.26 $ 1.01
------ ------ ------- -------
Diluted earnings per share $0.20 $0.54 $ 0.25 $ 0.93
------ ------ ------- -------
</TABLE>
Employee stock options for 443,000 and 79,000 shares for the periods ended
June 30, 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 and the six months ended June 30, 1999 and 1998 are
as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
------ ------- ------ -------
<S> <C> <C> <C> <C>
Net earnings $1,567 $ 4,405 $1,933 $ 7,656
Other comprehensive income (loss):
Foreign currency translation 246 (59) 218 (34)
------ ------- ------ -------
Total comprehensive income $1,813 $ 4,346 $2,151 $ 7,622
====== ======= ====== =======
</TABLE>
-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 $2.5 million. At December 31, 1998, this facility
was included in property, plant and equipment and was accounted for as a
held for sale asset.
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.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
(in thousands) (in thousands)
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales
Cosmetic $54,798 $58,496 $101,499 $110,030
Pharmaceutical 15,759 15,475 30,814 29,357
------- ------- -------- --------
Consolidated $70,557 $73,971 $132,313 $139,387
------- ------- -------- --------
------- ------- -------- --------
Operating income (loss)
Cosmetic $ 2,473 $ 5,764 $ 273 $ 10,070
Pharmaceutical 1,645 2,757 3,932 4,863
------- ------- -------- --------
Consolidated $ 4,118 $ 8,521 $ 4,205 $ 14,933
------- ------- -------- --------
------- ------- -------- --------
Gain on asset sale $ -- $ -- $ 1,734 $ --
Interest expense, net $ 1,506 $ 1,068 $ 2,717 $ 1,969
------- ------- -------- --------
Earnings before taxes $ 2,612 $ 7,453 $ 1,933 $ 12,964
------- ------- -------- --------
------- ------- -------- --------
Depreciation and amortization
Cosmetic $ 1,512 $ 1,559 $ 3,157 $ 2,990
Pharmaceutical 102 111 215 223
------- ------- -------- --------
Consolidated $ 1,614 $ 1,670 $ 3,372 $ 3,213
------- ------- -------- --------
------- ------- -------- --------
</TABLE>
7. FINANCING ARRANGEMENTS
On June 10, 1999, the lender under the $20 million Credit Agreement
waived compliance with certain financial covenants and certain of the
financial covenants in the Credit Agreement were amended through
March 30, 2000.
8. STOCK OPTION PLAN
At the Company's annual meeting held on May 27, 1999, the shareholders
approved the Company's Amended and Restated 1994 Stock Option Plan and
its Amended and Restated Annual Incentive Plan.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(1) RESULTS OF OPERATIONS
SECOND QUARTER AND SIX MONTHS ENDED JUNE 1999 VERSUS JUNE 1998
NET SALES
Net sales for the second quarter of 1999 were $70.6 million, a decrease of
4.6% compared to $74.0 million in 1998. Net sales for the first six months
of 1999 were $132.3, a decrease of 5.1% compared to $139.4 million in 1998.
Cosmetic net sales for the second quarter were $54.8 million, a decrease of
6.3% compared to $58.5 million in 1998. Cosmetic net sales for the first
six months of 1999 were $101.5 million, a decrease of 7.7% compared to
$110.0 million in 1998. The decrease is principally due to lower shipments
of the Naturistics cosmetics and bath & body care line and higher product
returns.
Pharmaceutical net sales for the second quarter of 1999 were $15.8 million,
an increase of 2% compared to $15.5 million in 1998. Pharmaceutical net
sales for the first six months of 1999 were $30.8, an increase of 4.8%
compared to $29.4 million in 1998. The increase is due primarily to volume
growth in the Orajel family of products.
COST OF SALES
Cost of sales for the second quarter of 1999 were $30.7 million, or 43.5%
of net sales, as compared to $29.4 million, or 39.8% of net sales in 1998.
Cost of sales for the six months of 1999 were $58.5 million, or 44.2% of
net sales, as compared to $54.9 million, or 39.4% of net sales in 1998. The
increase in cost of sales, as a percentage of net sales, is due principally
to lower shipments of the Naturistics cosmetics and bath & body care line,
higher product returns 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 second quarter of 1999 were
$35.7 million, or 50.6% of net sales, as compared to $36.0 million, or
48.6% of net sales in 1998. Selling and administrative expenses for the
first six months of 1999 and 1998 were $69.6 million, or 52.6% of net sales
in 1999, compared to 49.9% 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 six months of 1999
was $2.7 million, compared to $2.0 million in 1998. The increase is due to
higher average borrowings during the first six months of 1999, as compared
to the first six 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.
-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 six months of 1999 were $1.9 million, compared
to $7.7 million in 1998. The decrease is due primarily to the reduction in
gross margin.
(2) LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company had cash and cash equivalents of $2.3 million
as compared to $.3 million at June 30, 1998.
Net cash used in operating activities was $3.4 million for the six months
ended June 30, 1999, primarily due to an increase in inventories of $9.3
million to support new product lines and promotional sales, and an increase
in accounts receivable of $8.5 million due to the timing of second quarter
shipments; partially offset by increases in accounts payable of $4.7
million and accrued liabilities of $4.6 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
$3.1 million for the six months ended June 30, 1999, compared to $2.9
million in 1998.
Net cash provided by financing activities for the six months ended June 30,
1999 was $2.6 million, due primarily to proceeds received under a four year
credit agreement with a bank and short-term borrowings under a line of
credit with a bank, partially offset by repayments of short term borrowings
and acquisition of treasury stock.
On June 10, 1999, the lender under the $20 million Credit Agreement
waived compliance with certain financial covenants and certain of the
financial covenants in the Credit Agreement were amended through March
30, 2000.
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. 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 computer based systems, software, third
party programs and all hardware including embedded microprocessors. The
assessment phase (100% complete) has focused on those applications most
critical to the business including examination of all coding used for date
calculations. The remediation phase (approximately 95% complete) consists
of systems changes, where necessary, by replacement, modification or
upgrade. The testing phase (approximately 75% complete) includes full
system tests where systems dates are 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 September 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) 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 management of 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.
-11-
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting held on May 27, 1999, the
Shareholders reelected Marcella Maxwell, Robert Kavesh and Steven Kotler to
the Board of Directors, in accordance with a proxy solicited pursuant to
Section 14 of the Securities Exchange Act. In addition, the shareholders
approved the Company's Amended and Restated 1994 Stock Option Plan and its
Amended and Restated Annual Incentive Plan. Votes were cast for each of such
items as follows:
<TABLE>
<CAPTION>
ELECTION OF DIRECTORS VOTES FOR VOTES WITHHELD
- --------------------- --------- --------------
<S> <C> <C>
Marcella Maxwell 6,817,309 97,420
Steven Kotler 6,808,271 106,458
Roberet Kavesh 6,818,588 96,141
</TABLE>
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----- --------- ---------
<S> <C> <C> <C>
APPROVAL OF AMENDED
AND RESTATED
1994 STOCK PLAN 5, 170,253 898,895 21,357
APPROVAL OF AMENDED
AND RESTATED
ANNUAL INCENTIVE PLAN 6,666,929 217,666 30,134
</TABLE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27.1 Financial Data Schedule
Exhibit 10.1 Amended and Restated 1994 Stock Option Plan (filed
on April 24, 1999 as an Exhibit to the Company's
Definitive Proxy Statement relating to the Company's
1999 Annual Meeting of Shareholders and is
incorporated herein by reference)
Exhibit 10.2 Amended and Restated Annual Incentive Plan (filed on
April 24, 1999 as an Exhibit to the Company's
Definitive Proxy Statements relating to the Company's
1999 Annual Meeting of Shareholders, and is
incorporated herein by reference)
Exhibit 10.3 First Amendment and waiver, dated June 10, 1999,
Loan Agreement with Chase Manhattan Bank.
(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: August 13, 1999 /s/ Dan K. Wassong
- ---------------------------- -----------------------------------
Dan K. Wassong
Chairman, President and
Chief Executive Officer
Date: August 13, 1999 /s/ Enzo J. Vialardi
- ---------------------------- -----------------------------------
Enzo J. Vialardi
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
-13-
<PAGE>
FIRST AMENDMENT AND WAIVER TO LOAN AGREEMENT
THIS FIRST AMENDMENT AND WAIVER AGREEMENT ("Amendment") made as of this
10th day of June, 1999 among DEL LABORATORIES, INC., a Delaware corporation,
having its principal place of business at 178 EAB Plaza, Uniondale, New York
11556 (the "Borrower"), DEL PHARMACEUTICALS, INC., a Delaware corporation,
having its principal place of business at 178 EAB Plaza, Uniondale, New York
11556 ("DPI" or, a "Guarantor") and THE CHASE MANHATTAN BANK, a New York banking
corporation, having an office at 395 North Service Road, Suite 302, Melville,
New York 11747 (the "Bank").
W I T N E S S E T H :
WHEREAS, the Borrower, DPI and the Bank entered into a Loan Agreement
dated as of the 30th day of December, 1998 (the "Agreement"); and
WHEREAS, pursuant to the Agreement, the Bank has made Revolving Credit
Loans to the Borrower as evidenced by a certain Revolving Credit Note of the
Borrower and specifying interest to be paid thereon; and
WHEREAS, the Borrower and the Guarantor has requested (i) that the Bank
waive certain Events of Default which have occurred and (ii) that the Bank agree
to make certain amendments to the Agreement, and the Bank has agreed to give
such waivers and make such amendments, subject to the terms and conditions of
this Amendment.
NOW, THEREFORE, in consideration of Ten ($10.00) Dollars and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrower, the Guarantor and the Bank do hereby agree as
follows:
1. DEFINED TERMS. As used in this Amendment, capitalized
terms, unless otherwise defined, shall have the meanings set
forth in the Agreement.
2. REPRESENTATIONS AND WARRANTIES. As an inducement for
the Bank to enter into this Amendment, the Borrower and the
<PAGE>
Guarantor represent and warrant as follows:
A. That with respect to the Agreement and the Loan
Documents executed in connection therewith and herewith:
(i)There are no defenses or offsets to the Borrower's or the
Guarantor's obligations under the Agreement, the Note or any
of the other Loan Documents or any other agreements in favor
of the Bank referred to in the Agreement, and if any such
defenses or offsets exist without the knowledge of the
Borrower or the Guarantors, the same are hereby waived.
(ii) All of the representations and warranties made
by the Borrower or the Guarantor in the Agreement and in the
other Loan Documents 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.
(iii)The outstanding aggregate principal balance
of the Loans as evidenced by the Note is
$20,000,000.00.
3. WAIVER, The Bank hereby waives any Default or Event of Default
occurring or resulting from:
(a) Failure of the Borrower to comply with Section 5.03 (c) of the
Agreement, the Consolidated Leverage Ratio, as of March 31, 1999, provided that
the Borrower's Consolidated Leverage Ratio as of such date was not greater than
3.22 to 1.00.
(b) Failure of the Borrower to comply with Section 5.03 (e) of the
Agreement, Consolidated Fixed Charge Ratio, for the fiscal quarter ended March
31, 1999, provided that the Borrower's Consolidated Fixed Charge Ratio for such
quarter was not less than 0.83 to 1.00.
4. AMENDMENTS. The following amendments are hereby made to the
Agreement:
2
<PAGE>
(a) Section 2.05 of the Agreement shall be amended to
read in its entirety as follows:
SECTION 2.05. APPLICABLE MARGIN The Applicable Margin for
Revolving Credit Loans shall be determined on the basis of the Borrower's Debt
to EBITDA Ratio (Applicable Margin), as calculated based on the Borrower's
consolidated financial statements for its most recent fiscal year or quarter.
The Bank shall determine the Applicable Margin within five (5) Business Days
after it has received the financial statements of the Borrower as required by
Section 5.01(b)(i) or (ii), as applicable. The Bank shall promptly notify the
Borrower of such determination, which shall be conclusive, in the absence of
manifest error. The Applicable Margin shall be determined as follows:
(i) The initial Applicable Margin shall be 85 basis points
and shall be applicable until five (5) Business Days after delivery of the
Borrower's consolidated financial statements for its fiscal year ending December
31, 1998 pursuant to Section 5.01(b) hereof.
Beginning five (5) Business Days after delivery of the Borrower's
consolidated financial statements for the fiscal year ending December 31, 1998,
and for each fiscal year or quarter thereafter:
(ii) If the Borrower's Debt to EBITDA Ratio (Applicable
Margin) as of the end of such fiscal year or quarter is equal to or less than
1.50 to 1.00, the Applicable Margin shall be 70 basis points.
(iii) If the Borrower's Debt to EBITDA Ratio (Applicable
Margin) as of the end of such fiscal year or quarter is greater than 1.50 to 1.
00 but equal to or less than 2.00 to 1.00, the Applicable Margin shall be 85
basis points.
(iv) If the Borrower's Debt to EBITDA Ratio (Applicable Margin) as of
the end of such fiscal year or quarter is greater than 2.00 to 1.00, but equal
to or less than 2.25 to 1.00, the Applicable Margin shall be 100 basis points.
(v) If the Borrower's Debt to EBITDA Ratio (Applicable
3
<PAGE>
Margin) as of the end of such fiscal year or quarter is greater than 2.25 to
1.00, but equal to or less than 2.50 to 1.00, the Applicable Margin shall be 125
basis points.
(vi) If the Borrower's Debt to EBITDA Ratio (Applicable Margin) as of
the end of such fiscal year or quarter is greater than 2.50 to 1.00, but equal
to or less than 2.75 to 1.00, the Applicable Margin shall be 150 basis points.
(vii) If the Borrower's Debt to EBITDA Ratio (Applicable Margin) as of
the end of such fiscal year or quarter is greater than 2.75 to 1.00, the
Applicable Margin shall be 175 basis points.
The Applicable Margin for any Eurodollar Loan shall change during the
term of such Eurodollar Loan as a result of this Section 2.05.
In the event that the Borrower fails to deliver any financial
statements and the related certificate on the due date therefor set forth in
Section 5.01(b) (i) or (ii) hereof, unless an Event of Default is declared as a
result of such failure, the Applicable Margin shall be 175 basis points until
the Borrower delivers all required financial statements and certificates at
which time the Applicable Margin shall be redetermined as provided for in this
Section 2.05.
Upon the occurrence and during the continuance of a Default or an Event
of Default the Applicable Margin may, as a result of changes in the Borrower's
Debt to EBITDA Ratio (Applicable Margin), increase but will not decrease.
(b) Section 5.01 (b)(i) and (ii) of the Agreement shall be amended
to read in their entirety as follows:
(b) REPORTING REQUIREMENTS. Furnish to the Bank: (i) ANNUAL FINANCIAL
STATEMENTS. As soon as available and in any event within ninety (90) days after
the end of each fiscal year of the Borrower, a copy of the audited consolidated
and unaudited consolidating (such consolidating statements to be prepared by
management of the Borrower) financial statements of the Borrower and its
Consolidated Subsidiaries for such year, including balance sheets with related
statements of income and
4
<PAGE>
retained earnings and statements of cash flows, all in reasonable detail and
setting forth in comparative form the figures for the previous fiscal year,
together with an unqualified opinion, prepared by independent certified public
accountants selected by the Borrower and reasonably satisfactory to the Bank,
all such financial statements to be prepared in accordance with GAAP.
(ii) QUARTERLY FINANCIAL STATEMENTS. As soon as available and in any
event within forty five (45) days after the end of each of the first three
fiscal quarters of each fiscal year of the Borrower, a copy of the consolidated
and consolidating financial statements of the Borrower and its Consolidated
Subsidiaries for such quarter, including balance sheets with related statements
of income and retained earnings and statements of cash flows, all in reasonable
detail and setting forth in comparative form the figures for the comparable
quarter for the previous fiscal year, all such financial statements to be
prepared by management of the Borrower in accordance with GAAP.
(c) Section 5.01 (l) of the Agreement shall be
amended to read in its entirety as follows:
(l) EXISTING SUBSIDIARIES. Not later than March 31, 1999, the
Borrower shall advise the Bank whether it shall dissolve one or more of the
domestic Subsidiaries (other than DPI) listed on Schedule 4.01(a); and (i) as to
those Subsidiaries it elects to dissolve, it shall dissolve such Subsidiaries,
and give notice to the Bank of such dissolution, not later than June 30, 1999;
or (ii) as to those Subsidiaries it elects not to dissolve, it shall, not later
than June 30, 1999, deliver to the Bank, in form and substance reasonably
satisfactory to the Bank and its counsel, the following with
respect to each such Subsidiary:
(1) an agreement pursuant to which such Subsidiary becomes a
party to, and bound by, this Agreement as a Guarantor;
(2) a Guaranty substantially in the form of the
Guaranty delivered by DPI;
5
<PAGE>
(3) a Secretary's certificate complying in form and substance,
together with all exhibits, similar to the Secretary's Certificate being
delivered by DPI on the date of this Agreement; and
(4) an opinion of counsel (which may be in house counsel to the
Borrower) to each such Subsidiary substantially similar to the opinion being
delivered with respect to DPI on the date of this Agreement.
(d) Section 5.02 (n) of the Agreement shall be
amended to read in its entirety as follows:
(n) DIVIDENDS. ETC. Declare or pay any
dividends, purchase, redeem, retire or otherwise acquire for value any of its
capital stock now or hereafter outstanding, or make any distribution of assets
to its stockholders as such, whether in cash, assets, or in obligations of the
Borrower or the Guarantor; or allocate or otherwise set apart any sum for the
payment of any dividend or distribution on, or for the purchase, redemption or
retirement of any shares of its capital stock; or make any other distribution by
reduction of capital or otherwise in respect of any share of its capital stock,
except, provided no Default or Event of Default has occurred and is continuing
(i) Permitted Dividends, or (ii) Permitted Stock Repurchases that are (x)
transactions in which the Borrower's common stock is transferred to the Borrower
by a current or former employee of the Borrower or any of its Subsidiaries in an
amount equal to the consideration payable by such employee upon the exercise of
stock options held by such employee or (y) transactions in which the Borrower's
common stock is transferred to the Borrower by an employee in an amount equal to
the withholding tax liability for such employee resulting from the exercise of
such stock option rights by such employee, or (iii) other Permitted Stock
Repurchases, provided that no such other Permitted Stock Repurchases may occur
until such date as the Borrower has achieved a Debt to EBITDA Ratio of not
greater than 2.75 to 1.00 for the four (4) fiscal quarters then ended and a
Consolidated Fixed Charge Ratio of at least 1.25 to 1.00 for the four (4) fiscal
quarters then ended and from and after such date, and further provided, that all
Permitted Stock Repurchases described in clauses (ii) and (iii) above shall not
exceed $10,000,000.00 during any period of four (4) consecutive fiscal
6
<PAGE>
quarters.
(e) Section 5.03 (b), (c), (d), (e) and (f) of the
Agreement shall each be amended to read in its entirety as follows:
(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) until such date as the Borrower has achieved a Debt to EBITDA Ratio of not
greater than 2.75 to 1.00 for the four (4) fiscal quarters then ended and a
Consolidated Fixed Charge Ratio of at least 1.25 to 1.00 for the four (4) fiscal
quarters then ended, $11,000,000.00 and (ii) from and after such date,
$15,000,000.00.
(c) CONSOLIDATED LEVERAGE RATIO. The Borrower will
maintain at all times a Consolidated Leverage Ratio (tested quarterly) of not
greater than (i) from the date of this Agreement through March 30, 2000, 3.50 to
1.00 and (ii) from March 31, 2000 and thereafter, 3.00 to 1.00.
(d) CONSOLIDATED INTEREST COVERAGE RATIO. The
Borrower will maintain at all times a Consolidated Interest Coverage Ratio of
not less than (i) from the date of this Agreement through December 30, 1999,
1.75 to 1.00 and (ii) from December 31, 1999 and thereafter, 3.00 to 1.00.
(e) CONSOLIDATED FIXED CHARGE RATIO. The Borrower
will maintain at all times a Consolidated Fixed Charge Ratio of not less than
(i) from the date of this Agreement through September 29, 1999, 0.06 to 1.00,
(ii) from September 30, 1999 through December 30, 1999, 0.20 to 1.00, (iii) from
December 31, 1999 through March 30, 2000, 1.00 to 1.00 and (iv) from March 31,
2000 and thereafter, 1.25 to 1.00.
(f) DEBT TO EBITDA RATIO. The Borrower will
maintain at all times a Debt to EBITDA Ratio of not greater than (i) from the
date of this Agreement through December 30, 1999, 3.75 to 1.00 and (ii) from
December 31, 1999 and thereafter, 2.75 to 1.00.
(f) Notwithstanding anything herein to the contrary, the
7
<PAGE>
Borrower and the Guarantors agree that, until the next applicable date for the
change, if any, in the Applicable Margin, the Applicable Margin shall be 175
basis points. Such change in the Applicable Margin shall take effect
immediately.
5. EFFECTIVENESS. This Amendment shall become effective
upon the occurrence of the following events and the receipt and
satisfactory review by the Bank and its counsel of the following
documents:
(a) The Bank shall have received this Amendment, duly executed
by the Borrower and the Guarantor.
(b) The Bank shall have received copies of any and all
modifications of the documentation referred to in Section 3.01 (d), (e), (f) and
(k) of the Agreement which modifications could result in a Material Adverse
Change in the Borrower or the Guarantors.
6. GOVERNING LAW. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of New
York.
7. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
8. RATIFICATION. Except as expressly amended hereby, the Agreement and
all other Loan Documents executed in connection therewith shall remain in full
force and effect in accordance with their originally stated terms and
conditions. The Agreement and all other Loan Documents executed in connection
therewith, 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 Agreement or any other Loan Document, including,
without limitation, any provision of Article VI of the 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 provided in Section 3
hereof) of any rights or remedies which the Bank may have under the Agreement or
any
8
<PAGE>
other Loan Document, in law or in equity, whether arising out of the
transactions described herein or otherwise.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the year and date first above written.
DEL LABORATORIES, INC.
By_______________________
Name: Enzo Vialardi
Title: Executive Vice President
and Chief Financial officer
DEL PHARMACEUTICALS, INC.
By________________________
Name: Enzo Vialardi
Title: Executive Vice President
and Chief Financial officer
THE CHASE MANHATTAN BANK
By_______________________
Name: Louise E. Duchi
Title: Vice President
10
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<PAGE>
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<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
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<RECEIVABLES> 56,880
<ALLOWANCES> 1,300
<INVENTORY> 64,905
<CURRENT-ASSETS> 128,729
<PP&E> 59,052
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0
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