<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO_______
COMMISSION FILE NO. 1-5439
DEL LABORATORIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-1953103
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
178 EAB PLAZA, UNIONDALE, NEW YORK 11556
----------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 844-2020
----------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES (X) NO ( )
The number of shares of Common Stock, $1 par value, outstanding as of May 8,
2000 was 7,543,726.
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Index
Part I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements:
Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Earnings for the three
months ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION 12
SIGNATURES 13
All other schedules and compliance information called for by the instructions to
Form 10-Q have been omitted since the required information is not present or not
present in amounts sufficient to require submission.
-2-
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(In thousands except for share and per share data)
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
--------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,385 $ 3,585
Accounts receivable-less allowance for doubtful accounts
of $1,300 in 2000 and 1999 56,312 45,942
Income taxes receivable 1,963 1,963
Inventories 62,990 59,155
Deferred income taxes, net 5,272 5,272
Prepaid expenses and other current assets 2,522 2,455
--------- ---------
Total current assets 131,444 118,372
Property, plant and equipment, net 39,370 37,191
Intangibles arising from acquisitions, net 16,881 17,101
Other assets 8,978 7,897
--------- ---------
Total assets $ 196,673 $ 180,561
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ 664 $ 3,888
Accounts payable 29,917 27,175
Accrued liabilities 15,045 12,837
--------- ---------
Total current liabilities 45,626 43,900
Long-term pension liability, less current portion 9,052 9,052
Deferred income taxes, net 986 986
Long-term debt, less current portion 89,486 75,750
--------- ---------
Total liabilities 145,150 129,688
--------- ---------
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 127 127
Accumulated other comprehensive loss (1,019) (1,029)
Retained earnings 75,637 75,136
--------- ---------
84,745 84,234
Less: Treasury stock at cost, 2,455,420 shares
in 2000 and 1999 (32,120) (32,120)
Receivables for stock options exercised (1,102) (1,241)
--------- ---------
Total shareholders' equity 51,523 50,873
--------- ---------
Total liabilities and shareholders' equity $ 196,673 $ 180,561
========= =========
</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 THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net sales $ 67,382 $ 61,756
Cost of goods sold 28,951 27,774
Selling and administrative expenses 35,490 33,895
----------- -----------
Operating income 2,941 87
Other income (expense):
Gain on sale of facility -- 1,734
Interest expense (2,086) (1,228)
Interest income 8 17
----------- -----------
Earnings before income taxes 863 610
Income taxes 362 244
----------- -----------
Net earnings $ 501 $ 366
=========== ===========
Earnings per common share:
Basic $ 0.07 $ 0.05
=========== ===========
Diluted $ 0.07 $ 0.05
=========== ===========
Weighted average common shares outstanding:
Basic 7,545,000 7,621,000
=========== ===========
Diluted 7,621,000 8,069,000
=========== ===========
</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 CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31
-------------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 501 $ 366
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,767 1,758
Provision for doubtful accounts 45 --
Gain on sale of facility -- (1,734)
Other non-cash operating items 241 166
Changes in operating assets and liabilities:
Accounts receivable (10,424) (735)
Inventories (3,851) (5,401)
Prepaid expenses and other current assets (68) 52
Other assets (1,081) 361
Accounts payable 2,749 (1,326)
Accrued liabilities 2,208 6,012
Income taxes payable -- (312)
-------- --------
Net cash used in operating activities (7,913) (793)
-------- --------
Cash flows provided by (used in) investing activities:
Proceeds from sale of facility -- 2,538
Property, plant and equipment additions (1,906) (1,750)
Additions to intangibles and other assets -- (26)
-------- --------
Net cash provided by (used in) investing activities (1,906) 762
-------- --------
Cash flows provided by (used in) financing activities:
Borrowings under long-term debt 24,500 4,250
Principal payments under long-term debt (104) (111)
Borrowings under short-term lines of credit 1,500 --
Repayments of short-term lines of credit (17,250) (3,500)
Acquisition of treasury stock -- (2,480)
Dividends paid -- (524)
-------- --------
Net cash provided by (used in) financing activities 8,646 (2,365)
-------- --------
Effect of exchange rate changes on cash (27) (4)
-------- --------
Net decrease in cash and cash equivalents (1,200) (2,400)
Cash and cash equivalents at beginning of year 3,585 3,731
-------- --------
Cash and cash equivalents at end of period $ 2,385 $ 1,331
======== ========
</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 1999 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 (in thousands):
March 31 December 31
2000 1999
------- -------
Raw Materials $34,428 $27,936
Work In Process 4,721 6,226
Finished Goods 23,841 24,993
------- -------
$62,990 $59,155
======= =======
3. EARNINGS PER SHARE
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.
On November 15, 1999, the Company's Board of Directors approved a 2% stock
dividend. As a result, 147,581 shares of treasury stock were issued on
December 28, 1999 to shareholders of record on November 30, 1999.
Accordingly, the weighted average common shares outstanding in the
consolidated statement of earnings for the quarter ended March 31, 1999,
have been restated to reflect the dividend.
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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:
(Amounts in thousands,
except per share data)
Three Months Ended
March 31
--------------------
2000 1999
------ ------
Net earnings (numerator) $ 501 $ 366
------ ------
Weighted-average common shares
(denominator for basic earnings
per share) 7,545 7,621
Effect of dilutive securities:
Employee stock options 76 448
Weighted-average common and potential
common shares outstanding
(denominator for diluted earnings
per share) 7,621 8,069
------ ------
Basic earnings per share $ 0.07 $ 0.05
------ ------
Diluted earnings per share $ 0.07 $ 0.05
====== ======
Employee stock options for 1,271,000 and 242,000 shares for the periods
ended March 31, 2000 and 1999, respectively, were not included in the net
earnings per share because their effect would have been anti-dilutive.
4. SUPPLEMENTAL CASH FLOW INFORMATION
The Company purchased a 68,000 square foot manufacturing, warehousing and
office facility in Barrie, Ontario for $1,828,000. The purchase was
financed with a combination of a mortgage bridge loan and a five-year
mortgage.
5. COMPREHENSIVE INCOME
The components of comprehensive income for the three months ended March
31, 2000 and 1999 are as follows:
Three Months Ended
March 31
------------------
2000 1999
----- -----
Net earnings $ 501 $ 366
Other comprehensive:
Foreign currency translation 10 (28)
----- -----
Total comprehensive income $ 511 $ 338
===== =====
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<PAGE>
6. SEGMENT INFORMATION
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;
depreciation of unallocated assets are charged to the Cosmetic segment.
For the period ended
March 31,
(in thousands)
-------------------------------
2000 1999
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Net sales
Cosmetic $ 52,325 $ 46,701
Pharmaceutical 15,057 15,055
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Consolidated $ 67,382 $ 61,756
======== ========
Operating income (loss)
Cosmetic $ 743 $ (2,200)
Pharmaceutical 2,198 2,287
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Consolidated $ 2,941 $ 87
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Gain on asset sale -- $ 1,734
-------- --------
Interest expense, net $ 2,078 $ 1,211
-------- --------
Earnings before taxes $ 863 $ 610
======== ========
Depreciation and amortization
Cosmetic $ 1,654 $ 1,645
Pharmaceutical 113 113
-------- --------
Consolidated $ 1,767 $ 1,758
======== ========
7. SUBSEQUENT EVENTS
On April 3, 2000, the Company sold a 39,000 square foot manufacturing,
warehousing and office facility in Barrie, Ontario that was included in
property, plant and equipment at March 31, 2000, with a net book value of
approximately $451,000, for proceeds of approximately $862,000.
Approximately $640,000 of the proceeds were used to satisfy a mortgage
bridge loan on its new facility in Barrie, Ontario purchased on February
22, 2000.
On April 26, 2000, the Company refinanced its purchase money promissory
note of $3,822,000 for its property in North Carolina with a five-year
$4,523,000 mortgage on the land and buildings. The mortgage includes terms
which provide for the maintenance of certain financial ratios. As a result
of this refinancing the note has been classified as long-term debt in the
accompanying consolidated balance sheet as of March 31, 2000.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(1) RESULTS OF OPERATIONS
FIRST QUARTER ENDED MARCH 31, 2000 VERSUS MARCH 31, 1999
NET SALES
Net sales for the first quarter of 2000 were $67.4 million, an increase of
9.1% compared to $61.8 million in the first quarter of 1999. Cosmetics net
sales for the first quarter of 2000 were $52.3 million, an increase of
12.0% compared to $46.7 million in 1999. The increase is due principally
to lower product returns.
Pharmaceuticals net sales were $15.1 million for the first quarter of 2000
and 1999.
COST OF SALES
Cost of sales for the first quarter of 2000 were $29.0 million, or 43.0%
of net sales, as compared to $27.8 million, or 45.0% of net sales in 1999.
The decrease in cost of sales as a percentage of net sales is due
principally to lower product returns in the cosmetics division.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses for the first quarter of 2000 were
$35.5 million, or 52.7% of net sales, compared to $33.9 million, or 54.9%
of net sales in 1999. The decrease as a percentage of net sales is due
primarily to the favorable impact on net sales of lower product returns.
NET INTEREST EXPENSE
Interest expense, net of interest income, for the first quarter of 2000
was $2.1 million, compared to $1.2 million in 1999. The increase is due to
higher average borrowings for working capital requirements in the first
quarter of 2000, in addition to increased borrowing rates, as compared to
1999.
INCOME TAXES
Income taxes are based on the Company's expected annual effective tax rate
of 42% in 2000 compared to 40% in 1999.
NET EARNINGS
Net earnings for the first quarter of 2000 were $0.5 million, compared to
$0.4 million in 1999. The first quarter of 1999 included an after tax-gain
of $1.0 million on the sale of a facility.
-9-
<PAGE>
(2) LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000 the Company had cash and cash equivalents of $2.4
million compared to $1.3 million at March 31, 1999.
Net cash used in operating activities was $7.9 million for the three
months ended March 31, 2000, primarily due to an increase in accounts
receivable of $10.4 million, an increase in inventories of $3.9 million,
partially offset by increases of $2.7 million in accounts payable and $2.2
million in accrued liabilities.
Cash used for property, plant and equipment additions was $1.9 million for
the three months ended March 31, 2000 compared to $1.8 million in 1999.
Net cash provided by financing activities for the three months ended March
31, 2000 was $8.6 million due to proceeds received under the Company's
revolving credit agreement and short-term borrowings under a line of
credit with a bank, partially offset by repayments of short-term
borrowings.
On February 22, 2000, the Company purchased a 68,000 square foot
manufacturing, warehousing and office facility in Barrie, Ontario for
$1,828,000. The purchase was financed with a combination of a mortgage
bridge loan and a five-year mortgage. The 39,000 square foot
manufacturing, warehousing and office facility in Barrie, Ontario that was
included in property, plant and equipment at March 31, 2000, with a net
book value of approximately $451,000, was sold on April 3, 2000 for
proceeds of approximately $862,000 of which approximately $640,000 were
used to satisfy the mortgage bridge loan.
Under the Company's purchase money promissory note for its property in
North Carolina, the final payment of $3,850,000 was due on May 15, 2000.
On April 26, 2000, the Company refinanced this note with a five-year
mortgage on the land and buildings. The mortgage includes terms which
provide for the maintenance of certain financial ratios.
The Company believes that cash from future operations, cash on hand and
amounts available from the credit facility, will be sufficient to satisfy
its liquidity needs for the foreseeable future.
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<PAGE>
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. 133 will have a significant impact on its
financial position or results of operations.
FORWARD - LOOKING STATEMENTS
Management's Discussion and Analysis of the Results of Operations and
Financial Condition and other sections of this Form 10-Q include
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities and Exchange Act
of 1934 (the "Exchange Act"). All statements other than statements of
historical information provided herein are forward-looking statements and
may contain information about financial results, economic conditions,
trends and known uncertainties. The forward-looking statements contained
herein are subject to certain risks and uncertainties that could cause
actual results to differ materially from those reflected in the
forward-looking statements. Factors that might cause such a difference
include, but are not limited to, delays in introducing new products or
failure of consumers to accept new products, actions by competitors which
may result in mergers, technology improvement or new product
introductions, the dependence on certain national chain drug stores and
mass merchandiser relationships due to the concentration of sales
generated by such chains, changes in fashion oriented color cosmetics
trends, and trends in the general economy.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis, judgment, belief or
expectation only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements to reflect
events or circumstances that arise after the date hereof. In addition to
the disclosure contained herein, readers should carefully review any
disclosure of risks and uncertainties contained in other documents the
Company files or has filed from time to time with the Securities and
Exchange Commission pursuant to the Exchange Act.
-11-
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEL LABORATORIES, INC.
----------------------
(Registrant)
DATE: MAY 5, 2000 /s/ Dan K. Wassong
----------------------------
Dan K. Wassong
Chairman, President and
Chief Executive Officer
DATE: MAY 5, 2000 /s/ Enzo J. Vialardi
----------------------------
Enzo J. Vialardi
Executive Vice President and
Chief Financial Officer
-13-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,385
<SECURITIES> 0
<RECEIVABLES> 56,312
<ALLOWANCES> 1,300
<INVENTORY> 62,990
<CURRENT-ASSETS> 131,444
<PP&E> 39,370
<DEPRECIATION> 22,079
<TOTAL-ASSETS> 196,673
<CURRENT-LIABILITIES> 45,626
<BONDS> 89,486
0
0
<COMMON> 10,000
<OTHER-SE> 41,523
<TOTAL-LIABILITY-AND-EQUITY> 196,673
<SALES> 67,382
<TOTAL-REVENUES> 67,382
<CGS> 28,951
<TOTAL-COSTS> 64,441
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,086
<INCOME-PRETAX> 863
<INCOME-TAX> 362
<INCOME-CONTINUING> 501
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 501
<EPS-BASIC> .07
<EPS-DILUTED> .07
</TABLE>
