SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1996 Commission File No. 1-4436
THE STEPHAN CO.
(Exact Name of Registrant as Specified in its Charter)
Florida 59-0676812
(State or Other Jurisdiction of (I.R.S Employer
Incorporation or Organization) Identification No.)
1850 West McNab Road, Fort Lauderdale, Florida 33309
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (954) 971-0600
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
the filing requirements for at least the past 90 days.
YES X
NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 and 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
YES
NO
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report.
Common Shares outstanding as of March 31, 1996
4,122,484
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
MARCH 31, 1996
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 3-4
Consolidated Statements of Operations
Three months ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows
Three months ended March 31, 1996 and 1995 6-7
Notes to Consolidated Financial Statements 8-10
ITEM 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations. 11-12
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1996 1995
___________ ____________
CURRENT ASSETS
Cash and cash equivalents $ 5,761,880 $ 7,711,239
Accounts receivable, net 6,423,272 5,414,530
Inventories, net 7,059,473 7,059,536
Prepaid expenses and other
current assets 268,055 252,205
___________ ____________
TOTAL CURRENT ASSETS 19,512,680 20,437,510
PROPERTY, PLANT AND EQUIPMENT, net 2,080,421 2,097,757
INTANGIBLE ASSETS, net 18,772,550 18,948,428
NOTE RECEIVABLE 500,000 500,000
OTHER ASSETS 668,193 478,848
___________ ___________
TOTAL ASSETS $ 41,533,844 $ 42,462,543
=========== ===========
See notes to Consolidated Financial Statements
(UNAUDITED)
3
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1996 1995
___________ ____________
CURRENT LIABILITIES
Initial payment-Colgate/Palmolive $ - $ 2,000,000
Current portion of
long-term debt 629,067 612,757
Accounts payable and
accrued expenses 1,386,223 1,661,654
Note payable to bank 400,000 400,000
Income taxes payable 102,062 -
____________ ____________
TOTAL CURRENT LIABILITIES 2,517,352 4,674,411
DEFERRED INCOME TAXES 148,246 120,121
LONG-TERM DEBT 9,092,876 9,112,129
____________ ____________
TOTAL LIABILITIES 11,758,474 13,906,661
____________ ____________
STOCKHOLDERS' EQUITY
Common stock, $.01 par value 41,225 41,225
Additional paid in capital 12,583,995 12,583,995
Retained earnings 17,150,150 15,930,662
____________ ____________
TOTAL STOCKHOLDERS' EQUITY 29,775,370 28,555,882
____________ ____________
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 41,533,844 $ 42,462,543
============ ============
See notes to Consolidated Financial Statements
(UNAUDITED)
4
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31,
===========================
1996 1995
__________ __________
NET SALES $ 6,739,738 $ 6,873,031
COST OF GOODS SOLD 2,991,187 3,203,902
__________ __________
GROSS PROFIT 3,748,551 3,669,129
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,864,115 2,076,610
__________ __________
OPERATING INCOME 1,884,436 1,592,519
OTHER INCOME(EXPENSE)
Interest income 98,066 73,619
Interest expense (30,658) (20,981)
__________ __________
INCOME BEFORE TAXES 1,951,844 1,645,157
INCOME TAXES 732,356 576,861
__________ ___________
NET INCOME $ 1,219,488 $ 1,068,296
========== ==========
NET INCOME PER COMMON SHARE $ .30 $ .26
========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 4,130,542 4,148,256
========== ==========
See Notes to Consolidated Financial Statements
(UNAUDITED)
5
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
==========================
1996 1995
__________ __________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,219,488 $ 1,068,296
__________ __________
Adjustments to reconcile net income to
cash flows provided by operating
operating activities:
Depreciation 43,447 37,775
Amortization 205,881 121,192
Deferred income taxes 28,125 -
Changes in operating assets and
liabilities, net of effects of
acquisitions:
Accounts receivable (1,016,297) 332,780
Inventory 63 (672,311)
Prepaid expenses
and other current assets (15,850) (21,248)
Accounts payable
and accrued expenses (2,240,529) (976,659)
Income taxes payable 102,062 (278,610)
___________ ___________
Total adjustments (2,893,098) (1,457,081)
___________ ___________
Net cash flows provided by
operating activities (1,673,610) (388,785)
___________ ___________
See Notes to Consolidated Financial Statements
(UNAUDITED)
6
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
==========================
1996 1995
__________ __________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of intangible assets (30,003) -
Purchase of property, plant
and equipment (26,111) (73,891)
Net changes in other assets (189,345) (18,006)
__________ __________
Net cash flows provided by/(used in)
investing activities (245,459) (91,897)
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (30,290) (55,193)
Proceeds from exercise of options - 34,350
__________ __________
Net cash flows used in
financing activities (30,290) (20,843)
__________ __________
NET CHANGE IN CASH AND
CASH EQUIVALENTS (1,949,359) (501,525)
__________ __________
CASH, BEGINNING OF PERIOD 7,711,239 6,292,537
__________ __________
CASH, END OF PERIOD $ 5,761,880 $ 5,791,012
========== ==========
See Notes to Consolidated Financial Statements
(UNAUDITED)
7
THE STEPHAN CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED MARCH 31, 1996 AND 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: In the opinion of management, all
adjustments necessary for a fair presentation of financial position and
results of operations are reflected in the interim financial statements.
PRINCIPLES OF CONSOLIDATION: The consolidated financial
statements include the accounts of The Stephan Co., and its wholly-owned
subsidiaries, Foxy Products, Inc., Old 97 Company, Williamsport Barber and
Beauty Corp., Stephan and Co. (formerly Heads or Nails, Inc.) and
Scientific Research Products of Delaware, Inc. All significant
intercompany balances and transactions have been eliminated in
consolidation.
BUSINESS ACTIVITY: The Stephan Co. is engaged in the
manufacture, sale, and distribution of personal care grooming products
throughout the United States. The Company's business activity constitutes
a single reportable segment for purposes of Statement of Financial
Accounting Standards No 14.
USE OF ESTIMATES: The preparation of consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Statement of Financial
Accounting Standards No. 107, "Disclosure about Fair Value of Financial
Instruments," requires disclosure of the fair value of financial
instruments, both assets and liabilities, recognized and not recognized in
the consolidated balance sheets of the Company, for which it is practicable
to estimate fair value. The estimated fair values of financial instruments
which are presented herein have been determined by the Company using
available market information and appropriate valuation methodologies.
However, considerable judgments is required in interpreting market date to
develop estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of amounts the Company could realize
in a current market exchange.
The following methods and assumptions were used to estimate fair
value:
- the carrying amounts of cash and cash equivalents, receivables and
accounts payable approximate fair value due to their short term nature;
- discounted cash flows using current interest rates for financial
instruments with similar characteristics and maturity were used to
determine the fair value of short-term and long-term debt.
There were no significant differences in the carrying value and fair
market value of financial instruments.
8
THE STEPHAN CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED MARCH 31, 1996 AND 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't)
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include
cash, certificates of deposit, United States Treasury Bills, and municipal
bonds having maturities of one month or less. Also included in cash and
cash equivalents is a $400,000 certificate of deposit pledged as collateral
against a $400,000 note payable to bank. The Company maintains cash
deposits at certain financial institutions in amounts in excess of
federally insured limits of $100,000. Cash and cash equivalents held in
interest-bearing accounts as of March 31, 1996 was approximately $5,066,000
and $5,342,000 at December 31, 1995.
INVENTORIES: Inventories stated at the lower of cost
(determined on the first-in, first-out basis) or market.
Inventories were as follows:
March 31, December 31,
1996 1995
___________ ____________
Raw Materials $ 1,086,545 $ 1,078,275
Packaging and components 2,023,391 2,000,850
Work in progress 602,023 596,391
Finished goods 3,347,514 3,384,020
___________ ____________
Total Inventories $ 7,059,473 $ 7,059,536
=========== ============
PROPERTY AND EQUIPMENT: Property and equipment are recorded
at cost. Depreciation is provided on a straight line basis over the
estimated useful lives of the assets as follows:
Buildings and improvements 15-30 years
Machinery and equipment 5-7 years
Furniture, fixtures and office equipment 3-5 years
INTANGIBLE ASSETS: Intangible assets are amortized using the
straight-line method based on the following estimated useful lives:
Goodwill 20-40 years
Covenant not to compete 7 years
Trademarks 20-40 years
The amount of impairment, if any, in unamortized Goodwill is measured
based on projected future results of operations. To the extent future
results of operations of those subsidiaries to which the Goodwill relates
through the period such Goodwill is being amortized are sufficient to
absorb the amortization of Goodwill, the Company has deemed there to be no
impairment of Goodwill.
9
THE STEPHAN CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED MARCH 31, 1996 AND 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't)
NET INCOME PER COMMON SHARE: Net income per common share is
computed by dividing net income by the sum of the weighted average number
of shares of common stock and common stock assumed to be outstanding upon
exercise of all stock options, utilizing the treasury stock method. The
weighted average number of shares outstanding was 4,130,542 for the three
months ended March 31, 1996 and 4,148,256 for the three months ended
March 31, 1995. Fully diluted earnings per share is not presented as it is
not materially different.
10
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
MARCH 31, 1996 AND 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
For the quarter ended March 31, 1996, the Company continued to show record
net income and earnings per share, in spite of an anticipated decrease in
sales of 2%. First quarter 1996 sales of $6,740,000 were $133,000 less
than first quarter sales in 1995, but due to favorable gross profit margins
and reduced selling, general and administrative expenses, net income
increased 14% from $1,068,296 in the first quarter of 1995 to $1,219,488
for the three months ended March 31, 1996. Earnings per share increased $
.04, or 15%, from $ .26 for the three months ended March 31, 1995 to $ .30
for the comparable period in 1996. The gross profit of the Company
increased in the first quarter due to the mix of products sold; with the
addition of the sales from the Colgate-Palmolive brands acquired on
December 31, 1995, which somewhat offset the decline in private label
production, gross profit increased almost $110,000 on lower first quarter
sales. The gross profit margin increased to over 55% in the first quarter
of 1996 as compared to a gross profit margin of approximately 53% in the
first quarter of 1995.
Sales for the three months ended March 31, 1995 were $6,873,000, which
represented an approximate 40% increase over the comparable three month
period for 1994. Net income for the period increased 33% from $804,360 for
the three months ended March 31, 1994 to $1,068,296 for the three month
period ended March 31, 1995. Net income per share for the period ended
March 31, 1995 was $ .26, compared to $ .22 for the previous year. The
favorable results for the first quarter were due to the operations of
Scientific Research Products Inc. and increased private label production in
connection with the Trevor Sorbie line of professional hair care products.
As indicated in the Company's Form 10-K for the year ended December 31,
1995, Martin Himmel, Inc.("MHI"), a major customer of the Company,
representing approximately 16% of consolidated net sales for the year ended
December 31, 1995, sold the "Gold Bond" brand. At this time, management of
the Company does not believe that it will be producing talc for the new
owner of "Gold Bond". Management does not anticipate that this will have a
material adverse effect on the Company as there were no sales to MHI in the
first quarter of 1996. In addition, a certain portion of the accounts
receivable from MHI are in dispute, but management of the Company feels
that all amounts owed to the Company will be recoverable.
11
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
MARCH 31, 1996 AND 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (con't).
LIQUIDITY & CAPITAL RESOURCES
As of March 31, 1996, the Company had $5,762,000 in cash and cash
equivalents, which represented a decrease of approximately $1,950,000 since
December 31, 1995. The decrease in cash was due to the payment of the
$2,000,000 to the Colgate-Palmolive Company as down payment for the brands
acquired on December 31,1995. Total current assets at March 31, 1996 was
$19,513,000, which represented a decrease of approximately $925,000.
Working capital was approximately $17,000,000, an increase of over
$1,125,000 since December 31, 1995. Due to sales generated by the new
brands acquired at the end of 1995, and to an increased level of private-
label production in the latter part of the first quarter, accounts
receivable increased approximately $1,000,000, from $5,415,000 at the
beginning of the year to $6,423,000 at March 31, 1996.
12
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
MARCH 31, 1996 AND 1995
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) On January 16, 1996, and as amended on January 22, 1996, the
Registrant filed a Form 8-K in connection with the acquisition of certain
Colgate-Palmolive and Mennen brands.
(c) On March 20, 1996, the Registrant filed a Form 8-K in connection with
Trademark License and Supply Agreement entered into with Color Me
Beautiful, Inc.
13
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.
THE STEPHAN CO.
/s/ Frank F. Ferola
___________________________________
Frank F. Ferola
President and Chairman of the Board
May 14, 1996
/s/ David A. Spiegel
___________________________
Principal Financial Officer
May 14, 1996
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,761,880
<SECURITIES> 0
<RECEIVABLES> 6,477,228
<ALLOWANCES> 53,956
<INVENTORY> 7,059,473
<CURRENT-ASSETS> 19,512,680
<PP&E> 2,959,711
<DEPRECIATION> 879,290
<TOTAL-ASSETS> 41,533,844
<CURRENT-LIABILITIES> 2,517,352
<BONDS> 9,092,876
0
0
<COMMON> 41,225
<OTHER-SE> 29,734,145
<TOTAL-LIABILITY-AND-EQUITY> 41,533,844
<SALES> 6,739,738
<TOTAL-REVENUES> 6,837,804
<CGS> 2,991,187
<TOTAL-COSTS> 2,991,187
<OTHER-EXPENSES> 1,894,773
<LOSS-PROVISION> 5,668
<INTEREST-EXPENSE> 30,658
<INCOME-PRETAX> 1,951,844
<INCOME-TAX> 732,356
<INCOME-CONTINUING> 1,219,488
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,219,488
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
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