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 June 30, 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 June 30, 1996
4,154,116
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 1996
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995 3-4
Consolidated Statements of Operations
Six months ended June 30, 1996 and 1995 5
Consolidated Statements of Operations
Quarter ended June 30, 1996 and 1995 6
Consolidated Statements of Cash Flows
Six months ended June 30, 1996 and 1995 7-8
Notes to Consolidated Financial Statements 9-11
ITEM 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations. 12-13
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a
Vote of Security Holders 14
ITEM 6. Exhibits 14
SIGNATURES 15
2
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1996 1995
___________ ____________
CURRENT ASSETS
Cash and cash equivalents $ 7,918,106 $ 7,711,239
Accounts receivable, net 3,910,954 5,414,530
Inventories, net 8,993,479 7,059,536
Prepaid expenses and other
current assets 239,953 252,205
___________ ____________
TOTAL CURRENT ASSETS 21,062,492 20,437,510
PROPERTY, PLANT AND EQUIPMENT, net 2,136,782 2,097,757
INTANGIBLE ASSETS, net 23,219,770 18,948,428
NOTE RECEIVABLE - 500,000
OTHER ASSETS 439,583 478,848
___________ ___________
TOTAL ASSETS $46,858,627 $42,462,543
=========== ===========
See Notes to Consolidated Financial Statements
(UNAUDITED)
3
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1996 1995
____________ ____________
CURRENT LIABILITIES
Initial payment-Colgate/Palmolive $ - $ 2,000,000
Current portion of
long-term debt 3,874,005 612,757
Accounts payable and
accrued expenses 3,071,879 1,661,654
Note payable to bank 400,000 400,000
Income taxes payable 455,777 -
____________ ____________
TOTAL CURRENT LIABILITIES 7,801,661 4,674,411
DEFERRED INCOME TAXES 166,870 120,121
LONG-TERM DEBT 7,793,916 9,112,129
____________ ____________
TOTAL LIABILITIES 15,762,447 13,906,661
____________ ____________
STOCKHOLDERS' EQUITY
Common stock, $.01 par value 41,541 41,225
Additional paid in capital 12,673,168 12,583,995
Retained earnings 18,396,071 15,930,662
____________ ____________
31,110,780 28,555,882
LESS:TREASURY STOCK(1,000 SHARES) (14,600) -
____________ ____________
TOTAL STOCKHOLDERS' EQUITY 31,096,180 28,555,882
____________ ____________
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 46,858,627 $ 42,462,543
============ ============
See Notes to Consolidated Financial Statements
(UNAUDITED)
4
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30,
===========================
1996 1995
___________ ___________
NET SALES $13,207,742 $14,161,486
COST OF GOODS SOLD 5,322,719 6,552,862
___________ ___________
GROSS PROFIT 7,885,023 7,608,624
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 4,005,550 4,289,008
___________ ___________
OPERATING INCOME 3,879,473 3,319,616
OTHER INCOME(EXPENSE)
Interest income 194,043 157,037
Interest expense (60,213) (45,356)
Other income 43,200 76
___________ ___________
INCOME BEFORE TAXES 4,056,503 3,431,373
INCOME TAXES 1,504,695 1,172,117
___________ ___________
NET INCOME $ 2,551,808 $ 2,259,256
=========== ===========
NET INCOME PER COMMON SHARE $ .62 $ .55
=========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 4,131,353 4,122,290
=========== ===========
See Notes to Consolidated Financial Statements
(UNAUDITED)
5
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter Ended June 30,
===========================
1996 1995
___________ ___________
NET SALES $ 6,468,004 $ 7,288,455
COST OF GOODS SOLD 2,331,532 3,318,960
___________ ___________
GROSS PROFIT 4,136,472 3,969,495
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,141,435 2,242,398
___________ ___________
OPERATING INCOME 1,995,037 1,727,097
OTHER INCOME(EXPENSE)
Interest income 95,977 83,418
Interest expense (29,555) (24,375)
Other income 43,200 76
___________ ___________
INCOME BEFORE TAXES 2,104,659 1,786,216
INCOME TAXES 772,340 595,256
___________ ___________
NET INCOME $ 1,332,319 $ 1,190,960
=========== ===========
NET INCOME PER COMMON SHARE $ .32 $ .29
=========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 4,131,634 4,130,009
=========== ===========
See Notes to Consolidated Financial Statements
(UNAUDITED)
6
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
===========================
1996 1995
___________ ___________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,551,808 $ 2,259,256
___________ ___________
Adjustments to reconcile net income to
cash flows provided by operating
operating activities:
Depreciation 108,668 77,148
Amortization 420,184 241,134
Deferred income taxes 46,749 12,800
Changes in operating assets and
liabilities, net of effects of
acquisitions:
Accounts receivable (309,855) (367,858)
Inventory (846,213) (795,730)
Prepaid expenses
and other current assets 24,732 5,312
Accounts payable
and accrued expenses (1,248,938) (672,622)
Income taxes payable 455,777 (267,539)
____________ ____________
Total adjustments (1,348,896) (1,767,355)
____________ ____________
Net cash flows provided by
operating activities 1,202,912 491,901
____________ ____________
See Notes to Consolidated Financial Statements
(UNAUDITED)
7
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
===========================
1996 1995
___________ __________
CASH FLOWS FROM INVESTING ACTIVITIES:
Changes in marketable securities - 13,236
Purchase of intangible assets - -
Purchase of property, plant
and equipment (65,042) (107,184)
Net changes in other assets (117,817) (31,046)
___________ ___________
Net cash flows provided by/(used in)
investing activities (182,859) (124,994)
___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank loan 6,000,000 -
Repayments of long-term debt (6,633,687) (87,657)
Acquisition of treasury stock (14,600) -
Proceeds from exercise of options - 62,090
Dividends paid (164,899) -
___________ ___________
Net cash flows used in
financing activities (813,186) (25,567)
___________ ___________
NET CHANGE IN CASH AND
CASH EQUIVALENTS 206,867 341,340
CASH, BEGINNING OF PERIOD 7,711,239 6,292,537
___________ ___________
CASH, END OF PERIOD $ 7,918,106 $ 6,633,877
=========== ===========
See Notes to Consolidated Financial Statements
(UNAUDITED)
8
THE STEPHAN CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED JUNE 30, 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.) Scientific
Research Products of Delaware, Inc and Sorbie Acquisition Co. and
subsidiaries, acquired June 28, 1996. 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 judgment is required in interpreting market data 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.
9
THE STEPHAN CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED JUNE 30, 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 June 30, 1996 was approximately $6,306,000
and $5,342,000 at December 31, 1995.
INVENTORIES: Inventories are stated at the lower of cost
(determined on the first-in, first-out basis) or market.
Inventories were as follows:
June 30, December 31,
1996 1995
___________ ____________
Raw Materials $ 1,050,581 $ 1,078,275
Packaging and components 2,226,809 2,000,850
Work in progress 600,244 596,391
Finished goods 5,115,845 3,384,020
___________ ____________
Total Inventories $ 8,993,479 $ 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.
10
THE STEPHAN CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED JUNE 30, 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 4,131,353 for the six
months ended June 30, 1996 and 4,122,290 for the six months ended
June 30, 1995. Fully diluted earnings per share is not presented as it is
not materially different.
11
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 1996 AND 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
For the quarter ended June 30, 1996 net income increased 12% from
$1,191,000 for the quarter ended June 30, 1995 to $1,332,000 for the same
period in 1996. Although there was an anticipated decrease in sales of 7%
for the six months ended June 30, 1996 as compared with the same six month
period in 1995, earnings per share was still strong and increased
$ .07, or 13% from $ .55 for the six month period ended June 30, 1995 to
$ .62 for the same period in 1996. The Company continues to show favorable
gross profits and net earnings through the first half of 1996. The
Company's gross profit percentage increased nearly 6% from 54% for the six
months ended June 30, 1995 to 60% in 1996. The gross profit margin increase
was due to the change in the Company's product mix, largely attributable to
the addition of the Colgate-Palmolive brands acquired on December 31, 1995.
Sales for the six months ended June 30, 1995 were $14,161,486, an increase
of approximately 29% over the comparable period in 1994. Net income for
the period was $2,260,000, an increase of approximately $470,000 over the
six month period ended June 30, 1994. Net income per common share
increased by 20%, or 9 cents per share, to $.55 for the six month period
and to $.29 for the quarter ended June 30, 1995. For the quarter ended
June 30, 1995, sales increased approximately $1,215,000 or 20% from the
comparable period in 1994. Results of operations for the first six months
of 1995 continue to be favorably impacted by private label production of
the Trevor Sorbie line of professional hair care products and strong sales
by both Scientific Research Products (SRP) and the Old 97 division.
As discussed more fully in the Company's Form 10-K for the year ended
December 31, 1995 and Form 10-Q for the quarter ended March 31, 1996,
Martin Himmel Inc. ("MHI"), a major customer of the Company, sold the "Gold
Bond" brand and the Company will no longer be producing talc for the new
owners. In addition, all outstanding accounts receivable with MHI were
settled with no adverse effect on the Company.
On June 28, 1996, and as more fully explained in the Form 8-K filed
July 15, 1996, he Company entered into a series of agreements to purchases
Sorbie Acquisition Co. and subsidiaries ("TSA") for approximately
$1,000,000 in cash and stock. TSA, a major customer of the Company, is a
distributor of professional hair care products. TSA sales of approximately
$285,000 were included in consolidated revenues for the quarter ended June
30, 1996.
While sales of products acquired from the Colgate-Palmolive Company were
strong and as projected, they did not completely offset the loss of the MHI
business. Additionally, the second quarter of 1995 reflected approximately
$800,000 in sales to a national warehouse club that was not repeated in
1996. In spite of the overall decline in sales for the six month and
quarterly periods, the Company was able to increase gross profit margins
and control costs in an effort to maintain an increased level of profit.
12
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 1996 AND 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (con't).
LIQUIDITY & CAPITAL RESOURCES
As of June 30, 1996, the Company had $7,918,000 in cash and cash
equivalents, which represented an increase of approximately $ 207,000 since
December 31, 1995. Total current assets at June 30, 1996 was $21,062,000,
which was an increase of approximately $625,000. Working capital was over
$13,250,000, a decrease of over $2,500,000 since December 31, 1995,
primarily as a result of refinancing and acquisition activity.
On June 26, 1996, the Company refinanced the existing $6,000,000 notes
payable to the Colgate/Mennen Companies by securing a 5 year term loan with
NationsBank N.A.(South). As a result, the Company experienced significant
interest savings for the first half of 1996, as well as reducing the
interest rate on the debt from 8.00% to 7.85%. The new loan provides for
monthly principal reductions of $100,000, plus interest, commencing in
July, 1996. In addition to the above, the Company also secured a
$2,000,000 line of credit with NationsBank N.A.(South) in anticipation of
funds needed in connection with the acquisition of TSA and in accordance
with the terms of the purchase, the $2,000,000 due July 19, 1996 was paid
by utilizing $1,000,000 of cash and $1,000,000 from the above line of
credit. As a result of the refinancing and TSA acquisition, current
portion of long term debt increased $3,200,000.
Accounts receivable decreased significantly due to the elimination of
intercompany receivables, as TSA was a major customer of the Company.
Inventory levels, as well as accounts payable, also increased as a result
of the acquisition.
13
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 1996 AND 1995
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Corporation's Annual Meeting of Stockholders was held on
Friday, June 28, 1996. The following individuals were nominated and
elected to be directors of the Corporation by a majority of the
stockholders.
Frank F. Ferola John DePinto
Thomas M. D'Ambrosio Stephen Letizia
W. Gregg Baldwin Curtis Carlson
In addition to the above, the following officers were nominated
and elected.
Frank F. Ferola President and Chairman of the Board
Thomas M. D'Ambrosio Treasurer and Vice President
Stephen Letizia Secretary and Vice President
ITEM 6. EXHIBITS
(a) Exhibit 27 - Financial Data Schedule
14
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
August 14, 1996
/s/ David A. Spiegel
___________________________
David A. Spiegel
Principal Financial Officer
August 14, 1996
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q FOR JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,918,106
<SECURITIES> 0
<RECEIVABLES> 3,958,133
<ALLOWANCES> 47,179
<INVENTORY> 8,993,479
<CURRENT-ASSETS> 21,062,492
<PP&E> 3,015,074
<DEPRECIATION> 878,292
<TOTAL-ASSETS> 46,858,627
<CURRENT-LIABILITIES> 7,801,661
<BONDS> 7,793,916
0
0
<COMMON> 41,541
<OTHER-SE> 31,054,639
<TOTAL-LIABILITY-AND-EQUITY> 46,858,627
<SALES> 13,207,742
<TOTAL-REVENUES> 13,444,985
<CGS> 5,322,719
<TOTAL-COSTS> 5,322,719
<OTHER-EXPENSES> 4,065,763
<LOSS-PROVISION> 37,135
<INTEREST-EXPENSE> 60,213
<INCOME-PRETAX> 4,056,503
<INCOME-TAX> 1,504,695
<INCOME-CONTINUING> 2,551,808
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,551,808
<EPS-PRIMARY> .62
<EPS-DILUTED> .62
</TABLE>
