SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2000
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
such filing requirements for the past 90 days.
YES X 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 latest practicable date.
Approximate number of shares of Common Stock outstanding
as of July 31, 2000:
4,538,857
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 2000
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 2000 (unaudited) and December 31, 1999 4-5
Unaudited Consolidated Statements of Operations
for the six months ended June 30, 2000 and 1999 6
Unaudited Consolidated Statements of Operations
for the three months ended June 30, 2000 and 1999 7
Unaudited Consolidated Statements of Cash Flows
for the six months ended June 30, 2000 and 1999 8-9
Notes to Unaudited Consolidated Financial
Statements 10-13
ITEM 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations. 14-16
ITEM 3. Quantitative and Qualitative
Disclosure About Market Risk 16
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 17
ITEM 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 2000
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain "forward-looking" statements. The
Stephan Co. (the "Company") desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 and is
including this statement for the express purpose of availing itself of the
protections of such safe harbor with respect to all such forward-looking
statements. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
condition (financial or otherwise), performance or achievements of the
Company and its subsidiaries to be materially different from any future
results, performance, condition or achievements projected, anticipated or
implied by such forward-looking statements.
Such factors include, but are not limited to, the following: general
economic and business conditions; competition; success of operating
initiatives; development and operating costs; advertising and promotional
efforts; brand awareness; the existence or absence of adverse publicity;
acceptance of new product offerings; changing trends in customer tastes;
the success of multi-branding; changes in business strategy or development
plans; quality of management; availability, terms and deployment of
capital; business abilities and judgment of personnel; availability of
qualified personnel; labor and employee benefit costs; availability and
cost of raw materials and supplies; changes in, or failure to comply with,
law; the ability to successfully integrate newly-acquired businesses and
the ability to reduce costs; the final outcome of litigation commenced
against the Company in respect of its overstatement of operating results
for 1998 interim periods and any risks, uncertainties and problems inherent
in such litigation; and other factors or events referenced in this Form 10-
Q. The Company does not undertake and specifically declines any obligation
to publicly release the results of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
Therefore, the Company cautions each reader of this report to
carefully consider the specific factors and qualifications discussed herein
with respect to such forward-looking statements, as such factors could
affect the ability of the Company to achieve its objectives and may cause
actual results to differ materially from those projected or anticipated
herein.
3
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2000 1999
(UNAUDITED)
____________ ____________
CURRENT ASSETS
Cash and cash equivalents $ 13,483,269 $ 12,079,204
Accounts receivable 4,944,301 4,371,833
Inventories 11,860,138 11,954,191
Prepaid expenses and other
current assets 280,894 291,010
____________ ____________
TOTAL CURRENT ASSETS 30,568,602 28,696,238
PROPERTY, PLANT AND EQUIPMENT, net 2,821,433 2,984,260
INTANGIBLE ASSETS, net 25,291,549 25,855,739
OTHER ASSETS 2,445,475 3,148,827
____________ ____________
TOTAL ASSETS $ 61,127,059 $ 60,685,064
============ ============
See notes to unaudited Consolidated Financial Statements
4
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2000 1999
(UNAUDITED)
___________ ____________
CURRENT LIABILITIES
Accounts payable and
accrued expenses $ 2,102,303 $ 1,856,669
Note payable to bank 400,000 400,000
Current portion of
long-term debt 1,532,269 1,468,596
Income taxes payable 163,386 302,097
____________ ____________
TOTAL CURRENT LIABILITIES 4,197,958 4,027,362
DEFERRED INCOME TAXES 1,565,508 1,442,950
LONG-TERM DEBT 9,720,221 10,418,320
____________ ____________
TOTAL LIABILITIES 15,483,687 15,888,632
____________ ____________
STOCKHOLDERS' EQUITY
Common stock, $.01 par value 45,415 46,610
Additional paid in capital 18,935,883 19,404,559
Retained earnings 28,025,878 27,023,560
____________ ____________
47,007,176 46,474,729
LESS:125,000 CONTINGENTLY
RETURNABLE SHARES (1,351,563) (1,351,563)
TREASURY STOCK (2,600 shares at
June 30, 2000 and 84,600 shares
at December 31, 1999) (12,241) (326,734)
____________ ____________
TOTAL STOCKHOLDERS' EQUITY 45,643,372 44,796,432
____________ ____________
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 61,127,059 $ 60,685,064
============ ============
See notes to unaudited Consolidated Financial Statements
5
THE STEPHAN CO. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30,
===========================
2000 1999
___________ ___________
NET SALES $16,384,425 $17,692,653
COST OF GOODS SOLD 8,929,341 9,537,348
___________ ___________
GROSS PROFIT 7,455,084 8,155,305
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,523,907 6,187,767
___________ ____________
OPERATING INCOME 1,931,177 1,967,538
OTHER INCOME(EXPENSE)
Interest income 327,548 189,456
Interest expense (438,910) (434,025)
Other 87,500 430,000
___________ ___________
INCOME BEFORE TAXES 1,907,315 2,152,969
INCOME TAXES 722,303 809,026
___________ ___________
NET INCOME $ 1,185,012 $ 1,343,943
=========== ===========
BASIC AND DILUTED EARNINGS PER SHARE $ .27 $ .29
=========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 4,435,159 4,597,516
=========== ===========
See notes to unaudited Consolidated Financial Statements
6
THE STEPHAN CO. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30,
===========================
2000 1999
___________ ___________
NET SALES $ 8,181,863 $ 9,104,783
COST OF GOODS SOLD 4,392,184 4,766,236
___________ ___________
GROSS PROFIT 3,789,679 4,338,547
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,799,245 3,189,431
___________ ____________
OPERATING INCOME 990,434 1,149,116
OTHER INCOME(EXPENSE)
Interest income 179,195 102,655
Interest expense (212,458) (229,419)
Other 43,750 390,000
___________ ___________
INCOME BEFORE TAXES 1,000,921 1,412,352
INCOME TAXES 381,356 535,966
___________ ___________
NET INCOME $ 619,565 $ 876,386
=========== ===========
BASIC AND DILUTED EARNINGS PER SHARE $ .14 $ .19
=========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 4,427,572 4,594,175
=========== ===========
See notes to unaudited Consolidated Financial Statements
7
THE STEPHAN CO. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
==========================
2000 1999
__________ __________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,185,012 $ 1,343,943
__________ __________
Adjustments to reconcile net income to
cash flows used in
operating activities:
Depreciation 265,000 253,096
Amortization 593,040 599,540
Deferred income taxes 122,558 130,879
Provision for doubtful accounts 75,797 70,407
Changes in operating assets and
liabilities, net of effects of
acquisitions:
Accounts receivable (648,265) (184,956)
Inventory 94,053 511,814
Income taxes receivable - 83,888
Prepaid expenses
and other current assets 10,116 (63,363)
Other assets 703,352 515,391
Accounts payable and
accrued expenses 245,634 (536,616)
Income taxes payable (138,711) 317,903
___________ ___________
Total adjustments 1,322,574 1,697,983
___________ ___________
Net cash flows provided
by operating activities 2,507,586 3,041,926
___________ ___________
8
THE STEPHAN CO. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
===========================
2000 1999
___________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant
and equipment (102,173) (156,395)
Other (28,850) 9,071
___________ ___________
Net cash flows used in
investing activities (131,023) (147,324)
___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (634,426) (930,246)
Acquisition of treasury stock (155,378) (118,773)
Dividends paid (182,694) (189,034)
___________ ___________
Net cash flows used in
financing activities (972,498) (1,238,053)
___________ ___________
INCREASE IN CASH AND
CASH EQUIVALENTS 1,404,065 1,656,549
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 12,079,204 8,081,762
___________ ___________
CASH AND CASH EQUIVALENTS,
END OF PERIOD $13,483,269 $ 9,738,311
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 422,425 $ 541,311
=========== ===========
Income Taxes Paid $ 1,043,000 $ 317,440
=========== ===========
For the six months ended June 30, 2000, 119,500 shares of treasury stock,
with a repurchase cost of $469,871, were retired.
See notes to unaudited Consolidated Financial Statements
9
THE STEPHAN CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 2000 AND 1999
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 Supply Corp., Stephan & Co., Scientific Research Products, Inc. of
Delaware, Trevor Sorbie of America, Inc., Stephan Distributing, Inc. and
Morris Flamingo-Stephan, Inc. (collectively, the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation.
NATURE OF OPERATIONS: The Company is engaged in the manufacture,
sale, and distribution of hair and personal care grooming products
throughout the United States. Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related
Information", requires the reporting of segment information using a
"management approach" as it relates to the operating segments of a
business. The Company has allocated substantially all of its business into
three segments, which are professional hair care products and distribution,
retail personal care products and manufacturing.
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 disclosure 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.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include
cash, certificates of deposit, and short-term municipal bonds having
maturities of 90 days 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, 2000 and December 31, 1999 were approximately
$12,005,000 and $11,264,000, respectively.
INVENTORIES: Inventories are stated at the lower of cost
(determined on a first-in, first-out basis) or market.
10
THE STEPHAN CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED JUNE 30, 2000 AND 1999
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INVENTORIES (Continued)
Inventories were as follows:
June 30, December 31,
2000 1999
____________ ____________
Raw materials $ 2,684,091 $ 2,490,406
Packaging and components 3,443,334 4,187,055
Work in progress 844,064 938,698
Finished goods 7,155,533 7,257,713
____________ ____________
$ 14,127,022 $ 14,873,872
Less: Amount included in
other assets (2,266,884) (2,919,681)
____________ ____________
$ 11,860,138 $ 11,954,191
============ ============
Raw materials include surfactants, chemicals and fragrances used in
the production process. Packaging materials include cartons, inner sleeves
and boxes used in the actual product, as well as outer boxes and cartons
used for shipping purposes. Components are the actual bottles or
containers (plastic or glass), jars, caps, pumps and similar materials that
will be part of the finished product. Finished goods also include hair
dryers, electric clippers, lather machines, scissors and salon furniture.
Included in other assets are raw materials, packaging and components
inventory not anticipated to be utilized in less than one year.
BASIC AND DILUTED EARNINGS PER SHARE: Basic and diluted earnings
per share are computed by dividing net income by the weighted average
number of shares of common stock outstanding. The weighted average number
of shares outstanding was 4,435,159 for the six months ended June 30, 2000
and 4,597,516 for the six months ended June 30, 1999. The weighted average
number of shares outstanding was 4,427,572 for the quarter ended June 30,
2000 and 4,594,175 for the quarter ended June 30, 1999. The assumed
exercise of outstanding stock options would not be dilutive.
NEW FINANCIAL ACCOUNTING STANDARDS: In June 1998, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." Among other provisions,
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. It also requires that an entity
recognize all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. In July
11
THE STEPHAN CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED JUNE 30, 2000 AND 1999
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB No. 133" and
in June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" for financial
statements for fiscal years beginning after June 15, 2000. These statements
are not expected to have a material impact on the Company's financial
position, results of operations or cash flows.
NOTE 2: SEGMENT INFORMATION
In accordance with the guidelines established by SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," the
Company has identified three reportable operating segments based upon how
management evaluates its business. These segments are Professional Hair
Care Products and Distribution ("Professional"), Retail Personal Care
Products ("Retail") and Manufacturing. The Professional segment generally
has as a customer base distributors who purchase the Company's hair
products and beauty and barber supplies for sale to salons and barber
shops. The customer base for the Retail segment is mass merchandisers,
chain drug stores and supermarkets who sell products to end users. The
Manufacturing segment manufactures products for different subsidiaries of
the Company, and also manufactures private label brands for customers.
The Company conducts operations primarily in the United States and
sales to international customers are not material to its consolidated
revenues. Income Before Income Taxes as shown below reflects an allocation
of corporate overhead expenses incurred by the Manufacturing segment. The
following tables, in thousands, summarize Net Sales and Income Before
Income Taxes by reportable segment:
NET SALES NET SALES
_______________ _______________
Six Months Three Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
_______________ _______________
Professional $10,348 $10,775 $ 5,110 $ 5,459
Retail 4,559 5,172 2,297 2,727
Manufacturing 4,458 6,621 2,353 3,824
_______ _______ _______ _______
Total 19,365 22,568 9,760 12,010
Intercompany
Manufacturing (2,981) (4,875) (1,578) (2,905)
_______ _______ _______ _______
Consolidated $16,384 $17,693 $ 8,182 $ 9,105
======= ======= ======= =======
12
THE STEPHAN CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED JUNE 30, 2000 AND 1999
NOTE 2: SEGMENT INFORMATION (continued)
INCOME BEFORE INCOME BEFORE
INCOME TAXES INCOME TAXES
_______________ _______________
Six Months Three Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
_______________ _______________
Professional $ 947 $ 835 $ 580 $ 545
Retail 481 677 157 351
Manufacturing 479 641 264 516
_______ _______ ______ _______
Consolidated $ 1,907 $ 2,153 $1,001 $ 1,412
======= ======= ====== =======
NOTE 3: COMMITMENTS AND CONTINGENCIES
As more fully described in the Company's annual report on Form 10-K
for the year ended December 31, 1999, the Company, as well as certain of
its officers, were named as defendants in a class action law suit filed in
the United States Federal District Court, Southern District of Florida.
The lawsuit alleges, among other things, certain violations of Federal
securities laws and sought an unspecified amount of damages. On March 30,
2000, the Court dismissed the class action lawsuit against the Company and
named officers. Upon plaintiffs' motion for reconsideration the Court
reviewed the case and allowed the plaintiffs to file an amended complaint
in July, 2000. The Company will continue to indemnify its officers in
respect of this matter and believes it has meritorious defenses against
these allegations. It is not possible to predict the ultimate outcome of
the case.
13
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 2000 AND 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Income from operations of $1,931,000 for the six months ended June 30,
2000 was comparable to the $1,968,000 achieved in the six months ended June
30, 1999, despite a decline in net sales. In the second quarter and six
months ended June 30, 1999, net income and earnings per share were enhanced
by the payment of a one-time, $350,000 ($.05 per share) trademark license
fee. As a result of the foregoing, net income for the six months ended
June 30, 2000 was $1,185,000, compared to $1,344,000 achieved for the six
months ended June 30, 1999. Basic earnings per share was $0.27 for the six
months ended June 30, 2000, compared to $.29 for the six months ended June
30, 1999.
For the six months ended June 30, 2000, net sales were $16,384,000,
compared to $17,693,000 achieved in the first six months of 1999. The
overall sales decline referenced above was primarily due to continued
consolidation in the Retail and Professional segments of the Company and
related Manufacturing sales. However, due to the cross-marketing of the
Company's high margin "wet goods", the Professional segment's distribution
sales through the Morris-Flamingo and Williamsport catalogs have increased
in the second quarter and six month periods.
As a result of the decline in sales, gross profit for the six months
ended June 30, 2000, was $7,455,000, compared to the gross profit of
$8,155,000 achieved for the corresponding six month period in 1999. For the
quarter ended June 30, 2000, gross profit declined $549,000 to $3,790,000
when compared to the comparable three month period in 1999. This decline
was primarily a result of the change in the sales mix of the Company, due
to, among other things, the Morris-Flamingo acquisition. However, the
Company is optimistic that gross profit will increase in the future.
Nevertheless, the current sales mix will not allow the Company to return to
its pre-Morris Flamingo gross profit margin in the near future.
Selling, general and administrative expenses for the six months ended
June 30, 2000 decreased by $664,000, to $5,524,000, when compared to last
year's corresponding six month period total of $6,188,000. The Company was
able to implement significant reductions in selling expenses such as
freight out and commissions, while also reducing professional fees and
overall office expenses. This 11% decline helped keep income from
operations for the six months ended June 30, 2000 fairly level with the
corresponding period in 1999, despite the significant decline in sales for
14
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 2000 AND 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued).
the six month period ended June 30, 2000.
Net income for the quarter ended June 30, 2000 was $620,000, compared
to $876,000 achieved in the second quarter of 1999. Basic earnings per
share for the second quarter of 2000 was $.14, compared to the $.19
achieved for the corresponding quarter in 1999. As previously indicated,
net income was favorably impacted for the three and six month periods ended
June 30, 1999 by a one-time license fee in the amount of $350,000 for the
use of the Image trademark on certain fragrances marketed in all countries
in which Image has trademark rights. This license agreement had the effect
of increasing basic earnings per share by approximately $.05, net of taxes,
for both the three and six month periods in 1999. Other income includes a
$43,750 royalty fee, received in both the first and second quarters of
2000, from the licensing of Frances Denney products. This minimum fee
increased in 2000 from the $40,000 fee received in each quarter of 1999.
Net sales for the quarter ended June 30, 2000 were $8,182,000 compared
to the $9,105,000 achieved in the comparable second quarter of 1999. This
10% decline in sales, amounting to $923,000, was due to the reasons
indicated above relative to the sales decline for the six months ended June
30, 2000.
For the quarter ended June 30, 2000, selling, general and admin-
istrative expenses decreased $390,000, a 12% decrease over the
corresponding second quarter of 1999. This decline, as indicated above,
was the result of cost savings in connection with selling expenses such as
freight out and commissions, in addition to a reduction in professional
fees and overall office expenses. While the Company is continuing its
efforts to control these expenses, there can be no assurances that these
expenses will decline in the future, especially in light of the class
action litigation mentioned in Item 1 and Note 3 herein.
Interest income for the six months ended June 30, 2000 increased
$138,000 over the corresponding six months in 1999 as a result of having
more cash invested and an increase in the interest rates the Company was
receiving on its investments. For these same reasons, interest income for
the second quarter of 2000 showed an increase of $77,000 when compared to
the quarter ended June 30, 1999. Interest expense for the six months ended
June 30, 2000 increased approximately $5,000 from the corresponding period
in 1999. For the three months ended June 30, 2000, interest expense
decreased almost $17,000 from the three month period ended June 30, 1999.
15
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 2000 AND 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued).
LIQUIDITY & CAPITAL RESOURCES
Cash and cash equivalents increased $1,404,000 from December 31, 1999,
to $13,483,000 at June 30, 2000, despite spending $470,000 to repurchase
119,500 shares of the Company's outstanding common stock. Accounts
receivable increased approximately $650,000 due to an increase in private
label manufacturing by Old 97 Company in the latter part of June, 2000.
Inventory was relatively constant, decreasing by just under $100,000 from
the amount of inventory on hand at December 31, 1999, to $11,860,000 at
June 30, 2000.
Total current assets at June 30, 2000 were $30,569,000 compared to
$28,696,000 at December 31, 1999. Working capital increased $1,702,000
when compared to December 31, 1999. The Company is subject to various
financial covenants with respect to working capital, current maturity
coverage and funded debt ratios under a loan agreement with a bank. At
June 30, 2000, the Company was in compliance with such covenants.
The Company continues to evaluate various acquisition targets that may
ultimately require the use of existing cash resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not participate in derivative or other financial
instruments for which fair value disclosure would be required under
Statement of Financial Accounting Standards No. 107. In addition, the
Company does not invest in securities that would require disclosure of
market risk, nor does it have floating rate loans or foreign currency
exchange rate risks.
16
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 2000 AND 1999
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Upon a motion for reconsideration filed by the plaintiffs, the United
States District Court for the Southern District of Florida reopened a class
action securities lawsuit filed against the Company and named officers and
permitted the plaintiffs to file an amended complaint. The Court had
dismissed the action on March 30, 2000. As more fully described in the
Company's annual report on Form 10-K for the year ended December 31, 1999,
the Company, as well as certain of its officers, were named as defendants
in this class action law suit filed in the United States Federal District
Court, Southern District of Florida. The lawsuit alleges, among other
things, certain violations of Federal securities laws and seeks an
unspecified amount of damages. The Company is indemnifying its officers in
respect of this matter and believes it has meritorious defenses against
these allegations. However, it is not possible to predict the ultimate
outcome of the case.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27: Financial Data Schedule
17
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 Chief Executive Officer
August 14, 2000
/s/ David A. Spiegel
___________________________
David A. Spiegel
Principal Financial and
Accounting Officer
August 14, 2000
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