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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 2000
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-5439
DEL LABORATORIES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-1953103
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(State or other jurisdiction of (I.R.S. Employer I.D. Number)
incorporation or organization)
178 EAB PLAZA, UNIONDALE, NY 11556
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (516) 844-2020
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $1 par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the Common Stock of the Registrant on March 19,
2001 was $76,329,337. The aggregate market value of the Common Stock held by
non-affiliates of the Registrant on March 19, 2001 was $35,205,756. On such
date, the closing price for the Common Stock was $9.50 per share.
The number of shares of Common Stock outstanding as of March 19, 2001 was
8,034,667 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
PART OF THE FORM 10-K INTO
WHICH THE DOCUMENT IS
DOCUMENT INCORPORATED
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Definitive Proxy Statement for Part III, Items 10, 11, 12 and 13
2001 Annual Meeting of Stockholders
Part 1
ITEM 1 - BUSINESS
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Del Laboratories, Inc. (the "Company") manufactures, markets and distributes
cosmetics and proprietary over-the-counter pharmaceuticals. The Company's
principal cosmetics products are nail care products, nail color, color
cosmetics, beauty implements, bleaches and depilatories, personal care products,
and other related cosmetic items. The Company's cosmetics products are marketed
under such well-known brand names as Sally Hansen Hard as Nails and Sally Hansen
Professional Nail (nail care and nail color products), CornSilk (face make-up),
Naturistics (color cosmetics and bath and body care), LaCross (beauty
implements), and N.Y.C. New York Color (color cosmetics). The Company's
proprietary pharmaceutical products include oral analgesics, acne treatment
products, first aid products and eye/ear medications. The Company's
pharmaceutical products are marketed under such well-known brand names as Orajel
and Tanac (oral analgesics), Propa pH (acne treatment), Pronto (pediculicides),
Arthricare (topical arthritis treatment), Stye (ophthalmic ointment), Dermarest
(psoriasis) and Auro-Dri (ear remedy). The Company's products are sold
principally in the United States and Canada to wholesalers and independent and
chain drug, mass merchandisers and food stores.
The Company seeks to increase sales by aggressively marketing its products under
established brand names. The Company targets the mass market, which accounts for
a major portion of the decorative color cosmetics market and the majority of the
over-the-counter pharmaceuticals market. The Company's customers in the mass
market channel include Walgreens, Rite Aid, CVS, and Eckerd, major drug store
chains; Wal-Mart, K-Mart and Target, major national chain mass merchandisers;
and numerous regional chain drug stores and mass merchandisers. The Company also
distributes its pharmaceutical products to drug wholesalers, including McKesson
HBOC, Bergen Brunswig and Cardinal Health, Inc. and national food chains,
including Ahold, Safeway, Kroger and Albertson's. Other than Wal-Mart Stores,
Inc., which accounted for 24.4%, 25.4% and 21.5% of the Company's total net
sales for 2000, 1999 and 1998, respectively, and Walgreens which accounted for
11.7%, 10.4% and 10.3% of the Company's total net sales in 2000, 1999 and 1998,
respectively, no single customer accounted for more than 10% of the Company's
total net sales.
The Company advertises its products on television and radio and in magazines.
In-store displays and promotional activities are also utilized to attract
consumer attention and to inform them of the products available under the
Company's various brands. Cooperative advertising programs with retailers are
also employed to further enhance consumer awareness of the Company's products
and brands. Advertising expenditures were $27.8 million in 2000, or 9.4% of
total net sales.
The Company utilizes two in-house national sales organizations, one for its
cosmetics product lines and one for its pharmaceutical product lines. The
Company also employs independent manufacturers' representatives in selected
geographic areas where a full-time sales employee would not be economically
justified.
Certain financial information regarding the Company's industry segments is set
forth in the table below. Net sales for 1999 and 1998 include a reclassification
to conform with current year presentation.
INDUSTRY SEGMENTS (In thousands of dollars)
2000 1999 1998
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Net sales to unaffiliated customers:
Cosmetics $ 229,194 $ 201,251 $ 212,363
Pharmaceuticals 65,689 63,805 61,148
Operating income (loss):
Cosmetics 4,989 (12,166) 10,251
Pharmaceuticals 11,117 9,313 12,513
Identifiable assets:
Cosmetics 133,090 122,417 120,664
Pharmaceuticals 24,737 22,674 20,205
Corporate (unallocated assets) 32,951 35,470 36,605
The Company was incorporated in Delaware in 1961. The Company's cosmetics
business is conducted primarily by the Company and its wholly-owned subsidiary,
Del Laboratories (Canada) Inc., which sells the Company's cosmetics products to
the Canadian market. The Company's pharmaceuticals business is conducted
primarily by the Company's wholly-owned subsidiary, Del Pharmaceuticals, Inc.,
and its wholly-owned subsidiary, Del Pharmaceutics (Canada) Inc., which sells
the Company's pharmaceutical products to the Canadian market.
-2-
The Company's products are sold in over thirty foreign countries through a
limited number of subsidiaries and through contracts with local distributors and
licensees. Export net sales (which exclude sales in Canada and Puerto Rico) have
historically not exceeded 5% of the Company's total net sales in any year.
Export net sales represented approximately 2% of the Company's total net sales
in 2000, 1999, and 1998.
The Company sells standard packaged cosmetic and over-the-counter pharmaceutical
products. The Company's customers expect quick response on standard merchandise
orders. The Company does not have a material amount of order backlog. Consistent
with the packaged goods industry, the Company accepts authorized returns of
unmerchantable, defective or discontinued products.
The Company purchases raw materials used in its manufacturing processes from
various other manufacturers, paperboard suppliers and bottle distributors. The
Company has not experienced any difficulty obtaining raw materials and believes
that such materials are readily available.
The Company expended approximately $5,292,000, $5,219,000 and $4,927,000 in
2000, 1999 and 1998, respectively, on research activities relating to the
development of new products, clinical and regulatory affairs and quality
control, all of which activities are conducted internally by the Company.
Competition in both the cosmetics and over-the-counter pharmaceuticals markets
is intense. Many of the principal competitors in each of the Company's industry
segments are well-established firms with greater financial and marketing
resources. Frequent new product introductions and attendant advertising
characterize both industry segments in which the Company operates. Consumer
brand preferences in the Company's industry segments are generally influenced by
advertising, promotional support and price. The cosmetics industry is sensitive
to consumer purchasing power. The Company's competitors in the cosmetics market
include Revlon, Inc., Procter and Gamble (Cover Girl, Oil of Olay), Cosmair
(Maybelline) and L'Oreal and, in the over-the-counter pharmaceuticals market,
include Whitehall-Robbins Division of American Home Products Corp., Pfizer,
Procter and Gamble Co., Glaxo SmithKline, Bristol-Myers Squibb, Colgate
Palmolive, Chattam, Inc., Bayer Corp. and Johnson and Johnson.
The Company has registered its principal trademarks in each segment of its
business both in the United States and in many countries throughout the world.
The Company considers its trademarks to be material assets, and the registration
and protection of its trademarks in the aggregate to be important to its
business, in that the success of certain of the products is due at least in part
to the goodwill associated with the Company's primary brand names. The Company
has also been issued several United States patents, expiring at various times
through 2015, and has licensed certain intellectual property from third parties.
While the Company believes its patents and licenses to be important, it does not
consider its business as a whole to be dependent on such licenses or patent
protection.
The Company currently has approximately 1,600 employees. Approximately 400 of
the Company's employees are represented by two labor unions. The Company has not
experienced any work stoppages and considers its employee and labor relations to
be satisfactory.
ITEM 2 - PROPERTIES
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The Company's corporate offices are located in 44,000 square feet of leased
space in Uniondale, New York.
The Company's principal manufacturing facility for both the cosmetics and
pharmaceutical segments is located at 565 Broad Hollow Road, Farmingdale, New
York. The building is a brick faced concrete block structure containing
approximately 120,000 square feet of floor space. The Company also occupies a
steel beamed and brick faced concrete block building, adjacent to the
Farmingdale facility described above for administrative offices, which contains
approximately 20,000 square feet of floor space. Both buildings are owned by the
Company.
The Company also owns certain property used for manufacturing facilities for its
cosmetics segment in Newark, New Jersey. The Newark buildings are brick faced
concrete block and contain approximately 90,000 square feet of floor space.
The Company owns property located in Canajoharie, New York, consisting of a
two-story brick and steel building with approximately 50,000 square feet of
floor space. This building is used by the cosmetics segment.
-3-
In February 2000, the Company acquired property located in the City of Barrie,
Province of Ontario, Canada, consisting of a building with approximately 68,000
square feet of floor space. The facility is used for manufacturing and shipping
and contains the administrative offices of its Canadian subsidiaries.
The Company also owns property located in the City of Little Falls, New York,
consisting of a building with approximately 63,000 square feet of floor space.
The facility is used for production, warehousing and distribution. The Company
owns a second building located in close proximity to the Little Falls facility
described above. This 100,000 square foot facility is a one-story steel and
masonry industrial plant built in 1974 and is used for production and
warehousing.
The Company's principal distribution center is located in two owned buildings
containing approximately 225,000 square feet, in Rocky Point, North Carolina.
Both buildings are of insulated metal construction. The buildings and land are
subject to a first mortgage. The distribution center services both the cosmetics
and pharmaceutical segments.
The Company also has short-term leases for space in public warehouses used
primarily for the cosmetics segment.
The Company believes that its facilities are adequate to meet operating needs at
reasonable levels of production.
ITEM 3 - LEGAL PROCEEDINGS
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The Company is not a party to any material pending legal proceedings, other than
ordinary routine litigation incidental to its business.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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Not applicable.
PART II
ITEM 5 - MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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The Company's common stock is traded on the American Stock Exchange under the
symbol "DLI". The range of high and low sales prices as reported in the
consolidated transaction reporting system of such exchange for each quarterly
period during the past two years is as follows:
2000 1999
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HIGH LOW HIGH LOW
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First Quarter $ 10.25 $ 7.13 $ 25.00 $ 17.75
Second Quarter $ 12.94 $ 8.00 $ 19.00 $ 13.75
Third Quarter $ 12.88 $ 10.38 $ 17.25 $ 13.00
Fourth Quarter $ 12.63 $ 9.38 $ 14.06 $ 7.50
There were 474 holders of record of the Company's common stock at December 31,
2000. This does not include beneficial holders whose shares are held of record
by nominees. The Company paid regular quarterly dividends of $.035 from January
1998 through September 1999, a 2% stock dividend in December 1999 and a 5% stock
dividend in December 2000. The Company has paid uninterrupted dividends for the
past twenty-five years.
The terms of the Company's various borrowing agreements provide, among other
things, for restrictions on the payment of cash dividends and certain other
expenditures. At December 31, 2000, no amounts were available for cash dividends
or the repurchase of treasury stock.
-4-
ITEM 6 - SELECTED FINANCIAL DATA (unaudited)
(Amounts in Thousands Except Per Share and Employee Data)
2000 1999 1998 1997 1996
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Operating data:
Net sales $ 294,883 $ 265,056 $ 273,511 $ 263,452 $ 233,271
Net earnings (loss) 4,717 (4,002) 11,077 13,127 9,278
Earnings (loss) per common share: (a)
Basic 0.59 (0.51) 1.36 1.61 1.16
Diluted 0.59 (0.51) 1.27 1.49 1.06
Dividends per share: (a)
Cash -- .105 .14 .105 .079
Stock 5% 2% -- -- --
Weighted average common shares
outstanding: (a)
Basic 7,943 7,906 8,119 8,133 7,977
Diluted 8,027 7,906 8,703 8,836 8,736
Balance sheet data:
Total assets $ 190,778 $ 180,561 $ 177,474 $ 149,314 $ 122,382
Long-term debt 82,495 75,750 59,400 43,879 40,000
Working capital 85,764 74,472 62,728 53,576 51,266
Shareholders' equity 55,443 50,873 59,097 54,530 44,842
Other data:
Capital additions $ 7,850 $ 7,288 $ 7,224 $ 15,230 $ 5,327
Approximate # of employees 1,600 1,500 1,600 1,400 1,300
(a) Adjusted to reflect a 5% stock dividend effective November 30, 2000, a
2% stock dividend effective November 30, 1999, and 4-for-3 stock splits
effective February 20, 1998 and November 8, 1996, respectively.
-5-
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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RESULTS OF OPERATIONS
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YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
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NET SALES. Net sales were $294.9 million and $265.1 million for 2000 and 1999,
respectively, an increase of $29.8 million or 11.3%. Net sales for 1999 include
a reclassification to conform with current year presentation. Cosmetics net
sales were $229.2 million and $201.3 million for 2000 and 1999, respectively, an
increase of $27.9 million or 13.9%. The increase is primarily due to volume
growth in the Sally Hansen family of brands and in N.Y.C. New York Color, as
well as reduced product returns of the Naturistics cosmetics and bath & body
care line. Pharmaceutical net sales were $65.7 million and $63.8 million for
2000 and 1999, respectively, an increase of $1.9 million or 3.0%.
COST OF SALES. Cost of sales were $129.7 million or 44.0% of net sales in 2000,
compared to $122.6 or 46.3% of net sales in 1999, an increase of $7.1 million or
5.8%. Cost of sales for 1999 include a reclassification to conform with current
year presentation. The improvement in cost of sales as a percentage of net
sales, is due primarily to the increase in unit volume and a reduction in
product returns.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses were
$149.1 million or 50.5% of net sales in 2000 compared to $145.3 million or 54.8%
of net sales in 1999. The improvement in selling and administrative expenses as
a percentage of net sales is primarily attributable to net sales increases in
excess of selling and administrative expenses.
GAINS ON SALE OF FACILITY AND LAND. In April 2000, the Company sold a 39,000
square foot manufacturing warehousing and office facility in Barrie, Ontario,
with a net book value of approximately $442,000, for net proceeds of
approximately $804,000.
NET INTEREST EXPENSE. Net interest expense was $8.2 million in 2000 compared to
$5.7 million in 1999. The increase is due to higher average borrowings for
capital requirements in 2000, in addition to increased borrowing rates, as
compared to 1999.
INCOME TAXES. The Company's effective annual tax rate for 2000 was 43%, compared
to a tax benefit of 27% for 1999. The benefit in 1999 was limited primarily by
the non-deductible portion of certain expenses recorded for financial statement
purposes.
NET EARNINGS (LOSS). As a result of the above, net earnings increased to $4.7
million, or 1.6% of net sales in 2000 compared to a net loss of $4.0 million, or
1.5% of net sales in 1999.
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RESULTS OF OPERATIONS
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YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
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NET SALES. Net sales were $265.1 million and $273.5 million for 1999 and 1998,
respectively, a decrease of $8.5 million or 3.1%. Net sales for 1999 and 1998
include a reclassification to conform with year 2000 presentation. Cosmetics net
sales were $201.3 million and $212.4 million for 1999 and 1998, respectively, a
decrease of $11.1 million or 5.2%. The net sales decrease is due primarily to
lower shipments of the Naturistics cosmetics and bath & body care line, as a
result of the previously disclosed market repositioning of the line and, an
increase in product returns, partially offset by shipments of N.Y.C. New York
Color cosmetics introduced in 1999.
Pharmaceutical net sales were $63.8 and $61.1 million for 1999 and 1998,
respectively, an increase of $2.7 million or 4.4%. The increase is primarily due
to volume growth in the Orajel family of products.
COST OF SALES. Cost of sales were $122.6 million or 46.3% of net sales in 1999,
compared to $114.5 million or 41.8% of net sales in 1998, an increase of $8.2
million or 7.1%. Cost of sales for 1999 and 1998 include a reclassification to
conform with year 2000 presentation. The increase in cost of sales, as a
percentage of net sales, is due primarily to a change in Cosmetics sales mix,
increased returns and an increase in the inventory valuation reserve to reflect
the estimated market value of the Naturistics inventory pursuant to the
Company's plan to reduce excess and slow moving inventory of this brand.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses were
$145.3 million, or 54.8% of net sales in 1999 compared to $136.3 million or
49.8% of net sales in 1998. The increase as a percentage of net sales is
primarily attributable to higher promotional costs, increases in information
technology expenses and the impact of product returns on net sales.
GAINS ON SALES OF FACILITY AND LAND. In February 1999, the Company sold a
warehouse facility in Plainview, New York for $2.7 million, resulting in a gain
before income taxes of $1.7 million. At December 31, 1998, this facility was
included in property, plant and equipment and was accounted for as a held for
sale asset. On December 8, 1999, the Company sold a parcel of land in
Farmingdale, New York for $2.3 million, resulting in a gain before income taxes
of $1.3 million.
NET INTEREST EXPENSE. Net interest expense was $5.7 million in 1999 compared to
$4.3 million in 1998. The increase is due to higher average borrowings in 1999
as compared to 1998 due principally to the financing of the acquisition of
intellectual property rights and other assets of the CornSilk brand of facial
make-up in May 1998, higher working capital requirements and, increased
borrowing rates.
INCOME TAXES. The Company recorded a tax benefit of $1.5 million in 1999 based
on an effective annual tax rate of 27% for the year ended December 31, 1999,
compared to an effective annual tax rate of 40% in 1998.
NET EARNINGS (LOSS). As a result of the above, the Company incurred a net loss
of $4.0 million in 1999 compared to net earnings of $11.1 million or 4.0% of net
sales in 1998.
-7-
LIQUIDITY AND CAPITAL RESOURCES
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At December 31, 2000, the Company had cash equivalents of $2.9 million as
compared to $3.6 million in 1999.
Net cash provided by operating activities was $0.1 million for the year ended
December 31, 2000, as compared to cash used in operating activities of $8.0
million and $2.5 million for the years ended December 31, 1999 and 1998,
respectively. The increase of cash provided by operating activities for 2000 as
compared to 1999 is due principally to increased earnings and an increase in
accrued liabilities, offset by an increase in accounts receivable and a decrease
in accounts payable.
Cash of $0.8 million and $4.6 million was provided by the sales of land and
facilities in 2000 and 1999, respectively. Cash used for property, plant and
equipment additions was $6.0 million, $7.3 million and $7.2 million for 2000,
1999 and 1998, respectively. Capital expenditures for 2000, 1999 and 1998 were
primarily for manufacturing machinery and equipment.
Net cash provided by financing activities was $4.5 million, $10.5 million, and
$10.5 million for 2000, 1999 and 1998, respectively. In 2000, 1999 and 1998,
cash was provided by proceeds received under the revolving credit agreement with
a bank and short-term borrowings under lines of credit with banks. Cash was used
primarily for repayments of short-term lines of credit of $17.3 million, $3.5
million and $15.8 million in 2000, 1999 and 1998, respectively; principal
payments under long-term debt of $8.1 million, $0.4 million and $0.5 million in
2000, 1999 and 1998 respectively; acquisition of shares of the Company's common
stock aggregating $0.7 million, $4.5 million and $7.3 million in 2000, 1999 and
1998, respectively, and dividend payments of $1.0 million in 1999 and 1998. As
of December 31, 2000, the Company was authorized to purchase up to 203,004
additional shares based on existing Board authorization. At December 31, 2000,
no amounts were available for cash dividends or the repurchase of treasury
stock.
On February 25, 2000, the senior notes were amended and restated primarily to
reduce the $8,000,000 principal repayments due on May 31, 2001 and May 31, 2002.
The amended notes require annual principal repayments of $4,000,000 on May 31,
2001 and May 31, 2002; $8,000,000 on May 31, 2003 and May 31, 2004 and the
balance on May 31, 2005. The terms of the amended agreement include covenants,
which provide among other things, for the maintenance of financial covenants and
ratios relating to consolidated net worth, restrictions on cash dividends, the
purchase of treasury stock, and certain other expenditures.
On February 25, 2000, the Company amended the revolving credit agreement entered
into in December 1998. The amendment increased the facility to $47,500,000 from
$20,000,000 and extended the expiration to February 25, 2003. In addition, the
notes under the $17,500,000 lines of credit were paid and cancelled as part of
this amendment. After giving effect to the refinancing of the lines of credit,
this amended revolving credit agreement increased the Company's borrowing
capacity by $10,000,000. Under the terms of the agreement, interest rates on
borrowings are based on, at the Company's option, LIBOR, prime or federal funds
rates. The terms of the agreement include a commitment fee based on unutilized
amounts, an annual agency fee and covenants which provide among other things,
for the maintenance of financial covenants and ratios relating to consolidated
net worth, restrictions on cash dividends, the purchase of treasury stock, and
certain other expenditures. The agreement terms include reductions in the
commitment equal to the greater of $4,000,000 or principal amounts of the senior
notes paid on each of May 31, 2001 and May 31, 2002. The revolving credit
facility, as amended, is collateralized by the Company's trademarks and accounts
receivable until such time as the borrowings under the revolving credit
agreement are less than $22,500,000 and a certain financial ratio is achieved.
The senior note holder and the lenders under the revolving credit agreement have
entered into an intercreditor agreement which includes the pro rata sharing of
such collateral. No compensating balances are required.
On April 3, 2000, the Company sold a 39,000 square foot manufacturing,
warehousing and office facility in Barrie, Ontario, with a net book value of
approximately $442,000 for net proceeds of approximately $804,000. Approximately
$627,000 of the proceeds was 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 an interest rate based
on LIBOR and terms that provide for the maintenance of certain financial ratios.
The Company believes that estimated cash flow from future operations, cash on
hand and amounts available from the credit facility, along with leasing
transactions, will be sufficient to satisfy its liquidity needs for the
foreseeable future.
The Company believes that general inflation has had no significant impact on its
earnings (loss) from operations during the last three years.
-8-
FORWARD-LOOKING STATEMENTS
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This annual report on Form 10-K as well as other filings with the Securities and
Exchange Commission, our press releases, our reports to shareholders, other
public documents and from time to time oral statements, contain forward-looking
statements that involve 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, food stores and mass merchandiser relationships due to the
concentration of sales generated by such chains; changes in fashion-oriented
color cosmetic trends; the effect on sales of lower retailer inventory targets;
the effect on sales of political and/or economic conditions; the Company's
estimates of costs and benefits, cash flow from operations and capital
expenditures; interest rate or foreign exchange rate changes affecting the
Company and its market sensitive financial instruments including the Company's
qualitative and quantitative estimates as to market risk sensitive instruments;
changes in product mix to products which are less profitable; shipment delays;
depletion of inventory and increased production costs resulting from disruptions
of operations at any of our manufacturing or distribution facilities; foreign
currency fluctuations affecting our results of operations and the value of our
foreign assets and liabilities; the relative prices at which we sell our
products and our foreign competitors sell their products in the same market; our
operating and manufacturing costs outside of the United States; changes in the
laws, regulations and policies, including changes in accounting standards, that
effect, or will effect, us in the United States and/or abroad; and trends in the
general economy.
Readers are cautioned not to place undo reliance on these forward-looking
statements, which reflect management's analysis, judgement, 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.
-9-
NEW ACCOUNTING PRONOUNCEMENTS
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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 No. 137 and SFAS No. 138, 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 have any derivative instruments required to be
reported under SFAS No. 133.
In July 2000, the Emerging Issues Task Force issued EITF 00-10, "Accounting for
Shipping and Handling Fees and Costs." The issue addresses the classification of
shipping and handling fees billed to customers. The Company does not bill
customers for shipping and handling costs, and accordingly classifies such costs
as selling and administrative expense.
The SEC issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statement," as amended, which provides the SEC Staff's interpretation
of the application of generally accepted revenue recognition accounting
principles. The Company adopted SAB No. 101 during the fourth quarter of fiscal
2000. The adoption did not have a material effect on the consolidated financial
statements.
In May 2000, the Emerging Issues Task Force issued EITF 00-14 "Accounting for
Certain Sales Incentives". The issue addresses the recognition, measurement and
income statement classification for sales incentives offered voluntarily by a
vendor, without charge, to customers that can be used in, or that are
exercisable by a customer as a result of a single exchange transaction. The
Company has determined that implementation of EITF 00-14 will result in the
reclassification of certain selling costs from selling and administrative
expenses to net sales and is in the process of quantifying the amount of such
reclassification. The reclassification will not have any impact on net earnings.
ITEM 7A - MARKET RISK SENSITIVE INSTRUMENTS
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The market risk inherent in the Company's market risk sensitive instruments is
the potential loss arising from adverse changes in interest rates and foreign
currency exchange rates.
INTEREST RATE RISK
The Company's borrowings at December 31, 2000 under the revolving credit
agreement and lines of credit expose earnings to changes in short-term interest
rates since interest rates on the underlying obligations are either variable or
fixed for such a short period of time as to effectively become variable. The
Company believes that a hypothetical 10% change in interest rates amounts to
approximately $0.4 million.
FOREIGN EXCHANGE RISK
- ---------------------
The Company is subject to risk from changes in the foreign exchange rate for its
foreign subsidiaries which use a foreign currency as their functional currency
and is translated into U.S. dollars. Such changes result in cumulative
translation adjustments which are included in shareholders' equity and in the
determination of other comprehensive income. Intercompany transactions between
the Company and its foreign subsidiaries are recorded by the foreign
subsidiaries in their functional currency. The potential loss resulting from a
hypothetical 10% adverse change in the quoted foreign currency exchange rate
amounts to approximately $0.5 million.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
See Consolidated Financial Statements and Schedule included separately herein.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- ------------------------------------------------------------------------
None.
PART III
- --------
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- ---------------------------------------------------------
(a) The information required with respect to Directors is set forth under the
captions "Election of Directors - Information Concerning Directors" and
"Security Ownership of Certain Beneficial Owners - Section 16 (a) Beneficial
Ownership Reporting Compliance" in the Company's definitive Proxy Statement for
the 2001 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A
and is incorporated herein by reference.
-10-
(b) The executive officers of the Company, the positions held by them, their
ages and the years in which they began to serve in the position or office held
as of December 31, 2000 are as follows:
YEAR IN
WHICH BEGAN
TO SERVE IN
POSITION OR AS
NAME POSITION AGE EXECUTIVE OFFICER
---- -------- --- -----------------
Dan K. Wassong Chairman, President and
Chief Executive Officer, Director 70 1969
Charles J. Hinkaty Vice President, President of
Del Pharmaceuticals, Inc.,
Director 51 1985
Enzo J. Vialardi Executive Vice President,
Chief Financial Officer 64 1998
William H. McMenemy Executive Vice President of Marketing,
Cosmetics Division, North America 54 1980
Harvey P. Alstodt Executive Vice President of Sales,
Cosmetics Division, North America 61 1988
James F. Lawrence Group Vice President - Operations 66 1993
Gene L. Wexler Vice President, General Counsel 45 1999
and Secretary
Thomas Redder Vice President - Chief Information Officer 53 1996
There is no arrangement or understanding between any executive officer and any
other person pursuant to which he was selected as an officer. The executive
officers of the Company are elected annually at the meeting of the Board of
Directors immediately following the Annual Meeting of Stockholders. No family
relationship exists among any of the executive officers and directors of the
Company.
During the past five years, the principal occupation and employment of each of
the Company's executive officers has been his service in the respective position
shown in the above table, except as follows:
Enzo J. Vialardi has been Executive Vice President and Chief Financial Officer
of the Company since August 1998. Prior to that time, he served as an
independent consultant from January 1995 to August 1998.
Gene L. Wexler has been Vice President, General Counsel and Secretary of the
Company since September 1999. From January 1994 through March 1999, he was Vice
President, General Counsel and Assistant Secretary at Genovese Drug Stores, Inc.
Thomas Redder has served as Vice President-Chief Information Officer of the
Company since February 1996. From 1986 through 1995, he was employed by Newsday
as Vice President, Information Systems.
-11-
ITEM 11 - EXECUTIVE COMPENSATION
- --------------------------------
The information required is set forth under the caption "Executive Compensation"
in the Company's definitive Proxy Statement for the 2001 Annual Meeting of
Shareholders to be filed pursuant to Regulation 14A and is incorporated herein
by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information required is set forth under the captions "Securities Ownership
of Certain Beneficial Owners" and "Election of Directors - Information
Concerning Directors" in the Company's definitive Proxy Statement for the 2001
Annual Meeting of Shareholders to be filed pursuant to Regulation 14A and is
incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required is set forth under the caption "Executive Compensation"
in the Company's definitive Proxy Statement for the 2001 Annual Meeting of
Shareholders to be filed pursuant to Regulation 14A and is incorporated herein
by reference.
PART IV
- -------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
a) Documents filed as part of this report:
(1) and (2) See Consolidated Financial Statements and Schedule included
herein.
(3) Exhibit Index.
b) There were no reports on Form 8-K filed during the year ended
December 31, 2000.
-12-
ITEM TITLE EXHIBIT NO. DESCRIPTION
---------- ----------- -----------
Articles of 3.1 (a) Restated Certificate of Incorporation as filed
Incorporation with the Delaware Secretary of State on
and By-Laws March 29, 1996.
3.2 (b) Certificate of Amendment filed with the Delaware
Secretary of State on June 4, 1996.
3.3 (j) Certificate of Amendment of the Restated
Certificate of Incorporation filed with the
Delaware Secretary of State on June 3, 1998.
3.4 (a) By-Laws as amended through December 14, 1995.
Material 10.1 (c) Employee Pension Plan, effective January
Contracts 1, 1989 (amended and restated).
10.2 First Amendment of Employees' Pension Plan,
effective January 1, 1989.
10.3 (d) Employee's Stock Ownership Plan, effective
January 1, 1989.
10.4 (e) Amendment No. 1 to Employee's Stock Ownership
Plan.
10.5 (c) Amendment No. 2 to Employee's Stock Ownership
Plan.
10.6 (c) 401(k) Plan effective January 1, 1989 (amended
and restated).
10.7 (j) Amendment No. 1 to 401(k) Plan adopted
December 21, 1995.
10.8 (j) Amendment No. 2 to 401(k) Plan adopted March 16,
2000.
10.9 Amendment No. 3 to 401 (k) Plan, effective
January 1, 2001.
10.10(c) Supplemental Executive Retirement Plan (amended
and restated).
10.11(h) Amendment No. 1 effective January 1, 1997 to
Supplemental Executive Retirement Plan.
10.12 Second Amendment to Supplement Executive
Retirement Plan.
10.13(i) Amendment No. 3 to Supplemental Executive
Retirement Plan.
10.14(e) 1984 Stock Option Plan, as amended to date.
10.15(f) 1994 Stock Plan, as amended as of May 27, 1999.
10.16(f) Annual Incentive Plan, as amended as of May 27,
1999.
10.17(j) Amended and Restated Employment Agreement dated
as of July 1, 1999 between the Registrant and
Dan K. Wassong.
10.18(e) Employment Agreement dated March 14, 1985
with Charles J. Hinkaty, as amended.
-13-
ITEM TITLE EXHIBIT NO. DESCRIPTION
10.19 Amendment to Employment Agreement with Charles
J. Hinkaty, dated March 31, 1999.
10.20(e) Employment Agreement with Harvey P. Alstodt,
as amended.
10.21(h) Amendment to Employment Agreement with Harvey
P. Alstodt, dated April 22, 1996.
10.22(j) Amendment to Employment Agreement with
Harvey P. Alstodt dated December 30, 1997.
10.23(e) Employment Agreement with William H.
McMenemy, as amended.
10.24(h) Amendment to Employment Agreement with
William H. McMenemy, dated April 22, 1996.
10.25(i) Employment Agreement with Enzo J. Vialardi,
dated December 30, 1998.
10.26(i) Employment Agreement with James Lawrence, dated
March 1993.
10.27(i) Amendment to Employment Agreement with James
Lawrence, dated July 12, 1995.
10.28(i) Second Amendment and Employment Agreement
with James Lawrence, dated March 31, 1998.
10.29(e) Life Insurance Agreement, dated as of February
18, 1993.
10.30(g) Lease between Registrant and Coliseum Towers
Associates.
10.31(j) Amended and Restated Loan Agreement dated as of
February 25, 2000 among the Registrant, Del
Pharmaceuticals, Inc. ("DPI"), Parfums
Schiaperlli, Inc.("Parfums"), Royce &
Rader, Inc. ("Royce") and 565 Broad Hollow
Realty Corp. ("565"), as guarantors, The Chase
Manhattan Bank, as agent for the lenders, and
The Chase Manhattan Bank and European American
Bank, as lenders.
10.32(j) Trademark Collateral Assignment and Security
Agreement dated as of February 25, 2000,
between the Registrant and The Chase Manhattan
Bank, as Collateral Agent. Similar agreements
were executed by DPI and Parfums.
10.33(j) Security Agreement dated as of February 25, 2000
between the Registrant and The Chase Manhattan
Bank, as Collateral Agent. Similar agreements
were executed by DPI, Parfums, Royce and 565.
10.34(j) General Guaranty dated as of February 25, 2000
by DPI in favor of The Chase Manhattan Bank,
as Collateral Agent. Similar agreement were
executed by Parfums, Royce and 565.
10.35(j) Amended and Restated Loan Agreement dated as of
February 25, 2000 among the Registrant, DPI,
Parfums, Royce, 565 and Jackson National Life
Insurance Company.
-14-
ITEM TITLE EXHIBIT NO. DESCRIPTION
Subsidiaries of 21.1 (k) List of Subsidiaries.
Registrant
Consents of Experts 23.1 Consent of KPMG LLP dated March 20, 2001.
and Counsel
27 Financial Data Schedule
(a) These exhibits were filed as exhibits to the Registrant's Form 10-K for the
year ended December 31, 1995. The exhibit numbers in such Form 10-K are as
follows: Restated Certificate, Exhibit 1; and By-Laws, Exhibit 2.
(b) This exhibit was filed as an exhibit to the Registrant's Form 10-Q for the
quarter ended June 30, 1996. The exhibit number in such Form 10-Q is
Exhibit 1.
(c) These exhibits were filed as exhibits to the Registrant's Form 10-K for the
year ended December 31, 1994. The exhibit numbers in such Form 10-K are as
follows: Employee Pension Plan, Exhibit 2; Amendment No. 2 to Employee's
Stock Ownership Plan, Exhibit 3; 401(k) Plan, Exhibit 5; Supplemental
Executive Retirement Plan, Exhibit 6.
(d) This exhibit was filed as an exhibit to the Registrant's Form 10-K for the
year ended December 31, 1989. The exhibit number in such Form 10-K is
Exhibit 2.
(e) These exhibits were filed as exhibits to the Registrant's Form 10-K for the
year ended December 31, 1993. The exhibit numbers in such Form 10-K are as
follows: Amendment No. 1 to Employee's Stock Ownership Plan, Exhibit 2;
1984 Stock Option Plan, Exhibit 3; Employment Agreement with Charles J.
Hinkaty, Exhibit 5; Employment Agreement with Harvey P. Alstodt, Exhibit 6;
Employment Agreement with William H. McMenemy, Exhibit 7; Life Insurance
Agreement with Robert H. Haines, as trustee, Exhibit 9.
(f) These exhibits were filed as exhibits to the Registrant's Definitive Proxy
Statement dated May 27, 1999, relating to the Registrant's 1999 Annual
Meeting of Stockholders. The exhibit numbers in such Proxy Statement are as
follows: 1994 Stock Plan, as amended and restated, Exhibit A; Annual
Incentive Plan, as amended and restated, Exhibit B.
(g) These exhibits were filed as exhibits to the Registrant's Form 10-Q for the
quarter ended September 30, 1997. The exhibit numbers in such Form 10-Q are
as follows: Lease between Registrant and Coliseum Towers Associates,
Exhibit 10.1; Purchase Money Promissory Note with Carver Boat Corporation,
Exhibit 10.2.
(h) These exhibits were filed as exhibits to the Registrant's Form 10-K for the
year ended December 31, 1996, as follows: 10.9 above was filed as Exhibit 1
to the 1996 10-K; 10.21 above was filed as Exhibit 3 to the 1996 10-K; and
10.24 above was filed as Exhibit 4 to the 1996 10-K.
(i) These exhibits were filed as exhibits to the Registrant's Form 10-K for the
year ended December 31, 1998, as follows: 10.10 above was filed as Exhibit
10.32 to the 1998 10-K; 10.25 above as filed as Exhibit 10.29 to the 1998
10-K; 10.26 above was filed as Exhibit 10.30 to the 1998 10-K; and 10.27
above was filed as Exhibit 10.31 to the 1998 10-K.
(j) These exhibits were filed as exhibits to the Registrant's Form 10-K for the
year ended December 31, 1999, as follows: 3.3 above was filed as Exhibit
3.3 to the 1999 10-K; 10.7 above was filed as Exhibit 10.6 to the 1999
10-K; 10.8 above was filed as Exhibit 10.7 to the 1999 10-K; 10.17 above
was filed as Exhibit 10.14 to the 1999 10-K; 10.22 above was filed as
Exhibit 10.22 to the 1999 10-K; 10.31 above was filed as Exhibit 10.32 to
the 1999 10-K; 10.32 above was filed as Exhibit 10.33 to the 1999 10-K;
10.33 above was filed as Exhibit 10.34 to the 1999 10-K; 10.34 above was
filed as Exhibit 10.35 to the 1999 10-K; and 10.35 above was filed as
Exhibit 10.36 to the 1999 10-K.
(k) This exhibit was filed as an exhibit to the Registrant's Form 10-K for the
year ended December 31, 1999. The exhibit number in such Form 10-K is
Exhibit 21.1.
-15-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By /s/ DAN K. WASSONG March 20, 2001
Dan K. Wassong, Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
By /s/ DAN K. WASSONG March 20, 2001
---------------
Dan K. Wassong, Chairman, President and
Chief Executive Officer (Principal Executive Officer)
By /s/ CHARLES J. HINKATY March 20, 2001
------------------
Charles J. Hinkaty, Director, Vice President
By /s/ MARTIN E. REVSON March 20, 2001
-----------------
Martin E. Revson, Director
By /s/ ROBERT A. KAVESH March 20, 2001
-----------------
Robert A. Kavesh, Director
By /s/ STEVEN KOTLER March 20, 2001
--------------
Steven Kotler, Director
By /s/ GEORGE LINDEMANN March 20, 2001
----------------
George Lindemann, Director
By /s/ MARCELLA MAXWELL March 20, 2001
-----------------
Marcella Maxwell, Director
By /s/ ENZO J. VIALARDI March 20, 2001
-----------------
Enzo J. Vialardi, Executive Vice President,
Chief Financial Officer
-16-
DEL LABORATORIES, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
and Schedule
Independent Auditors' Report F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 2000 and 1999. F-3
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998. F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998. F-5
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 2000, 1999 and 1998. F-6
Notes to Consolidated Financial Statements. F-7
Schedule:
II Valuation and Qualifying Accounts for the years ended
December 31, 2000, 1999 and 1998. F-26
All other schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or related
notes.
F-1
Independent Auditors' Report
The Board of Directors and Shareholders
Del Laboratories, Inc.:
We have audited the accompanying consolidated balance sheets of Del
Laboratories, Inc. and subsidiaries (the Company) as of December 31, 2000 and
1999, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 2000. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedule as listed in
the accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Del Laboratories,
Inc. and subsidiaries at December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/ KPMG LLP
------------
Melville, New York
February 15, 2001
F-2
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and December 31, 1999
ASSETS 2000 1999
------
-------------- --------------
Current assets:
Cash and cash equivalents $ 2,910,127 $ 3,585,294
Accounts receivable-less allowance for doubtful accounts
of $1,000,000 in 2000 and $1,300,000 in 1999 60,196,288 45,941,959
Income taxes receivable -- 1,962,448
Inventories 58,584,201 59,155,209
Deferred income taxes, net 4,404,000 5,272,000
Prepaid expenses and other current assets 3,325,293 2,455,155
------------- -------------
Total current assets 129,419,909 118,372,065
------------- -------------
Property, plant and equipment, at cost 64,686,308 57,722,795
Less accumulated depreciation and amortization (27,091,583) (20,532,169)
------------- -------------
Net property, plant and equipment 37,594,725 37,190,626
Intangibles arising from acquisitions, net 16,220,119 17,100,974
Other assets 7,542,974 7,896,911
------------- -------------
Total assets $ 190,777,727 $ 180,560,576
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 4,116,719 $ 3,888,461
Accounts payable 20,674,800 27,174,668
Accrued liabilities 18,403,706 12,836,531
Income taxes payable 460,276 --
------------- -------------
Total current liabilities 43,655,501 43,899,660
Long-term pension liability, less current portion 8,558,440 9,051,757
Deferred income taxes, net 626,000 986,000
Long-term debt, less current portion 82,495,097 75,750,000
------------- -------------
Total liabilities 135,335,038 129,687,417
------------- -------------
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 10,000,000 10,000,000
Additional paid-in capital -- 126,899
Accumulated other comprehensive loss (1,258,571) (1,029,106)
Retained earnings 74,086,264 75,136,416
------------- -------------
82,827,693 84,234,209
Less: Treasury stock at cost, 2,024,550 shares
in 2000 and 2,077,710 shares in 1999 (26,296,754) (32,119,800)
Receivables for stock options exercised (1,088,250) (1,241,250)
------------- -------------
Total shareholders' equity 55,442,689 50,873,159
------------- -------------
Total liabilities and shareholders' equity $ 190,777,727 $ 180,560,576
============= =============
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
Net sales $ 294,883,279 $ 265,055,457 $ 273,510,637
Cost of goods sold 129,721,382 122,629,810 114,458,582
Selling and administrative expenses 149,055,510 145,278,476 136,288,135
------------- ------------- -------------
Operating income (loss) 16,106,387 (2,852,829) 22,763,920
Other income (expense):
Gains on sales of facility and land 361,526 3,042,817 --
Interest expense, net (8,192,968) (5,673,007) (4,302,976)
------------- ------------- -------------
Earnings (loss) before income taxes 8,274,945 (5,483,019) 18,460,944
Income taxes expense (benefit) 3,558,000 (1,481,000) 7,384,000
------------- ------------- -------------
Net earnings (loss) $ 4,716,945 $ (4,002,019) $ 11,076,944
============= ============= =============
Earnings (loss) per common share:
Basic $ 0.59 $ (0.51) $ 1.36
============= ============= =============
Diluted $ 0.59 $ (0.51) $ 1.27
============= ============= =============
Weighted average common shares outstanding:
Basic 7,943,000 7,906,000 8,119,000
============= ============= =============
Diluted 8,027,000 7,906,000 8,703,000
============= ============= =============
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net earnings (loss) $ 4,716,945 $ (4,002,019) $ 11,076,944
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,768,103 7,353,450 6,393,597
Deferred income taxes 508,408 (1,354,935) (2,062,000)
Provision for doubtful accounts 79,706 112,410 174,000
Gains on sales of land and facility (361,526) (3,042,817) --
Other non-cash operating items 223,855 679,248 (131,975)
Changes in operating assets and liabilities:
Accounts receivable (14,423,225) 953,608 (16,581,735)
Inventories 376,724 (3,648,871) (6,718,080)
Prepaid expenses and other current assets (870,951) 520,223 (1,117,010)
Other assets and other liabilities (143,518) 1,338,444 1,326,292
Accounts payable (6,436,276) (7,639,603) 6,966,581
Accrued liabilities 5,592,379 2,812,588 (3,943,516)
Income taxes, net 3,033,706 (2,033,397) 2,088,944
------------ ------------ ------------
Net cash provided by (used in) operating activities 64,330 (7,951,671) (2,527,958)
------------ ------------ ------------
Cash flows provided by (used in) investing activities:
Proceeds from sales of land and facility 799,548 4,606,460 --
Additions to intangibles and other assets -- (40,138) (11,964,598)
Property, plant and equipment additions (6,022,190) (7,288,175) (7,223,537)
------------ ------------ ------------
Net cash (used in) investing activities (5,222,642) (2,721,853) (19,188,135)
------------ ------------ ------------
Cash flows provided by (used in) financing activities:
Borrowings under long-term debt 29,023,200 4,250,000 15,750,000
Principal payments under long-term debt (8,113,873) (433,956) (487,076)
Borrowings under short-term lines of credit 1,500,000 15,750,000 19,250,000
Repayments of short-term lines of credit (17,250,000) (3,500,000) (15,750,000)
Decrease in receivables for stock options exercised 13,000 13,000 13,000
Exercise of stock options -- -- 38,203
Acquisition of treasury stock (696,106) (4,538,799) (7,323,295)
Dividends paid -- (1,037,618) (996,911)
Other financing activities -- -- (4,434)
------------ ------------ ------------
Net cash provided by financing activities 4,476,221 10,502,627 10,489,487
------------ ------------ ------------
Effect of exchange rate changes on cash 6,924 25,634 (21,453)
------------ ------------ ------------
Net (decrease) in cash and cash equivalents (675,167) (145,263) (11,248,059)
Cash and cash equivalents at beginning of year 3,585,294 3,730,557 14,978,616
------------ ------------ ------------
Cash and cash equivalents at end of year $ 2,910,127 $ 3,585,294 $ 3,730,557
============ ============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 2000, 1999 and 1998
Additional Accumulated Other
Common Paid-In Comprehensive Retained
Stock Capital Income (Loss) Earnings
------------- --------------- ------------------ ---------------
Balances at December 31, 1997 $ 10,000,000 $ 699,000 $ (819,146) $ 71,187,777
Issuance of treasury stock upon exercise
of stock options (259,363 shares) -- (1,178,537) -- --
Purchase of treasury stock (380,128 shares) -- -- -- --
Income tax benefit arising from
stock options exercised -- 2,334,588 -- --
Repayment of receivables -- -- -- --
Dividends declared ($.14 per share) -- -- -- (1,061,051)
Four-for-three stock split - cash in lieu of
fractional shares -- (4,434) -- --
Net earnings -- -- -- 11,076,944
Foreign currency translation adjustment -- -- (540,742) --
Minimum pension liability adjustment, net -- -- (105,862) --
Total comprehensive income -- -- -- --
------------ ------------ ------------ ------------
Balances at December 31, 1998 10,000,000 1,850,617 (1,465,750) 81,203,670
Issuance of treasury stock upon exercise
of stock options (219,587 shares) -- (1,582,842) -- --
Purchase of treasury stock (339,730 shares) -- -- -- --
Income tax benefit arising from --
stock options exercised -- 501,160 -- --
Repayment of receivables -- -- -- --
Dividends declared ($.105 per share) -- -- -- (773,901)
Stock dividend declared -- (642,036) -- (1,291,334)
Net (loss) -- -- -- (4,002,019)
Foreign currency translation adjustment -- -- 375,856 --
Minimum pension liability adjustment, net -- -- 60,788 --
Total comprehensive income -- -- -- --
------------ ------------ ------------ ------------
Balances at December 31, 1999 10,000,000 126,899 (1,029,106) 75,136,416
Issuance of treasury stock upon exercise
of stock options (237,780 shares) -- (752,055) -- (828,184)
Purchase of treasury stock (184,620 shares) -- -- -- --
Income tax benefit arising from
stock options exercised -- 625,156 -- --
Repayment of receivables -- -- -- --
Stock dividend declared -- -- -- (4,938,913)
Net earnings -- -- -- 4,716,945
Foreign currency translation adjustment -- -- (225,369) --
Minimum pension liability adjustment, net -- -- (4,096) --
Total comprehensive income -- -- -- --
------------ ------------ ------------ ------------
Balances at December 31, 2000 $ 10,000,000 $ -- $ (1,258,571) $ 74,086,264
============ ============ ============ ============
Receivables For
Treasury Stock Options Shareholders'
Stock Exercised Equity
---------------- ------------------ ---------------
Balances at December 31, 1997 $(24,990,659) $ (1,547,250) $ 54,529,722
Issuance of treasury stock upon exercise
of stock options (259,363 shares) 2,686,943 -- 1,508,406
Purchase of treasury stock (380,128 shares) (8,793,497) -- (8,793,497)
Income tax benefit arising from
stock options exercised -- -- 2,334,588
Repayment of receivables -- 153,000 153,000
Dividends declared ($.14 per share) -- -- (1,061,051)
Four-for-three stock split - cash in lieu of
fractional shares -- -- (4,434)
Net earnings -- -- --
Foreign currency translation adjustment -- -- --
Minimum pension liability adjustment, net -- -- --
Total comprehensive income -- -- 10,430,340
------------ ------------ ------------
Balances at December 31, 1998 (31,097,213) (1,394,250) 59,097,074
Issuance of treasury stock upon exercise
of stock options (219,587 shares) 2,608,140 -- 1,025,298
Purchase of treasury stock (339,730 shares) (5,564,097) -- (5,564,097)
Income tax benefit arising from
stock options exercised -- -- 501,160
Repayment of receivables -- 153,000 153,000
Dividends declared ($.105 per share) -- -- (773,901)
Stock dividend declared 1,933,370 -- --
Net (loss) -- -- --
Foreign currency translation adjustment -- -- --
Minimum pension liability adjustment, net -- -- --
Total comprehensive income -- -- (3,565,375)
------------ ------------ ------------
Balances at December 31, 1999 (32,119,800) (1,241,250) 50,873,159
Issuance of treasury stock upon exercise
of stock options (237,780 shares) 2,961,763 -- 1,381,524
Purchase of treasury stock (184,620 shares) (2,077,630) -- (2,077,630)
Income tax benefit arising from
stock options exercised -- -- 625,156
Repayment of receivables -- 153,000 153,000
Stock dividend declared 4,938,913 -- --
Net earnings -- -- --
Foreign currency translation adjustment -- -- --
Minimum pension liability adjustment, net -- -- --
Total comprehensive income -- -- 4,487,480
------------ ------------ ------------
Balances at December 31, 2000 $(26,296,754) $ (1,088,250) $ 55,442,689
============ ============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Del Laboratories, Inc. and subsidiaries (the Company) is a manufacturer and
distributor of cosmetics and proprietary pharmaceuticals. The principal products
in the cosmetics segment are nail care, nail color, color cosmetics, beauty
implements, bleaches and depilatories, personal care products and other related
cosmetic items. The principal products in the pharmaceutical segment are of a
proprietary nature and range from oral analgesics to acne treatment products and
first aid products.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts of all
wholly-owned domestic and foreign subsidiaries. The net assets and results of
foreign operations are not significant to the consolidated financial statements.
The accounts of foreign subsidiaries are translated in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 52,
"Foreign Currency Translation." As such, balance sheet accounts are translated
at the exchange rate as of December 31 of each year and statement of operations
accounts are translated at average exchange rates during the period. The
resulting translation adjustments are recorded as a component of shareholders'
equity. Gains or losses resulting from foreign currency transactions are
included in other income (loss). All intercompany accounts and transactions have
been eliminated in consolidation.
(c) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include deposits in banks, short-term commercial
paper, United States Treasury bills and money market funds with an initial term
of less than three months. Cash equivalents were $52,000 and $150,000 as of
December 31, 2000 and 1999, respectively. For purposes of the consolidated
statements of cash flows, the Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
(d) REVENUE RECOGNITION
The Company sells its products to chain drug stores, mass volume retailers,
supermarkets and wholesalers. Sales of such products are principally denominated
in U.S. dollars. The Company's accounts receivable reflect the granting of
credit to these customers. Revenues are recognized and product discounts are
recorded when merchandise is shipped. Net sales are comprised of gross revenues
less returns, trade discounts and customer allowances. Merchandise returns are
accrued at the earlier of customer deduction or receipt of goods. Net sales are
reduced for the impact of expected returns and cost of sales is reduced for the
estimated net realizable value of expected returns. The Company generally grants
credit based upon analysis of the customer's financial position and previously
established buying and selling patterns. The Company does not bill customers for
shipping and handling costs and, accordingly, classifies such costs as selling
and administrative expense.
(e) INVENTORIES
Inventories are valued at the lower of cost (principally first-in/first-out) or
market value. The components of inventories are as follows:
2000 1999
---- ----
Raw materials $26,655,440 $27,936,005
Work in process 3,775,309 6,225,866
Finished goods 28,153,452 24,993,338
----------- -----------
$58,584,201 $59,155,209
=========== ===========
Included in cost of sales for 1999 is an increase in the inventory valuation
reserve for $4,500,000 to reflect the estimated market value of the Naturistics
inventory pursuant to the Company's plan to reduce excess and slow moving
inventory of this brand.
(f) PROPERTY, PLANT AND EQUIPMENT
The Company provides for depreciation on the straight-line method over the
estimated useful lives of the assets. The range of estimated lives applicable to
the assets are as follows:
Building and building improvements 10 to 50 years
Machinery and equipment 3 to 15 years
Furniture and fixtures 3 to 10 years
F-7
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(g) INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(h) RESEARCH AND DEVELOPMENT
The Company has expended $5,292,000, $5,219,000 and $4,927,000 during 2000, 1999
and 1998, respectively, for research and development relating to the development
of new products, clinical and regulatory affairs, and quality control &
assurance of the Company's product lines. All costs associated with research and
development are expensed as incurred and included in selling and administrative
expenses in the accompanying consolidated statements of operations.
(i) ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expenses were
approximately $28,000,000, $29,000,000 and $31,000,000 in 2000, 1999 and 1998,
respectively.
(j) EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing income available to
common shareholders (which for the Company equals its recorded net earnings
(loss)) 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.
(k) STOCK SPLITS AND DIVIDENDS
On November 15, 2000, the Company's Board of Directors approved a 5% stock
dividend. As a result, 380,241 shares of treasury stock were issued on December
27, 2000 to shareholders of record on November 30, 2000. On November 15, 1999,
the Company's Board of Directors approved a 2% stock dividend. As a result,
154,960 shares of treasury stock were issued on December 28, 1999 to
shareholders of record on November 30, 1999. Accordingly, the effect of the 5%
and 2% stock dividends has been reflected in the consolidated balance sheets as
of December 31, 2000 and 1999, and the consolidated statements of shareholders'
equity for 2000, 1999 and 1998, and the accompanying notes to consolidated
financial statements.
(l) STOCK OPTION PLAN
The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB No. 25), and related interpretations, in accounting for its
fixed plan stock options. Under APB No. 25, compensation expense would be
recorded if, on the date of grant, the market price of the underlying stock
exceeded its exercise price. As permitted by SFAS No. 123, "Accounting for
Stock-Based Compensation", the Company applies the accounting prescribed by APB
No. 25 and presents the SFAS No. 123 information in the footnotes to its
consolidated financial statements.
F-8
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(m) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company accounts for long-lived assets in accordance with the provisions of
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of ". This Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amounts of an asset to future undiscounted net
cash flows expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
The recoverability of the excess cost over fair value of assets acquired is
assessed by determining whether the amortization over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate reflecting the
Company's average cost of funds. The assessment of the recoverability of the
excess cost over fair value of assets acquired will be impacted if estimated
future operating cash flows are not achieved.
(n) RECLASSIFICATIONS
Certain reclassifications were made to prior year amounts to conform with the
2000 presentation.
(o) USE OF ESTIMATES
The preparation of 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 the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
(2) SUPPLEMENTAL CASH FLOW INFORMATION
The following is supplemental information relating to the consolidated
statements of cash flows:
2000 1999 1998
---- ---- ----
Cash transactions:
Interest $7,919,286 $6,026,000 $4,591,000
========== ========== ==========
Income taxes $2,008,009 $1,938,000 $7,630,000
========== ========== ==========
Non-cash transactions:
Income tax benefit arising from
stock options exercised $ 625,000 $ 501,000 $2,335,000
========== ========== ==========
Shares tendered to exercise
stock options $1,382,000 $1,025,000 $1,470,000
========== ========== ==========
Financed purchase
of Canadian facility $1,828,000 -- --
========== ========== ==========
F-9
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment, at cost, are as follows:
2000 1999
---- ----
Land $ 2,347,902 $ 1,916,151
Building and building improvements 18,338,695 16,472,792
Machinery and equipment 34,914,509 32,318,533
Furniture and fixtures 9,085,202 7,015,319
------------- -------------
$ 64,686,308 $ 57,722,795
============= ============
Depreciation expense for 2000, 1999 and 1998 was $6,887,248, $6,446,523 and
$5,700,053, respectively.
(4) INTANGIBLES ARISING FROM ACQUISITIONS
Intangibles represent the excess of the purchase prices paid for companies and
product lines over amounts assigned to fair value of the net tangible assets.
Total intangibles related to acquisitions prior to 1971 amount to $6,660,000, of
which $378,000 was written off in 1995 due to a diminution in value. The
remaining $6,282,000 has been determined to be recoverable under the provisions
of SFAS No. 121. The portion of intangibles, $3,350,000, acquired in 1980,
attributable to Propa pH, had been amortized using the straight-line method over
30 years. In 1996, the Company reduced the carrying value of intangibles
associated with the Propa pH brand by $500,000, which was included in
amortization expense, and accelerated amortization of the remaining net book
value ($1,015,000 at December 31, 1996) over a five-year period. The trademarks
acquired in 1984, $3,000,000, are being amortized using the straight-line method
over 20 years. In 1998, the Company acquired the intellectual property rights
and other assets of the CornSilk brand of facial make-up for approximately $10.9
million and $1.0 million in cash, respectively. The intellectual property rights
are being amortized over 20 years. In September 1999, the Company entered into
an agreement with the former owner of CornSilk, related to its 1998 acquisition
of the CornSilk brand of facial make-up. Under the provisions of this agreement
adjustments to the original purchase price were negotiated. As a result, the
intangible assets arising from this acquisition were reduced by approximately
$482,000.
Accumulated amortization amounted to $7,347,556, $6,466,700 and $5,559,773 at
December 31, 2000, 1999 and 1998, respectively. Amortization expense amounted to
$880,855, $906,927 and $693,544 for 2000, 1999 and 1998, respectively.
F-10
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) INCOME TAXES
The components of income tax expense (benefit) are as follows:
2000 FEDERAL STATE FOREIGN TOTAL
- ---- -------- ----- ------- -----
Current tax $ 2,119,000 $ 281,000 $ 650,000 $ 3,050,000
Deferred tax 562,000 (54,000) -- 508,000
----------- ----------- ----------- -----------
$ 2,681,000 $ 227,000 $ 650,000 $ 3,558,000
=========== =========== =========== ===========
1999
- ----
Current tax $ (421,000) $ 102,000 $ 193,000 $ (126,000)
Deferred tax (1,199,000) (156,000) -- (1,355,000)
----------- ----------- ----------- -----------
$(1,620,000) $ (54,000) $ 193,000 $(1,481,000)
=========== =========== =========== ===========
1998
- ----
Current tax $ 8,107,000 $ 1,011,000 $ 328,000 $ 9,446,000
Deferred tax (1,780,000) (282,000) -- (2,062,000)
----------- ----------- ----------- -----------
$ 6,327,000 $ 729,000 $ 328,000 $ 7,384,000
=========== =========== =========== ===========
Total income tax expense (benefit) differed from the statutory rate of 34% for
2000 and 35% for 1999 and 1998, respectively, of earnings before income taxes,
as a result of the following items:
2000 1999 1998
---- ---- ----
Tax provision at statutory rate $ 2,813,000 $(1,919,000) $ 6,461,000
(34% in 2000, 35% in 1999 and 1998)
Increase (decrease) in tax resulting from:
State income taxes, net of Federal
income tax benefit 150,000 (35,000) 474,000
Amortization of intangibles 120,000 124,000 124,000
Officers' life insurance 99,000 86,000 82,000
Meals and entertainment 97,000 114,000 102,000
Foreign rate differential 252,000 115,000 157,000
Other, net 27,000 34,000 (16,000)
Actual provision (benefit)
for income taxes $ 3,558,000 $(1,481,000) $ 7,384,000
=========== =========== ===========
F-11
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. For presentation
purposes, certain of such tax assets and liabilities are shown net on the
accompanying consolidated balance sheets. Significant components of the
Company's deferred tax assets and liabilities as of December 31, are as follows:
2000 1999
---- ----
Deferred tax assets:
Accounts receivable, principally
due to allowance for doubtful accounts $ 259,000 $ 315,000
Supplemental Executive Retirement Plan
(SERP) expense, principally due to
accrual for financial statement
purposes 1,832,000 1,540,000
Inventory, principally due to reserves 3,747,000 3,969,000
Pension accrual for financial reporting
purposes 1,520,000 1,461,000
Sales discounts and returns, coupon
redemptions and other 498,000 1,190,000
----------- -----------
Deferred tax assets 7,856,000 8,475,000
----------- -----------
Deferred tax liabilities:
Property, plant and equipment,
principally due to differences
in depreciation methods (3,978,000) (3,987,000)
Other (100,000) (202,000)
----------- -----------
Deferred tax liabilities (4,078,000) (4,189,000)
----------- -----------
Net deferred tax assets $ 3,778,000 $ 4,286,000
=========== ===========
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not that the Company will realize the benefits of these
deductible differences.
F-12
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) LONG-TERM DEBT
2000 1999
---- ----
9.5% senior notes $40,000,000 $40,000,000
Notes payable under lines of credit -- 15,750,000
Notes payable under revolving credit agreement 41,000,000 20,000,000
Purchase money promissory note -- 3,888,461
Mortgages on land and buildings 5,611,816 --
----------- -----------
$86,611,816 $79,638,461
Less current portion 4,116,719 3,888,461
----------- -----------
$82,495,097 $75,750,000
=========== ===========
On February 25, 2000, the senior notes were amended and restated primarily to
reduce $8,000,000 of principal repayments due on May 31, 2001 and May 31, 2002.
The amended notes require annual principal repayments of $4,000,000 on May 31,
2001 and May 31, 2002; $8,000,000 on May 31, 2003 and May 31, 2004 and the
balance on May 31, 2005. The terms of the amended agreement include covenants,
which provide among other things, for the maintenance of financial covenants and
ratios relating to consolidated net worth, restrictions on cash dividends, the
purchase of treasury stock and certain other expenditures.
On February 25, 2000, the Company amended a revolving credit agreement entered
into in December 1998. The amendment increased the credit facility to
$47,500,000 from $20,000,000 and extended the expiration to February 25, 2003.
After giving effect to the refinancing of the lines of credit (note 7), this
amended revolving credit agreement increased the Company's borrowing capacity by
$10,000,000. Under the terms of the agreement, interest rates on borrowings are
based on, at the Company's option, LIBOR, prime or Federal funds rates. The
terms of the agreement include a commitment fee based on unutilized amounts, an
annual agency fee and covenants which provide among other things, for the
maintenance of financial covenants and ratios relating to consolidated net
worth, restrictions on cash and dividends, the purchase of treasury stock, and
certain other expenditures. The agreement terms also include reductions in the
commitment equal to the greater of $4,000,000 or principal amounts of the senior
notes paid on each of May 31, 2001 and May 31, 2002. The revolving credit
facility, as amended, is collateralized by the Company's trademarks and accounts
receivable until such time as the borrowings under the revolving credit
agreement are less than $22,500,000 and a certain financial ratio is achieved.
The senior note holder and the lenders under the revolving credit agreement have
entered into an intercreditor agreement which includes the pro rata sharing of
such collateral. No compensating balances are required. The weighted-average
interest rate at December 31, 2000 was 9.89%.
On February 22, 2000, the Company purchased a manufacturing, warehousing and
office facility in Barire, Ontario for $1,828,000. The purchase was financed
with a combination of mortgage bridge loan and a five year mortgage.
On April 26, 2000, the Company refinanced a 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 an interest rate based
on LIBOR and 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 at December 31, 2000 in the accompanying consolidated balance
sheet.
The aggregate maturities of long-term debt for each of the five years subsequent
to December 31, 2000, including amounts outstanding under the amended revolving
credit agreement, are as follows: 2001, $4,116,719; 2002, $5,628,913; 2003,
$47,640,825; 2004, $8,153,947 and 2005, $21,071,412.
(7) FINANCING ARRANGEMENTS
At December 31, 1999, the Company had arrangements with banks providing for
$17,500,000 of lines of credit. These lines were renewable annually. Borrowings
under these lines at December 31, 1999 were $15,750,000. On February 25, 2000,
the lines were cancelled and refinanced (note 6) as part of the amended and
restated revolving credit facility and therefore have been classified as
long-term debt in the accompanying consolidated balance sheet as of December 31,
1999.
F-13
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) EMPLOYEE RETIREMENT PLANS
(a) PENSION PLANS
The Company maintains two non-contributory defined benefit pension plans
covering all U.S. eligible employees. The Del Non-Union Plan formula is based on
years of service and the employee's compensation during the five years before
retirement. The Del LaCross Union Plan formula is based on years of service. The
Company made contributions to these plans of $243,000, $166,000 and $519,000 for
the years 2000, 1999 and 1998 respectively. Assets held by these plans consist
of cash and cash equivalents, fixed income securities consisting of U.S.
government and corporate bonds and common stocks. The Company also has a defined
benefit supplemental executive retirement plan (SERP) for certain of its
executives. The SERP is a non-qualified plan under the Internal Revenue Code.
The plan assets of the SERP, which were approximately $2,482,000 and $2,333,000
as of December 31, 2000 and 1999, respectively, are considered assets of the
Company and, as such, are included in other assets on the accompanying
consolidated balance sheets. The assets of the SERP, which consist of cash and
cash equivalents and U.S. government bonds, are held-to-maturity securities and,
as such, are carried at cost plus accrued interest. The Company did not
contribute to the SERP in 2000 and 1999.
Total pension expense for the years ended December 31, 2000, 1999 and 1998
amounted to approximately $1,548,000, $1,696,000 and $1,736,000, respectively.
The change in benefit obligation, change in plan assets and funded status as of
December 31, 2000 and 1999 and components of net periodic cost for 2000, 1999
and 1998 of the Company's domestic plans are set forth in the following tables:
2000
---------------------------------------------
DEL NON- DEL LACROSS
UNION PLAN UNION PLAN SERP
---------------------------------------------
Change in benefit obligation:
Benefit obligation at the beginning of the year $ 15,273,221 $ 1,008,424 $ 5,447,939
Service cost 1,038,538 19,610 47,166
Interest cost 1,183,740 75,141 446,953
Actuarial (gain) loss 461,914 (10,649) 305,919
Benefits paid (653,115) (73,666) --
------------ ------------ ------------
Benefit obligation at the end of the year $ 17,304,298 $ 1,018,860 $ 6,247,977
------------ ------------ ------------
Change in plan assets:
Fair value of assets at the beginning of the year $ 14,932,966 $ 621,532 $ --
Actual return on plan assets 15,892 33,065 --
Employer contributions 76,000 167,000 --
Benefits paid (653,115) (73,666) --
- -------------------------------------------------------- ------------ ------------ ------------
Fair value of assets at the end of the year $ 14,371,743 $ 747,931 $ --
- -------------------------------------------------------- ------------ ------------ ------------
Funded status $ (2,932,555) $ (270,929) $ (6,247,977)
Unrecognized transition (asset) obligation (127,089) 24,776 --
Unamortized prior service cost 317,415 35,958 1,296,327
Unrecognized net actuarial (gain) loss (1,323,841) 85,308 364,145
------------ ------------ ------------
Net amount recognized $ (4,066,070) $ (124,887) $ (4,587,505)
============ ============ ============
Amounts recognized in the balance sheet consist of:
Accrued benefit liability $ (4,066,070) $ (270,929) $ (5,624,411)
Intangible asset (included in other long-term assets) -- 60,734 1,036,906
Accumulated other comprehensive income -- 85,308 --
------------ ------------ ------------
Net amount recognized $ (4,066,070) $ (124,887) $ (4,587,505)
============ ============ ============
F-14
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
1999
----------------------------------------------
DEL NON- DEL LACROSS
UNION PLAN UNION PLAN SERP
----------------------------------------------
Change in benefit obligation:
Benefit obligation at the beginning of the year $ 16,394,731 $ 1,109,657 $ 5,047,886
Service cost 1,131,964 24,396 56,629
Interest cost 1,087,135 72,145 340,732
Actuarial (gain) loss (2,800,609) (137,774) 10,482
Benefits paid (540,000) (60,000) (7,790)
------------ ------------ ------------
Benefit obligation at the end of the year $ 15,273,221 $ 1,008,424 $ 5,447,939
------------ ------------ ------------
Change in plan assets:
Fair value of assets at the beginning of the year $ 14,571,545 $ 519,036 $ --
Actual return on plan assets 1,137,624 27,117 --
Employer contributions 20,000 146,000 --
Benefits paid (796,203) (70,621) --
------------ ------------ ------------
Fair value of assets at the end of the year $ 14,932,966 $ 621,532 $ --
------------ ------------ ------------
Funded status $ (340,255) $ (386,892) $ (5,447,939)
Unrecognized transition (asset) obligation (189,665) 49,553 --
Unamortized prior service cost 373,571 43,565 1,561,433
Unrecognized net actuarial (gain) loss (3,303,186) 72,074 94,746
------------ ------------ ------------
Net amount recognized $ (3,459,535) $ (221,700) $ (3,791,760)
============ ============ ============
Amounts recognized in the balance sheet consist of:
Accrued benefit liability $ (3,459,535) $ (386,892) $ (5,302,833)
Intangible asset (included in other long-term assets) -- 93,118 1,511,073
Accumulated other comprehensive income -- 72,074 --
------------ ------------ ------------
Net amount recognized $ (3,459,535) $ (221,700) $ (3,791,760)
============ ============ ============
2000
----------------------------------------------
DEL NON- DEL LACROSS
UNION PLAN UNION PLAN SERP
----------------------------------------------
Components of net periodic cost:
Service cost $ 1,038,538 $ 19,610 $ 47,166
Interest cost 1,183,740 75,141 446,953
Expected return on plan assets (1,318,962) (56,947) --
Amortization of unrecognized transition (assets) obligations (62,576) 24,776 --
Recognized prior service cost 56,156 7,607 265,106
Recognized net (gain) loss (214,361) -- 36,520
------------ ------------ ------------
Net periodic cost $ 682,535 $ 70,187 $ 795,745
============ ============ ============
F-15
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1999
-----------------------------------------
DEL NON- DEL LACROSS
UNION PLAN UNION PLAN SERP
---------- ---------- ----
Components of net periodic cost:
Service cost $ 1,131,964 $ 24,396 $ 56,629
Interest cost 1,087,135 72,145 340,732
Expected return on plan assets (1,287,589) (47,298) --
Amortization of unrecognized transition (asset)
obligation (62,576) 24,776 --
Recognized prior service cost 56,156 9,668 265,106
Recognized net loss -- 4,816 19,969
----------- ----------- -----------
Net periodic cost $ 925,090 $ 88,503 $ 682,436
=========== =========== ===========
1998
-----------------------------------------
DEL NON- DEL LACROSS
UNION PLAN UNION PLAN SERP
---------- ---------- ----
Components of net periodic cost:
Service cost $ 963,336 $ 21,418 $ 48,767
Interest cost 996,031 71,603 327,482
Expected return on plan assets (968,889) (39,994) --
Amortization of unrecognized transition (asset)
obligation (62,576) 24,776 --
Recognized prior service cost 56,156 10,185 265,106
Recognized net loss -- 1,817 20,769
------------ ----------- -----------
Net periodic cost $ 984,058 $ 89,805 $ 662,124
============ =========== ==========
The weighted-average actuarial assumptions used as of December 31, 2000, 1999
and 1998, respectively, were:
2000 1999 1998
------- ------- -------
Discount rate 7.75% 8.00% 6.75%
Rate of compensation increase 5.50% 5.50% 5.50%
Expected long-term rate of return on plan assets 9.00% 9.00% 9.00%
The Company contributes to a multi-employer pension plan for the benefit of its
union employees. This plan is a defined benefit plan based on years of service
and the costs recognized for 2000, 1999 and 1998 were approximately $431,000,
$463,000 and $430,000, respectively.
The Company maintains a defined contribution plan for the benefit of its
Canadian employees. The costs recognized for 2000, 1999 and 1998 were
approximately $80,000, $72,000 and $60,000 in U.S. dollars, respectively.
F-16
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(b) EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an employee stock ownership plan and related trust, covering
substantially all full-time non-union employees. Under the terms of the plan,
the Company may make contributions to the trust in cash, shares of Company stock
or other property in amounts as may be determined by the Board of Directors. The
Board of Directors authorized contributions of $200,000 for 2000. Contributions
were not made for 1999 or 1998. At December 31, 2000, the trust held 484,000
shares of Company common stock.
(c) EMPLOYEE 401(K) SAVINGS PLAN
The Company maintains an Employee 401(k) Savings Plan. The plan is a defined
contribution plan which is administered by the Company. All regular, full-time
employees are eligible for voluntary participation upon completing six months of
service and having attained the age of twenty-one. The plan provides for growth
in savings through contributions and income from investments. It is subject to
the provisions of the Employee Retirement Income Security Act of 1974, as
amended. Plan participants are allowed to contribute a specified percentage of
their base salary. However, the Company retains the right to make optional
contributions for any plan year. Optional contributions were not made in 2000,
1999 and 1998.
(9) SHAREHOLDERS' EQUITY
(a) STOCK OPTION PLANS
The 1994 Stock Plan, as amended (the 1994 Plan) provides for the granting of
incentive and non-incentive options and other stock-based awards. A total of
2,320,320 shares have been authorized for issuance under the 1994 Plan. At
December 31, 2000, non-incentive options have been the only awards issued under
the 1994 Plan. The exercise price of options granted under the 1994 Plan shall
not be less than the fair market value of the common stock at the date of the
grant. The Compensation Committee of the Board of Directors (the Committee)
determines the persons to whom options will be granted, the prices at which
options may be exercised, the vesting period and whether the options will be
incentive or non-incentive. Incentive options, if granted, are exercisable for a
period of up to ten years from the date of the grant. The exercise price of the
shares to be purchased shall be paid either in cash, delivery (i.e., surrender)
of shares of common stock owned by the optionee at the time of exercise of the
option, in installments payable in cash if permitted by the Committee or in any
combination of the foregoing.
Shares received by an optionee upon exercise of a non-incentive option may not
be sold or otherwise disposed of for a period (restricted period) determined by
the Committee upon grant of the option, which shall be not less than six months
or more than three years from the date of the exercise, during which period the
Company is entitled, in the event the employment of the optionee with the
Company terminates, to repurchase the shares at the exercise price. Following
the restricted period, the Company shall have a right of first refusal to
purchase the shares at fair market value. Shares issuable upon exercise of
options granted to date under the 1994 Plan are subject to a six-month
restricted period. At December 31, 2000, 1,227,788 of the 1,809,656 options
outstanding were exercisable under the 1994 Plan, at a weighted-average exercise
price of $15.17.
The 1984 Stock Option Plan, as amended (the 1984 Plan), provided for the
granting of incentive and non-incentive options to purchase shares of the
Company's common stock at prices which are not less than the fair market value
of the common stock at the dates of grant. Options are exercisable as determined
by the Committee for a period up to ten years and one day from the date of
grant. Incentive options granted to a 10% stockholder must be granted at 110% of
fair market value and may be exercised up to five years from the date of grant.
Payment of the exercise price of options may be made in the same manner as
provided by the 1994 Plan, and shares issued upon exercise are subject to a
restricted period similar to that provided under the 1994 Plan. At December 31,
2000, all 94,141 options outstanding under the 1984 Plan were exercisable at a
weighted-average exercise price of $2.85. No further options will be granted
under the 1984 Plan.
F-17
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Limited stock appreciation rights also may be granted under the 1994 Plan and
1984 Plan, which will be effective only upon a change in control of the Company
(as defined). These plans also accelerate the exercisability of all unexercised
options or stock appreciation rights immediately in the event of a change in
control of the Company.
Shares outstanding, option prices and option transactions during the last three
years, are summarized below:
1994 STOCK PLAN
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
------ --------------
Outstanding December 31, 1997 1,160,731 $ 14.47
Granted 208,911 22.84
Exercised (30,271) 13.11
Forfeited (29,267) 24.73
---------
Outstanding December 31, 1998 1,310,104 15.60
Granted 174,454 13.88
Exercised (29,033) 6.63
Forfeited (39,498) 21.33
---------
Outstanding December 31, 1999 1,416,027 15.41
Granted 401,128 11.62
Exercised -- --
Forfeited (7,499) 15.93
---------
Outstanding December 31, 2000 1,809,656 $ 14.57
=========
1984 STOCK PLAN
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
------ --------------
Outstanding December 31, 1997 751,567 $ 4.78
Granted -- --
Exercised (229,090) 4.85
Forfeited (3) 4.36
---------
Outstanding December 31, 1998 522,474 4.75
Granted -- --
Exercised (190,553) 4.37
Forfeited -- --
---------
Outstanding December 31, 1999 331,921 4.97
Granted -- --
Exercised (237,780) 5.81
Forfeited -- --
---------
Outstanding December 31, 2000 94,141 $ 2.85
=========
At December 31, 2000, a total of 1,903,797 shares of common stock were subject
to outstanding options under all stock option plans.
F-18
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The Company applies APB Opinion No. 25 and interpretations in accounting for
stock option plans. Accordingly, no compensation cost has been recognized. Had
compensation cost for the stock option plans been determined based on the fair
value at the grant dates for awards under the plans, consistent with the
alternative method set forth under SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company's net earnings and net earnings per share would have
been reduced. The pro forma amounts are indicated below:
YEAR ENDED DECEMBER 31, 2000 1999 1998
----------------------- ---- ---- ----
Net earnings (loss)
As reported $4,717,000 $(4,002,000) $11,077,000
Pro forma $3,759,000 $(5,065,000) $10,076,000
Basic net earnings (loss) per share
As reported $ 0.59 $ (0.51) $ 1.36
Pro forma $ 0.47 $ (0.64) $ 1.24
Diluted net earnings (loss) per share
As reported $ 0.59 $ (0.51) $ 1.27
Pro forma $ 0.47 $ (0.64) $ 1.16
The fair value of each option grant was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 2000, 1999 and 1998, respectively: dividend yields 0%, 1.01%,
and 0.58%; expected lives of 6.1, 5.7, and 5.5 years; risk-free interest rates
of 4.72%, 5.89%, and 5.02%; and expected volatility of 45.5%, 42.2%, and 39.0%.
The weighted-average fair value of options granted during 2000, 1999 and 1998
were $5.91, $6.15 and $10.06 respectively.
The following table summarizes information about stock options at December 31,
2000:
OUTSTANDING STOCK OPTIONS EXERCISABLE STOCK OPTIONS
-------------------------------- -------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE
- --------------------------------------------------------------------------------
$0.01 to $4.00 94,141 0.21 $ 2.85 94,141 $ 2.85
$4.01 to $8.00 84,255 3.46 $ 6.89 84,255 $ 6.89
$8.01 to $12.00 760,156 6.14 $11.30 361,736 $11.05
$12.01 to $16.00 526,574 3.89 $14.08 407,561 $14.06
$16.01 to $20.00 88,933 3.83 $17.89 78,621 $17.78
$20.01 to $24.00 236,108 4.47 $21.57 195,349 $21.39
$24.01 to $28.00 44,282 5.13 $25.60 32,298 $25.55
$28.01 to $32.00 69,348 4.95 $28.17 67,968 $28.16
--------- ---------
$ 0.01 to $32.00 1,903,797 4.72 $13.98 1,321,929 $14.29
========= =========
F-19
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(b) RECEIVABLES FOR STOCK OPTIONS EXERCISED
In 1984, the Company loaned an officer $367,000 in connection with the payment
of taxes arising from the exercise of stock options (the 1984 Loan). The Company
also loaned the officer $1,065,313 in 1988 (the 1988 Loan) and $1,100,000 in
1990 (the 1990 Loan), each in connection with the exercise of stock options and
the tax liability arising therefrom. These loans were payable in annual
installments. In addition, the 1988 Loan and the 1990 Loan agreements provided
that if the officer was employed by the Company at the time any interest or debt
payments were due, such payment would be forgiven.
Pursuant to an amendment to this officer's employment agreement, the 1984 Loan,
the 1988 Loan and the 1990 Loan were consolidated, effective as of July 1, 1999,
with the aggregate principal balance to be repaid, with interest at the rate of
6.0% per annum, in annual amounts of $140,000 for each year during the period
from 2000 through 2007 and a final payment of $82,250 on January 20, 2008,
provided that each payment of interest and principal will be forgiven when due
so long as the officer is then employed by, or then serves as a consultant to
the Company and, provided further, that the Company may (but is not required to)
forgive, during any year until 2007, in excess of $140,000 of principal.
Whenever the Company forgives any principal or interest owed by the officer to
the Company, the Company has agreed to pay to the officer such additional
payment (a "Gross-Up Payment") in an amount such that, after payment by the
officer of all Federal, state and local taxes and excise taxes if any, including
any such taxes imposed on the Gross-Up Payment, the officer retains an amount of
the Gross-Up Payment equal to such taxes imposed on the principal and interest
forgiven. This loan must be secured by collateral with a fair value of 110% of
the unpaid principal. The loan balance at December 31, 2000 was $1,062,250 and
was collateralized by 168,961 shares of the Company's common stock.
During 1992, the Company loaned another officer $130,000 to enable him to
exercise an option for 9,719 shares. The loan bears interest at the prime rate
and is payable in quarterly installments. The loan balance at December 31, 2000
was $26,000 and was secured by a pledge of 8,500 shares of the Company's common
stock.
The balance of all loans made to officers is reflected as a reduction of
shareholders' equity in the accompanying consolidated financial statements.
(10) ACCRUED LIABILITIES
Accrued liabilities at December 31, 2000 and 1999 consisted of the following:
2000 1999
---- ----
Salaries, wages, commissions and employee benefits $ 5,795,955 $ 1,829,365
Interest 1,005,350 502,069
Advertising and promotion costs 6,679,092 7,273,833
Other 4,923,309 3,231,264
------------ -----------
$ 18,403,706 $12,836,531
============ ===========
F-20
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) EARNINGS (LOSS) PER SHARE
A reconciliation between the numerators and denominators of the basic and
diluted earnings (loss) per common share is as follows:
(Amounts in thousands, except per share data)
2000 1999 1998
---- ---- ----
Net earnings (loss) (numerator) $ 4,717 $(4,002) $11,077
------- ------- -------
Weighted-average common shares
(denominator for basic earnings
(loss) per share) 7,943 7,906 8,119
Effect of dilutive securities:
Employee stock options 84 -- 584
------- ------- -------
Weighted-average common and potential
common shares outstanding
(denominator for diluted earnings
(loss) per share) 8,027 7,906 8,703
------- ------- -------
Basic earnings (loss) per share $ 0.59 $ (0.51) $ 1.36
======= ======= =======
Diluted earnings (loss) per share $ 0.59 $ (0.51) $ 1.27
======= ======= =======
Employee stock options for 1,391,000, 1,792,000 and 132,000 shares for 2000,
1999 and 1998, respectively, were not included in the net earnings (loss) per
share because their effect would have been anti-dilutive.
F-21
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business, including environmental matters. The final
resolution of these matters on the Company's results of operations or liquidity
in a particular reporting period is not known. Management is of the opinion that
the ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial position.
The Company leases executive office space, furniture, data processing equipment,
transportation equipment and warehouse space under terms of leases expiring
through 2004. Rent expense under these operating leases aggregated approximately
$2,301,949, $2,496,000 and $2,439,000 in 2000, 1999 and 1998, respectively. The
Company's obligations under non-cancelable leases are summarized as follows:
2001 $ 2,119,433
2002 1,926,287
2003 1,401,721
2004 664,448
Thereafter --
-----------
$ 6,111,889
===========
(13) FINANCIAL INSTRUMENTS
The carrying value of all financial instruments classified as a current asset or
current liability are deemed to approximate fair value because of the short
maturity of these instruments.
The fair value of the senior notes exceeds the carrying value at December 31,
2000 by approximately $1.2 million. The fair value of the senior notes is based
upon discounted cash flows using rates available to the Company for debt with
similar terms and maturities. The Company continually evaluates the benefits of
refinancing versus the related prepayment penalties. The carrying value of the
Company's borrowings under the long-term revolving credit agreement approximates
fair value as such borrowings bear variable interest rates which fluctuate with
market conditions. Because considerable judgement is required in interpreting
market data to develop estimates of fair value, the estimates are not
necessarily indicative of the amounts that could be realized or would be paid in
a current market exchange. The effect of using different market assumptions or
estimation methodologies may be material to the estimated fair value amount.
F-22
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(14) COMPREHENSIVE INCOME (LOSS)
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. The Company's items of other comprehensive income (loss)
include foreign currency translation adjustments and minimum pension liability
adjustments, net of the related tax effect. The components of other
comprehensive loss for 2000, 1999 and 1998 are as follows:
Accumulated Other Comprehensive (Loss)
FOREIGN CURRENCY MINIMUM PENSION
TRANSLATION LIABILITY
ADJUSTMENT ADJUSTMENT TOTAL
-----------------------------------------
Balance at December 31, 1997 $ (819,146) $ -- $ (819,146)
Foreign currency translation adjustment (540,742) -- (540,742)
Minimum pension liability adjustment,
net of taxes of $63,000 -- (105,862) (105,862)
------------ ------------ -----------
Balance at December 31,1998 (1,359,888) (105,862) (1,465,750)
Foreign currency translation adjustment 375,856 -- 375,856
Minimum pension liability adjustment,
net of taxes of $27,000 -- 60,788 60,788
------------ ------------ -----------
Balance at December 31, 1999 (984,032) (45,074) (1,029,106)
Foreign currency translation adjustment (225,369) -- (225,369)
Minimum pension liability adjustment,
net of taxes of $10,000 -- (4,096) (4,096)
----------- ------------ -----------
Balance at December 31, 2000 $(1,209,401) $ (49,170) $(1,258,571)
=========== =========== ===========
F-23
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) 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; depreciation of unallocated assets is charged to the Cosmetic segment.
2000 1999 1998
---- ---- ----
Net sales
Cosmetic $ 229,194,000 $ 201,251,000 $ 212,363,000
Pharmaceutical 65,689,000 63,805,000 61,148,000
------------- ------------- -------------
Consolidated $ 294,883,000 $ 265,056,000 $ 273,511,000
============= ============= =============
Operating income (loss)
Cosmetic $ 4,989,000 $ (12,166,000) $ 10,251,000
Pharmaceutical 11,117,000 9,313,000 12,513,000
------------- ------------- -------------
Consolidated $ 16,106,000 $ (2,853,000) $ 22,764,000
============= ============= =============
Gains on sales of facility and land $ 362,000 $ 3,043,000 $ --
------------- ------------- -------------
Interest expense, net $ 8,193,000 $ 5,673,000 $ 4,303,000
------------- ------------- -------------
Earnings (loss) before taxes $ 8,275,000 $ (5,483,000) $ 18,461,000
------------- ------------- -------------
Identifiable assets
Cosmetic $ 133,090,000 $ 122,417,000 $ 120,664,000
Pharmaceutical 24,737,000 22,674,000 20,205,000
Corporate (unallocated assets) 32,951,000 35,470,000 36,605,000
------------- ------------- -------------
Consolidated $ 190,778,000 $ 180,561,000 $ 177,474,000
============= ============= =============
Depreciation and amortization
Cosmetic $ 7,286,000 $ 6,903,000 $ 5,966,000
Pharmaceutical 482,000 450,000 428,000
------------- ------------- -------------
Consolidated $ 7,768,000 $ 7,353,000 $ 6,394,000
============= ============= =============
Expenditures for property, plant and equipment
and long-lived assets
Cosmetic $ 2,297,000 $ 2,334,000 $ 14,167,000
Pharmaceutical 266,000 288,000 320,000
Corporate (unallocated assets) 5,287,000 4,706,000 4,701,000
------------- ------------- -------------
Consolidated $ 7,850,000 $ 7,328,000 $ 19,188,000
============= ============= =============
Sales to one customer by the cosmetic and pharmaceutical segments combined were
24.4%, 25.4% and 21.5% of consolidated net sales for 2000, 1999 and 1998,
respectively and combined sales to another customer were 11.7%, 10.4% and 10.3%
of consolidated net sales for 2000, 1999 and 1998, respectively.
Three customers accounted for 41.1% and 34.2% of the Company's net accounts
receivable at December 31, 2000 and 1999, respectively.
F-24
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) UNAUDITED QUARTERLY FINANCIAL DATA
The following is a summary of quarterly operating results (in thousands of
dollars except per share amounts):
YEAR ENDED DECEMBER 31, 2000
----------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Net sales $ 67,463 $ 76,732 $ 77,080 $ 73,607
Cost of goods sold 29,032 34,403 34,234 32,051
Net earnings 501 1,905 1,174 1,137
Earnings per common share:
Basic $ .06 $ .24 $ .15 $ .14
======== ======== ======== ========
Diluted $ .06 $ .24 $ .15 $ .14
======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1999
----------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Net sales $ 62,196 $ 67,917 $ 64,511 $ 70,432
Cost of goods sold 28,214 28,083 34,673 31,660
Net earnings (loss) 366 1,567 (6,066) 131
Earnings (loss) per common share:
Basic $ .05 $ .20 $ (.77) $ .02
======== ======== ======== ========
Diluted $ .04 $ .19 $ (.77) $ .02
======== ======== ======== ========
Earnings (loss) per share calculations for each of the quarters are based on
weighted-average number of shares outstanding in each period. Therefore, the sum
of the quarters in a year does not necessarily equal the year's earnings (loss)
per share.
Net sales and cost of sales for all periods prior to the fourth quarter of 2000
include a reclassification to conform with year-end 2000 presentation.
F-25
SCHEDULE II
DEL LABORATORIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 2000, 1999 and 1998
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND DEDUCTIONS END
DESCRIPTION OF PERIOD EXPENSES (1) OF PERIOD
- ----------- -------------------------------------------------
Year ended December 31, 1998 $1,300,000 $ 174,000 $ 174,000 $1,300,000
========== ========== ========== ==========
allowances for doubtful
accounts
Year ended December 31, 1999 $1,300,000 $ 112,000 $ 112,000 $1,300,000
========== ========== ========== ==========
allowances for doubtful
accounts
Year ended December 31, 2000 $1,300,000 $ 80,000 $ 380,000 $1,000,000
========== ========== ========== ==========
allowances for doubtful
accounts
(1) Uncollectible accounts written off, net of recoveries.
F-26
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
3.1(a) Restated Certificate of Incorporation as filed
with the Delaware Secretary of State on March 29, 1996.
3.2(b) Certificate of Amendment filed with the Delaware
Secretary of State on June 4, 1996.
3.3(j) Certificate of Amendment of the Restated Certificate of
Incorporation filed with the Delaware Secretary of State
on June 3, 1998.
3.4(a) By-Laws as amended through December 14, 1995.
10.1(c) Employee Pension Plan, effective January 1, 1989
(amended and restated).
10.2 First Amendment of Employees' Pension Plan, effective
January 1, 1989.
10.3(d) Employee's Stock Ownership Plan, effective January 1,
1989.
10.4(e) Amendment No. 1 to Employee's Stock Ownership Plan.
10.5(c) Amendment No. 2 to Employee's Stock Ownership Plan.
10.6(c) 401(k) Plan effective January 1, 1989 (amended and
restated).
10.7(j) Amendment No.1 to 401(k) Plan adopted December 21, 1995.
10.8(j) Amendment No. 2 to 401(k) Plan adopted March 16, 2000.
10.9 Amendment No. 3 to 401 (k) Plan, effective January 1,
2001.
10.10(c) Supplemental Executive Retirement Plan (amended and
restated).
10.11(h) Amendment No. 1 effective January 1, 1997 to
Supplemental Executive Retirement Plan.
10.12 Second Amendment to Supplement Executive Retirement
Plan.
10.13(i) Amendment No. 3 to Supplemental Executive Retirement
Plan.
10.14(e) 1984 Stock Option Plan, as amended to date.
10.15(f) 1994 Stock Plan, as amended as of May 27, 1999.
10.16(f) Annual Incentive Plan, as amended as of May 27, 1999.
10.17(j) Amended and Restated Employment Agreement dated as of
July 1, 1999 between the Registrant and Dan K. Wassong.
10.18(e) Employment Agreement dated March 14, 1985 with Charles
J. Hinkaty, as amended.
-17-
EXHIBIT NO. DESCRIPTION
10.19 Amendment to Employment Agreement with Charles J.
Hinkaty, dated March 31, 1999.
10.20(e) Employment Agreement with Harvey P. Alstodt,
as amended.
10.21(h) Amendment to Employment Agreement with Harvey P.
Alstodt, dated April 22, 1996.
10.22(j) Amendment to Employment Agreement with Harvey P.
Alstodt dated December 30, 1997.
10.23(e) Employment Agreement with William H. McMenemy, as
amended.
10.24(h) Amendment to Employment Agreement with William H.
McMenemy, dated April 22, 1996.
10.25(i) Employment Agreement with Enzo J. Vialardi,
dated December 30, 1998.
10.26(i) Employment Agreement with James Lawrence, dated March
1993.
10.27(i) Amendment to Employment Agreement with James Lawrence,
dated July 12, 1995.
10.28(i) Second Amendment and Employment Agreement with
James Lawrence, dated March 31, 1998.
10.29(e) Life Insurance Agreement, dated as of February 18,
1993.
10.30(g) Lease between Registrant and Coliseum Towers
Associates.
10.31(j) Amended and Restated Loan Agreement dated as of
February 25, 2000 among the Registrant, as borrower,
Del Pharmaceuticals, Inc. ("DPI"), Parfums Schiaperlli,
Inc.("Parfums"), Royce & Rader, Inc. ("Royce") and 565
Broad Hollow Realty Corp.("565"), as guarantors, The
Chase Manhattan Bank, as agent for the lenders, and
The Chase Manhattan Bank and European American Bank,
as lenders.
10.32(j) Trademark Collateral Assignment and Security Agreement
dated as of February 25, 2000, between the Registrant
and The Chase Manhattan Bank, as Collateral Agent.
Similar agreements were executed by DPI and Parfums.
10.33(j) Security Agreement dated as of February 25, 2000
between the Registrant and The Chase Manhattan Bank, as
Collateral Agent. Similar agreements were executed by
DPI, Parfums, Royce and 565.
10.34(j) General Guaranty dated as of February 25, 2000 by DPI in
favor of The Chase Manhattan Bank, as Collateral Agent.
Similar agreement were executed by Parfums,Royce and
565.
10.35(j) Amended and Restated Loan Agreement dated as of
February 25, 2000 among the Registrant, DPI, Parfums,
Royce, 565 and Jackson National Life Insurance Company.
-18-
EXHIBIT NO. DESCRIPTION
21.1(k) List of Subsidiaries.
23.1 Consent of KPMG LLP dated March 20, 2001.
27 Financial Data Schedule
- --------------
(a) These exhibits were filed as exhibits to the Registrant's Form 10-K for the
year ended December 31, 1995. The exhibit numbers in such Form 10-K are as
follows: Restated Certificate, Exhibit 1; and By-Laws, Exhibit 2.
(b) This exhibit was filed as an exhibit to the Registrant's Form 10-Q for the
quarter ended June 30, 1996. The exhibit number in such Form 10-Q is
Exhibit 1.
(c) These exhibits were filed as exhibits to the Registrant's Form 10-K for the
year ended December 31, 1994. The exhibit numbers in such Form 10-K are as
follows: Employee Pension Plan, Exhibit 2; Amendment No. 2 to Employee's
Stock Ownership Plan, Exhibit 3; 401(k) Plan, Exhibit 5; Supplemental
Executive Retirement Plan, Exhibit 6.
(d) This exhibit was filed as an exhibit to the Registrant's Form 10-K for the
year ended December 31, 1989. The exhibit number in such Form 10-K is
Exhibit 2.
(e) These exhibits were filed as exhibits to the Registrant's Form 10-K for the
year ended December 31, 1993. The exhibit numbers in such Form 10-K are as
follows: Amendment No. 1 to Employee's Stock Ownership Plan, Exhibit 2;
1984 Stock Option Plan, Exhibit 3; Employment Agreement with Charles J.
Hinkaty, Exhibit 5; Employment Agreement with Harvey P. Alstodt, Exhibit 6;
Employment Agreement with William H. McMenemy, Exhibit 7; Life Insurance
Agreement with Robert H. Haines, as trustee, Exhibit 9.
(f) These exhibits were filed as exhibits to the Registrant's Definitive Proxy
Statement dated May 27, 1999, relating to the Registrant's 1999 Annual
Meeting of Stockholders. The exhibit numbers in such Proxy Statement are as
follows: 1994 Stock Plan, as amended and restated, Exhibit A; Annual
Incentive Plan, as amended and restated, Exhibit B.
(g) These exhibits were filed as exhibits to the Registrant's Form 10-Q for the
quarter ended September 30, 1997. The exhibit numbers in such Form 10-Q are
as follows: Lease between Registrant and Coliseum Towers Associates,
Exhibit 10.1; Purchase Money Promissory Note with Carver Boat Corporation,
Exhibit 10.2.
(h) These exhibits were filed as exhibits to the Registrant's Form 10-K for the
year ended December 31, 1996, as follows: 10.9 above was filed as Exhibit 1
to the 1996 10-K; 10.21 above was filed as Exhibit 3 to the 1996 10-K; and
10.24 above was filed as Exhibit 4 to the 1996 10-K.
(i) These exhibits were filed as exhibits to the Registrant's Form 10-K for the
year ended December 31, 1998, as follows: 10.10 above was filed as Exhibit
10.32 to the 1998 10-K; 10.25 above as filed as Exhibit 10.29 to the 1998
10-K; 10.26 above was filed as Exhibit 10.30 to the 1998 10-K; and 10.27
above was filed as Exhibit 10.31 to the 1998 10-K.
(j) These exhibits were filed as exhibits to the Registrant's Form 10-K for the
year ended December 31, 1999, as follows: 3.3 above was filed as Exhibit
3.3 to the 1999 10-K; 10.7 above was filed as Exhibit 10.6 to the 1999
10-K; 10.8 above was filed as Exhibit 10.7 to the 1999 10-K; 10.17 above
was filed as Exhibit 10.14 to the 1999 10-K; 10.22 above was filed as
Exhibit 10.22 to the 1999 10-K; 10.31 above was filed as Exhibit 10.32 to
the 1999 10-K; 10.32 above was filed as Exhibit 10.33 to the 1999 10-K;
10.33 above was filed as Exhibit 10.34 to the 1999 10-K; 10.34 above was
filed as Exhibit 10.35 to the 1999 10-K; and 10.35 above was filed as
Exhibit 10.36 to the 1999 10-K.
(k) This exhibit was filed as an exhibit to the Registrant's Form 10-K for the
year ended December 31, 1999. The exhibit number in such Form 10-K is
Exhibit 21.1.
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