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, 2001
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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
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DEL LABORATORIES, INC.
(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 25,
2002 was $151,132,854. The aggregate market value of the Common Stock held by
non-affiliates of the Registrant on March 25, 2002 was $70,407,541. On such
date, the closing price for the Common Stock was $17.75 per share.
The number of shares of Common Stock outstanding as of March 25, 2002 was
8,514,527 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 2002 Part III, Items 10, 11, 12 and 13
Annual Meeting of Stockholders
Part1
ITEM 1 - BUSINESS
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 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 major drug store chains: Walgreens, Rite Aid, CVS and
Eckerd; major national mass merchandiser chains: Wal-Mart, K-Mart and Target,
and numerous regional chain drug stores and mass merchandisers. The Company also
distributes its pharmaceutical products to drug wholesalers, including McKesson
HBOC, Amerisource-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 23.0%, 23.9% and 24.8% of the Company's total
net sales for 2001, 2000 and 1999, respectively, and Walgreens which accounted
for 11.6%, 11.4% and 10.4% of the Company's total net sales in 2001, 2000 and
1999, respectively, no single customer accounted for more than 10% of the
Company's total net sales. Although the Company's loss of one or more customers
that may account for a significant portion of the Company's sales, or any
significant decrease in sales to any of these customers, could have a material
adverse effect on the Company's business, financial condition or results of
operations, the Company has no reason to believe that any such loss of customer
or decrease in sales will occur. In January 2002, K-Mart Corporation filed a
bankruptcy petition for reorganization under Chapter XI of the U.S. Bankruptcy
Code. The Company has resumed shipments to K-Mart subsequent to their receipt of
new debtor-in-possession financing and continues to believe that they are a
valuable customer.
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 $30,456,000 in 2001, or 9.2% of net
sales, $27,755,000 in 2000, or 9.4% of net sales and $28,976,000 in 1999 or
10.9% of 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.
INDUSTRY SEGMENTS (In thousands of dollars)
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2001 2000 1999
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Net sales to unaffiliated customers:
Cosmetics $ 262,258 $ 229,194 $ 201,251
Pharmaceuticals 70,421 65,689 63,805
Operating income (loss):
Cosmetics 11,644 4,989 (12,166)
Pharmaceuticals 11,297 11,117 9,313
Identifiable assets:
Cosmetics 127,809 133,090 122,417
Pharmaceuticals 25,549 24,737 22,674
Corporate (unallocated assets) 38,594 36,403 35,470
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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.
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 2001, 2000 and 1999.
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 $5,414,000, $5,292,000 and $5,219,000 in
2001, 2000 and 1999, 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 and Oil of Olay), Cosmair
(Maybelline and L'Oreal) and, in the over-the-counter pharmaceuticals market,
Whitehall-Robbins Division of Wyeth Corp., Pfizer, Procter and Gamble Co., Glaxo
SmithKline, Bristol-Myers Squibb, Colgate Palmolive, Chattem, 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 2009, 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 1,700 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
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. On February 13, 2002, the Company sold 13.5 acres of vacant land in
Farmingdale, New York for gross proceeds of $3,335,000. The land was included in
property, plant and equipment at December 31, 2001, with a book value of
$500,000. In connection with this sale, an option was granted to the buyer for
the remaining 8.5 acres of improved land and buildings owned by the Company. The
option is for a purchase price of no less than $5,000,000 and cannot be
exercised before December 1, 2004 or after December 1, 2005.
The Company 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 plans to outsource all significant production, consolidate the remaining
production into existing facilities and close down production at the facility by
March 31, 2002.
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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.
The Company owns 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 property is subject to a first mortgage. The facility is used for
manufacturing and shipping and contains the administrative offices of its
Canadian subsidiaries.
The Company 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
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.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this report.
PART II
ITEM 5 - MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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:
2001 2000
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HIGH LOW HIGH LOW
First Quarter $ 11.38 $ 9.25 $ 10.25 $ 7.13
Second Quarter $ 12.15 $ 10.10 $ 12.94 $ 8.00
Third Quarter $ 17.25 $ 10.55 $ 12.88 $ 10.38
Fourth Quarter $ 17.45 $ 14.00 $ 12.63 $ 9.38
There were 475 holders of record of the Company's common stock at December 31,
2001. This does not include beneficial holders whose shares are held of record
by nominees. The Company paid regular quarterly cash dividends of $.035 from
January 1998 through September 1999, a 2% stock dividend in December 1999 and 5%
stock dividends in December 2000 and 2001. The Company has paid uninterrupted
dividends for the past twenty-six 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, 2001, no amounts were available for the repurchase
of treasury stock.
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ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA
The operating and balance sheet data below was derived from the consolidated
financial statements of the Company. The financial data should be read in
conjunction with the consolidated financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(Amounts in Thousands Except Per Share and Employee Data)
2001 2000 1999 1998 1997
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Operating data:
Net sales $ 332,679 $ 294,883 $ 265,056 $ 273,511 $ 263,452
Net earnings (loss) 9,797 4,717 (4,002) 11,077 13,127
Earnings (loss) per common share: (a)
Basic 1.16 0.57 (0.48) 1.30 1.54
Diluted 1.14 0.56 (0.48) 1.21 1.41
Dividends per share:
Cash (b) -- -- .105 .14 .105
Stock 5% 5% 2% -- --
Weighted average common shares
outstanding: (a)
Basic 8,439 8,340 8,301 8,525 8,539
Diluted 8,573 8,428 8,301 9,138 9,278
Balance sheet data:
Total assets $ 191,952 $ 194,230 $ 180,561 $ 177,474 $ 149,314
Long-term debt 61,989 82,495 75,750 59,400 43,879
Working capital 75,177 85,666 74,472 62,728 53,576
Shareholders' equity 64,883 55,443 50,873 59,097 54,530
Other data:
Capital additions $ 5,552 $ 7,850 $ 7,288 $ 7,224 $ 15,230
Approximate # of employees 1,700 1,600 1,500 1,600 1,400
(a) Adjusted to reflect a 5% stock dividend effective December 1, 2001, a
5% stock dividend effective November 30, 2000, a 2% stock dividend
effective November 30, 1999 and a 4-for-3 stock split effective
February 20, 1998.
(b) 1997 adjusted for a 4-for-3 stock split effective February 20, 1998.
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DISCUSSION OF CRITICAL ACCOUNTING POLICIES
The Company makes estimates and assumptions in the preparation of its financial
statements in conformity with accounting principles generally accepted in the
United States of America. Actual results could differ significantly from those
estimates under different assumptions and conditions. The Company believes that
the following discussion addresses the Company's most critical accounting
policies, which are those that are most important to the portrayal of the
Company's financial condition and results of operations and which require
management's most difficult and subjective judgments, often as a result of the
need to make estimates about the effect of matters that are inherently
uncertain. Note 1 of the notes to the consolidated financial statements includes
a summary of the significant accounting policies used in the preparation of the
accompanying consolidated financial statements. The following is a brief
discussion of the more critical accounting policies employed by the Company.
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. 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. Revenues are recognized and discounts are recorded when
merchandise is shipped. Net sales are comprised of gross revenues less returns
and trade discounts and allowances. The Company allows customers to return their
unsold products when they meet certain criteria as outlined in the Company's
trade terms. The Company regularly reviews and revises, as deemed necessary, its
estimates of reserves for future sales returns based primarily upon actual
return rates by product and planned product discontinuances. The Company records
estimated reserves for future sales returns as a reduction of sales, cost of
sales and accounts receivable. Returned products which are recorded as
inventories are valued based on estimated realizable value. The physical
condition and marketability of the returned products are the major factors
considered by the Company in estimating realizable value. Actual returns, as
well as estimated realizable values of returned products, may differ
significantly, either favorably or unfavorably, from estimates if factors such
as economic conditions, customer inventory levels or competitive conditions
differ from expectations.
Co-operative Advertising and Promotional Allowances
The Company has various performance-based arrangements with retailers to
reimburse them for all or a portion of their promotional activities related to
the Company's products. These arrangements primarily allow customers to take
deductions against amounts owed to the Company for product purchases. Estimated
accruals for promotions and co-operative advertising programs are recorded in
the period in which the related revenue is recognized. The Company regularly
reviews and revises the estimated accruals for the projected costs for these
promotions. Actual costs incurred by the Company may differ significantly,
either favorably or unfavorably, from estimates if factors such as the level and
success of the retailers' programs or other conditions differ from our
expectations.
Inventories
Inventories are stated at the lower of cost or market value. Cost is principally
determined by the first-in, first-out method. The Company records adjustments to
the cost of inventories based upon its forecasted plans to sell, historical
scrap and disposal rates and the physical condition of the inventories. These
adjustments are estimates, which could vary significantly, either favorably or
unfavorably, from actual requirements if future economic conditions, the timing
of new product introductions, customer inventory levels, fashion-oriented color
cosmetic trends or competitive conditions differ from our expectations.
Property, Plant and Equipment and Other Long-Lived Assets
Property, plant and equipment is recorded at cost and is depreciated on a
straight-line basis over the estimated useful lives of such assets. Changes in
circumstances such as technological advances, changes to the Company's business
model or changes in the Company's capital strategy can result in the actual
useful lives differing from the Company's estimates. In those cases where the
Company determines that the useful life of property, plant and equipment should
be shortened, the Company would depreciate the net book value in excess of the
salvage value, over its revised remaining useful life thereby increasing
depreciation expense. Factors such as changes in the planned use of equipment,
fixtures, software or planned closing of facilities could result in shortened
useful lives.
Long-lived assets, including fixed assets and intangibles other than goodwill,
are reviewed by the Company for impairment whenever events or changes in
circumstances indicate that the carrying amount of any such asset may not be
recoverable. The estimate of cash flow is based upon, among other things,
certain assumptions about expected future operating performance. The Company's
estimates of undiscounted cash flow may differ from actual cash flow due to,
among other things, technological changes, economic conditions, changes to its
business model or changes in its operating performance. If the sum of the
undiscounted cash flows (excluding interest) is less than the carrying value,
the Company recognizes an impairment loss, measured as the amount by which the
carrying value exceeds the fair value of the asset.
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Pension Benefits
The Company sponsors pension and other retirement plans in various forms
covering all eligible employees. Several statistical and other factors which
attempt to anticipate future events are used in calculating the expense and
liability related to the plans. These factors include assumptions about the
discount rate, expected return on plan assets and rate of future compensation
increases as determined by the Company, within certain guidelines and in
conjunction with its actuarial consultants. In addition, the Company's actuarial
consultants also use subjective factors such as withdrawal and mortality rates
to estimate the expense and liability related to these plans. The actuarial
assumptions used by the Company may differ significantly, either favorably or
unfavorably, from actual results due to changing market and economic conditions,
higher or lower withdrawal rates or longer or shorter life spans of
participants.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
Net sales were $332.7 million and $294.9 million for 2001 and 2000,
respectively, an increase of $37.8 million or 12.8%. Cosmetics net sales were
$262.3 million and $229.2 million for 2001 and 2000, respectively, an increase
of $33.1 million or 14.4%. The increase is primarily due to volume growth in the
Sally Hansen family of brands and in N.Y.C. New York Color. Pharmaceutical net
sales were $70.4 million and $65.7 million for 2001 and 2000, respectively, an
increase of $4.7 million or 7.2%. The increase is primarily attributable to
volume growth of the Orajel brand of oral analgesics and the Dermarest brand of
psoriasis treatment.
Cost of sales were $146.0 million or 43.9% of net sales in 2001, compared to
$129.7 million or 44.0% in 2000, an increase of $16.3 million or 12.6%. The
increase is primarily due to manufacturing costs associated with the increase in
unit volume, and to a lesser extent an increase in merchandise scrapped and
accelerated depreciation related to the Newark, New Jersey plant closure.
Selling and administrative expenses were $163.8 million or 49.2% of net sales in
2001 compared to $149.1 million or 50.5% of net sales in 2000. The increase in
expenses is primarily attributable to increased advertising and promotional
expenses, increases in compensation and retirement costs, a charge for a
potential environmental liability as described below, and an increase of
$3,100,000 in the provision for doubtful accounts related to the K-Mart Chapter
XI bankruptcy filing. The improvement in selling and administrative expenses, as
a percentage of net sales, is primarily attributable to net sales increasing at
a higher rate than increases in spending.
In September 2001, the Company received notice from the Environmental Protection
Agency ("EPA") that it was, along with 81 others, a Potentially Responsible
Party regarding a Superfund Site ("the Site") located in Glen Cove, New York.
According to the notice received from the EPA, the Company's involvement relates
to empty drums coming to the Site in 1977 and 1978. The Company recorded an
estimate of $550,000 in selling and administrative expenses during the third
quarter of 2001 based on information received from the EPA as to its potential
liability for past remediation activities. In October 2001, the Company became a
member of a Joint Defense Group ("the JDG"). The JDG is currently in
negotiations with the EPA in order to develop the amount of settlement costs
required for all past and future remediation activities. The Company is
currently unable to determine such settlement costs, which may or may not be
material to the Company, or the time period over which the costs may be payable.
On June 26, 2001, the Company announced that it would initiate a series of
actions resulting in a full closure of the Newark, New Jersey manufacturing
facility by the end of the first quarter of 2002. It was estimated that the
plant closure would result in the termination of approximately 70 production and
clerical employees. Estimated severance, pension curtailment and other exit plan
expenses of $226,000 were recorded in the second quarter of 2001. The Company
plans to outsource all significant production, consolidate the remaining
production into existing facilities and close down production at the facility by
March 31, 2002. As of December 31, 2001, 51 production and clerical employees
were terminated and $187,000 of exit costs were incurred. The Company believes
that the accrued exit cost liability of $39,000 at December 31, 2001 is adequate
for the balance of costs to be incurred.
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Net interest expense was $6.8 million in 2001 compared to $8.2 million in 2000.
The decrease is due to a significant reduction in the average outstanding
borrowings in 2001, in addition to decreased borrowing rates, as compared to
2000.
The Company's effective annual tax rate for 2001 was 40%, compared to 43% for
2000. The decrease in the effective tax rate for 2001 is primarily due to the
reduced effect of non-deductible expenses on taxable income.
As a result of the above, net earnings increased to $9.8 million, or 2.9% of net
sales in 2001, compared to $4.7 million, or 1.6% of net sales in 2000. The
Company believes that general inflation has had no significant impact on its
earnings (loss) from operations during the last three years.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Net sales were $294.9 million and $265.1 million for 2000 and 1999,
respectively, an increase of $29.8 million or 11.3%. 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 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 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.
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 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.
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.
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. The Company believes that general inflation has had no significant impact
on its earnings (loss) from operations during the last three years.
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LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2001, the Company had cash and cash equivalents of $2.7 million
as compared to $2.9 million in 2000.
Net cash provided by operating activities was $26.2 million and $0.1 million for
the years ended December 31, 2001 and 2000, respectively, as compared to net
cash used in operating activities of $8.0 million for the year ended December
31, 1999. The increase in net cash provided by operating activities for 2001 as
compared to 2000 is due principally to increased earnings, increases in accounts
payable and accrued liabilities and a decrease in accounts receivable, partially
offset by an increase in inventory. The decrease in accounts receivable is
attributable to the timing of shipments during the fourth quarter and increased
collections during the period; the increase in accrued liabilities is primarily
attributable to increased advertising and promotional costs, and the increases
in inventories and accounts payable are due to timing of purchases of raw
materials and components to support projected sales levels.
Cash of $0.01 million, $0.8 million and $4.6 million was provided by the sales
of land and facilities in 2001, 2000 and 1999, respectively. Cash used for
property, plant and equipment additions was $5.6 million, $6.0 million and $7.3
million for 2001, 2000 and 1999, respectively. Capital expenditures for 2001,
2000 and 1999 were primarily for manufacturing machinery and equipment.
Net cash (used in) provided by financing activities was ($20.8) million, $4.5
million and $10.5 million for 2001, 2000 and 1999, respectively. In 2000 and
1999, 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 and $3.5 million in 2000 and 1999, respectively; principal
payments under long-term debt of $20.2 million, $8.1 million and $0.4 million in
2001, 2000 and 1999, respectively; acquisition of shares of the Company's common
stock aggregating $0.6 million, $0.7 million and $4.5 million in 2001, 2000 and
1999, respectively, and a dividend payment of $1.0 million in 1999. As of
December 31, 2001, the Company was authorized to purchase up to 549,327
additional shares based on existing Board authorization. At December 31, 2001,
due to covenant restrictions under the senior notes and revolving credit loan
agreements, no amounts were available for the repurchase of treasury stock.
On March 26, 2002, the senior notes were amended and restated. The senior note
holder executed a Release and Termination Agreement of the collateral liens
granted in the previous amendment. The notes require annual principal repayments
of $4.0 million on May 31, 2002; $8.0 million on May 31, 2003 and May 31, 2004
and $16.0 million on May 31, 2005. The amended agreement is unsecured and
includes 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 March 26, 2002, the Company amended and restated the revolving credit
agreement entered into in December 1998 and amended on February 25, 2000. The
amendment provides credit of $45.0 million and extends the expiration to March
26, 2005. Under the terms of the agreement, interest rates on borrowings are
based on, at the Company's option, LIBOR or prime rates. The terms of the
agreement include a commitment fee based on unutilized amounts and an annual
agency fee. Covenants 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 is unsecured and no compensating balances are
required. The lenders under the amended February 25, 2000 revolving credit
agreement executed a Release and Termination Agreement of the collateral liens
granted in the previous amendment.
The Company amended the February 25, 2000 revolving credit agreement 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 were based on, at the Company's option, LIBOR,
prime or federal funds rates. The terms of the agreement included a commitment
fee based on unutilized amounts, an annual agency fee and covenants which
provided 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
included 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, on February 25, 2000, was
collateralized by the Company's trademarks and accounts receivable until such
time as the borrowings under the revolving credit agreement were less than
$22,500,000 and a certain financial ratio was achieved. The senior note holder
and the lenders under the revolving credit agreement entered into an
intercreditor agreement which included the pro rata sharing of such collateral.
No compensating balances were 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.
-9-
On February 13, 2002, the Company sold 13.5 acres of vacant land in Farmingdale,
New York for gross proceeds of $3,335,000. The land was included in property,
plant and equipment at December 31, 2001, with a book value of $500,000. In
connection with this sale, an option was granted to the buyer for the remaining
8.5 acres of improved land and buildings owned by the Company. The option is for
a purchase price of no less than $5,000,000 and cannot be exercised before
December 1, 2004 or after December 1, 2005.
DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS
In order to aggregate all contractual commitments as of December 31, 2001 (after
giving effect to the extended maturity date of the revolving credit agreement)
that affect financial condition and liquidity, the Company has included the
following table:
PAYMENTS DUE BY PERIOD
LESS THAN AFTER
TOTAL 1 YEAR 1 - 3 YEARS 3 - 5 YEARS 5 YEARS
----- ------ ----------- ----------- -------
Long-term Debt $41,328,239 $ 4,339,004 $16,728,185 $20,261,050 $ --
Revolving Credit Agreement 25,000,000 -- -- 25,000,000 --
Operating Leases 6,675,063 2,743,855 3,699,645 213,226 18,337
----------- ----------- ----------- ----------- ---------
Total Contractual Cash Obligations $73,003,302 $ 7,082,859 $20,427,830 $45,474,276 $ 18,337
=========== =========== =========== =========== =========
The Company believes that cash flows from operations, cash on hand and amounts
available from the credit facility will be sufficient to enable the Company to
meet its anticipated cash requirements during 2002. However, there can be no
assurance that the combination of cash flow from future operations, cash on hand
and amounts available from the credit facility will be sufficient to meet the
Company's cash requirements. Additionally, in the event of a decrease in demand
for its products or reduced sales, such developments, if significant, would
reduce the Company's cash flow from operations and could adversely affect the
Company's ability to achieve certain financial covenants under the senior note
and revolving credit agreements. If the Company is unable to satisfy such
financial covenants, the Company could be required to adopt one or more
alternatives, such as reducing or delaying certain operating expenditures and/or
delaying capital expenditures.
NEW ACCOUNTING PRONOUNCEMENTS
In May 2000, the Emerging Issues Task Force ("EITF") reached a final consensus
on EITF Issue No. 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. In April 2001, the EITF amended the effective date
of this issue to coincide with the required implementation date of EITF Issue
No. 00-25 and will thus be adopted by the Company on January 1, 2002. The
Company has determined that implementation of EITF Issue No. 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.
In April 2001, the EITF reached a final consensus on EITF Issue No. 00-25,
"Vendor Income Statement Characterization of Consideration Paid to a Reseller of
the Vendor's Products", which requires that, unless specific criteria are met,
consideration from a vendor to a retailer (e.g., "slotting fees", "cooperative
advertising arrangements", "buy downs", etc.) be recorded as a reduction from
revenue, as opposed to a selling expense. This consensus is effective for fiscal
quarters beginning after December 15, 2001, and will thus be adopted by the
Company on January 1, 2002. The Company has determined that implementation of
EITF Issue No. 00-25 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.
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that
all business combinations initiated after June 30, 2001 be accounted for under
the purchase method only and that certain acquired intangible assets in a
business combination be recognized as assets apart from goodwill. SFAS No. 142
requires that the amortization of goodwill be replaced with periodic tests of
the goodwill's impairment and that intangible assets with finite lives, other
than goodwill, be amortized over their useful lives. The provisions of SFAS No.
142 will be effective for fiscal years beginning after December 15, 2001, and
will thus be adopted by the Company on January 1, 2002. Since the Company did
not enter into any business combinations subsequent to June 30, 2001, adoption
of SFAS No. 141 did not have an impact on the Company's consolidated financial
statements. During 2002, the Company will perform the first of the required SFAS
No. 142 impairment tests of goodwill and indefinite lived intangible assets as
of January 1, 2002. The Company has not determined the effect, if any, that the
adoption of SFAS No. 142 will have on the Company's consolidated financial
statements.
-10-
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which establishes an accounting standard requiring the recording
of the fair value of liabilities associated with the retirement of long-lived
assets in the period in which they are incurred. The Company must adopt SFAS No.
143 on January 1, 2003. The Company has not determined the effect, if any, that
the adoption of SFAS No. 143 will have on the Company's consolidated financial
statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of
Long-Lived Assets" which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This statement supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", while retaining the fundamental recognition and
measurement provisions of that statement. SFAS No. 144 requires that a
long-lived asset to be abandoned, exchanged for a similar productive asset or
distributed to owners in a spinoff to be considered held and used until it is
disposed of. However, SFAS No. 144 requires that management consider revising
the depreciable life of such long-lived asset. With respect to long-lived assets
to be disposed of by sale, SFAS No. 144 retains the provisions of SFAS No. 121
and requires that discontinued operations no longer be measured on a net
realizable value basis and that future operating losses associated with such
discontinued operations no longer be recognized before they occur. SFAS No. 144
is effective for all fiscal quarters of fiscal years beginning after December
15, 2001, and therefore was adopted by the Company on January 1, 2002. The
adoption did not have a material effect on the Company's consolidated financial
statements.
ITEM 7A - MARKET RISK SENSITIVE INSTRUMENTS
The market risk inherent in the Company's market risk sensitive instruments is
the potential loss arising from material adverse changes in interest rates and
foreign currency exchange rates.
INTEREST RATE RISK
The Company's borrowings at December 31, 2001 under the revolving credit
agreement 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% increase or decrease in interest rates would increase or
decrease annual interest expense by approximately $140,000 at December 31, 2001.
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 (loss). 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 $624,000 at December 31, 2001.
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of the Results of Operations and Financial
Condition and other sections of this Form 10-K include "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities and Exchange Act of 1934 (the "Exchange Act"). All
statements other than statements of historical information provided herein are
forward-looking statements and may contain information about financial results,
economic conditions, trends, certain risks, uncertainties and other factors that
could cause actual results to differ materially from any future results implied
by such 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. Although the Company
believes that the expectations reflected in such forward-looking statements are
based upon reasonable assumptions, it can give no assurance that its
expectations will be achieved. Without limitation, use of the following words is
intended to identify forward-looking statements: "may," "will," "should,"
"expect," "anticipate," "estimate," "indications," "intend," "plan," "momentum,"
or "continue" or the negative thereof or other variations thereon.
-11-
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis, judgment, belief or expectation
only as of the date hereof. The Company undertakes no obligation to publicly
revise these forward-looking statements to reflect events or circumstances that
arise after the date hereof. In addition to the disclosure contained herein,
readers should carefully review any disclosure of risks and uncertainties
contained in other documents the Company files or has filed from time to time
with the Securities and Exchange Commission pursuant to the Exchange Act.
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.
-12-
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 2002 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A
and is incorporated herein by reference.
(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, 2001 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 71 1969
Charles J. Hinkaty Vice President, President of
Del Pharmaceuticals, Inc.,
Director 52 1985
Enzo J. Vialardi Executive Vice President,
Chief Financial Officer 65 1998
William H. McMenemy Executive Vice President of Marketing,
Cosmetics Division, North America 55 1980
Harvey P. Alstodt Executive Vice President of Sales,
Cosmetics Division, North America 62 1988
James F. Lawrence Group Vice President - Operations 67 1993
Gene L. Wexler Vice President, General Counsel 46 1999
and Secretary
Thomas Redder Vice President - Chief Information Officer 54 1996
There is no arrangement or understanding between any executive officer and any
other person pursuant to which he was selected as an officer. 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.
-13-
ITEM 11 - EXECUTIVE COMPENSATION
The information required is set forth under the caption "Executive Compensation"
in the Company's definitive Proxy Statement for the 2002 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 2002
Annual Meeting of Shareholders to be filed pursuant to Regulation 14A and is
incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The information required is set forth under the caption "Executive Compensation"
in the Company's definitive Proxy Statement for the 2002 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,
2001.
-14-
EXHIBIT INDEX
-------------
ITEM TITLE EXHIBIT NO. DESCRIPTION
- ---------- ----------- -----------
Articles of 3.1 (a) Restated Certificate of Incorporation as filed with the
Incorporation Delaware Secretary of State on March 29, 1996.
and By-Laws
3.2 (b) Certificate of Amendment filed with the Delaware Secretary
of State on June 4, 1996.
3.3 (c) 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 Employee Pension Plan, effective January 1, 1997 (amended and
Contracts restated).
10.2 Employee's Stock Ownership Plan, effective January 1, 1997 (amended and
restated).
10.3 401(k) Plan effective January 1, 1997 (amended and restated).
10.4 (d) Supplemental Executive Retirement Plan (amended and restated).
10.5 (h) Amendment No. 1 effective January 1, 1997 to Supplemental Executive
Retirement Plan.
10.6 (j) Second Amendment to Supplement Executive Retirement Plan.
10.7 (i) Amendment No. 3 to Supplemental Executive Retirement Plan.
10.8 Amendment No. 4 to Supplemental Executive Retirement Plan.
10.9 (e) 1984 Stock Option Plan, as amended to date.
10.10 (f) 1994 Stock Plan, as amended as of May 27, 1999.
10.11 (f) Annual Incentive Plan, as amended as of May 27, 1999.
10.12 (c) Amended and Restated Employment Agreement dated as of July 1, 1999
between the Registrant and Dan K. Wassong.
-15-
ITEM TITLE EXHIBIT NO. DESCRIPTION
- ---------- ----------- -----------
10.13 (e) Employment Agreement dated March 14, 1985 with Charles J. Hinkaty,
as amended.
10.14 (j) Amendment to Employment Agreement with Charles J. Hinkaty, dated
March 31, 1999.
10.15 Amendment to Employment Agreement with Charles J. Hinkaty, dated
April 30, 2001.
10.16 Employment Agreement with Harvey P. Alstodt, dated April 1, 2001.
10.17 Employment Agreement with William H. McMenemy, dated April 1, 2001.
10.18 Amendment to Employment Agreement with William H. McMenemy,
dated September 7, 2001.
10.19 Employment Agreement With Enzo J. Vialardi, dated April 1, 2001.
10.20 Change in Control Agreement with Harvey P. Alstodt, dated
April 16, 2001.
10.21 Change in Control Agreement with William H. McMenemy, dated
April 16, 2001.
10.22 (e) Life Insurance Agreement, dated as of February 18, 1993.
10.23 (g) Lease between Registrant and Coliseum Towers Associates.
10.24 Amended and Restated Loan Agreement dated as of March 26, 2002
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, and JP Morgan
Chase, as agent for the lenders.
10.25 Amended and Restated Loan Agreement dated as of March 26, 2002
among the Registrant, DPI, Parfums, Royce, 565 and Jackson National
Life Insurance Company.
-16-
ITEM TITLE EXHIBIT NO. DESCRIPTION
- ---------- ----------- -----------
Subsidiaries of 21.1 List of Subsidiaries.
Registrant
Consents of Experts 23.1 Consent of KPMG LLP dated March 26, 2002.
and Counsel
(a) These exhibits were filed as exhibits to the Registrants 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 Exhibit 1 to the Registrant's Form 10-Q for the
quarter ended June 30, 1996.
(c) 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 and 10.12 above was filed as Exhibit 10.14 to the 1999 10-K.
(d) This exhibit was filed as Exhibit 6 to the Registrant's Form 10-K for the
year ended December 31, 1994.
(e) These exhibits were filed as exhibits to the Registrant's Form 10-K for the
year ended Deceber 31, 1993. The exhibit numbers in such Form 10-K are as
follows: 1984 Stock Option Plan, Exhibit 3; Employment Agreement with
Charles J. Hinkaty, Exhibit 5; and 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) This exhibit was filed as exhibit 10.1 to the Registrant's Form 10-Q for
the quarter ended September 30, 1997.
(h) This exhibit was filed as exhibit 1 to the Registrant's Form 10-K for the
year ended December 31, 1996.
(i) This exhibit was filed as exhibit 10.32 to the Registrant's Form 10-K for
the year ended December 31, 1998.
(j) These exhibits were filed as exhibits to the Registrant's Form 10-K for the
year ended December 31, 2000, as follows: 10.6 above was filed as Exhibit
10.12 and 10.14 above was filed as Exhibit 10.19 to the 2000 10-K.
-17-
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 26, 2002
-----------------------
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 26, 2002
-----------------------
Dan K. Wassong, Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
By /s/ CHARLES J. HINKATY March 26, 2002
-----------------------
Charles J. Hinkaty,
Director, Vice President
By /s/ MARTIN E. REVSON March 26, 2002
-----------------------
Martin E. Revson, Director
By /s/ ROBERT A. KAVESH March 26, 2002
-----------------------
Robert A. Kavesh, Director
By /s/ STEVEN KOTLER March 26, 2002
-----------------------
Steven Kotler, Director
By /s/ GEORGE LINDEMANN March 26, 2002
-----------------------
George Lindemann, Director
By /s/ MARCELLA MAXWELL March 26, 2002
-----------------------
Marcella Maxwell, Director
By /s/ ENZO J. VIALARDI March 26, 2002
-----------------------
Enzo J. Vialardi,
Executive Vice President,
Chief Financial Officer
-18-
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, 2001 and 2000. F-3
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999. F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999. F-5
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2001, 2000 and 1999. F-6
Notes to Consolidated Financial Statements. F-7
Schedule:
II Valuation and Qualifying Accounts for the years ended
December 31, 2001, 2000 and 1999. F-27
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, 2001 and
2000, 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, 2001. 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, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001, 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 21, 2002,
except as to note 6 which
is as of March 26, 2002
F-2
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and December 31, 2000
ASSETS 2001 2000
------
-------------- --------------
Current assets:
Cash and cash equivalents $ 2,687,551 $ 2,910,127
Accounts receivable, less allowance for doubtful accounts
of $4,200,000 in 2001 and $1,000,000 in 2000 52,796,851 60,196,288
Inventories 62,677,679 58,584,201
Deferred income taxes 6,300,012 4,305,428
Prepaid expenses and other current assets 2,302,007 3,325,293
------------- -------------
Total current assets 126,764,100 129,321,337
------------- -------------
Property, plant and equipment, at cost 58,866,493 64,686,308
Less accumulated depreciation and amortization (23,628,691) (27,091,583)
------------- -------------
Net property, plant and equipment 35,237,802 37,594,725
Intangibles arising from acquisitions, net 15,339,264 16,220,119
Other assets 9,360,608 7,542,974
Deferred income taxes 5,249,939 3,550,568
------------- -------------
Total assets $ 191,951,713 $ 194,229,723
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 4,339,004 $ 4,116,719
Accounts payable 21,100,597 20,674,800
Accrued liabilities 22,010,162 18,403,706
Income taxes payable 4,137,359 460,276
------------- -------------
Total current liabilities 51,587,122 43,655,501
Long-term pension liability, less current portion 9,612,558 8,558,440
Deferred income taxes 3,879,951 4,077,996
Long-term debt, less current portion 61,989,235 82,495,097
------------- -------------
Total liabilities 127,068,866 138,787,034
------------- -------------
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 835,145 --
Accumulated other comprehensive loss (2,250,325) (1,258,571)
Retained earnings 76,991,439 74,086,264
------------- -------------
85,576,259 82,827,693
Less: Treasury stock at cost, 1,505,256 shares
in 2001 and 1,625,800 shares in 2000 (19,758,162) (26,296,754)
Receivables for stock options exercised (935,250) (1,088,250)
------------- -------------
Total shareholders' equity 64,882,847 55,442,689
------------- -------------
Total liabilities and shareholders' equity $ 191,951,713 $ 194,229,723
============= =============
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, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
Net sales $ 332,679,039 $ 294,883,279 $ 265,055,457
Cost of goods sold 145,957,178 129,721,382 122,629,810
Selling and administrative expenses 163,781,121 149,055,510 145,278,476
------------- ------------- -------------
Operating income (loss) 22,940,740 16,106,387 (2,852,829)
Other income (expense):
Gains on sales of facility and land -- 361,526 3,042,817
Interest expense, net (6,779,171) (8,192,968) (5,673,007)
------------- ------------- -------------
Earnings (loss) before income taxes 16,161,569 8,274,945 (5,483,019)
Income taxes expense (benefit) 6,364,587 3,558,000 (1,481,000)
------------- ------------- -------------
Net earnings (loss) $ 9,796,982 $ 4,716,945 $ (4,002,019)
============= ============= =============
Earnings (loss) per common share:
Basic $ 1.16 $ 0.57 $ (0.48)
============= ============= =============
Diluted $ 1.14 $ 0.56 $ (0.48)
============= ============= =============
Weighted average common shares outstanding:
Basic 8,439,000 8,340,000 8,301,000
============= ============= =============
Diluted 8,573,000 8,428,000 8,301,000
============= ============= =============
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, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net earnings (loss) $ 9,796,982 $ 4,716,945 $ (4,002,019)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 8,504,377 7,768,103 7,353,450
Deferred income taxes (3,581,074) 508,408 (1,354,935)
Provision for doubtful accounts 4,057,092 79,706 112,410
Gains on sales of land and facility -- (361,526) (3,042,817)
Other non-cash operating items (572,546) 223,855 679,248
Changes in operating assets and liabilities:
Accounts receivable 3,168,371 (14,423,225) 953,608
Inventories (4,439,908) 376,724 (3,648,871)
Prepaid expenses and other current assets 1,022,026 (870,951) 520,223
Other assets and pension liability (776,847) (143,518) 1,338,444
Accounts payable 535,175 (6,436,276) (7,639,603)
Accrued liabilities 4,164,997 5,592,379 2,812,588
Income taxes payable, net 4,272,049 3,033,706 (2,033,397)
------------ ------------ ------------
Net cash provided by (used in) operating activities 26,150,694 64,330 (7,951,671)
------------ ------------ ------------
Cash flows provided by (used in) investing activities:
Proceeds from sales of land and facility 12,882 799,548 4,606,460
Additions to intangibles and other assets -- -- (40,138)
Property, plant and equipment additions (5,551,577) (6,022,190) (7,288,175)
------------ ------------ ------------
Net cash used in investing activities (5,538,695) (5,222,642) (2,721,853)
------------ ------------ ------------
Cash flows provided by (used in) financing activities:
Borrowings under long-term debt -- 29,023,200 4,250,000
Principal payments under long-term debt, net (20,218,022) (8,113,873) (433,956)
Borrowings under short-term lines of credit -- 1,500,000 15,750,000
Repayments of short-term lines of credit -- (17,250,000) (3,500,000)
Decrease in receivables for stock options exercised 13,000 13,000 13,000
Acquisition of treasury stock (620,114) (696,106) (4,538,799)
Dividends paid -- -- (1,037,618)
------------ ------------ ------------
Net cash (used in) provided by financing activities (20,825,136) 4,476,221 10,502,627
------------ ------------ ------------
Effect of exchange rate changes on cash (9,439) 6,924 25,634
------------ ------------ ------------
Net decrease in cash and cash equivalents (222,576) (675,167) (145,263)
Cash and cash equivalents at beginning of year 2,910,127 3,585,294 3,730,557
------------ ------------ ------------
Cash and cash equivalents at end of year $ 2,687,551 $ 2,910,127 $ 3,585,294
============ ============ ============
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, 2001, 2000 and 1999
Additional Accumulated Other
Common Paid-In Comprehensive Retained Treasury
Stock Capital Income (Loss) Earnings Stock
------------ -------------- --------------- -------------- -------------
Balances at December 31, 1998 $ 10,000,000 $ 1,850,617 $ (1,465,750) $ 81,203,670 $(31,097,213)
Income tax benefit arising from
stock options exercised -- 501,160 -- -- --
Issuance of treasury stock upon exercise
of stock options (230,566 shares) -- (1,582,842) -- -- 2,608,140
Purchase of treasury stock (356,717 shares) -- -- -- -- (5,564,097)
Repayment of receivables -- -- -- -- --
Dividends declared ($.105 per share) -- -- -- (773,901) --
Stock dividend declared -- (642,036) -- (1,291,334) 1,933,370
Net loss -- -- -- (4,002,019) --
Foreign currency translation adjustment -- -- 375,856 -- --
Minimum pension liability adjustment, net -- -- 60,788 -- --
Total comprehensive loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balances at December 31, 1999 10,000,000 126,899 (1,029,106) 75,136,416 (32,119,800)
Income tax benefit arising from
stock options exercised -- 625,156 -- -- --
Issuance of treasury stock upon exercise
of stock options (249,669 shares) -- (752,055) -- (828,184) 2,961,763
Purchase of treasury stock (193,851 shares) -- -- -- -- (2,077,630)
Repayment of receivables -- -- -- -- --
Stock dividend declared -- -- -- (4,938,913) 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 (26,296,754)
Income tax benefit arising from
stock options exercised -- 602,046 -- -- --
Issuance of treasury stock upon exercise
of stock options (243,611 shares) -- (602,046) -- (766,929) 3,043,271
Purchase of treasury stock (164,929 shares) -- -- -- -- (2,294,412)
Issuance of treasury stock for ESOP
stock contributions (42,148 shares) -- 35,186 -- (57,228) 522,042
Repayment of receivables -- -- -- -- --
Stock dividend declared -- 799,959 -- (6,067,650) 5,267,691
Net earnings -- -- -- 9,796,982 --
Foreign currency translation adjustment -- -- (516,639) -- --
Minimum pension liability adjustment, net -- -- (475,115) -- --
Total comprehensive income -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balances at December 31, 2001 $ 10,000,000 $ 835,145 $ (2,250,325) $ 76,991,439 $(19,758,162)
============ ============ ============ ============ ============
Receivables For
Stock Options Shareholders'
Exercised Equity
-------------- ---------------
Balances at December 31, 1998 $ (1,394,250) $ 59,097,074
Income tax benefit arising from
stock options exercised -- 501,160
Issuance of treasury stock upon exercise
of stock options (230,566 shares) -- 1,025,298
Purchase of treasury stock (356,717 shares) -- (5,564,097)
Repayment of receivables 153,000 153,000
Dividends declared ($.105 per share) -- (773,901)
Stock dividend declared -- --
Net loss -- --
Foreign currency translation adjustment -- --
Minimum pension liability adjustment, net -- --
Total comprehensive loss -- (3,565,375)
------------ ------------
Balances at December 31, 1999 (1,241,250) 50,873,159
Income tax benefit arising from
stock options exercised -- 625,156
Issuance of treasury stock upon exercise
of stock options (249,669 shares) -- 1,381,524
Purchase of treasury stock (193,851 shares) -- (2,077,630)
Repayment of receivables 153,000 153,000
Stock dividend declared -- --
Net earnings -- --
Foreign currency translation adjustment -- --
Minimum pension liability adjustment, net -- --
Total comprehensive income -- 4,487,480
------------ ------------
Balances at December 31, 2000 (1,088,250) 55,442,689
Income tax benefit arising from
stock options exercised -- 602,046
Issuance of treasury stock upon exercise
of stock options (243,611 shares) -- 1,674,296
Purchase of treasury stock (164,929 shares) -- (2,294,412)
Issuance of treasury stock for ESOP
stock contributions (42,148 shares) -- 500,000
Repayment of receivables 153,000 153,000
Stock dividend declared -- --
Net earnings -- --
Foreign currency translation adjustment -- --
Minimum pension liability adjustment, net -- --
Total comprehensive income -- 8,805,228
------------ ------------
Balances at December 31, 2001 $ (935,250) $ 64,882,847
============ ============
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 SIGNIFICANT ACCOUNTING POLICIES
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.
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 (expense). All intercompany accounts and transactions
have been eliminated in consolidation.
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. 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. Revenues are recognized and discounts are recorded when
merchandise is shipped. Net sales are comprised of gross revenues less returns
and trade discounts and allowances. The Company allows customers to return their
unsold products when they meet certain criteria as outlined in the Company's
trade terms. The Company regularly reviews and revises, as deemed necessary, its
estimates of reserves for future sales returns based primarily upon actual
return rates by product and planned product discontinuances. The Company records
estimated reserves for future sales returns as a reduction of sales, cost of
sales and accounts receivable. Returned products which are recorded as
inventories are valued based on estimated realizable value. The physical
condition and marketability of the returned products are the major factors
considered by the Company in estimating realizable value. Actual returns, as
well as estimated realizable values of returned products, may differ
significantly, either favorably or unfavorably, from estimates if factors such
as economic conditions, customer inventory levels or competitive conditions
differ from expectations.
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 $1,087,000 and $52,000 as of
December 31, 2001 and 2000, 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.
INVENTORIES
Inventories are valued at the lower of cost (principally first-in/first-out) or
market value. The Company records adjustments to the cost of inventories based
upon its forecasted plans to sell, historical scrap and disposal rates and
physical condition of inventories. The components of inventories are as follows:
2001 2000
---- ----
Raw materials $29,114,398 $26,655,440
Work in process 3,892,868 3,775,309
Finished goods 29,670,413 28,153,452
----------- -----------
$62,677,679 $58,584,201
=========== ===========
F-7
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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
ADVERTISING COSTS AND PROMOTIONAL ALLOWANCES
The Company advertises on television and radio and in magazines. Additionally,
the Company has various co-operative advertising programs with retailers.
Advertising costs are expensed in the year incurred. Advertising expenses,
including co-operative advertising programs were approximately $30,456,000,
$27,755,000 and $28,976,000 in 2001, 2000 and 1999, respectively. The Company
also has various performance-based arrangements with retailers to reimburse them
for all or a portion of their promotional activities related to the Company's
products. These arrangements primarily allow customers to take deductions
against amounts owed to the Company for product purchases. Estimated accruals
for promotions and co-operative advertising programs are recorded in the period
in which the related revenue is recognized. The Company regularly reviews and
revises the estimated accruals for the projected costs for these promotions.
Actual costs incurred by the Company may differ significantly, either favorably
or unfavorably, from estimates if factors such as the level and success of the
retailers' programs or other conditions differ from our expectations.
RESEARCH AND DEVELOPMENT
The Company expended approximately $5,414,000, $5,292,000 and $5,219,000 in
2001, 2000 and 1999, 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.
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.
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.
STOCK DIVIDENDS
On November 20, 2001, the Company's Board of Directors approved a 5% stock
dividend. As a result, 404,510 shares of treasury stock were issued on December
28, 2001 to shareholders of record on December 1, 2001. On November 15, 2000,
the Company's Board of Directors approved a 5% stock dividend. As a result,
399,253 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, 162,708 shares of
treasury stock were issued on December 28, 1999 to shareholders of record on
November 30, 1999. Accordingly, the effects of the 5% stock dividends and 2%
stock dividend are reflected in the consolidated balance sheets as of December
31, 2001 and 2000, and the consolidated statements of shareholders' equity for
2001, 2000 and 1999, and the accompanying notes to consolidated financial
statements.
F-8
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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.
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
(goodwill) 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.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
RECLASSIFICATIONS
Certain reclassifications were made to prior year amounts in order to conform to
current year presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In May 2000, the Emerging Issues Task Force ("EITF") reached a final consensus
on EITF Issue No. 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. In April 2001, the EITF amended the effective date
of this issue to coincide with the required implementation date of EITF Issue
No. 00-25 and will thus be adopted by the Company on January 1, 2002. The
Company has determined that implementation of EITF Issue No. 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.
In April 2001, the EITF reached a final consensus on EITF Issue No. 00-25,
"Vendor Income Statement Characterization of Consideration Paid to a Reseller of
the Vendor's Products", which requires that, unless specific criteria are met,
consideration from a vendor to a retailer (e.g., "slotting fees", "cooperative
advertising arrangements", "buy downs", etc.) be recorded as a reduction from
revenue, as opposed to a selling expense. This consensus is effective for fiscal
quarters beginning after December 15, 2001, and will thus be adopted by the
Company on January 1, 2002. The Company has determined that implementation of
EITF Issue No. 00-25 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.
F-9
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that
all business combinations initiated after June 30, 2001 be accounted for under
the purchase method only and that certain acquired intangible assets in a
business combination be recognized as assets apart from goodwill. SFAS No. 142
requires that the amortization of goodwill be replaced with periodic tests of
the goodwill's impairment and that intangible assets with finite lives, other
than goodwill, be amortized over their useful lives. The provisions of SFAS No.
142 will be effective for fiscal years beginning after December 15, 2001, and
will thus be adopted by the Company on January 1, 2002. Since the Company did
not enter into any business combinations subsequent to June 30, 2001, adoption
of SFAS No. 141 did not have an impact on the Company's consolidated financial
statements. During 2002, the Company will perform the first of the required SFAS
No. 142 impairment tests of goodwill and indefinite lived intangible assets as
of January 1, 2002. The Company has not determined the effect, if any, that the
adoption of SFAS No. 142 will have on the Company's consolidated financial
statements.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which establishes an accounting standard requiring the recording
of the fair value of liabilities associated with the retirement of long-lived
assets in the period in which they are incurred. The Company must adopt SFAS No.
143 on January 1, 2003. The Company has not determined the effect, if any, that
the adoption of SFAS No. 143 will have on the Company's consolidated financial
statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of
Long-Lived Assets" which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This statement supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", while retaining the fundamental recognition and
measurement provisions of that statement. SFAS No. 144 requires that a
long-lived asset to be abandoned, exchanged for a similar productive asset or
distributed to owners in a spinoff to be considered held and used until it is
disposed of. However, SFAS No. 144 requires that management consider revising
the depreciable life of such long-lived asset. With respect to long-lived assets
to be disposed of by sale, SFAS No. 144 retains the provisions of SFAS No. 121
and requires that discontinued operations no longer be measured on a net
realizable value basis and that future operating losses associated with such
discontinued operations no longer be recognized before they occur. SFAS No. 144
is effective for all fiscal quarters of fiscal years beginning after December
15, 2001, and therefore was adopted by the Company on January 1, 2002. The
adoption did not have a material effect on the Company's consolidated financial
statements.
(2) SUPPLEMENTAL CASH FLOW INFORMATION
The following is supplemental information relating to the consolidated
statements of cash flows:
2001 2000 1999
---- ---- ----
Cash transactions:
Interest $ 7,741,517 $ 7,919,286 $6,026,000
============ =========== ==========
Income taxes $ 5,703,546 $ 2,008,009 $1,938,000
============ =========== ==========
Non-cash transactions:
Income tax benefit arising from
stock options exercised $ 602,046 $ 625,156 $ 501,160
============ =========== ==========
Shares tendered to exercise
stock options $ 1,674,296 $ 1,381,524 $1,025,298
============ =========== ==========
Financed purchase
of Canadian facility $ -- $1,828,000 $ --
============ =========== ==========
F-10
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:
2001 2000
---- ----
Land $ 2,302,824 $ 2,347,902
Building and building improvements 18,247,704 18,338,695
Machinery and equipment 32,127,200 34,914,509
Furniture and fixtures 6,188,765 9,085,202
----------- -----------
$58,866,493 $64,686,308
=========== ===========
Depreciation expense for 2001, 2000 and 1999 was $7,623,533, $6,887,237 and
$6,446,523, respectively.
(4) INTANGIBLES ARISING FROM ACQUISITIONS
Intangibles arising from acquisitions are as follows:
2001 2000
---- ----
Non-amortized goodwill relating
to acquisitions prior to 1971 $ 6,282,000 $ 6,282,000
Intellectual property rights 8,607,264 9,135,169
Trademarks 450,000 802,950
----------- -----------
$15,339,264 $16,220,119
=========== ===========
Goodwill represents the excess of the purchase prices paid for companies and
product lines over amounts assigned to the fair value of the net tangible assets
as well as purchased intellectual property rights and trademarks. Total goodwill
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. In
1998, the Company acquired the intellectual property rights and other assets of
the CornSilk brand of facial make-up for approximately $10,900,000 and
$1,000,000 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 this acquisition. Under
the provisions of this agreement, adjustments to the original purchase price
were negotiated. As a result, the intangible assets arising from the acquisition
were reduced by approximately $482,000.
The remaining trademarks at December 31, 2001 are the Quencher trademarks
acquired in 1984 and are being amortized over 20 years.
Accumulated amortization amounted to $8,228,410, $7,347,566 and $6,466,700 at
December 31, 2001, 2000 and 1999, respectively. Amortization expense amounted to
$880,844, $880,866 and $906,927 for 2001, 2000 and 1999, respectively.
F-11
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) INCOME TAXES
The components of income tax expense (benefit) are as follows:
2001 FEDERAL STATE FOREIGN TOTAL
----------- ----------- ----------- -----------
Current tax $ 8,362,489 $ 492,938 $ 1,090,234 $ 9,945,661
Deferred tax (3,039,908) (541,166) -- (3,581,074)
----------- ----------- ----------- -----------
$ 5,322,581 $ (48,228) $ 1,090,234 $ 6,364,587
=========== =========== =========== ===========
2000
Current tax $ 2,118,814 $ 280,883 $ 650,303 $ 3,050,000
Deferred tax 562,004 (54,004) -- 508,000
----------- ----------- ----------- -----------
$ 2,680,818 $ 226,879 $ 650,303 $ 3,558,000
=========== =========== =========== ===========
1999
Current tax $ (421,114) $ 101,905 $ 193,209 $ (126,000)
Deferred tax (1,199,026) (155,974) -- (1,355,000)
----------- ----------- ----------- -----------
$(1,620,140) $ (54,069) $ 193,209 $(1,481,000)
=========== =========== =========== ===========
Total income tax expense (benefit) differed from the statutory rate of 35% for
2001 and 34% for 2000 and 35% for 1999, respectively, of earnings before income
taxes, as a result of the following items:
2001 2000 1999
---- ---- ----
Tax provision at statutory rate (35% in 2001, $ 5,656,549 $ 2,813,481 $(1,919,057)
34% in 2000 and 35% in 1999)
Increase (decrease) in tax resulting from:
State income taxes, net of Federal
income tax benefit (31,348) 149,740 (35,100)
Amortization of intangibles 123,540 120,012 123,541
Officers' life insurance 102,185 99,266 85,552
Meals and entertainment 107,036 96,722 114,066
Extraterritorial income exclusion (87,500) -- --
Foreign rate differential 379,679 252,720 114,623
Other, net 114,446 26,059 35,375
----------- ----------- -----------
Actual provision (benefit) for income taxes $ 6,364,587 $ 3,558,000 $(1,481,000)
=========== =========== ===========
F-12
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:
2001 2000
---- ----
Deferred tax assets:
Accounts receivable, principally
due to allowance for doubtful accounts $ 1,802,360 $ 259,026
Supplemental Executive Retirement Plan
(SERP), principally due to
accrual for financial statement
purposes 2,075,704 1,831,800
Inventory, principally due to reserve 4,085,317 3,747,048
Pension accrual for financial reporting purposes 2,969,900 1,519,876
and other compensation benefits
Other 616,670 498,246
------------ ------------
Deferred tax assets 11,549,951 7,855,996
------------ ------------
Deferred tax liabilities:
Property, plant and equipment,
principally due to differences
in depreciation methods (3,879,951) (3,977,706)
Other -- (100,290)
------------ ------------
Deferred tax liabilities (3,879,951) (4,077,996)
------------ ------------
Net deferred tax assets $ 7,670,000 $ 3,778,000
============ ============
At December 31, 2001, a deferred tax asset of $312,000 was recorded on the
consolidated balance sheet upon recognizing an additional minimum pension
liability (note 7(a)). Such liability, net of the related deferred tax asset,
was recorded directly as a component of accumulated other comprehensive loss, in
accordance with SFAS No. 87, "Employers' Accounting for Pensions" and SFAS No.
130, "Reporting Comprehensive Income."
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-13
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) LONG-TERM DEBT
2001 2000
---- ----
9.5% senior notes $ 36,000,000 $40,000,000
Notes payable under revolving credit agreement 25,000,000 41,000,000
Mortgages on land and buildings 5,328,239 5,611,816
------------ ------------
$ 66,328,239 $86,611,816
Less current portion 4,339,004 4,116,719
------------ -----------
$ 61,989,235 $82,495,097
============ ===========
On March 26, 2002, the senior notes were amended and restated. The senior note
holder executed a Release and Termination Agreement of the collateral liens
granted in the previous amendment. The notes require annual principal repayments
of $4,000,000 on May 31, 2002; $8,000,000 on May 31, 2003 and May 31, 2004 and
$16,000,000 on May 31, 2005. The amended agreement is unsecured and includes
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 March 26, 2002, the Company amended and restated the revolving credit
agreement entered into in December 1998 and amended on February 25, 2000. The
amendment provides credit of $45,000,000 and extends the expiration to March 26,
2005. Under the terms of the agreement, interest rates on borrowings are based
on, at the Company's option, LIBOR or prime rates. The terms of the agreement
include a commitment fee based on unutilized amounts and an annual agency fee.
Covenants 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 is
unsecured and no compensating balances are required. The lenders under the
amended February 25, 2000 revolving credit agreement executed a Release and
Termination Agreement of the collateral liens granted in the previous amendment.
The Company amended the February 25, 2000 revolving credit agreement 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, 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 were
based on, at the Company's option, LIBOR, prime or Federal funds rates. The
terms of the agreement included a commitment fee based on unutilized amounts, an
annual agency fee and covenants which provided, 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 included reductions in the
commitment equal to the greater of $4,000,000 or principal amounts of the senior
notes paid on May 31, 2002. The revolving credit facility, as amended, was
collateralized by the Company's trademarks and accounts receivable until such
time as the borrowings under the revolving credit agreement were less than
$22,500,000 and a certain financial ratio was achieved. The senior note holder
and the lenders under the revolving credit agreement entered into an
intercreditor agreement which included the pro rata sharing of such collateral.
No compensating balances were required. The weighted-average interest rate at
December 31, 2001 was 4.83%.
On February 22, 2000, the Company purchased a manufacturing, warehousing and
office facility in Barrie, Ontario for $1,828,000. The purchase was financed
with a combination of a mortgage bridge loan and a five-year mortgage.
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.
The aggregate maturities of long-term debt for each of the four years subsequent
to December 31, 2001, (after giving effect to the extended maturity date of the
revolving credit agreement) are as follows: 2002, $4,339,004; 2003, $8,355,451;
2004, $8,372,734 and 2005, $45,261,050.
F-14
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) 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 $2,042,000, $243,000 and $166,000
for the years 2001, 2000 and 1999, 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 assets in the SERP trust, which were approximately $4,067,000 and $2,482,000
as of December 31, 2001 and 2000, respectively, are considered assets of the
Company, not plan assets 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
contributed $1,450,000 to the SERP trust in 2001; no contribution was made in
2000.
Total pension expense for the years ended December 31, 2001, 2000 and 1999
amounted to approximately $2,488,000, $1,548,000 and $1,696,000, respectively.
The change in benefit obligation, change in plan assets and funded status as of
December 31, 2001 and 2000 and components of net periodic cost for 2001, 2000
and 1999 of the Company's domestic plans are set forth in the following tables:
2001
----
DEL NON- DEL LACROSS
UNION PLAN UNION PLAN SERP
---------- ---------- ----
Change in benefit obligation:
Benefit obligation at the beginning of the year $ 17,304,298 $ 1,018,860 $ 6,247,977
Service cost 1,429,528 23,591 57,380
Interest cost 1,516,455 83,232 451,747
Actuarial (gain) loss 3,316,961 136,599 (139,705)
Benefits paid (724,245) (79,040) (12,907)
Plan amendments -- 12,746 --
Curtailment -- (7,312) --
------------ ------------ ------------
Benefit obligation at the end of the year $ 22,842,997 $ 1,188,676 $ 6,604,492
------------ ------------ ------------
Change in plan assets:
Fair value of assets at the beginning of the year $ 14,371,743 $ 747,931 $ --
Actual gain (loss) on plan assets (459,925) 205,023 --
Employer contributions 1,743,576 285,908 12,907
Benefits paid (724,245) (79,040) (12,907)
------------ ------------ ------------
Fair value of assets at the end of the year $ 14,931,149 $ 1,159,822 $ --
------------ ------------ ------------
Funded status $ (7,911,848) $ (28,855) $ (6,604,492)
Unrecognized transition asset (64,513) -- --
Unamortized prior service cost 282,146 -- 1,082,497
Unrecognized net actuarial loss 3,760,787 78,245 181,784
------------ ------------ ------------
Net amount recognized $ (3,933,428) $ 49,390 $ (5,340,211)
============ ============ ============
Amounts recognized in the balance sheet consist of:
Accrued benefit liability $ (4,970,245) $ (28,855) $ (6,462,215)
Intangible asset (included in other long-term assets) 282,146 -- 1,082,497
Accumulated other comprehensive income 754,671 78,245 39,507
------------ ------------ ------------
Net amount recognized $ (3,933,428) $ 49,390 $ (5,340,211)
============ ============ ============
F-15
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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)
============ ============ ============
2001
------
DEL NON- DEL LACROSS
UNION PLAN UNION PLAN SERP
---------- ---------- ----
Components of net periodic cost:
Service cost $ 1,429,528 $ 23,591 $ 57,380
Interest cost 1,516,455 83,232 451,747
Expected return on plan assets (1,307,742) (72,958) --
Amortization of unrecognized transition (asset) obligation (62,576) 12,388 --
Recognized prior service cost 35,269 4,432 276,684
Recognized net (gain) loss -- 4,286 (20,198)
Curtailment -- 56,660 --
----------- ----------- -----------
Net periodic cost $ 1,610,934 $ 111,631 $ 765,613
=========== =========== ===========
F-16
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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 (asset) obligation (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
=========== =========== ===========
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
=========== =========== ===========
The weighted-average actuarial assumptions used as of December 31, 2001, 2000
and 1999, respectively, were:
2001 2000 1999
---- ---- ----
Discount rate 7.25% 7.75% 8.00%
Rate of compensation increase 4.50% 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 2001, 2000 and 1999 were approximately $439,000,
$431,000 and $463,000, respectively.
The Company maintains a defined contribution plan for the benefit of its
Canadian employees. The costs recognized for 2001, 2000 and 1999 were
approximately $53,000, $59,000 and $48,000 in U.S. dollars, respectively.
F-17
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 $300,000 for 2001 and $200,000
for 2000. On October 4, 2001 the Company funded its fiscal 2001 contribution of
$300,000 to the Employee Stock Ownership Trust with 21,356 (as restated for 5%
stock dividend) treasury shares. As a result, an increase of $35,186 was
recorded to additional paid-in capital representing the cost of treasury shares
which were less than the market price on that date. On March 1, 2001 the Company
funded its fiscal 2000 contribution of $200,000 to the Employee Stock Ownership
Trust with 20,792 (as restated for 5% stock dividend) treasury shares. As a
result, a reduction of $57,228 was recorded to retained earnings in the first
quarter of 2001 representing the cost of treasury shares in excess of the market
price on that date. Contributions were not made for 1999. At December 31, 2001,
the trust held 538,000 shares of the Company's 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 on the first day of the month
following the date of hire 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 2001, 2000 and 1999.
(8) 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
2,584,015 shares have been authorized for issuance under the 1994 Plan. At
December 31, 2001, 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, if the Committee elects to have a
restricted period, 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, 2001,
1,411,544 of the 2,180,703 options outstanding were exercisable under the 1994
Plan, at a weighted-average exercise price of $14.89.
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,
2001, all 98,848 options outstanding under the 1984 Plan were exercised at a
weighted-average exercise price of $2.71. No further options will be granted or
are outstanding under the 1984 Plan.
F-18
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). To date, no such appreciation rights were granted. 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 OPTION PLAN
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
------ --------------
Outstanding December 31, 1998 1,375,659 $ 14.86
Granted 183,177 13.22
Exercised (30,485) 6.31
Fortfeited (41,473) 20.31
---------
Outstanding December 31, 1999 1,486,878 14.68
Granted 421,184 11.07
Exercised -- --
Fortfeited (7,874) 15.17
---------
Outstanding December 31, 2000 1,900,188 13.88
Granted 432,943 11.85
Exercised (144,763) 9.72
Fortfeited (7,665) 11.06
---------
Outstanding December 31, 2001 2,180,703 $ 13.76
=========
1984 STOCK OPTION PLAN
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
------ --------------
Outstanding December 31, 1998 548,598 $ 4.52
Granted -- --
Exercised (200,081) 4.16
Fortfeited -- --
---------
Outstanding December 31, 1999 348,517 4.73
Granted -- --
Exercised (249,669) 5.53
Fortfeited -- --
---------
Outstanding December 31, 2000 98,848 2.71
Granted -- --
Exercised (98,848) 2.71
Fortfeited -- --
---------
Outstanding December 31, 2001 -- $ --
=========
At December 31, 2001, a total of 2,180,703 shares of common stock were subject
to outstanding options under all stock option plans.
F-19
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The Company applies APB Opinion No. 25 and related 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, 2001 2000 1999
- ----------------------- ---- ---- ----
Net earnings (loss)
As reported $ 9,797,000 $ 4,717,000 $ (4,002,000)
Pro forma $ 8,724,000 $ 3,759,000 $ (5,065,000)
Basic net earnings (loss) per share
As reported $ 1.16 $ 0.57 $ (0.48)
Pro forma $ 1.03 $ 0.45 $ (0.61)
Diluted net earnings (loss) per share
As reported $ 1.14 $ 0.56 $ (0.48)
Pro forma $ 1.02 $ 0.45 $ (0.61)
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 2001, 2000 and 1999, respectively: dividend yields 0%, 0%, and
1.01%; expected lives of 6.2, 6.1, and 5.7 years; risk-free interest rates of
4.92%, 4.72%, and 5.89%; and expected volatility of 48.8%, 45.5%, and 42.2%. The
weighted-average fair value of options granted during 2001, 2000 and 1999 were
$6.59, $5.91, and $6.15, respectively.
The following table summarizes information about stock options at December 31,
2001:
OUTSTANDING STOCK OPTIONS EXERCISABLE STOCK OPTIONS
------------------------- -------------------------
Weighted- Weighted-average Weighted-
Range of remaining exercise average
Exercise prices Shares contractual life price Shares exercise price
- --------------- ------ ---------------- ----- ------ --------------
$ 6.00 to $10.00 179,377 3.54 $ 8.56 116,339 $ 8.13
$10.01 to $15.00 1,433,221 5.58 $ 11.82 834,568 $ 12.34
$15.01 to $20.00 324,652 4.09 $ 17.72 217,184 $ 18.42
$20.01 to $25.00 147,912 4.35 $ 21.90 147,912 $ 21.90
$25.01 to $30.00 95,541 3.77 $ 26.51 95,541 $ 26.51
--------- ---------
$ 6.00 to $30.00 2,180,703 5.03 $ 13.76 1,411,544 $ 14.89
========= =========
F-20
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, 2001 was $922,250 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, 2001
was $13,000 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.
(9) ACCRUED LIABILITIES
Accrued liabilities at December 31, 2001 and 2000 consisted of the following:
2001 2000
---- ----
Salaries, wages, commissions and
employee benefits $ 6,909,871 $ 5,795,955
Interest 321,878 1,005,350
Advertising and promotion costs 8,053,679 6,679,092
Other 6,724,734 4,923,309
------------- -----------
$ 22,010,162 $18,403,706
============= ===========
On June 26, 2001, the Company announced that it would initiate a series of
actions resulting in a full closure of the Newark, New Jersey manufacturing
facility by the end of the first quarter of 2002. It was estimated that the
plant closure would result in the termination of approximately 70 production and
clerical employees. Estimated severance, pension curtailment and other exit plan
expenses of $226,000 were recorded in the second quarter of 2001. As of December
31, 2001, 51 production and clerical employees were terminated and $187,000 of
exit costs were incurred. The Company believes that the accrued exit cost
liability of $39,000 at December 31, 2001 is adequate for the balance of costs
to be incurred.
F-21
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) 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)
2001 2000 1999
---- ---- ----
Net earnings (loss) (numerator) $ 9,797 $ 4,717 $(4,002)
------- ------- -------
Weighted-average common shares
(denominator for basic earnings (loss) per share) 8,439 8,340 8,301
Effect of dilutive securities:
Employee stock options 134 88 --
------- ------- -------
Weighted-average common and potential
common shares outstanding
(denominator for diluted earnings (loss) per share) 8,573 8,428 8,301
======= ======= =======
Basic earnings (loss) per share $ 1.16 $ 0.57 $ (0.48)
======= ======= =======
Diluted earnings (loss) per share $ 1.14 $ 0.56 $ (0.48)
======= ======= =======
Employee stock options for 1,188,000, 1,461,000 and 1,882,000 shares for 2001,
2000 and 1999, respectively, were not included in the net earnings (loss) per
share calculation because their effect would have been anti-dilutive.
F-22
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) 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.
In September 2001, the Company received notice from the Environmental Protection
Agency ("EPA") that it was, along with 81 others, a Potentially Responsible
Party regarding a Superfund Site ("the Site") located in Glen Cove, New York.
According to the notice received from the EPA, the Company's involvement relates
to empty drums coming to the Site in 1977 and 1978. The Company recorded an
estimate of $550,000 in selling and administrative expenses during the third
quarter of 2001 based on information received from the EPA as to its potential
liability for past remediation activities. In October, 2001, the Company became
a member of a Joint Defense Group ("the JDG"). The JDG is currently in
negotiations with the EPA in order to develop the amount of settlement costs
required for all past and future remediation activities. The Company is
currently unable to determine such settlement costs, which may or may not be
material, or the time period over which the costs may be payable.
The Company leases executive office space, furniture, data processing equipment,
transportation equipment and warehouse space under terms of leases expiring
through 2007. Rent expense under these operating leases aggregated approximately
$2,808,000, $2,302,000 and $2,496,000 in 2001, 2000 and 1999, respectively. The
Company's obligations under non-cancelable leases are summarized as follows:
2002 $ 2,743,855
2003 2,059,597
2004 1,640,048
2005 136,346
2006 76,880
Thereafter 18,337
-----------
$ 6,675,063
===========
(12) 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 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.
The fair value of the senior notes exceeds the carrying value at December 31,
2001 by approximately $2.3 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. 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-23
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) COMPREHENSIVE INCOME (LOSS)
The Company's items of other comprehensive income (loss) include a foreign
currency translation adjustment and a minimum pension liability adjustment, net
of the related tax effect. The components of accumulated other comprehensive
loss at December 31, 2001, 2000, and 1999 are as follows:
Accumulated Other Comprehensive Income (Loss)
FOREIGN CURRENCY MINIMUM PENSION
TRANSLATION LIABILITY
ADJUSTMENT ADJUSTMENT TOTAL
---------- ---------- -----
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)
Foreign currency translation adjustment (516,639) -- (516,639)
Minimum pension liability adjustment,
net of taxes of $312,000 -- (475,115) (475,115)
----------- ----------- -----------
Balance at December 31, 2001 $(1,726,040) $ (524,285) $(2,250,325)
=========== =========== ===========
F-24
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(14) SEGMENT INFORMATION
The Company operates in two segments, Cosmetic and Pharmaceutical, that have
been organized by the products and services they offer. The Cosmetic segment's
principal products are nail care, nail color, color cosmetics, beauty
implements, bleaches and depilatories, personal care products and other related
cosmetic items. The Pharmaceutical segment's principal products are proprietary
oral analgesics, acne treatment products and first aid products. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies. The Company evaluates the performance of its
operating segments based on operating income. Certain assets, including
property, plant and equipment and deferred tax assets, are not allocated to the
identifiable segments; depreciation of unallocated assets is charged to the
Cosmetic segment.
2001 2000 1999
---- ---- ----
Net Sales
Cosmetic $ 262,258,000 $ 229,194,000 $ 201,251,000
Pharmaceutical 70,421,000 65,689,000 63,805,000
------------- ------------- -------------
Consolidated $ 332,679,000 $ 294,883,000 $ 265,056,000
============= ============= =============
Operating income (loss)
Cosmetic $ 11,644,000 $ 4,989,000 $ (12,166,000)
Pharmaceutical 11,297,000 11,117,000 9,313,000
------------- ------------- -------------
Consolidated $ 22,941,000 $ 16,106,000 $ (2,853,000)
============= ============= =============
Gains on sales of facility and land $ -- $ 362,000 $ 3,043,000
------------- ------------- -------------
Interest expense, net $ 6,779,000 $ 8,193,000 $ 5,673,000
------------- ------------- -------------
Earnings (loss) before income taxes $ 16,162,000 $ 8,275,000 $ (5,483,000)
------------- ------------- -------------
Identifiable assets
Cosmetic $ 127,809,000 $ 133,090,000 $ 122,417,000
Pharmaceutical 25,549,000 24,737,000 22,674,000
Corporate (unallocated assets) 38,594,000 36,403,000 35,470,000
------------- ------------- -------------
Consolidated $ 191,952,000 $ 194,230,000 $ 180,561,000
============= ============= =============
Depreciation and amortization
Cosmetic $ 7,990,000 $ 7,286,000 $ 6,903,000
Pharmaceutical 514,000 482,000 450,000
------------- ------------- -------------
Consolidated $ 8,504,000 $ 7,768,000 $ 7,353,000
============= ============= =============
Expenditures for property, plant and equipment
and long-lived assets
Cosmetic $ 1,748,000 $ 2,297,000 $ 2,334,000
Pharmaceutical 357,000 266,000 288,000
Corporate (unallocated assets) 3,433,000 5,287,000 4,706,000
------------- ------------- -------------
Consolidated $ 5,538,000 $ 7,850,000 $ 7,328,000
============= ============= =============
Sales to one customer by the Cosmetic and Pharmaceutical segments combined were
23.0%, 23.9% and 24.8% of consolidated net sales for 2001, 2000 and 1999,
respectively, and combined sales to another customer were 11.6%, 11.4% and 10.4%
of consolidated net sales for 2001, 2000 and 1999, respectively.
Operating income for 2001 includes a charge of $3,100,000 related to the K-Mart
Chapter XI bankruptcy filing. Of this amount, $2,300,000 was charged to the
Cosmetic segment and $800,000 was charged to the Pharmaceutical segment.
Two customers accounted for 26.3% and 30.5% of the Company's net accounts
receivable at December 31, 2001 and 2000, respectively.
F-25
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) 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, 2001
----------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Net sales $72,738 $87,937 $86,320 $85,684
Cost of goods sold 31,333 38,658 38,255 37,711
Net earnings 1,270 3,315 2,374 2,838
Earnings per common share:
Basic $ .15 $ .39 $ .28 $ .33
======= ======= ======= =======
Diluted $ .15 $ .39 $ .27 $ .32
======= ======= ======= =======
YEAR ENDED DECEMBER 31, 2001
----------------------------
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 $ .23 $ .14 $ .14
======= ======= ======= =======
Diluted $ .06 $ .23 $ .14 $ .13
======= ======= ======= =======
Earnings 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 per
share.
(16) SUBSEQUENT EVENT
On February 13, 2002, the Company sold 13.5 acres of vacant land in Farmingdale,
New York to an unrelated third party for gross proceeds of $3,335,000. The land
was included in property, plant and equipment at December 31, 2001, with a book
value of $500,000. In connection with this sale, an option was granted to the
buyer for the remaining 8.5 acres of improved land and buildings owned by the
Company. The option is for a purchase price of no less than $5,000,000 and
cannot be exercised before December 1, 2004 or after December 1, 2005.
F-26
SCHEDULE II
DEL LABORATORIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 2001, 2000 and 1999
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
DESCRIPTION OF PERIOD EXPENSES (1) DEDUCTIONS OF PERIOD
----------- --------- ------------ ---------- ---------
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
Year ended December 31, 2001 $1,000,000 $4,057,000 $ 857,000 $4,200,000
========== ========== ========== ==========
allowances for doubtful
accounts
(1) Additions charged to costs and expenses in the year ended December 31, 2001
include $3,100,000 related to the K-Mart Chapter XI bankruptcy filing.
(2) Uncollectible accounts written off, net of recoveries.
F-27
EXHIBIT INDEX
-------------
ITEM TITLE EXHIBIT NO. DESCRIPTION
- ---------- ----------- -----------
Articles of 3.1 (a) Restated Certificate of Incorporation as filed with the
Incorporation Delaware Secretary of State on March 29, 1996.
and By-Laws
3.2 (b) Certificate of Amendment filed with the Delaware Secretary
of State on June 4, 1996.
3.3 (c) 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 Employee Pension Plan, effective January 1, 1997 (amended and
Contracts restated).
10.2 Employee's Stock Ownership Plan, effective January 1, 1997
(amended and restated).
10.3 401(k) Plan effective January 1, 1997 (amended and restated).
10.4 (d) Supplemental Executive Retirement Plan (amended and restated).
10.5 (h) Amendment No. 1 effective January 1, 1997 to Supplemental Executive
Retirement Plan.
10.6 (j) Second Amendment to Supplement Executive Retirement Plan.
10.7 (i) Amendment No. 3 to Supplemental Executive Retirement Plan.
10.8 Amendment No. 4 to Supplemental Executive Retirement Plan.
10.9 (e) 1984 Stock Option Plan, as amended to date.
10.10 (f) 1994 Stock Plan, as amended as of May 27, 1999.
10.11 (f) Annual Incentive Plan, as amended as of May 27, 1999.
10.12 (c) Amended and Restated Employment Agreement dated as of July 1, 1999
between the Registrant and Dan K. Wassong.
ITEM TITLE EXHIBIT NO. DESCRIPTION
- ---------- ----------- -----------
10.13 (e) Employment Agreement dated March 14, 1985 with Charles J. Hinkaty,
as amended.
10.14 (j) Amendment to Employment Agreement with Charles J. Hinkaty, dated
March 31, 1999.
10.15 Amendment to Employment Agreement with Charles J. Hinkaty, dated
April 30, 2001.
10.16 Employment Agreement with Harvey P. Alstodt, dated April 1, 2001.
10.17 Employment Agreement with William H. McMenemy, dated April 1, 2001.
10.18 Amendment to Employment Agreement with William H. McMenemy,
dated September 7, 2001.
10.19 Employment Agreement With Enzo J. Vialardi, dated April 1, 2001.
10.20 Change in Control Agreement with Harvey P. Alstodt, dated April 16, 2001.
10.21 Change in Control Agreement with William H. McMenemy, dated
April 16, 2001.
10.22 (e) Life Insurance Agreement, dated as of February 18, 1993.
10.23 (g) Lease between Registrant and Coliseum Towers Associates.
10.24 Amended and Restated Loan Agreement dated as of March 26, 2002
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, and JP Morgan
Chase, as agent for the lenders.
10.25 Amended and Restated Loan Agreement dated as of March 26, 2002
among the Registrant, DPI, Parfums, Royce, 565 and Jackson National
Life Insurance Company.
ITEM TITLE EXHIBIT NO. DESCRIPTION
- ---------- ----------- -----------
Subsidiaries of 21.1 List of Subsidiaries.
Registrant
Consents of Experts 23.1 Consent of KPMG LLP dated March 26, 2002.
and Counsel
(a) These exhibits were filed as exhibits to the Registrants 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 Exhibit 1 to the Registrant's Form 10-Q for the
quarter ended June 30, 1996.
(c) 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 and 10.12 above was filed as Exhibit 10.14 to the 1999 10-K.
(d) This exhibit was filed as Exhibit 6 to the Registrant's Form 10-K for the
year ended December 31, 1994.
(e) These exhibits were filed as exhibits to the Registrant's Form 10-K for the
year ended Deceber 31, 1993. The exhibit numbers in such Form 10-K are as
follows: 1984 Stock Option Plan, Exhibit 3; Employment Agreement with
Charles J. Hinkaty, Exhibit 5; and 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) This exhibit was filed as exhibit 10.1 to the Registrant's Form 10-Q for
the quarter ended September 30, 1997.
(h) This exhibit was filed as exhibit 1 to the Registrant's Form 10-K for the
year ended December 31, 1996.
(i) This exhibit was filed as exhibit 10.32 to the Registrant's Form 10-K for
the year ended December 31, 1998.
(j) These exhibits were filed as exhibits to the Registrant's Form 10-K for the
year ended December 31, 2000, as follows: 10.6 above was filed as Exhibit
10.12 and 10.14 above was filed as Exhibit 10.19 to the 2000 10-K.