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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
---
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NO. 1-5439
DEL LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-1953103
- -------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
178 EAB PLAZA, UNIONDALE, NEW YORK 11556
----------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 844-2020
-------------------------
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 ( )
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES (X) NO ( )
The number of shares of Common Stock, $1 par value, outstanding as of August 12,
2003 was 9,232,519.
DEL LABORATORIES, INC. AND SUBSIDIARIES
Index
Part I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements:
Consolidated Balance Sheets as of
June 30, 2003 and December 31, 2002 3
Consolidated Statements of Earnings for the three and six
months ended June 30, 2003 and 2002 4
Consolidated Statements of Cash Flows for the
six months ended June 30, 2003 and 2002 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 4. Controls and Procedures 18
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
All other schedules and compliance information called for by the instructions to
Form 10-Q have been omitted since the required information is not present or not
present in amounts sufficient to require submission.
-2-
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2003 and December 31, 2002
(In thousands, except for share and per share data)
June 30 December 31
2003 2002
---- ----
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 715 $ 501
Accounts receivable-less allowance for doubtful accounts
of $4,616 in 2003 and $4,962 in 2002 66,011 51,080
Inventories 88,887 79,913
Income taxes receivable 1,297 1,319
Deferred income taxes 7,934 7,934
Prepaid expenses and other current assets 2,162 2,981
--------- ---------
Total current assets 167,006 143,728
Property, plant and equipment, net 44,907 37,434
Intangibles arising from acquistions, net 8,041 8,380
Goodwill 6,282 6,282
Other assets 15,010 10,139
Deferred income taxes 5,019 5,019
--------- ---------
Total assets $ 246,265 $ 210,982
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 8,354 $ 8,396
Accounts payable 40,898 32,397
Accrued liabilities 21,974 21,699
--------- ---------
Total current liabilities 71,226 62,492
Long-term pension liability, less current portion 10,656 10,656
Deferred income taxes 4,348 4,348
Long-term debt, less current portion 65,804 50,588
--------- ---------
Total liabilities 152,034 128,084
--------- ---------
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 10,000
Additional paid-in capital 6,042 5,393
Accumulated other comprehensive loss (2,442) (4,278)
Retained earnings 95,497 86,232
--------- ---------
109,097 97,347
Less: Treasury stock at cost, 784,697 shares
in 2003 and 872,261 shares in 2002 (14,224) (13,667)
Receivables for stock options exercised (642) (782)
--------- ---------
Total shareholders' equity 94,231 82,898
--------- ---------
Total liabilities and shareholders' equity $ 246,265 $ 210,982
========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
-3-
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(In thousands, except for share and per share data)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------- -------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net sales $ 97,976 $ 93,262 $ 191,339 $ 173,202
Cost of goods sold 47,170 44,979 92,828 82,356
Selling and administrative expenses 40,155 39,663 79,804 75,080
Severance expenses (note 7) 1,850 -- 1,850 --
----------- ----------- ----------- -----------
Operating income 8,801 8,620 16,857 15,766
Other income (expense):
Gain on sale of land -- -- -- 2,428
Interest expense, net (1,009) (1,126) (2,054) (2,344)
Other income (expense), net 107 (106) 27 (216)
----------- ----------- ----------- -----------
Earnings before income taxes 7,899 7,388 14,830 15,634
Income taxes 2,959 2,799 5,565 6,097
----------- ----------- ----------- -----------
Net earnings $ 4,940 $ 4,589 $ 9,265 $ 9,537
=========== =========== =========== ===========
Earnings per common share:
Basic $ 0.54 $ 0.51 $ 1.01 $ 1.06
=========== =========== =========== ===========
Diluted $ 0.52 $ 0.48 $ 0.97 $ 1.02
=========== =========== =========== ===========
Weighted average common shares outstanding:
Basic 9,147,000 9,047,000 9,139,000 8,988,000
=========== =========== =========== ===========
Diluted 9,577,000 9,513,000 9,517,000 9,378,000
=========== =========== =========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
-4-
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(In thousands)
(UNAUDITED)
June 30
-------
2003 2002
-------- --------
Cash flows provided by (used in) operating activities:
Net earnings $ 9,265 $ 9,537
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,026 3,609
Provision for doubtful accounts (202) 872
Gain on sale of land -- (2,428)
Other non-cash operating items 140 128
Changes in operating assets and liabilities:
Accounts receivable (14,190) (10,540)
Inventories (7,506) (5,368)
Prepaid expenses and other current assets 589 182
Other assets (4,793) (888)
Accounts payable 7,911 4,553
Accrued liabilities 98 4,386
Income taxes receivable / payable 1,384 (1,727)
-------- --------
Net cash provided by (used in) operating activities (3,278) 2,316
-------- --------
Cash flows provided by (used in) investing activities:
Net proceeds from sale of land 235 2,940
Property, plant and equipment additions (10,083) (3,596)
-------- --------
Net cash used in investing activities (9,848) (656)
-------- --------
Cash flows provided by (used in) financing activities:
Principal borrowings (payments) under revolving credit agreement, net 16,000 3,900
Principal payments under mortgages (104) (173)
Principal payment under senior notes (8,000) (4,000)
Repayment of mortgage (3,865) --
Borrowings under mortgage and construction loan 10,481 --
Payment of capital lease obligations (51) --
Repayment on receivables for stock options exercised -- 6
Proceeds from the exercise of stock options 53 32
Acquisition of treasury stock (1,184) (2,489)
-------- --------
Net cash provided by (used in) financing activities 13,330 (2,724)
-------- --------
Effect of exchange rate changes on cash 10 (30)
-------- --------
Net increase (decrease) in cash and cash equivalents 214 (1,094)
Cash and cash equivalents at beginning of year 501 2,688
-------- --------
Cash and cash equivalents at end of period $ 715 $ 1,594
======== ========
Supplemental disclosures:
Cash paid:
Interest $ 2,105 $ 2,209
Income taxes $ 4,246 $ 8,103
Non-cash items:
Income tax benefit arising from stock options exercised $ 1,217 $ 2,337
Shares tendered by optionees to exercise stock options $ 5,136 $ 6,196
Equipment acquired under capitalized leases $ 543 $ --
The accompanying notes are an integral part of the
consolidated financial statements.
-5-
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements of Del
Laboratories, Inc. and subsidiaries ("the Company") have been prepared
in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial
statements. Interim results are not necessarily indicative of results
for a full year.
On January 1, 2003, the Company adopted SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities". SFAS No. 146
requires that a liability be recognized for costs associated with an
exit or disposal activity only when the liability is incurred. SFAS No.
146 also establishes fair value as the objective for initial
measurement of liabilities related to exit or disposal activities. In
accordance with the adoption of SFAS No. 146, other relocation costs
and additional severance benefits as a result of the plant closure
described in note 7, will be recognized when such benefits are
incurred. It is estimated that a total charge of approximately $350
will be incurred for relocation and other move related costs throughout
the third and fourth quarters of 2003 and approximately $100 will be
incurred in the first quarter of 2004.
Effective January 1, 2003, the Company adopted the provisions of FASB
Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 requires that at the
inception of the guarantee, a liability be recorded on the guarantor's
balance sheet for the fair value of the obligation undertaken in
issuing the guarantee. In addition, FIN 45 requires disclosures about
the guarantees that an entity has issued. The adoption of FIN 45 did
not have any effect on the Company's results of operations, cash flows
or financial position.
A summary of the Company's critical and significant accounting policies
are presented in its 2002 Form 10-K. Users of financial information
produced for interim periods are encouraged to refer to the footnotes
contained in the Form 10-K when reviewing interim financial results.
In the opinion of management, the accompanying interim consolidated
financial statements contain all material adjustments, consisting only
of normal recurring adjustments, necessary to present fairly the
consolidated financial position, results of operations and cash flows
of the Company for interim periods.
2. STOCK OPTION PLANS
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. 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", and SFAS No. 148 "Accounting
for Stock-Based Compensation-Transition and Disclosure", the Company's
net earnings and net earnings per share would have been reduced. The
following table illustrates the effect on net earnings and net earnings
per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, to stock based employee compensation:
-6-
2. STOCK OPTION PLANS, CONTINUED
Three Months Ended Six Months Ended
June 30 June 30
------- -------
2003 2002 2003 2002
---- ---- ---- ----
Net earnings, as reported $ 4,940 $ 4,589 $ 9,265 $ 9,537
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards
net of related tax effects $ (580) $ (400) $ (1,149) $ (682)
------ ------ -------- -------
Pro forma net earnings $ 4,360 $ 4,189 $ 8,116 $ 8,855
======= ======= ======== =======
Earnings per share:
Basic - as reported $0.54 $ 0.51 $1.01 $1.06
===== ====== ===== =====
Basic - pro forma $0.48 $ 0.46 $0.89 $0.99
===== ====== ===== =====
Diluted - as reported $0.52 $ 0.48 $0.97 $1.02
===== ====== ===== =====
Diluted - pro forma $0.46 $ 0.44 $0.85 $0.94
===== ====== ===== =====
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 the second quarters of 2003 and 2002,
respectively: dividend yields 0% and 0%; expected lives of 5.0 and 5.0
years; risk-free interest rates of 2.43% and 4.43%; and expected
volatility of 37.0% and 39.1%. The weighted-average fair value of
options granted during the second quarters of 2003 and 2002 were $8.57
and $9.85, respectively.
Assumptions for the first six months of 2003 and 2002, respectively,
were: dividend yields 0% and 0%; expected lives of 5.0 and 5.2 years;
risk-free interest rates of 2.51% and 4.46%; and expected volatility of
37.0% and 39.1%. The weighted-average fair value of options granted
during the first six months of 2003 and 2002 were $8.44 and $9.34,
respectively.
On April 22, 2003, the Financial Accounting Standards Board ("FASB")
determined that stock-based compensation should be recognized as a cost
in the financial statements and that such cost be measured according to
the fair value of the stock options. The FASB has not as yet determined
the methodology for calculating fair value and plans to issue an
exposure draft later this year that could become effective in 2004. We
will continue to monitor communications on this subject from the FASB
in order to determine the impact on the Company's consolidated
financial statements.
3. INVENTORIES
Inventories are valued at the lower of cost (principally first-in /
first-out) or market value. The Company records reductions to the cost
of inventories based upon its forecasted plans to sell, historical
scrap and disposal rates and physical condition of the inventories. The
components of inventories are as follows:
June 30 December 31
2003 2002
---- ----
Raw Materials $ 47,847 $35,942
Work in Process 4,087 3,878
Finished Goods 36,953 40,093
------ ------
$ 88,887 $79,913
======== =======
-7-
4. INTANGIBLES
Intangibles arising from acquisitions are as follows:
June 30, 2003
-------------
Gross Carrying Accumulated Net Book
Value Amortization Value
----- ------------ -----
Intellectual property rights $ 10,558 $ 2,742 $ 7,816
Trademarks 3,000 2,775 225
-------- ------- -------
$ 13,558 $ 5,517 $ 8,041
======== ======= =======
December 31, 2002
-----------------
Gross Carrying Accumulated Net Book
Value Amortization Value
----- ------------ -----
Intellectual property rights $ 10,558 $ 2,478 $ 8,080
Trademarks 3,000 2,700 300
------- ------- -------
$ 13,558 $ 5,178 $ 8,380
======== ======= =======
Amortization expense was $169 and $169 for the three months ended June
30, 2003 and 2002, respectively, and amounted to $339 and $338 for the
six months ended June 30, 2003 and 2002, respectively. The estimated
amortization expense for the fiscal years ending December 31, 2003,
2004, 2005, 2006 and 2007, is $678, $678, $528, $528 and $528,
respectively. The useful lives for intellectual property rights and
trademarks are 20 years.
5. LONG-TERM DEBT
June 30 December 31
2003 2002
---- ----
9.5% senior notes $ 24,000 $ 32,000
Notes payable under revolving credit agreement 38,000 22,000
Mortgages on land and buildings 11,666 4,984
Obligations under capital leases 492 --
-------- --------
$ 74,158 $ 58,984
Less current portion 8,354 8,396
-------- --------
$ 65,804 $ 50,588
======== ========
At December 31, 2002, the Company had an outstanding balance of $3,954
under a five-year mortgage on the land and buildings in North Carolina.
During the first quarter of 2003, the Company paid $89 of the mortgage
and refinanced the balance with a seven-year $12,480 combination
mortgage and construction loan facility. Of this facility, $10,481 was
drawn down in 2003, of which $3,865 was used to pay the outstanding
balance on the existing mortgage and $6,616 was used for funding of
construction costs in connection with the expansion in North Carolina.
The mortgage and construction loan facility provides construction
funding as funds are expended during the building expansion project.
The mortgage includes an interest rate based on LIBOR plus 1.75%, which
totaled 3.07% as of June 30, 2003, monthly principal payments beginning
April 15, 2004 based on a 20 year amortization schedule, a balloon
payment due in March 2010, and terms that provide for the maintenance
of certain financial ratios.
6. SALE OF LAND
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, which was reduced by $160 for closing costs. In addition, $235
of the sales price was paid by the purchaser on February 13, 2003, in
accordance with the original terms of the transaction. The land was
included in property, plant and equipment at December 31, 2001, with a
book value of $500. After transaction related costs of $407, the sale
resulted in a gain of $2,428, (approximately $1,457 after-tax, or $0.16
per basic share) which was recorded in the first quarter of 2002. 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 and
cannot be exercised before December 1, 2004 or after December 1, 2005.
-8-
7. CLOSURE OF FARMINGDALE PLANT
On May 30, 2003, the Company announced the formal plan for the transfer
of its principal manufacturing operations, for both the Cosmetic and
Pharmaceutical segments, to Rocky Point, North Carolina from
Farmingdale, New York. Pursuant to the Company's formal severance
policy for non-union employees and, severance benefits due under the
union contract resulting from the plant closure, a charge of $1,850
($1,156 after-tax, or $0.13 per basic share) for severance costs and
related benefits for approximately 370 union and non-union employees
associated with this move was recorded in the second quarter of 2003.
Additional severance benefits earned by employees being terminated
will be recognized as a charge in the financial statements as such
severance benefits are earned. The Company estimates that a total of
approximately $350 (Cosmetic segment, $200; Pharmaceutical segment,
$150), will be expended for additional severance, relocation and other
move related costs throughout the third and fourth quarters of 2003 and
approximately $100 (Cosmetic segment, $60; Pharmaceutical segment,
$40), will be expended for such costs in the first quarter of 2004.
8. EARNINGS PER SHARE
Basic earnings per share is computed by dividing income available to
common shareholders (which equals the Company's recorded net earnings)
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.
On November 7, 2002, the Company's Board of Directors approved a 5%
stock dividend. As a result, 434,835 shares of treasury stock were
issued on December 27, 2002 to shareholders of record on November 29,
2002. Accordingly, the weighted-average common shares outstanding in
the consolidated statement of earnings for the three and six months
ended June 30, 2002, have been adjusted to reflect the dividend.
A reconciliation between the numerators and denominators of the basic
and diluted earnings per common share is as follows:
Three Months Ended Six Months Ended
June 30 June 30
------- -------
2003 2002 2003 2002
------ ------- ------- ------
Net earnings (numerator) $4,940 $ 4,589 $ 9,265 $9,537
------ ------- ------- ------
Weighted-average common shares
(denominator for basic earnings per share) 9,147 9,047 9,139 8,988
Effect of dilutive securities:
Employee stock options 430 466 378 390
------ ------- ------- ------
Weighted-average common and potential
common shares outstanding
(denominator for diluted earnings per share) 9,577 9,513 9,517 9,378
====== ======= ======= ======
Basic earnings per share $ 0.54 $0.51 $ 1.01 $1.06
====== ======= ======= ======
Diluted earnings per share $ 0.52 $0.48 $ 0.97 $1.02
====== ======= ======= ======
Employee stock options to purchase approximately 481,000 and 329,000
shares for the three months ended June 30, 2003 and 2002, respectively,
and 692,000 and 393,000 shares for the six months ended June 30, 2003
and 2002, respectively, were not included in the net earnings per share
calculation because their effect would have been anti-dilutive.
As a result of stock options exercised during the first half of 2003,
the corresponding tax benefit of $1,217 was recorded as a reduction to
income taxes payable and as an increase in additional paid-in capital.
-9-
9. COMPREHENSIVE INCOME
The components of comprehensive income for the three and six months
ended June 30, 2003 and 2002 are as follows:
Three Months Ended Six Months Ended
June 30 June 30
------- -------
2003 2002 2003 2002
---- ---- ---- ----
Net earnings $ 4,940 $ 4,589 $9,265 $ 9,537
Foreign currency translation 1,047 464 1,836 441
------- ------- ------- -------
Total comprehensive income $ 5,987 $ 5,053 $11,101 $ 9,978
======= ======= ======= =======
10. 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.
Three Months Ended Six Months Ended
June 30 June 30
------- -------
2003 2002 2003 2002
---- ---- ---- ----
Net sales:
Cosmetic $ 78,576 $ 76,234 $154,834 $139,980
Pharmaceutical 19,400 17,028 36,505 33,222
-------- -------- -------- --------
Consolidated $ 97,976 $ 93,262 $191,339 $173,202
======== ======== ======== ========
Operating income:
Cosmetic $ 5,858 $ 6,929 $ 12,187 $ 11,912
Pharmaceutical 2,943 1,691 4,670 3,854
-------- -------- -------- --------
Consolidated $ 8,801 $ 8,620 $ 16,857 $ 15,766
Other income (expense):
Gain on sale of land $ -- $ -- $ -- $ 2,428
Interest expense, net $(1,009) $(1,126) $ (2,054) $ (2,344)
Other expense, net $ 107 $ (106) $ 27 $ (216)
-------- -------- -------- --------
Earnings before income taxes $ 7,899 $ 7,388 $ 14,830 $ 15,634
======== ======== ======== ========
Depreciation and amortization:
Cosmetic $ 2,112 $ 1,774 $ 3,839 $ 3,451
Pharmaceutical 99 84 187 158
-------- -------- -------- --------
Consolidated $ 2,211 $ 1,858 $ 4,026 $ 3,609
======== ======== ======== ========
Operating income includes a charge of $1,850 related to the severance
costs associated with the transfer of manufacturing operations from
Farmingdale, N.Y. to North Carolina. Of this amount $1,193 or 65%, was
charged to the Cosmetic segment and $657 or 35%, was charged to the
Pharmaceutical segment.
Operating income includes an estimated recovery related to the
2001 charge for the K-Mart Chapter XI bankruptcy filing. Of this
amount $431, or 84% was attributable to the Cosmetic segment and $80
or 16% was attributable to the Pharmaceutical segment.
-10-
11. COMMITMENTS AND CONTINGENCIES
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 related to empty drums coming to
the Site in 1977 and 1978. In the third quarter of 2001, the Company
recorded an estimate of $550 in selling and administrative expenses
based on information received from the EPA as to its potential
liability for the past remediation activities. In October 2001, the
Company became a member of a Joint Defense Group ("the JDG"). In the
second quarter of 2002, the EPA and the JDG agreed in principle to the
amounts of payments required to settle past and future liabilities
under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") with regard to the Site. Pursuant to an
agreement among JDG members as to how to allocate such payment
amounts, the Company recorded, in the second quarter of 2002, an
additional estimate of $785 in selling and administrative expenses.
The charge of $785 had a negative impact of $0.05 per basic share on
net earnings in the second quarter of 2002 and for the year ended
December 31, 2002. During the third quarter of 2002, a trust was
established with the intention of entering into a Consent Decree with
the United States and the State of New York to settle all claims by
the United States and the State of New York for past and future
response costs and future actions at the Site. In September 2002, the
Company paid $1,332 into a trust account which was held in escrow,
together with payments by the other members of the JDG, for the
eventual settlement with the EPA of the Company's potential liability
under CERCLA. During the third quarter of 2002, the Company also paid
into the same trust account $18 for the eventual settlement of the
Company's potential liability for natural resource damages ("NRD")
claims, which also are expected to be settled in the Consent Decree.
During the second quarter of 2003, the United States, the State of New
York and Federal District Court approved the aforementioned Consent
Decree.
12. SUBSEQUENT EVENT
The Company's corporate offices are located in approximately 48,000
square feet of leased space in Uniondale, New York. On July 17, 2003,
the Company entered into an agreement to extend this lease to December
31, 2014, and simultaneously entered into a lease agreement to
December 31, 2014 for approximately 41,000 additional square feet of
leased space within the same building in Uniondale, New York. The
Company will transfer all administrative offices currently located in
Farmingdale, N.Y. to Uniondale, N.Y. and consolidate the corporate and
administrative offices at the Uniondale, N.Y. facility. The total
payment obligation for these leases approximates $28,670 as shown in
the following table:
Payments due by period
-------------------------------------------
Less than 1 year $ 533
1 - 2 years 1,680
2 - 3 years 2,398
3 - 5 years 5,032
After 5 years 19,027
------
Total $ 28,670
-11-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
-----------------------------------------------------------------------
(In thousands, except per share data)
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. 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, wholesalers and overseas distributors. Sales of such products are
denominated in U.S. dollars and sales in Canada are denominated in Canadian
dollars. The Company's accounts receivable reflect the granting of credit to
these customers. The Company generally grants credit based upon an 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, various promotional
allowances 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 sales policies. The Company regularly reviews and revises, as deemed
necessary, its estimate 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.
PROMOTIONAL ALLOWANCES AND CO-OPERATIVE ADVERTISING
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 sales incentives offered voluntarily by the
Company to customers, without charge, that can be used in or that are
exercisable by a customer as a result of a single exchange transaction, are
recorded as a reduction of net sales at the later of the sale or the offer, and
primarily allow customers to take deductions against amounts owed to the Company
for product purchases. The Company also has co-operative advertising
arrangements with retail customers to reimburse them for all or a portion of
their advertising of the Company's products. The estimated liabilities for these
co-operative advertising arrangements are recorded as advertising expense as
incurred, or in the period the related revenue is recognized, depending on the
terms of the arrangement, and included in selling and administrative expenses,
since the Company receives an identifiable benefit from retail customers for an
amount equal to or less than the fair value of such advertising cost. These
arrangements primarily allow retail customers to take deductions against amounts
owed to the Company for product purchases. The Company regularly reviews and
revises the estimated accruals for these promotional allowance and cooperative
advertising programs. 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.
-12-
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 a reduction 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
reductions 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. Leasehold
improvements are amortized on a straight-line basis over the lesser of the
estimated useful lives or the lease term. Changes in circumstances, such as
technological advances, changes to the Company's business model or changes in
the Company's capital strategy could 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, 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.
The remaining useful lives of intangible assets subject to amortization are
evaluated each reporting period to determine whether events and circumstances
warrant a revision to the remaining period of amortization. If the estimate of
an intangible asset's remaining useful life is changed, the remaining carrying
amount of the intangible asset should be amortized prospectively over that
revised remaining useful life.
Goodwill must be tested annually for impairment at the reporting unit level. The
Company's reporting units are its Cosmetic and Pharmaceutical segments. If an
indication of impairment exists, the Company is required to determine if such
reporting unit's implied fair value is less than its carrying value in order to
determine the amount, if any, of the impairment loss required to be recorded.
The testing performed as of January 1, 2003, indicated that there was no
impairment to goodwill.
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.
-13-
RESULTS OF OPERATIONS
SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 2003 VERSUS JUNE 30, 2002
Consolidated net sales for the second quarter of 2003 were $97,976, an increase
of 5.1% compared to second quarter 2002 net sales of $93,262. Consolidated net
sales for the six months ended June 30, 2003 were $191,339, an increase of 10.5%
compared to the first six months of 2002 net sales of $173,202.
The Cosmetic segment net sales for the second quarter of 2003 were $78,576, an
increase of 3.1% compared to $76,234 for the second quarter of 2002. Cosmetic
net sales for the first six months of 2003 were $154,834, an increase of 10.6%
compared to $139,980 for the first six months of 2002. The second quarter
increase was primarily due to sales of Sally Hansen Healing Beauty, a new line
of skincare makeup, and an increase in sales of the core Sally Hansen family of
brands. The net sales increases for the first six months of 2003 were partially
offset by reduced volume in the Naturistics brand and increased returns
throughout the Cosmetic segment product line. The increased returns were
primarily due to planogram changes by retail customers and the elimination of
the Naturistics line by certain retail customers. The planogram changes by
retailers occurred earlier in 2003 compared to the prior year, and therefore the
Company does not anticipate the same level of returns during the second six
months of 2003. The product mix within the Naturistics cosmetics brand is being
repositioned in order to facilitate the introduction of a sub-brand of lip gloss
items called Miss Kiss. Sally Hansen, the core brand of the Cosmetics segment,
remains the number one brand in the mass market nail care category with a 26%
share of market for the quarter, as reported by ACNielsen.
The Pharmaceutical segment net sales for the second quarter of 2003 were
$19,400, an increase of 13.9% compared to $17,028 in 2002. Pharmaceutical net
sales for the first six months of 2003 were $36,505, an increase of 9.9%
compared to $33,222 in 2002. The second quarter increase is primarily due to
volume growth in the Orajel brand. Orajel, the core brand of the Pharmaceutical
segment, continues its leadership position in the oral analgesics category, with
a 30% share of market for the quarter, as reported by Information Resources,
Inc. The six month increase is due primarily to increased sales in the Dermarest
brand of psoriasis and eczema treatments, the Gentle Naturals line of
naturally-based baby care products, DiabetAid, a line of products designed to
treat the common everyday health care needs of problems associated with
diabetes, and Orajel.
Cost of goods sold for the second quarter of 2003 was $47,170 or 48.1% of net
sales, compared to $44,979 or 48.2% of net sales in 2002. Cost of goods sold for
the first six months of 2003 was $92,828 or 48.5% of net sales, compared to
$82,356 or 47.5% of net sales in 2002. The increase in cost of goods sold as a
percentage of net sales for the six months is primarily attributable to the
first quarter returns of Naturistics Cosmetics as a result of the repositioning
of this line, and a change in sales mix within the Pharmaceutical segment
primarily due to increased volume of the new Gentle Naturals and Diabet-Aid
brands.
Selling and administrative expenses for the second quarter of 2003 were $40,155
or 41.0% of net sales compared to $39,663 or 42.5% of net sales in 2002. Selling
and administrative expenses for the first six months of 2003 were $79,804, or
41.7% of net sales, compared to $75,080 or 43.3% of net sales in 2002. 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 expenses. Additionally, the second quarter of 2003 and first six
months of 2003 include an estimated recovery of $511 related to the K-Mart
Chapter XI bankruptcy filing.
-14-
On May 30, 2003, the Company announced a formal plan for the transfer of its
principal manufacturing operations, for both the Cosmetic and Pharmaceutical
segments, to Rocky Point, North Carolina from Farmingdale, N.Y. Pursuant to the
Company's formal severance policy for non-union employees and, severance
benefits due under the union contract resulting from the plant closure, a charge
of $1,850 ($1,156 after-tax, or $0.13 per basic share) for severance costs and
related benefits for approximately 370 union and non-union employees associated
with this move was recorded in the second quarter of 2003. The Company projects
that $228 and $708 will be paid in the third quarter and fourth quarter of 2003
respectively, and $1,364 during the first six months of 2004. Additional
severance benefits earned by employees being terminated will be recognized as a
charge in the financial statements as such severance benefits are earned. The
charge of $1,850 is included in the operating income of the segments as follows:
Cosmetic - $1,193 or 65%, of the charge, and Pharmaceutical - $657 or 35%, of
the charge. It is estimated that a total of approximately $350 (Cosmetic
segment, $200; Pharmaceutical segment, $150), will be expended for additional
severance, relocation and other move related costs throughout the third and
fourth quarters of 2003 and approximately $100 (Cosmetic segment, $60;
Pharmaceutical segment, $40), will be expended for such costs in the first
quarter of 2004. The move to North Carolina will consolidate the Company's
principal manufacturing operations with its principal distribution facility and
result in improved operating efficiencies and reduced manufacturing expenses.
In the first quarter of 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
which was reduced by $160 for closing costs. In addition, $235 of the sales
price was paid by the purchaser on February 12, 2003 in accordance with the
original terms of the transaction. The land was included in property, plant and
equipment at December 31, 2001, with a book value of $500. After transaction
related costs of $407, a gain of $2,428 was recorded in the first quarter of
last year. The gain of $2,428, or $1,457 after tax, increased basic earnings per
share by $0.16 for the first quarter of last year. 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 and cannot be exercised before December 1, 2004 or after
December 1, 2005.
Operating income for the second quarter of 2003 was $8,801 or 9.0% of net sales,
compared to $8,620 or 9.2% of net sales for the second quarter of 2002. The
operating income for the second quarter of 2003 includes a charge of $1,850
(1.9% of net sales) related to severance cost associated with the transfer of
manufacturing operations to North Carolina. Operating income for the first six
months of 2003 was $16,857 or 8.8% of net sales, compared to $15,766 or 9.1% of
net sales in 2002. The six months results for 2003 include a charge of $1,850
for severance costs recorded in the second quarter of 2003.
Interest expense, net of interest income, for the second quarter of 2003 was
$1,009 a reduction of 10.4% from net interest expense of $1,126 reported for the
second quarter of 2002. Interest expense, net of interest income, for the first
six months of 2003 was $2,054, a reduction of 12.4% from the net interest
expense of $2,344 recorded for the first six months of 2002. The decrease in
interest expense for the second quarter and first six months of 2003 is due
primarily to a reduction of approximately 94 basis points in average borrowing
rates.
Income taxes are based on the Company's expected annual effective tax rate of
37.5% in 2003. The decrease from the rate of 39.0% used for the first six months
of 2002 is primarily due to the effect of permanent non-deductible expenses on
taxable income, the reduced effect of such non-deductible expenses on taxable
income, and the benefit of a reduction in the Canadian statutory tax rate.
Net earnings for the second quarter of 2003 were $4,940 or $0.54 per basic
share, an increase of 7.6% compared to the net earnings of $4,589 or $0.51 per
basic share reported in the second quarter of 2002. The net earnings for the
second quarter of 2003 include an after-tax charge of $1,156 or $0.13 per basic
share for severance costs. Net earnings for the first six months of 2003 were
$9,265 or $1.01 per basic share compared to net earnings for the first six
months of 2002 of $9,537 or $1.06 per basic share. The net earnings for the
first six months of 2003 include an after-tax charge of $1,156 or $0.13 per
basic share for severance costs and the net earnings for the first six months of
2002 include an after-tax gain of $1,457 or $0.16 per basic share from the sale
of vacant land.
-15-
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2003 the Company had cash and cash equivalents of $715 compared to
$501 at December 31, 2002 and $1,594 at June 30, 2002.
Net cash used in operating activities for the six months ended June 30, 2003 was
$3,278. Increases in accounts receivable of $14,190 and inventories of $7,506
were partially offset by net earnings of $9,265 and an increase in accounts
payable of $7,911. The increase in accounts receivable is attributable to
increased sales volume and the timing of shipments during the second quarter.
The increases in inventories and accounts payable are due to the timing of
purchases of raw materials and components to support projected sales levels.
Net cash used in investing activities of $9,848 for the six months ended June
30, 2003, is principally due to expenditures for construction related to the
expansion of the manufacturing and distribution facility located in North
Carolina. On February 12, 2003, the Company received $235 representing the
remaining proceeds due from the sale of vacant land in the first quarter of last
year. The sale resulted in an after-tax gain of $1,457 ($0.16 per basic share)
which was recorded in the first quarter of last year. 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 and cannot be exercised before December 1, 2004 or after
December 1, 2005.
Net cash provided by financing activities for the six months ended June 30,
2003, was $13,330 principally due to an additional $16,000 of net borrowings
under the revolving credit agreement and borrowings of $10,481 related to the
refinancing of the mortgage on the land and buildings in North Carolina,
partially offset by a principal payment of $8,000 under the senior notes. At
December 31, 2002, the Company had an outstanding balance of $3,954 under a
five-year mortgage on the land and buildings in North Carolina. During the first
six months of 2003, the Company paid $89 of the mortgage and refinanced the
balance with a seven-year $12,480 combination mortgage and construction loan
facility. Of this facility, $10,481 was drawn in 2003, of which $3,865 was used
to pay the outstanding balance on the existing mortgage and $6,616 was used for
funding of construction costs in connection with the expansion in North
Carolina. The mortgage and construction loan facility provides construction
funding as funds are expended during the building expansion project. The
mortgage includes an interest rate based on LIBOR plus 1.75%, which totaled
3.07% as of June 30, 2003, monthly principal payments beginning April 15, 2004
based on a 20 year amortization schedule, a balloon payment due in March 2010,
and terms that provide for the maintenance of certain financial ratios.
DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS
In order to aggregate all contractual obligations as of June 30, 2003, including
the leases signed on July 17, 2003 as explained in note 12 to the consolidated
financial statements, the Company has included the following table:
Payments Due By Period
---------------------------------------------------------------
Less
than 1 - 2 2 - 3 3 - 5 After
Total 1 Year Years Years Years 5 Years
----- ------ ----- ----- ----- -------
Long-term debt $ 35,666 $ 8,245 $ 18,011 $ 888 $ 2,832 $ 5,690
Revolving credit agreement 38,000 -- 38,000 -- -- --
Capital lease 492 109 116 124 143 --
Operating leases (a) 33,282 3,080 3,084 2,823 5,259 19,036
Construction commitment (b) 2,567 2,567 -- -- -- --
------- -------- -------- -------- -------- --------
Total contractual obligations $110,007 $ 14,001 $ 59,211 $ 3,835 $ 8,234 $ 24,726
======== ======== ======== ======== ======== ========
(a) Includes payment obligations for
leases signed on July 17, 2003 as follows: $ 28,670 $ 533 $ 1,680 $ 2,398 $ 5,032 $ 19,027
======== ======== ======== ======== ======== ========
(b) The timing of the payments are based on the
current construction timetable.
-16-
The Company's corporate offices are located in approximately 48,000 square feet
of leased space in Uniondale, New York. On July 17, 2003, the Company entered
into an agreement to extend this lease to December 31, 2014, and simultaneously
entered into a lease agreement to December 31, 2014 for approximately 41,000
additional square feet of leased space within the same building in Uniondale,
New York, in order to transfer all administrative offices currently located in
Farmingdale, N.Y. to Uniondale, N.Y. and result in the consolidation of the
Company's corporate and administrative offices at the Uniondale, N.Y. facility.
The Company believes that cash flows from operations, cash on hand and amounts
available from the credit facility and the combination mortgage and construction
loan will be sufficient to enable the Company to meet its anticipated cash
requirements during 2003. 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 and the combination mortgage and construction
loan 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 January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN No. 46"). FIN No. 46 requires that if an
entity has a controlling financial interest in a variable interest entity, the
assets, liabilities and results of activities of the variable interest entity
should be included in the consolidated financial statements of the entity. FIN
No. 46 requires that its provisions are effective immediately for all
arrangements entered into after January 31, 2003. As the Company does not have
any variable interest entities, the adoption of FIN No. 46 did not have an
impact on the Company's consolidated results of operations, cash flows or
financial position.
On April 22, 2003, the Financial Accounting Standards Board ("FASB") determined
that stock-based compensation should be recognized as a cost in the financial
statements and that such cost be measured according to the fair value of the
stock options. The FASB has not as yet determined the methodology for
calculating fair value and plans to issue an exposure draft later this year that
could become effective in 2004. We will continue to monitor communications on
this subject from the FASB in order to determine the impact on the Company's
consolidated financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities," which amends and clarifies the
accounting for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities under SFAS No. 133. In
particular, SFAS No. 149 clarifies under what circumstances a contract with an
initial net investment meets the characteristics of a derivative and when a
derivative contains a financing component that warrants special reporting in the
statement of cash flows. SFAS No 149 is effective for derivative contracts
entered into or modified after June 30, 2003. As the Company does not have any
derivative instruments required to be reported under SFAS No. 149, the adoption
of this statement did not have an impact on the Company's consolidated results
of operations, cash flows or financial position.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for how freestanding financial instruments, those
financial instruments that have characteristics of both liabilities and equity,
should be classified on a Company's balance sheet. The requirements of SFAS No.
150 require that financial instruments which give the issuer a choice of
settling an obligation with a variable number of securities, settling an
obligation with a transfer of assets or any mandatorily redeemable instrument
should be classified as a liability. SFAS No. 150 is effective for all
freestanding financial instruments entered into or modified after May 31, 2003.
Otherwise, the provisions of SFAS No. 150 are effective July 1, 2003. The
adoption of SFAS No. 150 did not have any impact on the Company's consolidated
results of operations, cashflows or financial position.
-17-
FORWARD - LOOKING STATEMENTS
Management's Discussion and Analysis of the Results of Operations and Financial
Condition and other sections of this Form 10-Q 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," "look forward to," "estimate," "indications," "intend,"
"plan," "momentum," or "continue" or the negative thereof or other variations
thereon.
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 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company evaluated, under
the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and Chief Financial Officer, the
effectiveness of the design and operation of the Company's disclosure controls
and procedures (as defined in Exchange Act Rule 13(a)-14 and 15(d)-14). Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective in
timely alerting management to material information required to be included in
the Company's periodic Securities and Exchange Commission filings.
(b) Changes in Internal Controls
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date the Company carried out its evaluation.
-18-
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
At the Company's annual meeting held on May 21, 2003, the
Shareholders re-elected Martin E. Revson and Dan K. Wassong to the
Board of Directors, in accordance with proxies solicited pursuant
to Section 14 of the Securities Exchange Act. Votes were cast for
each of such items as follows:
ELECTION OF DIRECTORS VOTES FOR VOTES WITHHELD
--------------------- --------- --------------
Martin E. Revson 8,556,710 20,956
Dan K. Wassong 8,149,285 428,381
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 31.1 Certification of Chief Executive Officer
Exhibit 31.2 Certification of Chief Financial Officer
Exhibit 32.1 Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350
Exhibit 32.2 Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
(b) Reports on Form 8-K
The Company filed a Form 8-K with the SEC, dated April
28, 2003 to report under Item 9 of that Form that a press
release was issued on April 25, 2003 announcing earnings
for the three months ended March 31, 2003. A copy of the
press release was filed as an exhibit to the Form 8-K
The Company filed a Form 8-K with the SEC dated May 22,
2003 to report under Item 9 of that Form that a press
release was issued on May 21, 2003 announcing that the
Company held its Annual Meeting of Shareholders on May
21, 2003 and information disclosed in that meeting. A
copy of the press release was filed as an exhibit to the
Form 8-K.
The Company filed a Form 8-K with the SEC, dated July
30, 2003 to report under Item 9 of that Form that a
press release was issued on July 29, 2003 announcing
earnings for the three and six months ended June 30,
2003. A copy of the press release was filed as an
exhibit to the Form 8-K.
-19-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEL LABORATORIES, INC.
(Registrant)
DATE: AUGUST 12, 2003 /S/ DAN K. WASSONG
------------------------- ------------------
Dan K. Wassong
Chairman, President and
Chief Executive Officer
DATE: AUGUST 12, 2003 /S/ ENZO J. VIALARDI
---------------------- --------------------
Enzo J. Vialardi
Executive Vice President and
Chief Financial Officer
-20-