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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
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SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
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, PO BOX 9357, UNIONDALE, NEW YORK 11553-9357
---------------------------------------- ----------
(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
May 7, 2004 was 9,738,265.
DEL LABORATORIES, INC. AND SUBSIDIARIES
Index
Part I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements:
Consolidated Balance Sheets as of
March 31, 2004 and December 31, 2003 3
Consolidated Statements of Earnings for the three
months ended March 31, 2004 and 2003 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 2004 and 2003 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 4. Controls and Procedures 20
Part II. OTHER INFORMATION
Item 2. Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
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
MARCH 31, 2004 AND DECEMBER 31, 2003
(In thousands, except for share and per share data)
March 31 December 31
2004 2003
--------- ---------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 1,393 $ 2,113
Accounts receivable, less allowance for doubtful accounts
of $1,606 in 2004 and $4,391 in 2003 71,255 75,130
Inventories 100,558 92,518
Income taxes receivable 619 --
Deferred income taxes 8,042 8,042
Prepaid expenses and other current assets 2,648 2,671
--------- ---------
Total current assets 184,515 180,474
Property, plant and equipment, net 50,315 49,274
Intangibles arising from acquistions, net 7,591 7,761
Goodwill 6,282 6,282
Other assets 16,172 13,262
Deferred income taxes 6,159 6,159
--------- ---------
Total assets $ 271,034 $ 263,212
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 977 $ 8,760
Accounts payable 43,031 43,872
Accrued liabilities 26,485 25,023
Income taxes payable -- 307
--------- ---------
Total current liabilities 70,493 77,962
Long-term pension liability, less current portion 9,767 9,767
Deferred income taxes 5,205 5,205
Deferred liability 1,362 1,334
Long-term debt, less current portion 77,906 63,373
--------- ---------
Total liabilities 164,733 157,641
--------- ---------
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 8,808 8,823
Accumulated other comprehensive loss (2,759) (2,594)
Retained earnings 95,989 95,309
--------- ---------
112,038 111,538
Less: Treasury stock at cost, 277,963 shares
in 2004 and 289,308 shares in 2003 (5,235) (5,325)
Receivables for stock options exercised (502) (642)
--------- ---------
Total shareholders' equity 106,301 105,571
--------- ---------
Total liabilities and shareholders' equity $ 271,034 $ 263,212
========= =========
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 MONTHS ENDED MARCH 31, 2004 AND 2003
(In thousands, except for share and per share data)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31
2004 2003
------------ ------------
Net sales $ 83,065 $ 93,363
Cost of goods sold 41,215 45,658
Selling and administrative expenses 39,680 39,649
Severance expenses (note 8) (10) --
------------ ------------
Operating income 2,180 8,056
Other (expense):
Interest expense, net (965) (1,045)
Other expense, net (108) (80)
------------ ------------
Earnings before income taxes 1,107 6,931
Income taxes 427 2,606
------------ ------------
Net earnings $ 680 $ 4,325
============ ============
Earnings per common share:
Basic $ 0.07 $ 0.45
============ ============
Diluted $ 0.07 $ 0.44
============ ============
Weighted average common shares outstanding:
Basic 9,717,000 9,588,000
============ ============
Diluted 10,383,000 9,929,000
============ ============
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 THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(In thousands)
(UNAUDITED)
March 31
2004 2003
-------- --------
Cash flows provided by (used in) operating activities:
Net earnings $ 680 $ 4,325
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,043 1,815
Provision for doubtful accounts (31) 222
Other non-cash operating items 139 145
Changes in operating assets and liabilities:
Accounts receivable 3,859 (13,562)
Inventories (8,169) (12,028)
Prepaid expenses and other current assets 22 (142)
Other assets (2,917) (3,655)
Accounts payable (793) 13,016
Accrued liabilities 1,478 5,425
Deferred liability 29 --
Income taxes receivable / payable (767) 2,177
-------- --------
Net cash used in operating activities (4,427) (2,262)
-------- --------
Cash flows provided by (used in) investing activities:
Net proceeds from sale of land -- 235
Property, plant and equipment additions (2,956) (5,448)
-------- --------
Net cash used in investing activities (2,956) (5,213)
-------- --------
Cash flows provided by (used in) financing activities:
Principal borrowings under revolving credit agreement, net 6,800 4,000
Principal payments under mortgages (9) (96)
Repayment of mortgage -- (3,865)
Borrowings under mortgage and construction loan -- 8,459
Payment of capital lease obligations (28) (22)
Proceeds from the exercise of stock options 73 53
Acquisition of treasury stock (166) (128)
-------- --------
Net cash provided by financing activities 6,670 8,401
-------- --------
Effect of exchange rate changes on cash (7) 19
-------- --------
Net increase (decrease) in cash and cash equivalents (720) 945
Cash and cash equivalents at beginning of year 2,113 501
-------- --------
Cash and cash equivalents at end of period $ 1,393 $ 1,446
======== ========
Supplemental disclosures:
Cash paid for:
Interest $ 557 $ 186
Income taxes $ 1,386 $ 464
Non-cash transactions:
Shares tendered by optionees to exercise stock options $ 142 $ 520
Equipment acquired under capitalized leases $ -- $ 463
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.
In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities" ("FIN No. 46"). FIN No. 46 was subject to
significant interpretation by the FASB, and was revised and reissued in
December 2003 ("FIN No. 46R"). FIN No. 46R states that if an entity has
a controlling financial interest in a variable interest entity, the
assets, the liabilities and results of activities of the variable
interest entity should be included in the consolidated financial
statements of the entity. The provisions of FIN No. 46 and FIN No. 46R
are applicable for all entities that are considered special purpose
entities ("SPE") by the end of the first reporting period ending after
December 15, 2003. The provisions of FIN No. 46R are applicable to all
other types of variable interest entities for reporting periods ending
after March 15, 2004. The adoption of FIN No. 46 and FIN No. 46R did not
have a material impact on the Company's consolidated financial
statements.
A summary of the Company's critical and significant accounting policies
are presented in its 2003 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
MARCH 31
2004 2003
------ ------
Net earnings, as reported $ 680 $4,325
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards
net of related tax effects $ (524) $ (569)
------ ------
Pro forma net earnings $ 156 $3,756
====== ======
Earnings per share:
Basic - as reported $ 0.07 $ 0.45
====== ======
Basic - pro forma $ 0.02 $ 0.39
====== ======
Diluted - as reported $ 0.07 $ 0.44
====== ======
Diluted - pro forma $ 0.02 $ 0.38
====== ======
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 2003: dividend yield 0%; expected lives
of 5.0 years; risk-free interest rate of 3.08%; and expected volatility
of 33.2%. The weighted-average fair value of options granted during 2003
was $6.50. The Company did not issue any new stock options during the
first quarter of 2004.
During the first quarter of 2004, the Financial Accounting Standards
Board ("FASB") issued exposure draft No. 1102-100, "Share-Based Payment,
an amendment of FASB Statements No. 123 and 95." This exposure draft
would require stock-based compensation to employees to be recognized as
a cost in the financial statements and that such cost be measured
according to the fair value of the stock options. In the absence of an
observable market price for the stock awards, the fair value of the
stock options would be based upon a valuation methodology that takes
into consideration various factors, including the exercise price of the
option, the expected term of the option, the current price of the
underlying share, the expected volatility of the underlying share price,
the expected dividends on the underlying share and the risk-free
interest rate. The proposed requirements in the exposure draft would be
effective for the first fiscal year beginning after December 15, 2004.
The FASB intends to issue a final Statement during the fourth quarter of
2004. The Company 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 were as follows:
March 31 December 31
2004 2003
--------- --------
Raw Materials $ 53,916 $ 40,586
Work in Process 4,998 4,856
Finished Goods 41,644 47,076
--------- --------
$ 100,558 $ 92,518
========= ========
7
4. INTANGIBLES
Intangibles arising from acquisitions were as follows:
MARCH 31, 2004
GROSS CARRYING ACCUMULATED NET BOOK
VALUE AMORTIZATION VALUE
-------- ------- -------
Intellectual property rights $ 10,558 $ 3,138 $ 7,420
Trademarks and other 3,060 2,889 171
-------- ------- -------
$ 13,618 $ 6,027 $ 7,591
======== ======= =======
DECEMBER 31, 2003
GROSS CARRYING ACCUMULATED NET BOOK
VALUE AMORTIZATION VALUE
-------- ------- -------
Intellectual property rights $ 10,558 $ 3,006 $ 7,552
Trademarks and other 3,060 2,851 209
-------- ------- -------
$ 13,618 $ 5,857 $ 7,761
======== ======= =======
Amortization expense was $170 and $170 for the three months ended March
31, 2004 and 2003, respectively. The estimated amortization expense for
the fiscal years ending December 31, 2004, 2005, 2006, 2007 and 2008, is
$681, $531, $531, $531 and $531, respectively. The useful lives for
intellectual property rights, trademarks and other are 20 years.
5. LONG - TERM DEBT
Long - term debt consisted of the following:
March 31 December 31
2004 2003
-------- --------
Senior notes $ 24,000 $ 24,000
Notes payable under revolving credit agreement 40,800 34,000
Mortgages on land and buildings 13,671 13,694
Obligations under capital leases 412 439
-------- --------
$ 78,883 $ 72,133
Less current portion 977 8,760
-------- --------
$ 77,906 $ 63,373
======== ========
On April 13, 2004, the senior notes were amended and restated. The
maturity of the notes was extended to April 15, 2011 with annual
principal payments of $6,000 required on April 15, 2008, April 15, 2009,
April 15, 2010 and April 15, 2011. The interest rate was reduced from
9.5% to 5.56% payable semi-annually on October 15 and April 15 of each
year. The amended agreement is unsecured and includes covenants, which
provide among other things, for the maintenance of certain financial
ratios.
On April 13, 2004, the revolving credit agreement was amended and
restated. The amended facility provides credit of $45,000 and extends
the expiration to April 13, 2009. Under the terms of the agreement,
interest rates on borrowings are based on LIBOR or prime rates at the
Company's option. The terms of the agreement include a commitment fee
based on unutilized amounts and an annual agency fee. The deferred
financing fees associated with the April 13, 2004 amendment and
unamortized deferred financing fees associated with the March 2002 and
February 2000 amendments are being amortized over the term of the new
agreement. Covenants provide, among other things, for the maintenance of
certain financial ratios. The agreement is unsecured and no compensating
balances are required.
On April 1, 2004, the lender under the mortgage covering the property in
Barrie, Ontario agreed to extend the maturity of the mortgage from March
1, 2005 to April 1, 2009 and to reduce the interest rate from 8.38% to
6.37%.
8
6. EMPLOYEE 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 LaCross Plan covers former employees of
the Company's Newark, New Jersey facility which ceased operations during
2002. As a result of this closure, more than 20% of plan participants in
the LaCross Plan were terminated, which resulted in a partial
termination of the plan. Due to the partial termination of the plan, all
affected participants became fully vested in their accrued benefits at
their termination date. 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 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, are held-to-maturity securities
and, as such, are carried at cost plus accrued interest.
COMPONENTS OF NET PERIOD BENEFIT COST
The components of net periodic benefit costs for the three months ended
March 31, 2004 and 2003, respectively, of the Company's domestic plans
are set forth in the following tables:
2004
------------------------------------
Del Non- Del LaCross
Union Plan Plan Serp
---------- ----------- -------
Service Cost $ 770 $ -- $ 13
Interest Cost 578 19 106
Expected return on plan assets (516) (18) --
Recognized prior service cost 13 -- 37
Recognized net (gain) loss 191 4 (3)
------- ------- -------
Net periodic cost $ 1,036 $ 5 $ 153
======= ======= =======
2003
-------------------------------------
Del Non- Del LaCross
Union Plan Plan Serp
---------- ----------- --------
Service Cost $ 648 $ -- $ 13
Interest Cost 514 21 103
Expected return on plan assets (394) (26) --
Amortization of unrecognized
transition asset (1) -- --
Recognized prior service cost 13 -- 69
Recognized net (gain) loss 182 3 (22)
----- ----- -----
Net periodic cost $ 962 $ (2) $ 163
===== ===== =====
9
CONTRIBUTIONS
The Company previously disclosed in its financial statements for the
year ended December 31, 2003, that it expects to contribute
approximately $5,215 and $808, to its Non-Union Plan and SERP
respectively, in 2004. The Company did not anticipate that a
contribution would be made to the LaCross Plan. As of March 31, 2004,
$755 and $4 of contributions have been made to the Non-Union Plan and
SERP, respectively, and no contributions have been made to the LaCross
Plan. The Company presently anticipates contributing an additional
$3,522 to fund its Non-Union Plan for a total of $4,277, contributing an
additional $11 to fund its SERP for a total of $15 and making no
additional contributions to the LaCross Plan. The decrease in the
expected contribution to the non-union plan for 2004 is due to a change
in April 2004, in the minimum funding requirement rules for 2004. The
significant decrease in the expected contributions to the SERP is due to
the fact that participants over 65 who were assumed to be retiring
during the first quarter of 2004 did not retire.
7. 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. 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. 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 $2,033 for
severance costs and related benefits for approximately 361 union and
non-union employees associated with this move was recorded during 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. During the first quarter of 2004, a recovery of $10
was recorded for such earned severance benefits, net of adjustments of
$66 to the initial accrual. During 2004 and 2003, $28 and $127,
respectively, of relocation and other move related costs were expensed
as incurred. The Company estimates that a total of approximately $17
(Cosmetic segment - $11; Pharmaceutical segment - $6), will be incurred
for additional severance, relocation and other move related costs during
the second quarter of 2004. As of March 31, 2004, 334 union and
non-union employees have been terminated and $1,119 in severance
benefits were paid.
A summary of the activity in the accrual for the plant closure was as
follows:
Balance December 31, 2003 $ 1,714
Provision 56
Payments (800)
Adjustments (66)
-----
Balance March 31, 2004 $ 904
=====
10
9. EARNINGS PER SHARE
Basic earnings per share is computed by dividing income available to
common shareholders (which for the Company equals its 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 20, 2003, the Company's Board of Directors approved a 5%
stock dividend. As a result, 462,998 shares of treasury stock were
issued on December 29, 2003 to shareholders of record on December 1,
2003. Accordingly, the weighted-average common shares outstanding in the
consolidated statement of earnings for the three months ended March 31,
2003, have been adjusted to reflect the dividend.
A reconciliation between the numerators and denominators of the basic
and diluted earnings per common share were as follows:
THREE MONTHS ENDED
MARCH 31
2004 2003
------- -------
Net earnings (numerator) $ 680 $ 4,325
------- -------
Weighted-average common shares
(denominator for basic earnings per share) 9,717 9,588
Effect of dilutive securities:
Employee stock options 666 341
------- -------
Weighted-average common and potential
common shares outstanding
(denominator for diluted earnings per share) 10,383 9,929
======= =======
Basic earnings per share $ 0.07 $ 0.45
======= =======
Diluted earnings per share $ 0.07 $ 0.44
======= =======
Employee stock options of approximately 948,000 shares for the three
months ended March 31, 2003, were not included in the net earnings per
share calculation because their effect would have been anti-dilutive.
There were no anti-dilutive shares for the three months ended March 31,
2004.
As a result of stock options exercised during the three months ended
March 31, 2004, the corresponding tax benefit of $170 was recorded as a
reduction to income taxes payable and as an increase in additional
paid-in capital.
10. COMPREHENSIVE INCOME
The components of comprehensive income for the three months ended March
31, 2004 and 2003 were as follows:
THREE MONTHS ENDED
MARCH 31
2004 2003
------ ------
Net earnings $ 680 $4,325
Foreign currency translation gain / (loss) (165) 789
------ ------
Total comprehensive income $ 515 $5,114
====== ======
11
11. 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
March 31
2004 2003
-------- --------
Net sales:
Cosmetic $ 65,238 $ 76,258
Pharmaceutical 17,827 17,105
-------- --------
Consolidated $ 83,065 $ 93,363
======== ========
Operating income:
Cosmetic $ 342 $ 6,329
Pharmaceutical 1,838 1,727
-------- --------
Consolidated $ 2,180 $ 8,056
Other (expense):
Interest expense, net $ (965) $ (1,045)
Other expense, net $ (108) $ (80)
-------- --------
Earnings before income taxes $ 1,107 $ 6,931
======== ========
Depreciation and amortization:
Cosmetic $ 2,040 $ 1,727
Pharmaceutical 3 88
-------- --------
Consolidated $ 2,043 $ 1,815
======== ========
For the three months ended March 31, 2004, a severance recovery of $(10) was
included in the operating income of the segments, as follows: Cosmetic - $7 and
Pharmaceutical - $3.
12. 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. 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 were also
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
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Del Laboratories, Inc. is a fully integrated marketing and
manufacturing company operating in two major segments of the packaged
consumer products business: cosmetics and over-the-counter
pharmaceuticals. Each of the Company's marketing divisions is
responsible for branded lines fitting into one of these general
categories and develops its own plans and goals consistent with its
operating environment and the Company's corporate objectives.
The Company owns a portfolio of highly recognized branded products
which are easy to use, competitively priced and trusted. As reported
by ACNielsen, many of the Company's brands have leading market
positions in their product categories. In our cosmetics segment, the
Sally Hansen brand is the number one brand in the mass market nail
care category with market leadership positions in nail color, nail
treatment, and bleaches and depilatories. The Sally Hansen LaCross
brand is the leader in nail and beauty implements providing a line of
high quality beauty implements including nail clippers, files,
scissors, tweezers and eyelash curlers. N.Y.C. New York Color is one
of the most successful new cosmetics brands in the mass market. This
highly recognizable brand of value cosmetics offers a complete
collection of high quality products at opening price points. In our
over-the-counter pharmaceutical segment, the Orajel brand is the
leading oral analgesic in the mass market channel, as reported by
Information Resources, Inc. The Orajel family of products has been
developed with unique formulations specifically targeted at distinct
oral pain and baby care indications. Our Dermarest brand is the most
complete line of non-prescription products for relief of psoriasis and
eczema and is the market share leader in the psoriasis/eczema
treatment category.
The Company believes it has outstanding customer relationships with a
diversified group of prominent retailers across multiple distribution
channels including mass merchandisers, drug chains, drug wholesalers
and food retailers and wholesalers. The Company has a strong track
record of developing innovative new products and successful brand
extensions. An in-house research and development department focuses on
product development, clinical and regulatory affairs and quality
control.
RESULTS OF OPERATIONS
As discussed in more detail throughout our MD&A:
o Production start-up problems in connection with the transfer of the
Company's principal manufacturing operations, for both the Cosmetic
and Pharmaceutical segments, to Rocky Point, North Carolina from
Farmingdale, New York adversely impacted order fulfillment. The
decrease in the first quarter of 2004 net sales and net earnings as
compared to the first quarter of 2003 is attributable to the lower
sales volume resulting from the inability to fulfill orders due to the
production start-up problems.
o On April 13, 2004, a formal agreement was signed with the lender under
senior notes to extend the maturity of the notes to April 15, 2011,
extend the principal payment schedule, reduce the interest rate and
reduce or eliminate certain restrictive covenants.
o On April 13, 2004, a formal agreement was signed with three banks
amending and restating the $45.0 million revolving credit facility to
extend the facility to April 2009, reduce the interest rate and reduce
or eliminate certain restrictive covenants.
13
Consolidated net sales for the quarter ended March 31, 2004 were $83.1
million, a decrease of $10.3 million (11.0%) compared to net sales of
$93.4 million for the first quarter of 2003. The decrease is
attributable to production start-up problems in connection with the
transfer of the Company's principal manufacturing operations, for both
the cosmetic and pharmaceutical segments, to Rocky Point, North Carolina
from Farmingdale, New York. Due to production start-up problems, the
Company estimates that net sales for the first quarter of 2004 were
negatively impacted by approximately $14.1 million. The production
issues are being addressed and the Company anticipates that during the
second quarter production efficiencies and order fulfillment should
approach the pre-relocation levels.
The cosmetic segment of the business generated net sales for the first
quarter ended March 31, 2004 of $65.2 million, a decrease of
approximately $11.1 million, or 14.5% compared to net sales of $76.3
million in the first quarter of 2003. Due to production start-up
problems, the Company estimates that cosmetic segment net sales for the
first quarter of 2004 were negatively impacted by approximately $11.0
million. The Company's core cosmetic business remains strong, and as
reported by ACNielsen, the Sally Hansen brand remains the number one
brand in the mass market nail care category with a 25.6% share of market
for the quarter ended March 31, 2004.
The over-the-counter pharmaceutical segment of the business generated
net sales for the first quarter ended March 31, 2004 of $17.8 million,
an increase of 4.2% compared to net sales of $17.1 million in the first
quarter of 2003. Due to production start-up problems, the Company
estimates that pharmaceutical segment net sales for the first quarter of
2004 were negatively impacted by approximately $3.1. The
over-the-counter pharmaceutical business continues to grow and as
reported by Information Resources, Inc., Orajel, the core brand of the
pharmaceutical segment continues its leadership position in the oral
analgesics category with a 27.0% share of market for the first quarter
of 2004.
Cost of goods sold for the quarter ended March 31, 2004 was $41.2
million, or 49.6% of net sales, compared to $45.7 million, or 48.9% of
net sales for the quarter ended March 31, 2003. The unfavorable variance
in cost of goods sold as a percentage of net sales is primarily related
to the lower net sales in 2004 as a result of the inability to fulfill
orders due to production start-up problems.
Selling and administrative expenses were $39.7 million, or 47.8% of net
sales for the quarter ended March 31, 2004 compared to $39.6 million, or
42.5% of net sales for the first quarter of 2003. Although the general
and administrative expenses in 2004 were basically equal to the prior
year, the increase in the percentage of expense to net sales is due to
the reduced net sales as previously discussed above.
Net interest expense for the three months ended March 31, 2004 of $1.0
million was approximately $0.1 million lower than the first quarter of
2003. The decrease is primarily due to the reduction of $8.0 million of
outstanding debt related to the 9.5% senior notes, partially offset by
an increase in average outstanding borrowings of $8.2 million under the
revolving credit agreement and an increase of $8.0 million under the
mortgage on the property in North Carolina.
Income taxes for the three months ended March 31, 2004 are based on the
Company's expected annual effective tax rate of 38.6% for 2004. The
increase from the effective tax rate of 37.6% used for the first quarter
of 2003 is due primarily to an increase in state and local income taxes
resulting from the reduction of available investment tax credits, an
increase in the amount of permanent non-deductible expenses and the
increased effect of such non-deductible expenses on taxable income for
the first quarter of 2004.
Net earnings for the three months ended March 31, 2004 were $0.7
million, or $0.07 per basic share, compared to $4.3 million, or $0.45
per basic share for the first quarter of 2003. The decrease in net
earnings for the first quarter of 2004 as compared to prior year is
directly attributable to the reduction in net sales as a result of the
inability to fulfill orders due to production start-up problems in
connection with the transfer of the Company's principal manufacturing
operations from Farmingdale, New York to Rocky Point, North Carolina.
14
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW OVERVIEW
Cash and cash equivalents decreased approximately $0.7 million during
the first quarter ended March 31, 2004, due to $4.4 million used in
operating activities and $3.0 million used in investing activities,
partially offset by $6.7 million provided primarily by borrowings under
the revolving credit agreement. As discussed below, the $4.4 million
used in operating activities is primarily due to lower net earnings and
increases in inventories.
OPERATING ACTIVITIES
Net cash used in operating activities for the quarter ended March 31,
2004 of $4.4 million was primarily due to increases in inventories of
$8.2 million and other assets of $2.9 million, partially offset by net
earnings before depreciation and amortization of $2.7 million, decreases
in accounts receivable of $3.9 million, and an increase in accrued
liabilities of $1.5 million. The increase in inventories is due to the
timing of purchases of raw materials and components to support projected
sales levels and the inability to ship unfulfilled orders as a result of
the start-up production problems. The increase in other assets is
primarily related to increased inventories of displays to support
projected product shipments.
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 $2.0 million for
severance costs and related benefits for approximately 361 union and
non-union employees associated with this move was recorded through March
31, 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. As of March 31, 2004, 334 union and
non-union employees have been terminated and $1.1 million in severance
benefits were paid. Additionally, it is anticipated that approximately
$0.8 million will be paid by September 30, 2004.
INVESTING ACTIVITIES
Net cash used in investing activities of $3.0 million was primarily for
expenditures related to tooling, plates & dies and machinery and
equipment. The Company estimates that capital spending related to
tooling, plates & dies, and machinery and equipment will approximate a
total of $9.0 million for fiscal year 2004.
FINANCING ACTIVITIES
Net cash provided by financing activities of $6.7 million was
principally due to borrowings under the revolving credit facility.
On April 13, 2004, the $24.0 million senior notes were amended and
restated. The maturity of the notes was extended to April 15, 2011, the
interest rate was reduced to 5.56% payable semi-annually on October 15
and April 15 of each year, and principal payments of $6.0 million are
due annually on April 15, 2008 through April 15, 2011. The amended
agreement is unsecured and includes covenants, which provide among other
things, for the maintenance of certain financial ratios.
15
On April 13, 2004, the $45.0 million revolving credit agreement with
banks was amended and restated. The amended facility provides credit of
$45.0 million, extends the expiration to April 13, 2009, eliminates all
fixed dollar covenants, and reduces the interest rate pricing to a range
of 75 - 100 basis points over LIBOR depending on certain financial
ratios. The Company has the option to borrow at prime rates or LIBOR.
Covenants provide, among other things, for the maintenance of certain
financial ratios. The agreement is unsecured and no compensating
balances are required.
On April 1, 2004, the lender under the mortgage covering the property in
Barrie, Ontario agreed to extend the maturity of the mortgage from March
1, 2005 to April 1, 2009 and to reduce the interest rate from 8.38% to
6.37%.
The Company does not use any off-balance sheet financing arrangements.
DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS
In order to aggregate all contractual obligations as of March 31, 2004,
the Company has included the following table:
PAYMENTS DUE BY PERIOD
($000)
LESS 1 - 2 2 - 3 3 - 5 AFTER 5
TOTAL 1 YEAR YEARS YEARS YEARS YEARS
-------- -------- -------- -------- -------- --------
Long-term debt $ 37,671 $ 863 $ 890 $ 918 $ 7,921 $ 27,079
Revolving credit agreement 40,800 -- -- -- -- 40,800
Capital leases 412 114 122 131 45 --
Operating leases 32,139 3,439 3,179 2,983 5,480 17,058
-------- -------- -------- -------- -------- --------
Total contractual obligations (a) $111,022 $ 4,416 $ 4,191 $ 4,032 $ 13,446 $ 84,937
======== ======== ======== ======== ======== ========
(a) The Company expects to contribute approximately $6.0 million in
fiscal year 2004 to fund its pension plans. These expected pension
contributions are not included in the above table.
FUTURE CAPITAL REQUIREMENTS
The Company's near-term cash requirements are primarily related to the
funding of operations, capital expenditures and interest obligations on
outstanding debt. The Company believes that cash flows from operating
activities, cash on hand and amounts available from the credit facility
will be sufficient to enable the Company to meet its anticipated cash
requirements for 2004. 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.
16
DISCUSSION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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.
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 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 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.
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 co-operative
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.
17
ACCOUNTS RECEIVABLE
In estimating the collectibility of our trade receivables, the Company
evaluates specific accounts when it becomes aware of information
indicating that a customer may not be able to meet its financial
obligations due to a deterioration of its financial condition, lower
credit ratings or bankruptcy. The Company also reviews the related aging
of past due receivables in assessing the realization of these
receivables. The allowance for doubtful accounts is determined based on
the best information available to us on specific accounts and is also
developed by using percentages applied to certain receivables.
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.
Intangible assets with determinable lives and other 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. Recoverability of assets to be
held and used is measured by comparison of the carrying amount of an
asset to the future net cash flows expected to be generated by the
asset. 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 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.
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 annual testing performed as
of January 1, 2004, indicated that there was no impairment to goodwill.
18
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.
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 actuarial valuation incorporates
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.
NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities" ("FIN No. 46"). FIN No. 46 was subject to
significant interpretation by the FASB, and was revised and reissued in
December 2003 ("FIN No. 46R"). FIN No. 46R states that if an entity has
a controlling financial interest in a variable interest entity, the
assets, the liabilities and results of activities of the variable
interest entity should be included in the consolidated financial
statements of the entity. The provisions of FIN No. 46 and FIN No. 46R
are applicable for all entities that are considered special purpose
entities ("SPE") by the end of the first reporting period ending after
December 15, 2003. The provisions of FIN No. 46R are applicable to all
other types of variable interest entities for reporting periods ending
after March 15, 2004. The adoption of FIN No. 46 and FIN No. 46R did not
have a material impact on the Company's consolidated financial
statements.
During the first quarter of 2004, the Financial Accounting Standards
Board ("FASB") issued exposure draft No. 1102-100, "Share-Based Payment,
an amendment of FASB Statements No. 123 and 95." This exposure draft
would require stock-based compensation to employees to be recognized as
a cost in the financial statements and that such cost be measured
according to the fair value of the stock options. In the absence of an
observable market price for the stock awards, the fair value of the
stock options would be based upon a valuation methodology that takes
into consideration various factors, including the exercise price of the
option, the expected term of the option, the current price of the
underlying share, the expected volatility of the underlying share price,
the expected dividends on the underlying share and the risk-free
interest rate. The proposed requirements in the exposure draft would be
effective for the first fiscal year beginning after December 15, 2004.
The FASB intends to issue a final Statement during the fourth quarter of
2004. The Company will continue to monitor communications on this
subject from the FASB in order to determine the impact on the Company's
consolidated financial statements.
19
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
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 13a - 15(e) and 15d - 15(e). Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures were
effective as of the end of the period covered by this quarterly report.
The Company's management, including the Company's Chief Executive
Officer and Chief Financial Officer, has evaluated the Company's
internal control over financial reporting to determine whether any
changes occurred during the quarter covered by this report that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting. Based on that evaluation,
there has been no such change during the quarter covered by this report.
20
PART II - OTHER INFORMATION
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of
Shares (or Units)
Total Number of Average Price Purchased as Part of
Shares (or Units) Paid per Share Publicly Announced
Purchased (or Unit) Programs
January 5,389 $28.09 --
February -- -- --
March 4,671 $33.50 --
------ ------ ------
10,060(1) $30.60 (2)
====== ====== ======
(1) Represents shares tendered by employees to pay for stock options exercised
and shares withheld from options exercised to satisfy income tax liabilities on
gains resulting from the exercise.
(2) The Company does not have any publicly announced share repurchase program.
Item 5. Other Information
(b) Stockholders who wish to recommend to the Nominating Committee a candidate
for election to the Board of Directors should send their letters to:
Attn: Nominating Committee
c/o Gene Wexler, Corporate Secretary
Del Laboratories, Inc.
P.O. Box 9357
Uniondale, New York 11553-9357
Fax: 516-844-2942
The Corporate Secretary will promptly forward all such letters to the members of
the Nominating Committee. Certain procedures must be followed by stockholders to
recommend to the Nominating Committee candidates for election as Directors. The
Corporate Secretary must receive the stockholder's recommendation no later than
ninety (90) days in advance of the meeting, assuming that the meeting will be
held on or after the anniversary date of this year's meeting.
The monination must contain the following information about the candidate:
- name
- age
- business and residence addresses
- principal occupation or employment
- the number of shares of common stock of the Corporation
beneficially owned by the nominee
- the information that would be required under the rules of the
SEC in a Proxy Statement soliciting proxies for the election of
such nominee as a Director
- a signed consent of the nominee to serve as a Director of the
Corporation, if elected
21
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
February 26, 2004 to report under Item 12 of that
Form that a press release was issued on February 25, 2004
announcing earnings for the three and twelve months ended
December 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 March 26,
2004 to report under Item 9 of that Form that a press
release was issued on March 25, 2004 announcing a trademark
licensing agreement with Elizabeth Arden. 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 April 16,
2004 to report under Item 5 of that Form that the Company
amended and restated its unsecured revolving credit
agreement and its senior notes as of April 13, 2004. Copies
of the complete agreements were filed as exhibits to the
Form 8-K.
The Company filed a Form 8-K with the SEC, dated April
30, 2004 to report under Item 12 of that Form that a press
release was issued on April 29, 2004 announcing earnings for
the three months ended March 31, 2004. A copy of the press
release was filed as an exhibit to the Form 8-K.
22
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: MAY 7, 2004 /S/ DAN K. WASSONG
---------------------- ------------------
Dan K. Wassong
Chairman, President and
Chief Executive Officer
DATE: MAY 7, 2004 /S/ ENZO J. VIALARDI
------------------- --------------------
Enzo J. Vialardi
Executive Vice President and
Chief Financial Officer
23