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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
-----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-5439
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DEL LABORATORIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 13-1953103
-------- ----------
(State or other jurisdiction of (I.R.S. Employer I.D. Number)
incorporation or organization)
565 Broad Hollow Road, Farmingdale, NY 11735
- -------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (516) 293-7070
--------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock, $1 par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
- -
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on March 21, 1996 was $64,214,171. On such date, the mean price at
which the stock was sold was $28.25 per share.
The number of shares of Common Stock, $1 Par Value, outstanding as of March 21,
1996 was 4,178,414 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Part of the Form 10-K into
which the Document is
Document Incorporated
- -------- ------------
Definitive Proxy Statement Part III, items 10, 11, 12 and 13
to Shareholders
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
a) GENERAL DEVELOPMENT OF BUSINESS
(1) The Registrant was organized and incorporated in 1961. The Registrant
is a manufacturer and distributor of cosmetics and proprietary
pharmaceuticals.
(2) INFORMATION REQUIRED FOR BUSINESSES NOT SUBJECT TO SECTION 13(a)
OR 15(d) OF THE EXCHANGE ACT
Not Applicable.
b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
INDUSTRY SEGMENTS (In thousands of dollars)
1995 1994 1993
---- ---- ----
Sales to unaffiliated customers:
Cosmetics $162,348 $141,687 $120,964
Pharmaceuticals 49,700 48,415 45,532
Operating Income:
Cosmetics 6,358 4,331 3,154
Pharmaceuticals 9,049 8,939 7,920
Identifiable assets:
Cosmetics 96,121 89,197 79,806
Pharmaceuticals 17,003 15,760 15,380
c) NARRATIVE DESCRIPTION OF BUSINESS
(1) (i) PRINCIPAL PRODUCTS AND PRINCIPAL MARKETS
The principal products in the cosmetics segment are nail care, color
cosmetics, beauty implements, bleach and depilatories, hair care products,
personal care products and other related cosmetics items. The principal
products in the pharmaceutical segment are all of a proprietary nature and
range from oral analgesics to acne treatment products and ear drop
medications. The products are sold principally in the United States and
Canada, through the Registrant's sales force and independent sales
representatives to wholesalers, independent and chain drug, variety and
food stores.
Products from the cosmetics and pharmaceutical divisions of the Registrant
are targeted to the mass market including the major national chain drug
stores and chain mass merchandisers. The mass market channels account for
a major portion of the decorative color cosmetics market and the majority
of over-the-counter pharmaceutical product sales.
Sales of the Registrant's products are promoted by two in-house national
sales forces, one for its cosmetics business and one for its pharmaceutical
business. Manufacturers' representatives are used only selectively in
those geographical areas where a full-time representative cannot be
economically justified. There are no material arrangements or agreements
in this area.
(ii) DESCRIPTION OF NEW PRODUCTS OR SEGMENTS REQUIRING MATERIAL INVESTMENT
OF ASSETS
Not applicable.
(iii) SOURCES AND AVAILABILITY OF RAW MATERIALS
For both the cosmetics and pharmaceutical segments, the Registrant
purchases raw materials from various basic manufacturers, paper board
suppliers and bottle distributors. During 1995, the Registrant
experienced no difficulty in obtaining raw materials.
(iv) PATENTS AND TRADEMARKS
For both the cosmetics and pharmaceutical segments, the Registrant's
major trademarks are registered in the United States and in many other
countries throughout the world. Some of the products of the cosmetics
and pharmaceutical segments are manufactured and sold under patents
owned by the Registrant. Continued trademark registration and patent
protection are important to the Registrant's business.
(v) EXTENT TO WHICH BUSINESS SEGMENTS MAY BE SEASONAL
Not applicable.
(vi) WORKING CAPITAL PRACTICES
The Registrant operates in a highly competitive packaged goods
industry and does not manufacture special products for its customers.
Quick response on standard merchandise to customer orders is expected.
Future orders do not represent a material portion of the Registrant's
business. Although the Registrant does not have a policy regarding a
customer cancellation, cancellations by customers are not frequent or
material. It is the Registrant's practice, consistent with the
packaged goods industry practice, to accept authorized returns for
reasons of quality and product discontinuation by the manufacturer.
(vii) DEPENDENCE OF A BUSINESS SEGMENT ON LIMITED CUSTOMERS
In 1995, 1994 and 1993, sales to Wal-Mart Stores
Inc. were in excess of 10% of consolidated net sales.
(viii) BACKLOG
See response to Item (vi) above.
(ix) MATERIAL GOVERNMENT CONTRACTS
Not applicable.
(x) COMPETITION
Competition in both the cosmetics and pharmaceutical industries is
intense. Many of the principal competitors in each of the
Registrant's industry segments are well-established firms with larger
financial resources and with sales believed to be in excess of sales
made by the Registrant in each applicable segment. The cosmetics
industry is particularly sensitive to consumer purchasing power.
Consumer brand preferences in the cosmetics and proprietary drug
industries are generally influenced by advertising and promotional
support. The cosmetics industry is characterized by frequent
introduction of new products and the attendant intensification of
advertising.
(xi) SPENDING ON RESEARCH AND DEVELOPMENT
In the past three (3) years, commencing with 1995, the Registrant
expended $4,589,000, $3,452,000 and $3,952,000, respectively, on
research activities relating to the development of new products,
clinical and regulatory affairs and quality control/assurance of the
Registrant's product lines, all of which activities
were conducted by the Registrant.
(xii) COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
See response to Item 3 - Legal Proceedings.
(xiii) NUMBER OF EMPLOYEES
The Registrant has approximately 1,243 employees.
d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
Not material.
ITEM 2 - DESCRIPTION OF PROPERTIES
The Registrant's executive offices and principal manufacturing facilities for
both the cosmetics and pharmaceutical segments are located in two buildings at
565 Broad Hollow Road, Farmingdale, New York. One building is a brick faced
concrete block structure containing approximately 120,000 square feet of floor
space. The other is a steel beamed and brick faced concrete block building,
adjacent to the Farmingdale facility described above, containing approximately
20,000 square feet of floor space. Both buildings are owned by the Registrant.
The Registrant also owns certain property used for manufacturing facilities for
its cosmetics segment in Newark, New Jersey. The Newark buildings are brick
faced concrete block and contain approximately 90,000 square feet of floor
space.
The Registrant's principal warehouse and shipping facility for both the
cosmetics and pharmaceutical segments is located at 1 Arnold Drive, Huntington,
New York. This steel beamed and brickfaced concrete block building contains
approximately 130,000 square feet of floor space. The building is leased by the
Registrant.
The Registrant also owns property at 163 East Bethpage Road, Plainview, New
York. This steel beamed and brick faced concrete block building contains
approximately 63,000 square feet of floor space. The facility is used for both
offices and warehousing.
The Registrant owns property located in Canajoharie, New York, consisting of a
two-story brick and steel building with approximately 50,000 square feet of
floor space. This building is occupied by the Registrant's LaSalle Laboratories
division.
The Registrant owns property located in the City of Barrie, Province of Ontario,
Canada, consisting of a building with approximately 39,000 square feet of floor
space. The facility is used for manufacturing and shipping and contains the
administrative offices of its Canadian division.
The Registrant also owns property located in the City of Little Falls, New York,
consisting of a building with approximately 63,000 square feet of floor space.
The facility is used for production and warehousing. The building was owned
subject to a mortgage issued as part of an industrial revenue bond financing
through the Herkimer County Development Authority. The mortgage was repaid
in full in September 1995.
The Registrant owns a second building located in close proximity to the Little
Falls facility described above. It was purchased in late 1986 and is subject to
a first mortgage. This 100,000 square foot facility is a one-story steel and
masonry industrial plant built in 1974 and is used for production and
warehousing.
The Registrant also has short-term leases for space in public warehouses. The
space is primarily used for the cosmetics segment.
The Registrant believes that its facilities adequately meet the needs of the
Registrant, operating at reasonable levels of production.
ITEM 3 - LEGAL PROCEEDINGS
The Registrant has been notified that it has been identified as a potentially
responsible party with respect to environmental remediation activities required
at a site in Pennsylvania. The total cost to the Registrant of remediation
activities that it may be required to undertake cannot yet be quantified,
although the Registrant is one of over 900 potentially responsible parties that
have been identified at the site. Although no dollar amount can be assigned to
remediation costs because of inherent uncertainties, on the basis of current
available information, management has determined that such costs will not have a
material adverse effect on the Registrant's financial position. It is the
Registrant's policy to meet all regulatory requirements for the protection of
the environment and to take prompt remedial action where necessary.
In July 1994, the Equal Employment Opportunity Commission ("EEOC") filed suit
against the Registrant in the United States District Court for the Eastern
District of New York alleging sexual discrimination against certain present
and former employees of the Registrant, in violation of Title VII of the
Civil Rights Act of 1964, as amended. On August 3, 1995, the Court approved
a consent decree between the Registrant and the EEOC settling the case. The
Registrant denied that it engaged in any unlawful conduct, and the consent
decree expressly acknowledges that the settlement does not constitute an
admission by the Registrant of any violation of any law, rule or regulation
relating to employment discrimination. The Board of Directors determined that
the settlement was in the best interest of the Registrant and its
shareholders, considering the expense that would have resulted from continued
litigation and the time and attention of management and employees that would
necessarily have been required.
Pursuant to the settlement, the Registrant agreed to pay 15 former employees a
total sum of $1,185,000. The settlement also incorporated the Registrant's
revised sexual harassment policy which includes a revised complaint procedure.
On August 9, 1995, two stockholder derivative actions were filed in the State of
Delaware Chancery Court against the Registrant and members of its Board of
Directors, alleging breach of fiduciary duty and waste of corporate assets by
the directors in connection with the Registrant's response to and investigation
of the claims of sexual harassment made against the Registrant which were the
subject of the lawsuit filed by the EEOC. One action also names a former
director and a person mistakenly named as a director. Plaintiffs have moved to
consolidate these actions. The derivative actions seek restitution of amounts
paid in connection with the defense and settlement of the lawsuit and certain
other relief. The Registrant believes that these derivative actions are without
merit.
The Registrant is of the opinion, on the basis of currently available
information, that none of the matters referred to above will have a material
effect on the Registrant's results of operations or financial condition.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Registrant's common stock is traded on the American Stock Exchange. The
range of high and low sales prices as reported in the consolidated transaction
reporting system of such exchange for each quarterly period during the past two
years is as follows:
1995 1994
------------- --------------
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter $ 22.75 $ 17.63 $11.63 $10.69
Second Quarter $ 25.75 $ 21.00 $11.82 $10.60
Third Quarter $ 22.50 $ 19.75 $13.32 $11.75
Fourth Quarter $ 20.88 $ 18.88 $19.25 $13.07
There were 544 holders of record of the Registrant's common stock at
December 31, 1995. This does not include beneficial holders whose shares are
held of record by nominees, such number not being known by the Registrant.
The Registrant paid regular quarterly dividends of $.028 from January 1994
through May 1994, $.032 from June 1994 through August 1994, $.033 from
September 1994 through August 1995 and $.035 from September 1995 through
December 1995. The Registrant has paid uninterrupted dividends for the past
twenty two years. The per share information set forth above has been adjusted
for a 2-for-1 stock split effective June 16, 1995 and a 4-for-3 stock split
effective June 15, 1994.
The terms of the Registrant's various borrowing agreements provide, among other
things, for restrictions on the payment of cash dividends and certain other
expenditures. At December 31, 1995 retained earnings available for dividends
and certain other expenditures amounted to approximately $986,000.
ITEM 6 - SELECTED FINANCIAL DATA
(Amounts in Thousands Except Per Share and Employee Data)
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Net sales $212,048 $190,102 $166,496 $143,768 $127,566
Net earnings before
extraordinary item 7,025 5,681 4,173 3,314 2,140
Extraordinary item - - (2,310) - -
Net earnings 7,025 5,681 1,863 3,314 2,140
Earnings before
extraordinary item
per common share (a) (b) 1.45 1.20 .87 .68 .50
Extraordinary item per
common share (a) - - (.47) - -
Earnings per common
share (a) (b) 1.45 1.20 .40 .68 .50
Cash dividends per share (a) .14 .13 .12 .12 .12
Weighted average number of
shares outstanding (a) (b) 4,853 4,800 4,966 5,158 5,010
Other data:
Capital additions $ 7,569 $ 5,827 $ 4,802 $ 3,715 $ 3,397
Total assets 113,124 104,957 95,186 94,372 96,237
Long term debt 40,000 40,070 40,637 30,769 37,132
Working capital 40,441 38,813 38,777 29,886 33,836
Shareholders' equity 38,021 34,203 30,913 31,102 29,228
Approximate # of employees 1,243 1,175 1,080 985 970
(a) Adjusted to reflect a 2-for-1 stock split effective June 16, 1995 and
4-for-3 stock splits effective June 15, 1994 and September 20, 1991.
(b) Fully diluted earnings per common share were $1.14 for the year ended
December 31, 1994 based on 5,002,000 weighted average common shares
outstanding. In the years 1991-1993 and 1995, primary and fully diluted
earnings per common share were the same.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Under its institutional debt covenants, the Registrant is permitted a level of
short-term borrowing not to exceed $15,000,000. Currently, the Registrant has
arrangements with banks which provide up to $27,500,000 of short-term lines of
credit at the prime rate of interest. Short-term debt was $0 at December 31,
1995.
The Registrant has, from time to time, acquired shares of its common stock
pursuant to a plan approved by the Board of Directors in 1987. In 1995, the
Registrant purchased 385,477 shares at an average cost of $21.39 per share, and
such shares were placed in treasury. The shares purchased in 1995 were
predominantly from employees who held shares issued pursuant to the Registrant's
stock option plans, with the balance through open market purchases.
Net accounts receivable at December 31, 1995 increased by $5,933,000 from the
December 31, 1994 level. The increase is attributable to a large sales increase
in the latter part of the fourth quarter of 1995.
Inventories at December 31, 1995 increased by $2,390,000 versus the December 31,
1994 level. The increase is primarily attributable to an increased level of
finished goods within the Cosmetics Divison.
The Registrant believes that it would have no difficulty in supplementing
internally-generated funds with other sources.
RESULTS OF OPERATIONS
SALES
In 1995, net sales were $212.0 million, 11.5% above 1994. For 1994, net sales
were $190.1 million, 14.2% above 1993.
Net sales for the Cosmetics Division in 1995 were $162.3 million, a 14.6%
increase from the $141.7 million in 1994. The $141.7 million of net sales for
the Cosmetics Division in 1994 was an increase of 17.1% from the $121.0 million
in 1993. The Pharmaceutical Division had net sales of $49.7 million, a 2.7%
increase from the $48.4 million in 1994. The $48.4 million of net sales for the
Pharmaceutical Division in 1994 was an increase of 6.3% from the $45.5 million
in 1993.
The net sales increase in the Cosmetics Division is largely attributable to
increased volume in the Sally Hansen, Natural Glow, Naturistics and LaCross
brands plus the introduction of a skin treatment line.
The net sales increase in the Pharmaceutical Division is largely attributable to
increases in the Orajel, Propha PH and Pronto brands.
COST OF SALES
Cost of sales was 41.7%, 40.0% and 40.6% of net sales in 1995, 1994 and 1993,
respectively.
The increased cost of sales in 1995, compared with 1994 and 1993, is largely
attributable to an increased level of sales in the Cosmetics Division, and the
mix of business within the Division, which has a higher cost of goods than the
Pharmaceutical Division.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses increased in 1995 and 1994, but decreased as
a percentage of net sales to 51.0% in 1995, as compared to 53.0% in 1994 and
52.8% in 1993. A combination of increased net sales, specific cost containment
programs and a leveling of advertising expenditures are the primary reasons for
the decreased percentage in 1995.
Advertising expenditures were $26.0 million in 1995, compared with $25.9 million
in 1994 and $21.9 million in 1993.
NET INTEREST EXPENSE
Net interest expense was $3,501,000 in 1995, compared with $3,641,000 in 1994
and $4,067,000 in 1993. The decrease in 1995 is attributable to increased
interest income plus a reduction in interest expense arising from the
elimination of short- term borrowings. The decrease from 1993 to 1994 is
primarily attributable to decreased short-term borrowings, a reduced rate of
interest and increased interest income.
INCOME TAXES
The Registrant's effective tax rate was 41.0% in both 1995 and 1994, and 40.5%
in 1993. The slight increase in the effective rate was primarily attributable
to higher state income taxes for both 1995 and 1994.
NET EARNINGS
Net earnings for 1995 were $7,025,000, 23.6% above the $5,681,000 reported for
1994. The 1994 net earnings of $5,681,000 were 36.1% above the $4,173,000
reported for 1993. Net earnings for 1993 stated above does not give effect to
an extraordinary charge of $2,310,000 incurred during the second quarter of
1993.
LEGAL MATTERS
The Registrant has been notified that it has been identified as a potentially
responsible party with respect to environmental remediation activities required
at a site in Pennsylvania. The total cost to the Registrant of remediation
activities that it may be required to undertake cannot yet be quantified,
although the Registrant is one of over 900 potentially responsible parties that
have been identified at the site. Although no dollar amount can be assigned to
remediation costs because of inherent uncertainties, on the basis of current
available information, management has determined that such costs will not have a
material adverse effect on the Registrant's financial position. It is the
Registrant's policy to meet all regulatory requirements for the protection of
the environment and to take prompt remedial action where necessary.
In July 1994, the Equal Employment Opportunity Commission ("EEOC") filed suit
against the Registrant in the United States District Court for the Eastern
District of New York alleging sexual discrimination against certain present
and former employees of the Registrant, in violation of Title VII of the
Civil Rights Act of 1964, as amended. On August 3, 1995, the Court approved
a consent decree between the Registrant and the EEOC settling the case. The
Registrant denied that it engaged in any unlawful conduct, and the consent
decree expressly acknowledges that the settlement does not constitute an
admission by the Registrant of any violation of any law, rule or regulation
relating to employment discrimination. The Board of Directors determined that
the settlement was in the best interest of the Registrant and its
shareholders, considering the expense that would have resulted from continued
litigation and the time and attention of management and employees that would
necessarily have been required.
Pursuant to the settlement, the Registrant agreed to pay 15 former employees a
total sum of $1,185,000. The settlement also incorporated the Registrant's
revised sexual harassment policy which includes a revised complaint procedure.
On August 9, 1995, two stockholder derivative actions were filed in the State of
Delaware Chancery Court against the Registrant and members of its Board of
Directors, alleging breach of fiduciary duty and waste of corporate assets by
the directors in connection with the Registrant's response to and investigation
of the claims of sexual harassment made against the Registrant which were the
subject of the lawsuit filed by the EEOC. One action also names a former
director and a person mistakenly named as a director. Plaintiffs have moved to
consolidate these actions. The derivative actions seek restitution of amounts
paid in connection with the defense and settlement of the lawsuit and certain
other relief. The Registrant believes that these derivative actions are without
merit.
The Registrant is of the opinion, on the basis of currently available
information, that none of the matters referred to above will have a material
effect on the Registrant's results of operations or financial condition.
IMPACT OF NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of"
(SFAS No. 121), effective for fiscal years beginning after December 15, 1995,
requires, among other things, that long-lived and certain identified intangibles
to be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Impairment losses should be based upon the fair value of the
asset and reported in the period in which the recognition criteria are first
applied and met. The management of the Registrant does not believe that the
implementation of SFAS No. 121 will have a significant impact on its financial
position or results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation," which must be adopted by the
Registrant in 1996. The Registrant has elected not to implement the fair value
based accounting method for employee stock options, but has elected to disclose,
commencing in 1996, the pro forma net income and earnings per share as if such
method had been used to account for stock-based compensation cost as described
in the statement.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Schedule included separately herein.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The information required with respect to Directors is set forth under the
caption "Election of Directors - Information Concerning Directors" in
Registrant's definitive Proxy Statement to be filed pursuant to Regulation 14A
and incorporated herein by reference.
(b) The executive officers of the Registrant, the positions held by them, their
ages and the years in which they began to serve in the positions or office held
as of December 31, 1995 are as follows:
Year in
Which Began
to Serve in
Position or as
Name Position Age Executive Officer
---- -------- --- -----------------
Dan K. Wassong Chairman, President and
Chief Executive Officer, Director 65 1969
Charles J. Hinkaty Vice President, President of
Del Pharmaceuticals, Inc.,
Director 46 1985
Melvyn C. Goldstein Vice President of Finance,
Treasurer 55 1982
William H. McMenemy Executive Vice President of
Marketing, Cosmetics Division,
North America 49 1980
Harvey P. Alstodt Executive Vice President of Sales,
Cosmetics Division, North America 56 1988
James F. Lawrence Group Vice President - Operations 61 1993
There is no arrangement or understanding between any executive officer
and any other person pursuant to which he was selected as an officer. The
executive officers of the Registrant are elected annually at the meeting of
the Board of Directors immediately following the Annual Meeting of the
Stockholders. No family relationship exists among any of the executive
officers and directors of the Registrant.
During the past five years, the principal occupation and employment of each
of the Registrant's executive officers has been his service in the respective
position shown for him in the above table, except as follows:
James F. Lawrence has been Group Vice President-Operations of the
Registrant since April 1993. Prior to that time, Mr. Lawrence served as an
independent consultant from September 1992 to April 1993, Vice President,
Operations of Artmatic Cosmetics, Inc. from April 1991 to September 1992,
Senior Vice President, Sales and Marketing of Kolmar Laboratories, Inc., a
contract manufacturer, from April 1990 to April 1991 and President of Hazel
Bishop, a cosmetics manufacturer, from December 1987 to April 1990.
ITEM 11 - EXECUTIVE COMPENSATION
The information required is set forth under the caption "Executive
Compensation" in Registrant's definitive Proxy Statement to be filed pursuant to
Regulation 14A and is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) and (b) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required is set forth under the captions "Securities
Ownership of Certain Beneficial Owners" and "Election of Directors - Information
Concerning Directors" in Registrant's definitive Proxy Statement to be filed
pursuant to Regulation 14A and is incorporated herein by reference.
(c) CHANGES IN CONTROL
Not applicable.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required is set forth under the caption "Executive
Compensation" in Registrant's definitive Proxy Statement to be filed pursuant to
Regulation 14A and is incorporated herein by reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a) Documents filed as part of this report:
(1) and (2) See Index to Consolidated Financial Statements and Schedule
included herein.
(3) Exhibit Index
Item No. Item Title Exhibit No. Description
- -------- ---------- ----------- -----------
2 Plan of Not Applicable.
acquisition,
reorganization
arrangement,
liquidation or
succession
3 Articles of (1) Restated Certificate of Incorporation
and By-Laws as filed with the Delaware Secretary
Incorporation of State on March 29, 1996.
(2) By-Laws as amended through December 14, 1995.
4 Instruments defining Not Applicable.
the rights of security
holders including
indentures
9 Voting Trust Agreement Not Applicable
10 Material (a) Employee Pension Plan, effective January
Contracts 1, 1989. (Amended and restated).*
(b) Employees Stock Ownership Plan, effective
January 1, 1989.*
(c) Amendment No. 1 to Employees Stock Ownership Plan.*
(a) Amendment No. 2 to Employees Stock Ownership Plan.*
(c) 1984 Stock Option Plan, as amended to date.*
(d) 1994 Stock Plan.*
(d) Annual Incentive Plan.*
(c) Loan agreement with Dan K. Wassong dated as of
August 22, 1984 and related promissory notes.
(a) Loan Agreement with Dan K. Wassong, dated as of April 9, 1988.
(e) Loan agreement with Dan K. Wassong, dated as of November 14, 1990.
(a) 401(k) Plan effective January 1, 1989. (amended and restated).*
(a) Supplemental Executive Retirement Plan. (amended and restated).*
* Constitutes a "management contract or compensatory plan or arrangement"
required to be filed pursuant to Item 14 (c) of the Form 10-K.
Item No. Item Title Exhibit No. Description
- -------- ---------- ----------- -----------
(f) Employment agreement with Dan K. Wassong, dated as of November 13, 1992.*
(a) Amendment to Employment Agreement with Dan K. Wassong, dated March 21, 1994.*
(g) Loan Agreement dated as of May 26, 1993 with Jackson National Life Insurance Company
and Jackson National Life Insurance Company of Michigan.
(c) Employment Agreement with Charles J. Hinkaty, as amended.*
(3) Amendment to Employment Agreement with Charles J. Hinkaty dated April 14, 1995.*
(c) Employment Agreement with Harvey P. Alstodt, as amended.*
(4) Amendment to Employment Agreement with Harvey P. Alstodt dated April 14, 1995.*
(c) Employment Agreement with William H. McMenemy, as amended.*
(5) Amendment to Employment Agreement with William H. McMenemy dated April 14, 1995.*
(c) Employment Agreement with Melvyn C. Goldstein, as amended.*
(6) Amendment to Employment Agreement with Melvyn C. Goldstein dated April 14, 1995.*
(c) Life Insurance Agreement with Robert H. Haines, as trustee, dated as of February 18,
1993.*
11 Statements Re: (7) Computation of per share earnings.
computation of per
share earnings
12 Statements Re: Not Applicable.
computation of ratios
13 Annual Report to Not Applicable.
security holders
16 Letter Re: change Not Applicable.
in certifying accountant
18 Letter Re: change Not Applicable.
in accounting principles
21 Subsidiaries of (h) Listing of Subsidiaries.
Registrant.
22 Published report regarding Not Applicable.
matters submitted to vote
of security holders.
* Constitutes a "management contract or compensatory plan or arrangement"
required to be filed pursuant to Item 14 (c) of the Form 10-K.
Item No. Item Title Exhibit No. Description
- -------- ---------- ----------- -----------
23 Consents of experts (8) Consent of KPMG Peat Marwick LLP dated March 27, 1996.
and counsel
24 Power of Attorney Not Applicable.
28 Information from Not Applicable.
reports furnished
to state insurance
regulatory authorities.
99 Additional exhibits Not Applicable.
---------------------------------
(a) These exhibits were filed on March 31, 1995 as exhibits to the
Registrant's Form 10-K for the year ended December 31, 1994 (File No. 1-
5439) and are incorporated herein by reference. The exhibit numbers in
such Form 10-K are as follows: Employee Pension Plan, Exhibit 2;
Amendment No. 2 to Employees Stock Ownership Plan, Exhibit 3; Loan
Agreement with Dan K. Wassong, Exhibit 4; 401 (k) Plan, Exhibit 5;
Supplemental Executive Retirement Plan, Exhibit 6; Amendment to
Employment Agreement with Dan K. Wassong, Exhibit 7.
(b) This exhibit was filed on April 2, 1990 as an exhibit to the Registrant's
Form 10-K for the year ended December 31, 1989 (File No. 1-5439) and is
incorporated herein by reference. The exhibit number in such Form 10-K
is Exhibit 2.
(c) These exhibits were filed on March 31, 1994, as exhibits to the
registrant's Form 10-K for the year ended December 31, 1993 (File No. 1-
5439) and are incorporated herein by reference. The exhibit numbers in
such Form 10-K are as follows: Amendment No. 1 to Employees Stock
Ownership Plan, Exhibit 2; 1984 Stock Option Plan, Exhibit 3; Loan
Agreement with Dan K. Wassong dated August 22, 1984, Exhibit 4;
Employment Agreement with Charles J. Hinkaty, Exhibit 5; Employment
Agreement with Harvey P. Alstodt, Exhibit 6; Employment Agreement with
William H. McMenemy, Exhibit 7; Employment Agreement with Melvyn C.
Goldstein, Exhibit 8; Life Insurance Agreement with Robert H. Haines, as
trustee, Exhibit 9.
(d) These exhibits were filed on or about April 25, 1994, as exhibits to the
Registrant's Definitive Proxy Statement dated April 25, 1994, relating
to the Registrant's 1994 Annual Meeting of Stockholders (File
No. 1-5439) and are incorporated herein by reference. The exhibit
numbers in such Proxy Statement are as follows: 1994 Stock Plan,
Annex A; Annual Incentive Plan, Annex B.
(e) This exhibit was filed on April 1, 1991, as an exhibit to the
Registrant's Form 10-K for the year ended December 31, 1990 (File No. 1-
5439) and is incorporated herein by reference. The exhibit number in
such Form 10-K is Exhibit 2.
(f) This exhibit was filed on March 31, 1993, as an exhibit to the
Registrant's Form 10-K for the year ended December 31, 1992 (File No. 1-
5439) and is incorporated herein by reference. The exhibit number in
such Form 10-K is Exhibit 1.
(g) This exhibit was filed on July 1, 1993, as an exhibit to the Registrant's
Current Report on Form 8-K dated June 29, 1993 (File No. 1-5439) and is
incorporated herein by reference. The exhibit number in such Form 8-K is
Exhibit 1.
(h) This exhibit was filed on March 30, 1992, as an exhibit to the
Registrant's Form 10-K for the year ended December 31, 1991 (File No. 1-
5439) and is incorporated herein by reference. The exhibit number in
such Form 10K is Exhibit 4.
(b) Not Applicable.
(c) See (a) (3) above.
OTHER MATTERS
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned
Registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into Registrant's Registration Statements on Form S-8 Nos. 2-51603
(filed February 26, 1974), 2-57313 (filed September 30, 1976), 2-69841 (filed
November 7, 1980), 33-27777 (filed March 23, 1989) and 33-64777 (filed
December 6, 1995).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused the report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DEL LABORATORIES, INC.
(Registrant)
By /s/ Dan K. Wassong March 29, 1996
----------------------------------
Dan K. Wassong, Chairman, President & Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By /s/ Dan K. Wassong March 29, 1996
----------------------------------
Dan K. Wassong, Chairman, President & Chief Executive Officer
By /s/ Charles Hinkaty March 29, 1996
----------------------------------
Charles Hinkaty, Director, Vice President
By /s/ Martin E. Revson March 29, 1996
----------------------------------
Martin E. Revson, Director
By /s/ Robert H. Haines March 29, 1996
----------------------------------
Robert H. Haines, Director
By /s/ Robert A. Kavesh March 29, 1996
----------------------------------
Robert A. Kavesh, Director
By /s/ Steven Kotler March 29, 1996
----------------------------------
Steven Kotler, Director
By /s/ Marcella Maxwell March 29, 1996
----------------------------------
Marcella Maxwell, Director
By /s/ Melvyn C. Goldstein March 29, 1996
----------------------------------
Melvyn C. Goldstein, Vice President of Finance & Principal
Accounting Officer
DEL LABORATORIES, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
and Schedule
Independent Auditors' Report
Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1994.
Consolidated Statements of Earnings for the years ended December 31, 1995,
1994 and 1993.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
Schedules:
II Valuation and Qualifying Accounts for the years ended December 31,
1995, 1994 and 1993.
All other schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or related
notes.
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Shareholders
Del Laboratories, Inc.:
We have audited the consolidated financial statements of Del Laboratories,
Inc. and subsidiaries as listed in the accompanying index. In connection with
our audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Del
Laboratories, Inc. and subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Jericho, New York
February 14, 1996
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
ASSETS 1995 1994
---- ----
Current assets:
Cash and cash equivalents $ 8,563,375 $ 10,125,568
Accounts receivable less allowance for doubtful accounts
of $1,700,000 in 1995 and $1,300,000 in 1994 24,626,182 18,692,993
Inventories 37,077,909 34,688,184
Prepaid expenses and other current assets 1,282,464 1,958,917
------------ ------------
Total current assets 71,549,930 65,465,662
------------ ------------
Property, plant and equipment, at cost 42,159,925 40,127,958
Less accumulated depreciation and amortization (15,319,126) (15,321,675)
------------ ------------
Net property, plant and equipment 26,840,799 24,806,283
Intangibles arising from acquisitions, at cost less
accumulated amortization 9,259,050 9,669,506
Other assets 5,474,214 5,015,394
------------ ------------
Total assets $113,123,993 $ 104,956,845
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 70,395 $ 334,754
Accounts payable 15,147,737 14,931,062
Accrued liabilities 14,494,724 10,703,484
Income taxes payable 1,395,607 683,532
------------ ------------
Total current liabilities 31,108,463 26,652,832
Long-term pension liability, less current portion 3,632,432 2,176,826
Deferred income taxes 361,863 1,853,538
Long-term debt, less current portion 40,000,000 40,070,395
------------ ------------
Total liabilities 75,102,758 70,753,591
------------ ------------
Shareholders' equity:
Common stock $1 par value, authorized 10,000,000
shares in 1995 and 5,000,000 shares in 1994;
issued 6,588,544 shares in 1995 and 1994 6,588,544 6,588,544
Additional paid-in capital 5,027,940 2,895,714
Foreign currency translation adjustment (492,831) (546,242)
Retained earnings 52,659,920 46,203,176
------------ ------------
63,783,573 55,141,192
Less: Treasury stock at cost, 2,410,554 shares in 1995
and 2,375,276 shares in 1994 (23,867,674) (18,637,618)
Receivable for stock options exercised (1,894,664) (2,300,320)
------------ ------------
Total shareholders' equity 38,021,235 34,203,254
------------ ------------
Total liabilities and shareholders' equity $ 113,123,993 $ 104,956,845
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements.
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
Net sales $ 212,047,952 $190,102,052 $166,495,888
------------- ------------ ------------
Cost of goods sold 88,437,543 76,083,243 67,594,104
Selling and administrative expenses 108,203,207 100,748,947 87,827,414
------------- ------------ ------------
196,640,750 176,832,190 155,421,518
------------- ------------ ------------
Operating income 15,407,202 13,269,862 11,074,370
------------- ------------ ------------
Interest expense 3,830,954 3,878,660 4,182,883
Interest income (329,465) (238,002) (116,333)
------------- ------------ ------------
Interest expense, net 3,501,489 3,640,658 4,066,550
------------- ------------ ------------
Earnings before income taxes
and extraordinary item 11,905,713 9,629,204 7,007,820
Income taxes 4,881,000 3,948,000 2,835,000
------------- ------------ ------------
Earnings before extraordinary item 7,024,713 5,681,204 4,172,820
Extraordinary item - related to
early retirement of debt (net
of income tax benefit of $1,540,000) - - (2,310,000)
------------- ------------ ------------
Net earnings $ 7,024,713 $ 5,681,204 $ 1,862,820
------------- ------------ ------------
------------- ------------ ------------
Earnings before extraordinary
item per common share:
Primary $ 1.45 $ 1.20 $ 0.87
------------- ------------ ------------
------------- ------------ ------------
Fully diluted $ 1.14
------------
------------
Extraordinary item per common share $ (0.47)
-------------
-------------
Earnings per common share:
Primary $ 1.45 $ 1.20 $ 0.40
------------- ------------ ------------
------------- ------------ ------------
Fully diluted $ 1.14
------------
Weighted average common shares
outstanding:
Primary 4,853,000 4,800,000 4,966,000
----------- ----------- ----------
----------- ----------
Fully diluted 5,002,000
-----------
-----------
See accompanying notes to consolidated financial statements.
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net earnings $ 7,024,713 $ 5,681,204 $ 1,862,820
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 5,945,401 4,012,137 3,819,538
Deferred income taxes (1,491,675) (496,484) (97,607)
Provision for doubtful accounts 655,000 548,400 201,000
Other non-cash operating items 192,161 (39,362) 534,067
Changes in operating assets and liabilities:
Accounts receivable (6,588,189) (3,069,854) 1,372,413
Inventories (2,389,725) 503,093 (3,587,495)
Prepaid expenses and other current assets 676,453 (276,974) 1,122,477
Other assets and other liabilities 996,786 (377,547) 293,450
Income taxes receivable - 130,349 (130,349)
Accounts payable 208,200 3,302,965 (2,191,309)
Accrued liabilities 3,791,240 4,131,389 2,361,177
Income taxes payable 712,075 683,532 (175,905)
---------- ---------- ----------
Net cash provided by operating activities 9,732,440 14,732,848 5,384,277
---------- ---------- ----------
Cash flows used in investing activities:
Property, plant and equipment additions (7,569,461) (5,826,656) (4,802,402)
----------- ------------ -----------
Net cash used in investing activities (7,569,461) (5,826,656) (4,802,402)
----------- ------------ -----------
Cash flows used in financing activities:
Proceeds from long-term debt borrowings - - 40,000,000
Decrease in notes payable - (1,600,000) (3,050,000)
Principal payments of long-term debt (334,754) (663,771) (36,030,887)
Exercise of stock options and related
tax benefit 5,147,922 1,298,064 1,343,405
Decrease (increase) in receivable for stock
options exercised 265,656 40,134 (157,015)
Purchase of treasury stock (8,245,752) (3,133,984) (3,280,332)
Dividends paid (559,494) (511,042) (484,192)
Other financing activities - (6,633) -
---------- ---------- -----------
Net cash used in financing activities (3,726,422) (4,577,232) (1,659,021)
---------- ---------- -----------
Effect of exchange rate changes on cash 1,250 (18,625) (13,460)
---------- ---------- -----------
Net increase (decrease) in cash and cash equivalents (1,562,193) 4,310,335 (1,090,606)
Cash and cash equivalents at beginning of year 10,125,568 5,815,233 6,905,839
---------- ---------- -----------
Cash and cash equivalents at end of period $ 8,563,375 $ 10,125,568 $ 5,815,233
---------- ---------- -----------
---------- ---------- -----------
See accompanying notes to consolidated financial statements.
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Foreign
Common Additional Currency Receivable For
Stock $1 Paid-In Translation Retained Treasury Stock Options Shareholders'
Par Value Capital Adjustment Earnings Stock Exercised Equity
--------- ------- ---------- -------- ----- --------- ------
Balance December 31, 1992 $ 6,588,544 $ 2,787,391 $ (176,111) $39,668,491 $ (15,269,504) $ (2,496,500) $ 31,102,311
Foreign currency translation
adjustment (135,676) (135,676)
Issuance of treasury stock upon exercise
of stock options (241,206 shares) (333,807) 1,677,212 (206,295) 1,137,110
Purchase of treasury stock
(300,808 shares) (3,280,332) (3,280,332)
Income tax benefit arising from
stock options exercised 473,221 473,221
Payment for stock options exercised 232,342 232,342
Dividends declared ($.12 per share) (478,776) (478,776)
Net earnings for the year 1,862,820 1,862,820
----------- ----------- ----------- ----------- ------------- ----------- ------------
Balance December 31, 1993 $ 6,588,544 $ 2,926,805 $ (311,787) $41,052,535 $ (16,872,624) $(2,470,453) $ 30,913,020
Foreign currency translation
adjustment (234,455) (234,455)
Issuance of treasury stock upon exercise
of stock options (182,338 shares) (70,926) 1,368,990 1,298,064
Purchase of treasury stock
(220,280 shares) (3,133,984) (3,133,984)
Income tax benefit arising from
stock options exercised 46,468 46,468
Payment for stock options exercised 170,133 170,133
Dividends declared ($.13 per share) (530,563) (530,563)
Net earnings for the year 5,681,204 5,681,204
Cash paid for fractional shares (6,633) (6,633)
----------- ----------- ----------- ----------- ------------- ----------- ------------
Balance December 31, 1994 $ 6,588,544 $ 2,895,714 $ (546,242) $46,203,176 $ (18,637,618) $ (2,300,320) $ 34,203,254
Foreign currency translation
adjustment 53,411 53,411
Issuance of treasury stock upon
exercise of stock options
(353,001 shares) (204,311) 3,015,696 2,811,385
Purchase of treasury stock
(385,477 shares) (8,245,752) (8,245,752)
Income tax benefit arising from
stock options exercised 2,336,537 2,336,537
Payment for stock options exercised 405,656 405,656
Dividends declared ($.14 per share) (567,969) (567,969)
Net earnings for the year 7,024,713 7,024,713
----------- ----------- ----------- ----------- ------------- ----------- ------------
Balance December 31, 1995 $ 6,588,544 $ 5,027,940 $ (492,831) $52,659,920 $ (23,867,674) $(1,894,664) $ 38,021,235
----------- ----------- ----------- ----------- ------------- ----------- ------------
----------- ----------- ----------- ----------- ------------- ----------- ------------
See accompanying notes to consolidated financial statements.
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) SUMMARY OF ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
The Company is a manufacturer and distributor of cosmetics and proprietary
pharmaceuticals. The principal products in the cosmetics segment are nail care,
color cosmetics, beauty implements, personal care products and other related
cosmetics items. The principal products in the pharmaceutical segment are of a
proprietary nature and range from oral analgesics to acne treatment products and
ear drop medications.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Del Laboratories, Inc. and Subsidiaries
(the Company) include the accounts of all wholly-owned domestic and foreign
subsidiaries. The net assets and results of foreign operations are not
significant to the consolidated financial statements. The accounts of foreign
subsidiaries are translated in accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation."
As such, balance sheet accounts are translated at the exchange rate as of
December 31, of each year and income statement accounts are translated at
average exchange rates when transactions occurred. All intercompany accounts and
transactions have been eliminated in consolidation.
(c) CASH AND EQUIVALENTS
Cash and cash equivalents include deposits in banks, short term commercial
paper, United States Treasury bills and money market funds with an initial term
of less than three months. For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents.
(d) REVENUE RECOGNITION
The Company sells its products to wholesalers, independent and chain drug,
variety and food stores. Sales of such products and services are principally
denominated in U.S. dollars. The Company's accounts receivable reflect the
granting of credit to these customers. Revenues are recognized and product
discounts are recorded when merchandise is shipped. Net sales comprise of gross
revenues less expected returns, trade discounts and customer allowances.
Merchandise returns are accrued at the earlier of receipt of goods or customer
notification of a return. The Company generally grants credit based upon
analysis of the customer's financial position and previously established buying
and selling patterns.
(e) INVENTORIES
Inventories are valued at the lower of cost (principally first-in/first-out) or
market value. The components of inventories are as follows:
1995 1994
---- ----
Raw materials $15,645,998 $15,533,967
Work in process 3,888,456 3,797,247
Finished goods 17,543,455 15,356,970
----------- -----------
$37,077,909 $34,688,184
----------- -----------
----------- -----------
(f) PROPERTY, PLANT AND EQUIPMENT
The Company provides for depreciation on the straight-line method over the
estimated useful lives of the assets. The range of estimated lives applicable
to the assets are as follows:
Building & building improvements 10 to 40 years
Machinery & equipment 3 to 15 years
Furniture & fixtures 3 to 10 years
-1-
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(g) INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
(SFAS) No. 109 "Accounting for Income Taxes" which requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns. The
provision for income taxes includes federal, foreign, state and local income
taxes currently payable and those deferred because of temporary differences.
Under this method, deferred tax liabilities and assets are determined based upon
differences between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the years in which the
differences are expected to reverse.
(h) RESEARCH AND DEVELOPMENT
The Company has expended $4,589,000, $3,452,000 and $3,952,000 during 1995, 1994
and 1993, respectively, for research and development relating to the development
of new products, clinical and regulatory affairs, and quality control/assurance
of the Company's product lines. All costs associated with research and
development are expensed as incurred, and included in selling and administrative
expenses in the accompanying consolidated statements of earnings.
(i) ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expenses were
$26,000,000, $25,900,000 and $21,900,000 in 1995, 1994 and 1993, respectively.
(j) EARNINGS PER SHARE
For all years presented, earnings per common share is computed under the
"modified treasury stock method" which assumes the exercise of all outstanding
options and warrants and the use of the proceeds thereof to acquire up to 20% of
the outstanding common stock of the Company. Excess proceeds not utilized for
the purchase of such shares are assumed utilized, first to reduce outstanding
debt and then any remainder is assumed invested in interest bearing securities
with net earnings increased for the hypothetical interest expense savings or
interest income, net of taxes. Primary earnings per common share was based on
4,853,000, 4,800,000 and 4,966,000 shares outstanding for 1995, 1994 and 1993,
respectively. Fully diluted earnings per common share was based on 5,002,000
shares outstanding for 1994. In 1995 and 1993, primary and fully diluted
earnings per common share were the same.
(k) STOCK SPLITS
On May 25, 1995, the Company's Board of Directors approved a two for one split
of the Company's common stock which was effective June 16, 1995. In addition,
on May 26, 1994, the Company's Board of Directors approved a four for three
split of the Company's common stock which was effective June 15, 1994. All
share, per share and conversion amounts relating to common stock and stock
options included in the accompanying consolidated financial statements and
footnotes have been restated to reflect the stock splits.
(l) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
(2) SUPPLEMENTAL CASH FLOW INFORMATION
The following is supplemental information relating to the consolidated
statements of cash flows:
1995 1994 1993
---- ---- ----
Cash paid during the year for:
Interest $3,822,000 $3,894,622 $4,528,799
---------- ---------- ----------
---------- ---------- ----------
Income taxes $3,255,000 $3,787,000 $1,226,000
---------- ---------- ----------
---------- ---------- ----------
-2-
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment, at cost, are as follows:
1995 1994
---- ----
Land $ 2,290,479 $ 2,290,479
Building & building improvements 11,356,987 10,349,613
Machinery & equipment 24,633,952 24,151,750
Furniture & fixtures 3,878,507 3,336,116
------------ -----------
$ 42,159,925 $40,127,958
------------ -----------
------------ -----------
Depreciation expense for 1995, 1994 and 1993 was $5,534,945, $3,705,386 and
$3,520,274, respectively.
In 1995, the Company changed, on a prospective basis, the maximum estimated
useful life utilized for tools, molds and dyes from five years to four years.
The impact of this change in accounting estimate was to increase depreciation
expense and decrease operating income by approximately $858,000.
(4) INTANGIBLES ARISING FROM ACQUISITIONS
Intangibles represent the excess of the purchase prices paid for companies and
product lines over amounts assigned to net tangible assets. Total intangibles
related to acquisitions prior to 1971 amount to $6,660,000. Management is of
the opinion that there is no diminution in $6,282,000 of this amount.
Therefore, no amortization has been provided for this amount. The remaining
$378,000 was fully amortized in 1995. The portion of intangibles acquired in
1980 ($3,350,000) is being amortized using the straight-line method over 30
years and the trademarks acquired in 1984 ($3,000,000) are being amortized using
the straight-line method over 20 years. Accumulated amortization amounted to
$3,751,054 at December 31, 1995 and $3,340,598 at December 31, 1994.
Amortization expense amounted to $410,456 for 1995, $306,751 for 1994 and
$299,264 for 1993. The Company continually evaluates the recoverability of the
intangible assets by assessing whether the amortization of the intangible
balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation.
-3-
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) INCOME TAXES
As discussed in note 1(g), the Company adopted Statement No. 109 as of January
1, 1993. The cumulative effect of this change in accounting for income taxes is
not material and is not reported separately in the consolidated statement of
earnings for the year ended December 31, 1993.
The components of income tax expense (benefit) are as follows:
1995 Federal State Foreign Total
---- ------- ----- ------- -----
Current tax $5,560,000 $739,000 $74,000 $6,373,000
Deferred tax (1,356,000) (136,000) - (1,492,000)
----------- --------- ------- ----------
$4,204,000 $603,000 $74,000 $4,881,000
---------- -------- ------- ----------
---------- -------- ------- ----------
1994
----
Current tax $3,834,000 $536,000 $74,000 $4,444,000
Deferred tax ( 588,000) 92,000 - (496,000)
---------- -------- ------- ----------
$3,246,000 $628,000 $74,000 $3,948,000
---------- -------- ------- ----------
---------- -------- ------- ----------
1993
----
Current tax $2,339,000 $339,000 $59,000 $2,737,000
Deferred tax 85,000 13,000 - 98,000
---------- -------- ------- ----------
$2,424,000 $352,000 $59,000 $2,835,000
---------- -------- ------- ----------
---------- -------- ------- ----------
Total income tax expense differed from the statutory United States Federal
income tax rate of 34% of earnings before income tax as a result of the
following items:
1995 1994 1993
---- ---- ----
Tax provision at statutory rate: $4,067,000 $3,274,000 $2,383,000
Increases in taxes resulting from:
State income taxes, net of Federal
income tax benefit 398,000 433,000 223,000
Amortization of intangibles 51,000 51,000 51,000
Other 365,000 190,000 178,000
--------- ---------- ----------
Actual provision for income taxes 4,881,000 3,948,000 2,835,000
Extraordinary item - related to
early retirement of debt - (1,540,000)
---------- ---------- ----------
$4,881,000 $3,948,000 $1,295,000
---------- ---------- ----------
---------- ---------- ----------
-4-
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. For presentation
purposes, certain of such tax assets and liabilities are shown net on the
accompanying balance sheets. Significant components of the Company's deferred
tax liabilities and assets as of December 31, are as follows:
1995 1994
---- ----
Deferred Tax Assets
Accounts receivable, principally $ 594,000 $ 449,000
due to allowance for doubtful accounts
Supplemental Executive Retirement Plan
(SERP) expense, principally due to
accrual for financial statement
purposes 611,000 449,000
Inventory principally due to reserves 543,000
Pension accrual for financial reporting purposes 270,000
Other 594,000 330,000
---------- ----------
Total gross deferred tax assets 2,612,000 1,228,000
Less valuation reserve - -
---------- ----------
Net deferred tax assets 2,612,000 1,228,000
---------- ----------
Deferred Tax Liabilities
Plant, equipment and other amortizable
assets principally due to differences
in depreciation methods (2,836,000) (2,923,000)
Other assets, principally due to
different amortizable lives for
book purposes (106,000) (92,000)
Other (32,000) (67,000)
---------- -----------
Total gross deferred tax liabilities (2,974,000) (3,082,000)
---------- -----------
Net deferred tax liability $ (362,000) $(1,854,000)
----------- -----------
----------- -----------
Based upon its history of taxable income and the projections for future
earnings, management of the Company believes that it is more likely than not
that the Company will generate sufficient future taxable income to realize the
net deferred tax asset at December 31, 1995.
-5-
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) LONG-TERM DEBT
Long-term debt is summarized as follows:
1995 1994
---- ----
9.5% promissory notes
9.56% Industrial Revenue Bond due in $40,000,000 $40,000,000
quarterly installments of $90,000
through 1995 - 270,000
9.68% mortgage note due in monthly
installments of $6,259 through
December 1996 70,395 135,149
----------- -----------
$40,070,395 $40,405,149
Less current portion 70,395 334,754
----------- -----------
$40,000,000 $40,070,395
----------- -----------
----------- -----------
In June 1993, the Company issued to an institutional lender $40,000,000 of
senior notes due May 31, 2005 with interest at 9.5%. The proceeds of the loan
were used principally to repay the entire $35,000,000 principal amount of 11.04%
promissory notes with another institutional lender plus a prepayment premium of
$3,850,000. During the second quarter of 1993, the Company recorded an
extraordinary loss of $2,310,000 (net of an income tax benefit of $1,540,000) in
connection with the early retirement of the 11.04% promissory notes.
The 9.5% notes require annual principal repayment of $8,000,000 beginning May
31, 2001 through May 31, 2005.
In September 1985, the Company obtained $1,800,000 of financing through the
issuance of an Industrial Revenue Bond for the addition of a new production
facility. The bond bore interest at 9.56% and was required to be repaid in
twenty equal quarterly installments which began in 1990. The bond was repaid in
full in September 1995.
The terms of the various agreements include covenants which provide, among other
things, for the maintenance of certain financial covenants and ratios relating
to consolidated net worth and consolidated working capital as well as
restrictions on cash dividends and certain other expenditures. At December 31,
1995, retained earnings available for dividends and certain other expenditures
amounted to approximately $986,000. At December 31, 1995, the Company was in
compliance with all covenants.
There are no required principal payments of long-term debt over the next five
years. The mortgage notes aggregating $70,395 in 1995 and $135,149 in 1994, are
secured by land and buildings having a net book value of approximately $522,000
and $553,000 in 1995 and 1994, respectively.
(7) FINANCIAL ARRANGEMENTS
At December 31, 1995, the Company had arrangements with banks providing
$27,500,000 of lines of credit. These lines, which are renewable annually, are
currently in force and are expected to be renewed at their respective expiration
dates. Borrowings under the lines averaged $0 in 1995 and $400,000 in 1994 based
on month-end balances. The maximum borrowings were $0 in 1995 and $1,600,000 in
1994 with the related weighted average interest rates based on average
borrowings of approximately 6.0% in each year. No compensating balances are
required for these lines or for drawings thereunder and there are no restrictive
covenants.
-6-
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) EMPLOYEE RETIREMENT PLANS
(a) PENSION PLANS
The Company maintains non-contributory defined benefit pension plans covering
all eligible employees. The Company also has a supplemental executive
retirement plan ("SERP") for certain of its executives. The SERP Plan is a non-
qualified plan under the Internal Revenue Code. The Company has made payments
of $310,000, $450,000 and $150,000 for 1995, 1994, and 1993, respectively, as
determined by the plans' actuaries in accordance with SFAS No. 87 "Employer's
Accounting for Pensions":
1995
---------------------------------------------------
Del Non- Del LaCross
Union Plan Union Plan SERP
---------- ---------- ----
Actuarial present value of accumulated
plan benefit obligation:
Vested benefit obligation $ 9,292,453 $ 928,193 $ 2,287,430
Non-vested benefit obligation 1,150,856 9,525 26,184
------------ ------------ ------------
Accumulated benefit obligation $ 10,443,309 $ 937,718 $ 2,313,614
------------ ------------ ------------
------------ ------------ ------------
Projected benefit obligation for services
rendered to date $(12,564,718) $ (937,718) $ (2,453,669)
Plan assets at fair value 9,150,406 472,506 -
------------ ------------ ------------
Plan assets under projected
benefit obligation ( 3,414,312) ( 465,212) ( 2,453,669)
Unrecognized net loss (gain) (1) 2,579,615 139,345 280,962
Unrecognized net (asset) obligation at
December 31 being amortized (2) ( 439,969) 148,659 -
Unrecognized prior service cost 598,195 46,702 460,508
Additional minimum liability for unfunded
accumulated benefit obligation (3) (616,432) (334,706) (601,415)
------------ ------------ ------------
Accrued pension expense (4) $ (1,292,903) $ (465,212) $ (2,313,614)
------------ ------------ ------------
------------ ------------ ------------
Net pension expense is comprised of the
following components:
Service cost $ 772,186 $ 27,356 $ 200,424
Interest cost on projected benefit
obligation 701,325 54,563 132,544
Return on assets ( 599,779) ( 35,958) -
Amortization of net (assets) obligation ( 62,576) 24,776 -
Amortization of past service cost 56,156 6,902 88,020
Amortization of (gain) 168,242 2,615 25,542
------------ ------------ ------------
Net pension expense $ 1,035,554 $ 80,254 $ 446,530
------------ ------------ ------------
------------ ------------ ------------
-7-
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
1994
---------------------------------------------------
Del Non- Del LaCross
Union Plan Union Plan SERP
---------- ---------- ----
Actuarial present value of accumulated
plan benefit obligation:
Vested benefit obligation $ 6,779,86 $ 783,538 $ 1,892,729
Non-vested benefit obligation 872,899 6,287 7,594
----------- ----------- -----------
Accumulated benefit obligation $ 7,652,767 $ 789,825 $ 1,900,323
----------- ----------- -----------
----------- ----------- -----------
Projected benefit obligation for services
rendered to date $(9,070,799) $ (789,825) $(1,900,323)
Plan assets at fair value 7,387,240 448,685 -
----------- ----------- -----------
Plan assets under projected
benefit obligation (1,683,559) (341,140) (1,900,323)
Unrecognized net loss (gain) (1) 1,907,365 27,848 86,125
Unrecognized net (asset) obligation at
December 31 being amortized (2) (502,545) 173,435 -
Unrecognized prior service cost 125,322 53,605 548,528
Additional minimum liability for unfunded
accumulated benefit obligation (3) (112,110) (254,888) (634,653)
----------- ----------- -----------
Accrued pension expense (4) $ (265,527) $ (341,140) $(1,900,323)
----------- ----------- -----------
----------- ----------- -----------
Net pension expense is comprised of the
following components:
Service cost $ 545,249 $ 21,802 $ 168,095
Interest cost on projected benefit
obligation 603,876 54,281 120,853
Return on assets (699,344) ( 41,806) -
Amortization of net (assets) obligation (62,576) 24,776 -
Amortization of past service cost 20,887 6,902 88,020
Amortization of (gain) 42,551 - 7,177
----------- ----------- -----------
Net pension expense $ 450,643 $ 65,955 $ 384,145
----------- ----------- -----------
----------- ----------- -----------
-8 -
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
1993
---------------------------------------------------
Del Non- Del LaCross
Union Plan Union Plan SERP
---------- ---------- ----
Actuarial present value of accumulated
plan benefit obligation:
Vested benefit obligation $ 5,982,361 $ 717,956 $ 1,067,139
Non-vested benefit obligation 895,868 7,853 -
------------ ------------ -------------
Accumulated benefit obligation $ 6,878,229 $ 725,809 $ 1,067,139
------------ ------------ -------------
------------ ------------ -------------
Projected benefit obligation for services
rendered to date $ (8,213,929) $ (725,809) $ (1,067,139)
Plan assets at fair value 7,268,682 433,476 -
------------ ------------ -------------
Plan assets under projected
benefit obligation (945,247) (292,333) (1,067,139)
Unrecognized net loss (gain) (1) 1,233,385 (108) 93,301
Unrecognized net (asset) obligation at
December 31 being amortized (2) (565,121) 198,212 -
Unrecognized prior service cost 146,209 37,932 92,313
Additional minimum liability for unfunded
accumulated benefit obligation (3) - (236,036) (185,614)
------------ ------------ -------------
Accrued pension expense (4) $ (130,774) $ (292,333) $ (1,067,139)
------------ ------------ -------------
------------ ------------ -------------
Net pension expense is comprised of the
following components:
Service cost $ 433,076 $ 17,893 $ 89,565
Interest cost on projected benefit
obligation 541,130 49,931 70,165
Return on assets (593,630) ( 37,511) -
Amortization of net (assets) obligation (62,576) 24,776 -
Amortization of past service cost 20,887 4,667 46,156
Amortization of (gain) - (4,924) 5,683
------------ ------------ -------------
Net pension expense $ 338,887 $ 54,832 $ 211,569
------------ ------------ -------------
------------ ------------ -------------
(1) Represents the change in the value of the projected liabilities resulting
from using a lower discount interest rate than in prior years and changes
in the values of projected assets and liabilities resulting from experience
different than actuarial assumptions.
(2) Represents the difference between the assets and the projected benefit
obligation as of January 1, 1987 (the transition date), amortized over the
average future service period of the active plan members.
(3) Represents the additional minimum liability required to recognize the
excess of the unfunded accumulated benefit obligation over previously
accrued pension expense. In accordance with SFAS No. 87, a concomitant
intangible asset of an equal amount was recognized and included in
investments and other assets.
(4) The short-term portion of accrued pension expense is included in accrued
liabilities.
Total pension expense for the years ended December 31, 1995, 1994 and 1993
amounted to approximately $1,562,000, $901,000 and $605,000, respectively.
-9-
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
For 1995 and 1994, the actuarial assumptions used for the weighted average
discount rate were 6.25% and 7.5% respectively; for the return on assets 8.0%
and 9.5% were used respectively; and for the rates of increase in future
compensation 5.5% was used for 1995 and 1994.
Assets held by these plans consist of cash and cash equivalents, fixed income
securities consisting of government and corporate bonds and common stock.
The Company contributes to a multi-employer (union) pension plan for the benefit
of its union employees not covered by the above plans. This plan is a defined
benefit plan based on years of service. The costs recognized for 1995, 1994 and
1993 were approximately $419,000, $358,000 and $365,000, respectively.
Effective January 1, 1991, the Company established a defined contribution plan
for the benefit of its Canadian employees not covered by the above plans. The
costs recognized for 1995, 1994 and 1993 were approximately $50,000, $41,000 and
$30,000 in U.S. dollars, respectively.
(b) EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an employee stock ownership plan and related trust, covering
substantially all full-time non-union employees. Under the terms of the plan,
the Company may make contributions to the trust in cash, shares of Company stock
or other property in amounts as may be determined by the Board of Directors.
The Board of Directors authorized contributions of $400,000, $250,000 and
$275,000 for the years 1995, 1994 and 1993, respectively. At December 31, 1995
the trust held 280,644 shares of Company common stock.
(c) EMPLOYEE 401(k) SAVINGS PLAN
The Company maintains an Employee 401(k) Savings Plan. The plan is a defined
contribution plan which is administered by the Company. All regular, full-time
employees are eligible for voluntary participation upon completing six months of
service and having attained the age of twenty-one. The plan provides for growth
in savings through contributions and income from investments. It is subject to
the provisions of the Employee Retirement Income Security Act of 1974 (ERISA),
as amended. Plan participants are allowed to contribute a specified percentage
of their base salary. However, the company retains the right to make optional
contributions for any plan year. No such optional contributions were made for
the years ended December 31, 1995, 1994 and 1993.
(9) SHAREHOLDERS EQUITY
(a) STOCK OPTION PLANS
The 1994 Stock Plan (the "1994 Plan") provides for the granting of incentive and
non-incentive options and other stock- based awards. A total of 489,646 shares
have been authorized for issuance under the 1994 Plan. At December 31, 1995,
non-incentive options have been the only awards issued under the 1994 Plan. The
exercise price of options granted under the 1994 Plan shall not be less than the
fair market value of the common stock at the date of the grant. The
Compensation Committee of the Board of Directors determines the persons to whom
options will be granted, the prices at which options may be exercised and
whether the options will be incentive or non-incentive. Incentive options, if
granted, are exercisable for a period of up to ten years from the date of the
grant. The exercise price of the shares to be purchased shall be paid either
in cash, delivery (i.e. surrender) of shares of common stock owned by the
optionee at the time of exercise of the option, in installments payable in
cash if permitted by the Committee or in any combination of the foregoing.
Shares received by an optionee upon exercise of a non-incentive option may not
be sold or otherwise disposed of for a period ("restricted period") determined
by the Committee upon grant of the option, which shall be not less than six
months or more than three years from the date of the exercise, during which
period the Company is entitled, in the event the employment of the optionee with
the Company terminates, to repurchase the shares at the exercise price.
Following the restricted period, the Company shall have a right of first refusal
to purchase the shares at fair market value. Shares issuable upon exercise of
options granted to date under the 1994 Plan are subject to a six month
restricted period.
-10-
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) STOCK OPTION PLANS (CONT'D.)
At December 31, 1995, 113,416 of the 357,002 options outstanding were
exercisable under the 1994 Plan.
The 1984 Stock Option Plan, as amended (the "1984 Plan"), provided for the
granting of incentive and non-incentive options to purchase shares of the
Company's common stock at prices which are not less than the fair market value
of the common stock at the dates of grant. Options are exercisable as
determined by the Compensation Committee for a period up to ten years and one
day from the date of grant. Incentive options granted to a 10% stockholder must
be granted at 110% of fair market value and may be exercised up to five years
from the date of grant. Payment of the exercise price of options may be made in
the same manner as provided by the 1994 Plan, and shares issued upon exercise
are subject to a restricted period similar to that provided under the 1994 Plan.
At December 31, 1995, all 898,233 options outstanding under the 1984 Plan were
exercisable. No further options will be granted under the 1984 Plan.
The Company's Restricted Stock Plan (1971), as amended ("1971 Plan"), provided
for the granting of options at the fair market value of the common stock at the
date of grant, for a term up to ten years. Shares are subject to a restricted
period similar to that imposed by the 1994 Plan and 1984 Plan. At December 31,
1995, there were no options outstanding under the 1971 Plan and no additional
options will be granted.
The 1994 Plan and 1984 Plan permit the Compensation Committee to grant stock
appreciation rights. No stock appreciation rights have been granted under
either plan.
Limited stock appreciation rights also may be granted under the 1994 Plan and
1984 Plan, which will be effective only upon a change in control of the Company
(as defined). These plans also accelerate the exercisability of all unexercised
options or stock appreciation rights immediately in the event of a change in
control of the Company.
Shares outstanding and option prices under option and option transactions during
the last three years, are summarized below:
1994 Stock Plan
Shares Option Price
------ ------------
Outstanding December 31, 1993 - -
Granted 96,200 $13 - 18
Exercised - -
Forfeited - -
------- --------
Outstanding December 31, 1994 96,200 13 - 18
Granted 282,020 19 - 24
Exercised (4,358) 13 - 19
Forfeited (16,860) 13 - 24
------- --------
Outstanding December 31, 1995 357,002 $13 - 23
-------
-------
1984 Stock Option Plan Restricted Stock Plan (1971)
Shares Option Price Shares Option
------ ------------ --------- ------
Outstanding December 31, 1992 1,470,910 $5 - 10 109,820 $7 - 9
Granted 129,554 11 - -
Exercised (241,206) 6 - -
Forfeited (26,074) 6 - 9 - -
--------- -------- -------- ------
Outstanding December 31, 1993 1,333,184 5 - 11 109,820 7 - 9
Granted - - - -
Exercised (180,470) 6 - 9 (1,866) 7
Forfeited (1,778) - - -
--------- -------- -------- ------
Outstanding December 31, 1994 1,150,936 5 - 11 107,954 7 - 9
Granted - - - -
Exercised (240,689) 5 - 11 (107,954) 7 - 9
Forfeited (12,014) 8 - 11 - -
--------- -------- -------- ------
Outstanding December 31, 1995 898,233 $5 - 11 0 -
--------- --------
--------- --------
At December 31, 1995, a total of 1,255,235 shares of common stock were subject
to outstanding options under its stock option plans.
-11-
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(b) RECEIVABLE FOR STOCK OPTIONS EXERCISED
In 1984, the Company loaned an officer $367,000 in connection with the payment
of taxes arising from the exercise of stock options (the "1984" Loan). The
Company also loaned the officer $1,065,313 in 1988 (the "1988" Loan) and
$1,100,000 in 1990 (the "1990" Loan), each in connection with the exercise of
stock options and the tax liability arising therefrom. These loans were payable
in annual installments. In addition, the 1988 Loan and the 1990 Loan agreements
provided that, if the officer was employed by the Company at the time any
interest or debt payments were due, such payment would be forgiven.
Pursuant to an amendment to this officer's employment agreement, the 1984
Loan, the 1988 Loan and the 1990 Loan were consolidated, effective as of
January 1, 1994, with the aggregate principal balance to be repaid, with
interest at the rate of 6.0% per annum, in annual amounts of $130,000 in
1994, $140,000 for each year during the period from 1995 through 2003 and a
final payment of $642,250 on January 20, 2004, provided that each payment of
interest and principal will be forgiven when due so long as the officer is
then employed by, or then serves as a consultant to the Corporation and,
provided further, that the Corporation may (but is not required to) forgive,
during any year until 2003, in excess of $140,000 of principal, so long as
the aggregate of principal and interest forgiven by the Corporation in any
such year shall not exceed $360,000. This loan must be secured by collateral
with a fair value of 110% of the unpaid principal. The loan balance at
December 31, 1995 was $1,762,250 and was collateralized by 104,000 shares of
the Company's common stock.
During 1992, the Company loaned another officer $130,000 to enable him to
exercise an option for 7,289 shares. The loan bears interest at the prime rate
and is payable in quarterly installments commencing in 1993. The loan balance
at December 31, 1995 was $91,000 and was secured by a pledge of 8,500 shares of
the Company's common stock.
During 1992, the Company loaned an aggregate of $111,187 to two additional
officers to enable them to exercise options for 6,500 shares. The loans bear
interest at the prime rate and are payable in quarterly installments
commencing in 1993. One of the loans was repaid in full in April 1995. The
balance of the other loan at December 31, 1995 was $41,414 and was secured by
3,400 shares of the Company's common stock.
During 1993, the Company loaned an aggregate of $151,496 to two other officers
to enable them to exercise options for an aggregate of 8,889 shares. The loans
bear interest at the prime rate and are payable in quarterly installments
commencing in 1994. The loans were repaid in full in January 1995.
During 1993, the Company loaned two employees an aggregate of $54,800 to enable
them to exercise options for an aggregate of 2,666 shares. The loans bear
interest at the prime rate and are payable in quarterly installments which
commenced in 1994. The loans were repaid in full in January 1995.
The balance of all loans made to officers and employees is reflected as a
reduction of Shareholders' Equity in the accompanying consolidated financial
statements.
(c) AMENDMENT TO CERTIFICATE OF INCORPORATION
On May 26, 1995, the Company's stockholders approved an amendment to the
Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 5,000,000 shares to 10,000,000 shares.
(10) ACCRUED LIABILITIES
Accrued liabilities at December 31, 1995 and 1994 consisted of the following:
1995 1994
---- ----
Salaries, wages, commissions & employee benefits $2,771,037 $ 2,002,334
Interest 317,243 308,595
Advertising and promotion costs 9,227,230 6,764,276
Other 2,179,214 1,628,279
----------- -----------
$14,494,724 $10,703,484
----------- -----------
----------- -----------
-12-
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) COMMITMENTS AND CONTINGENCIES
The Company has been notified that it has been identified as a potentially
responsible party with respect to environmental remediation activities required
at a site in Pennsylvania. The total cost to the Company of remediation
activities that it may be required to undertake cannot yet be quantified,
although the Company is one of over 900 potentially responsible parties that
have been identified at the site. Although no dollar amount can be assigned to
remediation costs because of inherent uncertainties, on the basis of current
available information, management has determined that such costs will not have a
material adverse effect on the Company's financial position. It is the
Company's policy to meet all regulatory requirements for the protection of the
environment and to take prompt remedial action where necessary.
In July 1994, the Equal Employment Opportunity Commission ("EEOC") filed suit
against the Company in the United States District Court for the Eastern
District of New York alleging sexual discrimination against certain present
and former employees of the Company, in violation of Title VII of the Civil
Rights Act of 1964, as amended. On August 3, 1995, the Court approved a
consent decree between the Company and the EEOC settling the case. The
Company denied that it engaged in any unlawful conduct, and the consent
decree expressly acknowledges that the settlement does not constitute an
admission by the Company of any violation of any law, rule or regulation
relating to employment discrimination. The Board of Directors determined
that the settlement was in the best interest of the Company and its
shareholders, considering the expense that would have resulted from continued
litigation and the time and attention of management and employees that would
necessarily have been required.
Pursuant to the settlement, the Company agreed to pay 15 former employees a
total sum of $1,185,000. The settlement also incorporated the Company's revised
sexual harassment policy which includes a revised complaint procedure.
On August 9, 1995, two stockholder derivative actions were filed in the State of
Delaware Chancery Court against the Company and members of its Board of
Directors, alleging breach of fiduciary duty and waste of corporate assets by
the directors in connection with the Company's response to and investigation of
the claims of sexual harassment made against the Company which were the subject
of the lawsuit filed by the EEOC. One action also names a former director and a
person mistakenly named as a director. Plaintiffs have moved to consolidate
these actions. The derivative actions seek restitution of amounts paid in
connection with the defense and settlement of the lawsuit and certain other
relief. The Company believes that these derivative actions are without merit.
The Company is of the opinion, on the basis of currently available information,
that none of the matters referred to above will have a material effect on the
Company's results of operations or financial condition.
The Company leases data processing equipment, transportation equipment and
warehouse space under terms of leases expiring through 2001. Rentals under
these operating leases aggregate approximately $1,881,000, $1,768,000 and
$1,240,000 in 1995, 1994 and 1993, respectively. The Company's obligations
under non-cancelable leases are summarized as follows:
1996 $1,001,733
1997 644,963
1998 240,435
1999 195,679
2000 129,510
Thereafter 54,357
----------
$2,266,677
----------
(12) FINANCIAL INSTRUMENTS
The carrying value of all financial instruments classified as a current asset or
current liability are deemed to approximate fair value because of the short
maturity of these instruments.
The difference between the fair value of long-term debt and its carrying value
at December 31, 1995 is not material. The fair value of the Company's long-
term debt is estimated based upon current rates offered to the Company for a
similar liability. Because considerable judgement is required in interpreting
market data to develop estimates of fair value, the estimates are not
necessarily indicative of the amounts that could be realized or would be paid in
a current market exchange. The effect of using different market assumptions or
estimation methodologies may be material to the estimated fair value amount.
The carrying value of all financial instruments approximates fair value.
-13-
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(13) SEGMENT INFORMATION
The following is a summary of segment information for 1995, 1994 and 1993 (in
thousands of dollars):
1995
---------------------------------------------
Cosmetics Pharmaceutical Consolidated
--------- -------------- ------------
Sales to unaffiliated customers $162,348 $49,700 $212,048
-------- ------- --------
-------- ------- --------
Operating income $ 6,358 $ 9,049 $ 15,407
-------- ------- --------
Interest expense (net) $ 3,501
--------
Earnings before taxes $ 11,906
--------
Identifiable assets at December 31, 1995 $ 96,121 $17,003 $113,124
-------- ------- --------
-------- ------- --------
Depreciation and amortization $ 5,617 $ 328 $ 5,945
-------- ------- --------
-------- ------- --------
Capital expenditures $ 7,377 $ 192 $ 7,569
-------- ------- --------
-------- ------- --------
1994
---------------------------------------------
Sales to unaffiliated customers $141,687 $48,415 $190,102
-------- ------- --------
-------- ------- --------
Operating income $ 4,331 $ 8,939 $ 13,270
-------- ------- --------
Interest expense (net) $ 3,641
--------
Earnings before taxes $ 9,629
--------
--------
Identifiable assets at December 31, 199 $ 89,197 $15,760 $104,957
-------- ------- --------
-------- ------- --------
Depreciation and amortization $ 3,815 $ 197 $ 4,012
-------- ------- --------
-------- ------- --------
Capital expenditures $ 5,652 $ 175 $ 5,827
-------- ------- --------
-------- ------- --------
1993
---------------------------------------------
Sales to unaffiliated customers $120,964 $45,532 $166,496
-------- ------- --------
-------- ------- --------
Operating income $ 3,154 $ 7,920 $ 11,074
-------- ------- --------
Interest expense (net) $ 4,066
--------
Earnings before taxes $ 7,008
--------
--------
Identifiable assets at December 31, 1993 $ 79,806 $15,380 $ 95,186
-------- ------- --------
-------- ------- --------
Depreciation and amortization $ 3,490 $ 330 $ 3,820
-------- ------- --------
-------- ------- --------
Capital expenditures $ 4,706 $ 96 $ 4,802
-------- ------- --------
-------- ------- --------
In 1995, 1994 and 1993, sales to Wal-Mart Stores Inc. were in excess of 10%
of consolidated net sales.
Two customers and one customer accounted for 35.1% and 19.1% of the Company's
net accounts receivables at December 31, 1995 and 1994, respectively.
-14-
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(13) UNAUDITED QUARTERLY FINANCIAL DATA
The following is a summary of quarterly operating results for 1995 and 1994 (in
thousands of dollars except per share amounts):
1995
--------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Net sales $50,697 $52,656 $55,114 $53,581
Cost of goods sold 19,539 21,587 23,669 23,643
Net earnings 1,836 1,702 1,977 1,510
Earnings per common share $ .38 $ .34 $ .41 $ .32
------- ------- ------- -------
------- ------- ------- -------
1994
--------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Net sales $45,513 $46,806 $49,608 $48,175
Cost of goods sold 18,064 18,291 20,616 19,112
Net earnings 1,494 1,390 1,640 1,157
Earnings per common
share (A) $ .31 $ .30 $ . 35 $ .24
------- ------- ------- -------
------- ------- ------- -------
Earnings per share calculations for each of the quarters are based on weighted
average number of shares outstanding in each period. Therefore, the sum of the
quarters in a year does not necessarily equal the year's earnings per share.
(A) Fully diluted earnings per share for the year was $1.14.
-15-
SCHEDULE II
DEL LABORATORIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1995, 1994 and 1993
Additions
Balance at charged to Balance at
beginning costs and end
Description of period Expenses Deductions(1) of period
- --------------- --------- -------- ---------- ----------
Year ended December 31, 1993
allowances for doubtful
accounts $1,200,000 $ 201,000 $ 301,000 $1,100,000
---------- --------- --------- ----------
---------- --------- --------- ----------
Year ended December 31, 1994
allowances for doubtful
accounts $1,100,000 $ 548,400 $ 348,400 $1,300,000
---------- --------- --------- ----------
---------- --------- --------- ----------
Year ended December 31, 1995
allowances for doubtful $1,300,000 $ 655,000 $ 255,000 $1,700,000
accounts ---------- --------- --------- ----------
---------- --------- --------- ----------
(1) Uncollectible accounts written off, net of recoveries.
-16-
EXHIBIT INDEX
ITEM EXHIBIT
NO. ITEM TITLE NO. DESCRIPTION
- ---- ---------- -------- -----------
3 Articles of (1) Restated Certificate of
Incorporation and Incorporation as filed with
By-Laws the Delaware Secretary of
State on March 29, 1996
(2) By-Laws as amended through
December 14, 1995
10 Material Contracts (3) Amendment to Employment
Agreement with Charles J.
Hinkaty dated April 14,
1995
(4) Amendment to Employment
Agreement with Harvey P.
Alstodt dated April 14,
1995
(5) Amendment to Employment
Agreement with William H.
McMenemy dated April 14,
1995
(6) Amendment to Employment
Agreement with Melvyn C.
Goldstein dated April 14,
1995
11 Statements Re: (7) Computation of per share
computation of per earnings
share earnings
23 Consents of experts (8) Consent of KPMG Peat
and counsel Marwick LLP dated
March 27, 1996
Financial Data (27) Financial Data Schedule
Schedule