SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to
Commission File No. 1-5439
DEL LABORATORIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-1953103
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
178 EAB Plaza, Uniondale, New York 11556
----------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 844-2020
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES (X) NO ( )
The number of shares of Common Stock, $1 par value, outstanding as of August 3,
2000 was 7,595,209.
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Index
Part I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements:
Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999 3
Consolidated Statements of Earnings for the three and six
months ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the
six months ended June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
All other schedules and compliance information called for by the instructions to
Form 10-Q have been omitted since the required information is not present or not
present in amounts sufficient to require submission.
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<PAGE>
<TABLE>
<CAPTION>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except for share and per share data)
June 30 December 31
ASSETS 2000 1999
------ ----------- ------------
(UNAUDITED)
Current assets:
<S> <C> <C>
Cash and cash equivalents .............................. $ 3,536 $ 3,585
Accounts receivable-less allowance for doubtful accounts
of $1,300 in 2000 and 1999 ............................. 55,979 45,942
Income taxes receivable ................................ -- 1,963
Inventories ............................................ 62,657 59,155
Deferred income taxes, net ............................. 5,272 5,272
Prepaid expenses and other current assets .............. 2,807 2,455
--------- ---------
Total current assets ........................... 130,251 118,372
Property, plant and equipment, net ............................... 38,527 37,191
Intangibles arising from acquisitions, net ....................... 16,661 17,101
Other assets ..................................................... 8,644 7,897
--------- ---------
Total assets ................................... $ 194,083 $ 180,561
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ...................... $ 4,118 $ 3,888
Accounts payable ....................................... 29,241 27,175
Accrued liabilities .................................... 13,874 12,837
Income taxes payable ................................... 486 --
--------- ---------
Total current liabilities ...................... 47,719 43,900
Long-term pension liability, less current portion ................ 9,052 9,052
Deferred income taxes, net ....................................... 986 986
Long-term debt, less current portion ............................. 83,063 75,750
--------- ---------
Total liabilities .............................. 140,820 129,688
--------- ---------
Shareholders' equity:
Preferred stock $.01 par value, authorized
1,000,000 shares; no shares issued ..................... -- --
Common stock $1 par value, authorized
20,000,000 shares; issued 10,000,000 shares ............ 10,000 10,000
Additional paid-in capital ............................. 291 127
Accumulated other comprehensive loss ................... (1,187) (1,029)
Retained earnings ...................................... 77,542 75,136
--------- ---------
86,646 84,234
Less: Treasury stock at cost, 2,468,747 shares
at June 30, 2000 and 2,455,420 at December 31, 1999 .... (32,288) (32,120)
Receivables for stock options exercised ................ (1,095) (1,241)
--------- ---------
Total shareholders' equity ..................... 53,263 50,873
--------- ---------
Total liabilities and shareholders' equity ..... $ 194,083 $ 180,561
========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
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</TABLE>
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<TABLE>
<CAPTION>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(In thousands except for share and per share data)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------- -------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ......................... $ 76,686 $ 70,557 $ 144,069 $ 132,313
Cost of goods sold ................ 34,357 30,723 63,309 58,497
Selling and administrative expenses 37,413 35,716 72,903 69,611
----------- ----------- ----------- -----------
Operating income .............. 4,916 4,118 7,857 4,205
Other income (expense):
Gain on sale of facility ...... 362 -- 362 1,734
Interest expense .............. (2,011) (1,514) (4,097) (2,742)
Interest income ............... 18 8 26 25
----------- ----------- ----------- -----------
Earnings before income taxes ...... 3,285 2,612 4,148 3,222
Income taxes ...................... 1,380 1,045 1,742 1,289
----------- ----------- ----------- -----------
Net earnings .................. $ 1,905 $ 1,567 $ 2,406 $ 1,933
=========== =========== =========== ===========
Earnings per common share:
Basic ......................... $ 0.25 $ 0.21 $ 0.32 $ 0.26
=========== =========== =========== ===========
Diluted ....................... $ 0.25 $ 0.20 $ 0.32 $ 0.24
=========== =========== =========== ===========
Weighted average common
shares outstanding:
Basic ......................... 7,544,000 7,478,000 7,545,000 7,550,000
=========== =========== =========== ===========
Diluted ....................... 7,643,000 7,786,000 7,632,000 7,927,000
=========== =========== =========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(In thousands)
(UNAUDITED)
JUNE 30
-------
2000 1999
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net earnings ........................................... $ 2,406 $ 1,933
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization .......................... 3,608 3,372
Provision for doubtful accounts ........................ 52 --
Gain on sale of facility ............................... (362) (1,734)
Other non-cash operating items ......................... 249 446
Changes in operating assets and liabilities:
Accounts receivable ................................ (10,141) (8,464)
Inventories ........................................ (3,602) (9,285)
Prepaid expenses and other current assets .......... (353) 700
Other assets ....................................... (749) 517
Accounts payable ................................... 2,102 4,654
Accrued liabilities ................................ 1,051 4,615
Income taxes payable / receivable .................. 2,546 (137)
-------- --------
Net cash used in operating activities ........ (3,193) (3,383)
-------- --------
Cash flows provided by (used in) investing activities:
Proceeds from sale of facility ..................... 800 2,538
Property, plant and equipment additions ............ (3,185) (3,088)
Additions to intangibles and other assets .......... -- (40)
-------- --------
Net cash used in investing activities ......... (2,385) (590)
-------- --------
Cash flows provided by (used in) financing activities:
Borrowings under long-term debt .................... 29,023 4,250
Principal payments under long-term debt ............ (7,572) (221)
Borrowings under short-term lines of credit ........ 1,500 7,250
Repayments of short-term lines of credit ........... (17,250) (3,500)
Decrease in receivables for stock options exercised 6 7
Acquisition of treasury stock ...................... (168) (4,456)
Dividends paid ..................................... -- (780)
-------- --------
Net cash provided by financing activities .... 5,539 2,550
-------- --------
Effect of exchange rate changes on cash ................ (10) 12
-------- --------
Net decrease in cash and cash equivalents ............. (49) (1,411)
Cash and cash equivalents at beginning of year ......... 3,585 3,731
-------- --------
Cash and cash equivalents at end of period ............. $ 3,536 $ 2,320
======== ========
</TABLE>
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<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The accompanying unaudited consolidated financial statements of Del
Laboratories, Inc. and subsidiaries (the Company) have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Interim results are not
necessarily indicative of results for a full year.
A summary of the Company's significant accounting policies is presented in its
1999 Annual Report to Shareholders. Users of financial information produced for
interim periods are encouraged to refer to the footnotes contained in the Annual
Report to Shareholders when reviewing interim financial results.
In the opinion of management, the accompanying interim financial statements
contain all material adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the consolidated financial position,
results of operations and cash flows of the Company for interim periods.
2. INVENTORY
---------
Classification of inventories (in thousands):
June 30 December 31
2000 1999
---- ----
Raw Materials $37,083 $27,936
Work In Process 4,942 6,226
Finished Goods 20,632 24,993
------- -------
$62,657 $59,155
======= =======
3. EARNINGS PER SHARE
------------------
Basic earnings per share is computed by dividing income available to common
shareholders (which for the Company equals its recorded net income) by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock, such as stock options, were
exercised, converted into common stock or otherwise resulted in the issuance of
common stock.
On November 15, 1999, the Company's Board of Directors approved a 2% stock
dividend. As a result, 147,581 shares of treasury stock were issued on December
28, 1999 to shareholders of record on November 30, 1999. Accordingly, the
weighted average common shares outstanding in the consolidated statement of
earnings for the three and six months ended June 30, 1999, have been restated to
reflect the dividend.
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<PAGE>
3. EARNINGS PER SHARE (continued)
------------------------------
A reconciliation between the numerators and denominators of the basic
and diluted income per common share is as follows:
Three Months Six Months
Ended Ended
June 30 June 30
(Amounts in thousands,
except per share data)
2000 1999 2000 1999
---- ---- ---- ----
Net earnings (numerator) $1,905 $1,567 $2,406 $1,933
Weighted-average common shares
(denominator for basic earnings
per share) 7,544 7,478 7,545 7,550
Effect of dilutive securities:
Employee stock options 99 308 87 377
Weighted-average common and potential
common shares outstanding
(denominator for diluted earnings
per share) 7,643 7,786 7,632 7,927
------ ------ ------ ------
Basic earnings per share $ 0.25 $ 0.21 $ 0.32 $ 0.26
------ ------ ------ ------
Diluted earnings per share $ 0.25 $ 0.20 $ 0.32 $ 0.24
------ ------ ------ ------
Employee stock options for 1,267,000 and 452,000 shares for the three months
ended June 30, 2000 and 1999, respectively, and 1,269,000 and 347,000 shares
for the six months ended June 30, 2000 and 1999, respectively, were not
included in the net earnings per share because their effect would have been
anti- dilutive.
4. COMPREHENSIVE INCOME
--------------------
The components of comprehensive income for the three months and six months
ended June 30, 2000 and 1999 are as follows:
Three Months Ended Six Months Ended
June 30 June 30
(in thousands) (in thousands)
2000 1999 2000 1999
---- ---- ---- ----
Net earnings $ 1,905 $ 1,567 $ 2,406 $ 1,933
Other comprehensive income:
Foreign currency translation (168) 246 (158) 218
------- ------- ------- -------
Total comprehensive income $ 1,737 $ 1,813 $ 2,248 $ 2,151
======= ======= ======= =======
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<PAGE>
5. SEGMENT INFORMATION
-------------------
The Company operates in two segments, Cosmetic and Pharmaceutical, that
have been organized by the products and services they offer. The Cosmetic
segment's principal products are nail care, nail color, color cosmetics,
beauty implements, bleaches and depilatories, personal care products and
other related cosmetic items. The Pharmaceutical segment's principal
products are proprietary oral analgesics, acne treatment products and first
aid products. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates the performance of its operating segments based on operating
income. Certain assets, including property, plant and equipment and
deferred tax assets, are not allocated to the identifiable segments;
depreciation of unallocated assets are charged to the Cosmetic segment.
Three Months Ended Six Months Ended
June 30 June 30
(in thousands) (in thousands)
2000 1999 2000 1999
---- ---- ---- ----
Net sales
Cosmetic $ 60,580 $ 54,798 $112,906 $101,499
Pharmaceutical 16,106 15,759 31,163 30,814
-------- -------- -------- --------
Consolidated $ 76,686 $ 70,557 $144,069 $132,313
======== ======== ======== ========
Operating income
Cosmetic $ 2,829 $ 2,473 $ 3,572 $ 273
Pharmaceutical 2,087 1,645 4,285 3,932
-------- -------- -------- --------
Consolidated $ 4,916 $ 4,118 $ 7,857 $ 4,205
======== ======== ======== ========
Gain on asset sale $ 362 -- $ 362 $ 1,734
Interest expense, net 1,993 $ 1,506 4,071 2,717
-------- -------- -------- --------
Earnings before taxes $ 3,285 $ 2,612 $ 4,148 $ 3,222
======== ======== ======== ========
Depreciation and amortization
Cosmetic $ 1,725 $ 1,512 $ 3,379 $ 3,157
Pharmaceutical 116 102 229 215
-------- -------- -------- --------
Consolidated $ 1,841 $ 1,614 $ 3,608 $ 3,372
======== ======== ======== ========
6. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
On February 22, 2000, the Company purchased a 68,000 square foot
manufacturing, warehousing and office facility in Barrie, Ontario for
$1,828,000. The purchase was financed with a combination of a mortgage
bridge loan and a five-year mortgage. The mortgage bridge loan was repaid
on April 3, 2000.
7. GAIN ON SALE OF FACILITY
------------------------
On April 3, 2000, the Company sold a 39,000 square foot manufacturing,
warehousing and office facility in Barrie, Ontario, with a net book value
of approximately $442,000 for net proceeds of approximately $804,000.
Approximately $640,000 of the proceeds was used to satisfy a mortgage
bridge loan on its new facility in Barrie, Ontario purchased on February
22, 2000.
8. LONG-TERM DEBT
--------------
On April 26, 2000, the Company refinanced its purchase money promissory
note of $3,822,000 for its property in North Carolina with a five-year
$4,523,000 mortgage on the land and buildings. The mortgage includes an
interest rate based on LIBOR and terms that provide for the maintenance of
certain financial ratios.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(1) RESULTS OF OPERATIONS
---------------------
Second Quarter and Six Months Ended June 2000 versus June 1999
--------------------------------------------------------------
NET SALES
---------
Net sales for the second quarter of 2000 were $76.7 million, an increase of 8.7%
compared to $70.6 million in 1999. Net sales for the first six months of 2000
were $144.1, an increase of 8.9% compared to $132.3 million in 1999.
Cosmetic net sales for the second quarter were $60.6 million, an increase of
10.6% compared to $54.8 million in 1999. Cosmetic net sales for the first six
months of 2000 were $112.9 million, an increase of 11.2% compared to $101.5
million in 1999. The increase is due primarily to volume growth in the Sally
Hansen family and N.Y.C. New York Color brands, together with lower Naturistics
product returns.
Pharmaceutical net sales for the second quarter of 2000 were $16.1 million, an
increase of 2.2% compared to $15.8 million in 1999. The increase was principally
due to the launch of the Dermarest Psoriasis brand, partially offset by reduced
Orajel shipments due to reductions in drug and food wholesaler inventories.
Meanwhile, Orajel retail sales continued to grow achieving record high market
share levels. Pharmaceutical net sales for the first six months of 2000 were
$31.1 million, an increase of 1.1% compared to $30.8 million in 1999.
COST OF GOODS SOLD
------------------
Cost of goods sold for the second quarter of 2000 were $34.4 million, or 44.8%
of net sales, as compared to $30.7 million, or 43.5% of net sales in 1999. Cost
of goods sold for the first six months of 2000 were $63.3 million, or 43.9% of
net sales, as compared to $58.5 million, or 44.2% of net sales in 1999.
SELLING AND ADMINISTRATIVE EXPENSES
-----------------------------------
Selling and administrative expenses for the second quarter of 2000 were $37.4
million, or 48.8% of net sales, as compared to $35.7 million, or 50.6% of net
sales in 2000. Selling and administrative expenses for the first six months of
2000 were $72.9 million, or 50.6% of net sales in 2000 compared to $69.6
million, or 52.6% of net sales in 1999. The decrease in selling and
administrative expenses, as a percentage of net sales, is primarily attributable
to selling expenses increasing at a lower rate than the increase in sales.
GAIN ON SALE OF FACILITY
------------------------
On April 3, 2000, the Company sold a 39,000 square foot manufacturing,
warehousing and office facility in Barrie, Ontario, with a net book value of
approximately $442,000, for net proceeds of approximately $804,000.
NET INTEREST EXPENSE
--------------------
Interest expense, net of interest income, for the second quarter of 2000 was
$2.0 million, compared to $1.5 million in 1999. Interest expense, net of
interest income for the first six months of 2000 was $4.1 million, compared to
$2.7 million in 1999. The increases are due to higher average borrowings for
working capital requirements in 2000, in addition to increased borrowing rates,
as compared to 1999.
INCOME TAXES
------------
Income taxes are based on the Company's expected annual effective tax rate of
42% in 2000 compared to 40% in 1999.
NET EARNINGS
------------
Net earnings for the second quarter of 2000 were $1.9 million, which includes an
after-tax gain of $0.2 million on the sale of a facility, compared to $1.6
million in 1999. Net earnings for the six months ended June 30, 2000 were $2.4
million, compared to $1.9 million in 1999. The first six months of 1999 included
an after-tax gain of $1.0 million on the sale of a facility.
-9-
<PAGE>
(2) LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At June 30, 2000 the Company had cash and cash equivalents of $3.5 million
compared to $2.3 million at June 30, 1999.
Net cash used in operating activities was $3.2 million for the six months ended
June 30, 2000, primarily due to an increase in accounts receivable of $10.1
million, an increase in inventories of $3.6 million, partially offset by
increases of $2.1 million in accounts payable and $2.5 million in income taxes
payable / receivable.
Cash used for property, plant and equipment additions was $3.2 million for the
six months ended June 30, 2000 compared to $3.1 million in 1999.
Net cash provided by financing activities for the six months ended June 30, 2000
was $5.5 million due to proceeds received under the Company's revolving credit
agreement and short-term borrowings under a line of credit with a bank,
partially offset by repayments of short-term borrowings and principal payments
of long-term debt.
On April 3, 2000, the Company sold a 39,000 square foot manufacturing,
warehousing and office facility in Barrie, Ontario, with a net book value of
approximately $442,000 for net proceeds of approximately $804,000. Approximately
$640,000 of the proceeds was used to satisfy a mortgage bridge loan on its new
facility in Barrie, Ontario purchased on February 22, 2000.
On April 26, 2000, the Company refinanced its purchase money promissory note of
$3,822,000 for its property in North Carolina with a five-year $4,523,000
mortgage on the land and buildings. The mortgage includes an interest rate based
on LIBOR and terms that provide for the maintenance of certain financial ratios.
The Company believes that cash from future operations, cash on hand and amounts
available from the credit facility, will be sufficient to satisfy its liquidity
needs for the foreseeable future.
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<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133) as amended by SFAS 137 and SFAS 138, which is
effective for quarters of fiscal years beginning after June 15, 2000. SFAS No.
133 provides guidance for accounting for all derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. The Company does not believe that the implementation of SFAS No. 133
will have a significant impact on its financial position or results of
operations.
On March 31, 2000, the FASB issued FASB Interpretation No. 44 "Accounting for
Certain Transactions Involving Stock Compensation" an interpretation of
Accounting Principles Board Opinion No. 25 (Opinion 25). This interpretation
clarifies the application of Opinion 25 for certain issues. The effects of
applying this interpretation are required to be recognized on a prospective
basis from July 1, 2000. Management has determined that the application of this
opinion will not have any effect on the Company's financial statements.
FORWARD - LOOKING STATEMENTS
----------------------------
Management's Discussion and Analysis of the Results of Operations and Financial
Condition and other sections of this Form 10-Q include "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities and Exchange Act of 1934 (the "Exchange Act"). All
statements other than statements of historical information provided herein are
forward-looking statements and may contain information about financial results,
economic conditions, trends and known uncertainties. The forward-looking
statements contained herein are subject to certain risks and uncertainties that
could cause actual results to differ materially from those reflected in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, delays in introducing new products or failure of
consumers to accept new products, actions by competitors which may result in
mergers, technology improvement or new product introductions, the dependence on
certain national chain drug stores and mass merchandiser relationships due to
the concentration of sales generated by such chains, changes in fashion oriented
color cosmetics trends, and trends in the general economy.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis, judgment, belief or expectation
only as of the date hereof. The Company undertakes no obligation to publicly
revise these forward-looking statements to reflect events or circumstances that
arise after the date hereof. In addition to the disclosure contained herein,
readers should carefully review any disclosure of risks and uncertainties
contained in other documents the Company files or has filed from time to time
with the Securities and Exchange Commission pursuant to the Exchange Act.
-11-
<PAGE>
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
At the Company's annual meeting held on May 25, 2000, the Shareholders
reelected Dan K. Wassong and Martin E. Revson to the Board of Directors, in
accordance with a proxy solicited pursuant to Section 14 of the Securities
Exchange Act. Votes were cast as follows:
ELECTION OF DIRECTORS VOTES FOR VOTES WITHHELD
--------------------- --------- --------------
Martin E. Revson 6,829,680 122,576
Dan K. Wassong 6,894,372 57,884
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
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<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEL LABORATORIES, INC.
----------------------
(Registrant)
Date: August 3, 2000 /s/ DAN K. WASSONG
----- -------------- ------------------
Dan K. Wassong
Chairman, President and
Chief Executive Officer
Date: August 3, 2000 /s/ ENZO J. VIALARDI
----- -------------- --------------------
Enzo J. Vialardi
Executive Vice President and
Chief Financial Officer
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