-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QXoim6mLlkBQ2uatc0TIaQikivkzhO/7RCjwG01IRCk9/+xB15g3FBsRkMi0edyG YPLXTkXc3xQazNZ6C/sX3A== 0000909012-02-000830.txt : 20021114 0000909012-02-000830.hdr.sgml : 20021114 20021114111822 ACCESSION NUMBER: 0000909012-02-000830 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEL LABORATORIES INC CENTRAL INDEX KEY: 0000027751 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 131953103 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05439 FILM NUMBER: 02822655 BUSINESS ADDRESS: STREET 1: 565 BROADHOLLOW RD CITY: FARMINGDALE STATE: NY ZIP: 11735 BUSINESS PHONE: 5162937070 MAIL ADDRESS: STREET 1: 178 EAB PLAZA, 8TH FL CITY: UNIONDALE STATE: NY ZIP: 11556 FORMER COMPANY: FORMER CONFORMED NAME: MARADEL PRODUCTS INC DATE OF NAME CHANGE: 19670706 10-Q 1 t24948.txt QUARTERLY REPORT 9/30/02 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 SEPTEMBER 30, 2002 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 November 14, 2002 was 8,686,064. DEL LABORATORIES, INC. AND SUBSIDIARIES Index Part I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements: Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001 3 Consolidated Statements of Earnings for the three and nine months ended September 30, 2002 and 2001 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 4. Controls and Procedures 16 Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17 All other schedules and compliance information called for by the instructions to Form 10-Q have been omitted since the required information is not present or not present in amounts sufficient to require submission. -2-
DEL LABORATORIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 2002 and December 31, 2001 (In thousands, except for share and per share data) September 30 December 31 2002 2001 ------------- ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 3,374 $ 2,688 Accounts receivable-less allowance for doubtful accounts of $5,160 in 2002 and $4,200 in 2001 59,647 52,797 Inventories 73,940 62,678 Deferred income taxes 6,300 6,300 Prepaid expenses and other current assets 2,841 2,302 --------- --------- Total current assets 146,102 126,765 Property, plant and equipment, net 35,140 35,237 Intangibles 8,549 9,057 Goodwill 6,282 6,282 Other assets 10,948 9,361 Deferred income taxes 5,250 5,250 --------- --------- Total assets $ 212,271 $ 191,952 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 8,377 $ 4,339 Accounts payable 32,498 21,101 Accrued liabilities 24,484 22,010 Income taxes payable 116 4,137 --------- --------- Total current liabilities 65,475 51,587 Long-term pension liability, less current portion 9,613 9,613 Deferred income taxes 3,880 3,880 Long-term debt, less current portion 53,689 61,989 --------- --------- Total liabilities 132,657 127,069 --------- --------- 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 1,800 835 Accumulated other comprehensive loss (2,240) (2,250) Retained earnings 91,624 76,991 --------- --------- 101,184 85,576 Less: Treasury stock at cost, 1,336,269 shares in 2002 and 1,505,256 shares in 2001 (20,788) (19,758) Receivables for stock options exercised (782) (935) --------- --------- Total shareholders' equity 79,614 64,883 --------- --------- Total liabilities and shareholders' equity $ 212,271 $ 191,952 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. -3-
DEL LABORATORIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (In thousands, except for share and per share data) (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------ ------------ 2002 2001 2002 2001 ---- ---- ---- ---- Net sales $ 95,215 $ 78,823 $ 268,417 $ 226,062 Cost of goods sold 48,024 38,304 130,380 108,806 Selling and administrative expenses 37,672 34,998 112,752 99,936 ----------- ----------- ----------- ----------- Operating income 9,519 5,521 25,285 17,320 Other income (expense): Gain on sale of land -- -- 2,428 -- Interest expense, net (1,083) (1,569) (3,427) (5,393) Other expense, net (81) (124) (297) (328) ----------- ----------- ----------- ----------- Earnings before income taxes 8,355 3,828 23,989 11,599 Income taxes 3,259 1,454 9,356 4,640 ----------- ----------- ----------- ----------- Net earnings $ 5,096 $ 2,374 $ 14,633 $ 6,959 =========== =========== =========== =========== Earnings per common share: Basic $ 0.59 $ 0.28 $ 1.70 $ 0.83 =========== =========== =========== =========== Diluted $ 0.57 $ 0.27 $ 1.64 $ 0.82 =========== =========== =========== =========== Weighted average common shares outstanding: Basic 8,662,000 8,444,000 8,594,000 8,424,000 =========== =========== =========== =========== Diluted 8,969,000 8,635,000 8,944,000 8,513,000 =========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. -4-
DEL LABORATORIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (In thousands) (UNAUDITED) September 30 ------------ 2002 2001 ---- ---- Cash flows from operating activities: Net earnings $ 14,633 $ 6,959 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 5,545 6,257 Provision for doubtful accounts 1,073 720 Gain on sale of land (2,428) -- Other non-cash operating items 128 213 Changes in operating assets and liabilities: Accounts receivable (7,912) 3,041 Inventories (11,248) (3,344) Prepaid expenses and other current assets (538) 540 Other assets (1,586) (177) Accounts payable 11,394 1,907 Accrued liabilities 2,470 5,760 Income taxes payable (1,669) 436 -------- -------- Net cash provided by operating activities 9,862 22,312 -------- -------- Cash flows provided by (used in) investing activities: Net proceeds from sale of land 2,940 13 Property, plant and equipment additions (5,430) (3,626) -------- -------- Net cash used in investing activities (2,490) (3,613) -------- -------- Cash flows provided by (used in) financing activities: Principal borrowings (payments) under revolving credit agreement, net -- (11,500) Principal (payments) under senior notes (4,000) (4,000) Principal (payments) under mortgages (265) (144) Receivables for stock options exercised 13 6 Exercise of stock options 76 -- Acquisition of treasury stock (2,491) (503) -------- -------- Net cash used in financing activities (6,667) (16,141) -------- -------- Effect of exchange rate changes on cash (19) (17) -------- -------- Net increase in cash and cash equivalents 686 2,541 Cash and cash equivalents at beginning of year 2,688 2,910 -------- -------- Cash and cash equivalents at end of period $ 3,374 $ 5,451 ======== ======== Supplemental disclosures: Cash paid: Interest $ 2,577 $ 5,415 Income taxes $ 11,134 $ 4,226
The accompanying notes are an integral part of the consolidated financial statements. -5- DEL LABORATORIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except for share and per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited consolidated financial statements of Del Laboratories, Inc. and subsidiaries ("the Company") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Interim results are not necessarily indicative of results for a full year. On January 1, 2002, the Company adopted the Emerging Issues Task Force ("EITF") Issue No. 00-14, "Accounting for Certain Sales Incentives" and EITF Issue No. 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products". EITF Issue No. 00-14, "Accounting for Certain Sales Incentives" requires that sales incentives offered voluntarily by a vendor, without charge, to customers that can be used in, or that are exercisable by a customer as a result of a single exchange transaction be recorded as a reduction from revenue. Previously, these items were included in selling and administrative expenses. EITF Issue No. 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products" requires that unless specific criteria are met, consideration from a vendor to a retailer (e.g., "slotting fees", "cooperative advertising arrangements", "buy downs", etc.) be recorded as a reduction from revenue. As result of the adoption on January 1, 2002, of EITF Issue No. 00-14 and EITF Issue No. 00-25, costs of $9,969 and $7,497 for the three months ended September 30, 2002 and 2001, respectively, and costs of $26,295 and $20,933 for the nine months ended September 30, 2002 and 2001, respectively, were recorded as a reduction of net sales. In 2001, such costs were included in selling and administrative expenses and have been reclassified to conform with current year presentation. Effective January 1, 2002, the Company adopted SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method only and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. Since the Company did not enter into any business combinations subsequent to June 30, 2001, the adoption of SFAS No. 141 did not have an impact on the Company's consolidated financial statements. During the first quarter of 2002, the Company performed the required SFAS No. 142 impairment tests of goodwill and intangible assets as of January 1, 2002, and determined that no adjustment to the asset values or to the useful lives of the intangible assets is required. This determination, as well as the fact that the Company's goodwill was recorded prior to October 31, 1970 and therefore not subject to amortization prior to the adoption of SFAS No. 142, resulted in earnings per share information for the three and nine months ended September 30, 2002 being comparative with the corresponding period in the prior year. The Company does not have any intangible assets, other than goodwill, with indefinite useful lives. A summary of the Company's critical and significant accounting policies are presented in its 2001 Form 10-K. Users of financial information produced for interim periods are encouraged to refer to the footnotes contained in the Form 10-K when reviewing interim financial results. In the opinion of management, the accompanying interim consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position, results of operations and cash flows of the Company for interim periods. Certain reclassifications were made to prior year amounts in order to conform to current year presentation. 2. INVENTORIES Inventories are valued at the lower of cost (principally first-in, first-out) or market value. The Company records adjustments to the cost of inventories based upon its forecasted plans to sell, historical scrap and disposal rates and physical condition of the inventories. The components of inventories are as follows: September 30 December 31 2002 2001 ---- ---- Raw Materials $46,164 $29,114 Work in Process 3,939 3,893 Finished Goods 23,837 29,671 ------ ------ $73,940 $62,678 ======= ======= -6- 3. INTANGIBLES Intangibles arising from acquisitions are as follows: September 30, 2002 ------------------ Gross Carrying Accumulated Net Book Value Amortization Value ----- ------------ ----- Intellectual property rights $10,558 $2,347 $8,211 Trademarks 3,000 2,662 338 ------- ------ ------ $13,558 $5,009 $8,549 ======= ====== ====== Amortization expense amounted to $170 and $220 for the three months ended September 30, 2002 and 2001, respectively, and amounted to $508 and $660 for the nine months ended September 30, 2002 and 2001, respectively. The estimated amortization expense for the fiscal years ending December 31, 2002, 2003, 2004, 2005 and 2006 is $678, $678, $678, $528 and $528, respectively. The original useful lives were 20 years for intellectual property rights and trademarks. Upon adoption of SFAS No. 142 as of January 1, 2002, the remaining useful lives were still deemed appropriate. 4. LONG-TERM DEBT September 30 December 31 2002 2001 ---- ---- 9.5% senior notes $32,000 $36,000 Notes payable under revolving credit agreement 25,000 25,000 Mortgages on land and buildings 5,066 5,328 ------- ------- $62,066 $66,328 Less current portion 8,377 4,339 ------- ------- $53,689 $61,989 ======= ======= On March 26, 2002, the senior notes were amended and restated. The senior note holder executed a Release and Termination Agreement of the collateral liens granted in the previous amendment. The notes require annual principal repayments of $8,000 on May 31, 2003 and May 31, 2004 and $16,000 on May 31, 2005. The amended agreement is unsecured and includes covenants, which provide among other things for the maintenance of financial covenants and ratios relating to consolidated net worth, restrictions on cash dividends, the purchase of treasury stock and certain other expenditures. On March 26, 2002, the Company amended and restated the revolving credit agreement entered into in December 1998 and amended on February 25, 2000. The amendment provides credit of $45,000 and extends the expiration to March 26, 2005. Under the terms of the agreement, interest rates on borrowings are based on, at the Company's option, LIBOR or prime rates. The weighted-average interest rates for the third quarter and nine months ended September 30, 2002 were 3.9% and 4.2%, respectively. The terms of the agreement include a commitment fee based on unutilized amounts and an annual agency fee. The new deferred financing fees associated with the March 26, 2002 amendment and the unamortized deferred financing fees related to the February 25, 2000 agreement are now being amortized over the term of the new agreement. Covenants provide, among other things, for the maintenance of financial covenants and ratios relating to consolidated net worth, restrictions on cash dividends, the purchase of treasury stock and certain other expenditures. The agreement is unsecured and no compensating balances are required. The lenders executed a Release and Termination Agreement of the collateral liens granted in the amended February 25, 2000 revolving credit agreement. -7- 5. PLANT CLOSURE On June 26, 2001, the Company announced that it would initiate a series of actions resulting in a full closure of the Newark, New Jersey manufacturing facility by the end of the first quarter of 2002. It was estimated that the plant closure would result in the termination of approximately 70 production and clerical employees. Estimated severance, pension curtailment and other exit plan expenses of $226 were recorded in the second quarter of 2001. During the second quarter of 2002, an additional $45 in exit plan expenses was recorded. As of September 30, 2002, the plant was closed, a total of 67 production and clerical employees were terminated and all exit costs totaling $271 were paid. 6. SALE OF LAND On February 13, 2002, the Company sold 13.5 acres of vacant land in Farmingdale, New York to an unrelated third party for gross proceeds of $3,335 which was reduced by $160 for closing costs. In addition, $235 of the sales price will be paid by the purchaser upon the earlier of February 13, 2003 or two business days after receipt by the purchaser of a certificate of occupancy on any building constructed on such land. The land was included in property, plant and equipment at December 31, 2001, with a book value of $500. After transaction related costs of $407, a gain of $2,428 ($1,457 after-tax, or $0.17 per basic share) was recorded in the first quarter. In connection with this sale, an option was granted to the buyer for the remaining 8.5 acres of improved land and buildings owned by the Company. The option is for a purchase price of no less than $5,000 and cannot be exercised before December 1, 2004 or after December 1, 2005. 7. EARNINGS PER SHARE Basic earnings per share is computed by dividing income available to common shareholders (which for the Company equals its recorded net earnings) by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, were exercised, converted into common stock or otherwise resulted in the issuance of common stock. On November 20, 2001, the Company's Board of Directors approved a 5% stock dividend. As a result, 404,510 shares of treasury stock were issued on December 28, 2001 to shareholders of record on December 1, 2001. Accordingly, the weighted-average common shares outstanding in the consolidated statements of earnings for the three and nine months ended September 30, 2001, have been adjusted to reflect the dividend. A reconciliation between the numerators and denominators of the basic and diluted earnings per common share is as follows:
Three Months Ended Nine Months Ended September 30 September 30 ------------ ------------ 2002 2001 2002 2001 ---- ---- ---- ---- Net earnings (numerator) $ 5,096 $ 2,374 $14,633 $ 6,959 ------- ------- ------- ------- Weighted-average common shares (denominator for basic earnings per share) 8,662 8,444 8,594 8,424 Effect of dilutive securities: Employee stock options 307 191 350 89 ------- ------- ------- ------- Weighted-average common and potential common shares outstanding (denominator for diluted earnings per share) 8,969 8,635 8,944 8,513 ======= ======= ======= ======= Basic earnings per share $ 0.59 $ 0.28 $ 1.70 $ 0.83 ======= ======= ======= ======= Diluted earnings per share $ 0.57 $ 0.27 $ 1.64 $ 0.82 ======= ======= ======= =======
Employee stock options to purchase approximately 830,000 and 794,000 shares for the three months ended September 30, 2002 and 2001, respectively, and 526,000 and 1,394,000 shares for the nine months ended September 30, 2002 and 2001, respectively, were not included in the net earnings per share calculation because their effect would have been anti-dilutive. -8- As a result of stock options exercised during the first nine months of 2002, the corresponding tax benefit of $2,349 was recorded as a reduction to income taxes payable and as an increase in additional paid-in capital. 8. COMPREHENSIVE INCOME The components of comprehensive income for the three and nine months ended September 30, 2002 and 2001 are as follows: Three Months Ended Nine Months Ended September 30 September 30 ------------ ------------ 2002 2001 2002 2001 ---- ---- ---- ---- Net earnings $5,096 $2,374 $14,633 $6,959 Foreign currency translation (431) (342) 10 (447) ------ ------ ------- ------ Total comprehensive income $4,665 $2,032 $14,643 $6,512 ====== ====== ======= ====== 9. 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 baby care products, oral analgesics, and first aid products. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. As a result of the adoption on January 1, 2002, of EITF Issue No. 00-14 and EITF Issue No. 00-25, (described in note 1 to these consolidated financial statements) costs of $9,969 and $7,497 were recorded as a reduction of net sales for the three months ended September 30, 2002 and September 30, 2001, respectively. Costs of $26,295 and $20,933 were recorded as a reduction of net sales for the nine months ended September 30, 2002 and 2001, respectively. In 2001, these costs were included in selling and administrative expenses. The third quarter of 2002 includes a charge in cost of goods sold of approximately $1,080 for the write-down of cosmetics inventory sold in the fourth quarter through closeout channels of distribution at prices below full cost. The Company evaluates the performance of its operating segments based on operating income. Certain assets, including property, plant and equipment and deferred tax assets are not allocated to the identifiable segments; depreciation of unallocated assets is charged to the Cosmetic segment.
Three Months Ended Nine Months Ended September 30 September 30 ------------ ------------ 2002 2001 2002 2001 ---- ---- ---- ---- Net sales: Cosmetic $ 77,939 $ 62,103 $ 217,922 $ 177,037 Pharmaceutical 17,276 16,720 50,495 49,025 --------- --------- --------- --------- Consolidated $ 95,215 $ 78,823 $ 268,417 $ 226,062 ========= ========= ========= ========= Operating income: Cosmetic $ 6,548 $ 2,391 $ 18,469 $ 8,538 Pharmaceutical 2,971 3,130 6,816 8,782 --------- --------- --------- --------- Consolidated $ 9,519 $ 5,521 $ 25,285 $ 17,320 Other income (expense): Gain on sale of land $ -- $ -- $ 2,428 $ -- Interest expense, net $ (1,083) $ (1,569) $ (3,427) $ (5,393) Other expense, net $ (81) $ (124) $ (297) $ (328) --------- --------- --------- --------- Earnings before income taxes $ 8,355 $ 3,828 $ 23,989 $ 11,599 ========= ========= ========= ========= Depreciation and amortization: Cosmetic $ 1,847 $ 2,202 $ 5,298 $ 5,880 Pharmaceutical 89 136 247 377 --------- --------- --------- --------- Consolidated $ 1,936 $ 2,338 $ 5,545 $ 6,257 ========= ========= ========= =========
-9- 10. COMMITMENTS AND CONTINGENCIES In September 2001, the Company received notice from the Environmental Protection Agency ("EPA") that it was, along with 81 others, a Potentially Responsible Party regarding a Superfund Site ("the Site") located in Glen Cove, New York. According to the notice received from the EPA, the Company's involvement relates to empty drums coming to the Site in 1977 and 1978. In the third quarter of 2001, the Company recorded an estimate of $550 in selling and administrative expenses based on information received from the EPA as to its potential liability for the past remediation activities. In October 2001, the Company became a member of a Joint Defense Group ("the JDG"). In the second quarter of 2002, the EPA and the JDG agreed in principle to the amounts of payments required to settle past and future liabilities under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") with regard to the Site. Pursuant to an agreement among JDG members as to how to allocate such payment amounts, the Company recorded, in the second quarter of 2002, an additional estimate of $785 in selling and administrative expenses. The charge of $785 had a negative impact of $0.06 per basic share on net earnings in the second quarter of 2002 and for the nine months ended September 30, 2002. During the third quarter of 2002, a trust was established with the intention of entering into a Consent Decree with the United States and the State of New York to settle all claims by the United States and the State of New York for past and future response costs and future actions at the Site. In September 2002, the Company paid $1,332 into a trust account which will be held in escrow, together with payments by the other members of the JDG, for the eventual settlement with the EPA of the Company's potential liability under CERCLA. During the third quarter of 2002, the Company also paid into the same trust account $18 for the eventual settlement of the Company's potential liability for natural resource damages ("NRD") claims, which also are expected to be settled in the Consent Decree. On October 2, 2002 an agreement was signed with a general contractor to expand the Rocky Point, North Carolina facility from approximately 225,000 square feet to approximately 430,000 square feet. The contract is estimated to cost $7,747, of which $2,500 is projected to be incurred within the next 12 months, and be completed during the fourth quarter of 2003. 11. SUBSEQUENT EVENT On November 7, 2002, the Board of Directors declared a 5% stock dividend payable on December 27, 2002 to shareholders of record as of the close of business on November 29, 2002. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (In thousands except per share data) DISCUSSION OF CRITICAL ACCOUNTING POLICIES The Company makes estimates and assumptions in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company believes that the following discussion addresses the Company's most critical accounting policies, which are those that are most important to the portrayal of the Company's financial condition and results of operations and which require management's most difficult and subjective judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The following is a brief discussion of the more critical accounting policies employed by the Company: REVENUE RECOGNITION The Company sells its products to chain drug stores, mass volume retailers, supermarkets and wholesalers. Sales of such products are principally denominated in U.S. dollars. The Company's accounts receivable reflect the granting of credit to these customers. The Company generally grants credit based upon analysis of the customer's financial position and previously established buying and selling patterns. The Company does not bill customers for shipping and handling costs and, accordingly, classifies such costs as selling and administrative expense. Revenues are recognized and discounts are recorded when merchandise is shipped. Net sales are comprised of gross revenues less returns, various promotional allowances and trade discounts and allowances. The Company allows customers to return their unsold products when they meet certain criteria as outlined in the Company's sales policies. The Company regularly reviews and revises, as deemed necessary, its estimate of reserves for future sales returns based primarily upon actual return rates by product and planned product discontinuances. The Company records estimated reserves for future sales returns as a reduction of sales, cost of sales and accounts receivable. Returned products which are recorded as inventories are valued based on estimated realizable value. The physical condition and marketability of the returned products are the major factors considered by the Company in estimating realizable value. Actual returns, as well as estimated realizable values of returned products, may differ significantly, either favorably or unfavorably, from estimates if factors such as economic conditions, customer inventory levels or competitive conditions differ from expectations. -10- On January 1, 2002, the Company implemented EITF Issue No. 00-14, "Accounting for Certain Sales Incentives" and EITF Issue No. 00-25 "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products". EITF Issue No. 00-14, "Accounting for Certain Sales Incentives" requires that sales incentives offered voluntarily by a vendor, without charge, to customers that can be used in, or that are exercisable by a customer as a result of a single exchange transaction be recorded as a reduction from revenue. Previously, these items were included in selling and administrative expenses. EITF Issue No. 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products" requires that unless specific criteria are met, consideration from a vendor to a retailer (e.g., "slotting fees", "cooperative advertising arrangements", "buy downs", etc.) be recorded as a reduction from revenue, as opposed to a selling expense. As a result of the implementation of EITF Issue No. 00-14 and EITF Issue No. 00-25, costs of $9,969 and $7,497 were recorded as a reduction of net sales for the three months ended September 30, 2002 and September 30, 2001, respectively. Costs of $26,295 and $20,933 were recorded as a reduction of net sales for the nine months ended September 30, 2002 and 2001, respectively. In 2001, these costs were included in selling and administrative expenses and have been reclassified to conform with current year presentation. CO-OPERATIVE ADVERTISING AND PROMOTIONAL ALLOWANCES The Company has various performance-based arrangements with retailers to reimburse them for all or a portion of their promotional activities related to the Company's products. These arrangements primarily allow customers to take deductions against amounts owed to the Company for product purchases. Estimated accruals for promotions and co-operative advertising programs are recorded in the period in which the related revenue is recognized. The Company regularly reviews and revises the estimated accruals for the projected costs for these promotions. Actual costs incurred by the Company may differ significantly, either favorably or unfavorably, from estimates if factors such as the level and success of the retailers' programs or other conditions differ from our expectations. INVENTORIES Inventories are stated at the lower of cost or market value. Cost is principally determined by the first-in, first-out method. The Company records adjustments to the cost of inventories based upon its forecasted plans to sell, historical scrap and disposal rates and the physical condition of the inventories. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from actual requirements if future economic conditions, the timing of new product introductions, customer inventory levels, fashion-oriented color cosmetic trends or competitive conditions differ from our expectations. PROPERTY, PLANT AND EQUIPMENT AND OTHER LONG-LIVED ASSETS Property, plant and equipment is recorded at cost and is depreciated on a straight-line basis over the estimated useful lives of such assets. Changes in circumstances, such as technological advances, changes to the Company's business model or changes in the Company's capital strategy could result in the actual useful lives differing from the Company's estimates. In those cases where the Company determines that the useful life of property, plant and equipment should be shortened, the Company would depreciate the net book value in excess of the salvage value, over its revised remaining useful life thereby increasing depreciation expense. Factors such as changes in the planned use of equipment, fixtures, software or planned closing of facilities could result in shortened useful lives. Long-lived assets, other than goodwill, are reviewed by the Company for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. The estimate of cash flow is based upon, among other things, certain assumptions about expected future operating performance. The Company's estimates of undiscounted cash flow may differ from actual cash flow due to, among other things, technological changes, economic conditions, changes to its business model or changes in its operating performance. If the sum of the undiscounted cash flows (excluding interest) is less than the carrying value, the Company recognizes an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset. In accordance with SFAS No. 142, goodwill must be tested annually for impairment at the reporting unit level. The Company's reporting units are its Cosmetic and Pharmaceutical segments. If an indication of impairment exists, the Company is required to determine if such reporting unit's implied fair value is less than its carrying value in order to determine the amount, if any, of the impairment loss required to be recorded. -11- PENSION BENEFITS The Company sponsors pension and other retirement plans in various forms covering all eligible employees. Several statistical and other factors which attempt to anticipate future events are used in calculating the expense and liability related to the plans. These factors include assumptions about the discount rate, expected return on plan assets and rate of future compensation increases as determined by the Company, within certain guidelines and in conjunction with its actuarial consultants. In addition, the Company's actuarial consultants also use subjective factors such as withdrawal and mortality rates to estimate the expense and liability related to these plans. The actuarial assumptions used by the Company may differ significantly, either favorably or unfavorably, from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. RESULTS OF OPERATIONS THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2002 VERSUS SEPTEMBER 30, 2001 Consolidated net sales for the third quarter of 2002 were $95,215, an increase of 20.8% compared to $78,823 in 2001. Consolidated net sales for the first nine months of 2002 were $268,417, an increase of 18.7% compared to $226,062 in 2001. Net sales for 2001 include a reclassification to conform with current year presentation. Cosmetic net sales for the third quarter of 2002 were $77,939, an increase of 25.5% compared to $62,103 in 2001. Cosmetic net sales for the first nine months of 2002 were $217,922, an increase of 23.1% compared to $177,037 in 2001. The third quarter increase is due principally to volume growth in the Sally Hansen family of brands. Sally Hansen, our core cosmetics brand, continues to grow its market share as the market leader in the nail category. Sally Hansen's market share in the nail category rose to 26% in the third quarter as reported by Nielsen market share data. In the mass market nail color category, the Company captured a 31% share of market during the third quarter. Pharmaceutical net sales for the third quarter of 2002 were $17,276, an increase of 3.3% compared to $16,720 in 2001. Pharmaceutical net sales for the first nine months of 2002 were $50,495, an increase of 3.0% compared to $49,025 in 2001. The third quarter increase is primarily due to the Gentle Naturals line of baby care products and DiabetAid, a new line of products including mouth rinse, lotions, creams and tablets to meet the health care needs of people with diabetes. For the first nine months of 2002, sales of Orajel, our core pharmaceutical brand, increased from prior year, however, the third quarter 2002 sales of Orajel were slightly below prior year due to a reduction of inventory levels by wholesalers and retailers. The Orajel market share for the most recent quarterly period increased from approximately 21% to 24% and syndicated independent retail sales data for the most recent quarterly period reported an increase in Orajel retail sales of 17% over the comparable period in 2001. Cost of goods sold for the third quarter of 2002 was $48,024 or 50.4% of net sales, compared to $38,304 or 48.6% of net sales in 2001. Cost of goods sold for the first nine months of 2002 was $130,380 or 48.6% of net sales, compared to $108,806 or 48.1% of net sales in 2001. The third quarter of 2002 includes a charge in cost of goods sold of approximately $1,080 for the write-down of cosmetics inventory sold in the fourth quarter through closeout channels of distribution at prices below full cost. Pharmaceutical cost of goods sold was above prior year as a percentage of net sales due to a change in product sales mix primarily attributable to the new Gentle Naturals line. Selling and administrative expenses for the third quarter of 2002 were $37,672 or 39.6% of net sales compared to $34,998 or 44.4% of net sales in 2001. Selling and administrative expense for the first nine months of 2002 were $112,752 or 42.0% of net sales compared to $99,936 or 44.2% net of sales. The increase of $2,674 for the three months ended September 30, 2002 and the increase of $12,816 for the nine months ended September 30, 2002 is primarily due to increased freight and other distribution costs related to sales volume and increased compensation and pension costs. The improvement in selling and administrative expenses, as a percentage of net sales, is attributable to sales increasing at a higher rate than increases in spending. -12- In September 2001, the Company received notice from the Environmental Protection Agency ("EPA") that it was, along with 81 others, a Potentially Responsible Party regarding a Superfund Site ("the Site") located in Glen Cove, New York. According to the notice received from the EPA, the Company's involvement relates to empty drums coming to the Site in 1977 and 1978. In the third quarter of 2001, the Company recorded an estimate of $550 in selling and administrative expenses based on information received from the EPA as to its potential liability for the past remediation activities. In October 2001, the Company became a member of a Joint Defense Group ("the JDG"). In the second quarter of 2002, the EPA and the JDG agreed in principle to the amounts of payments required to settle past and future liabilities under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") with regard to the Site. Pursuant to an agreement among JDG members as to how to allocate such payment amounts, the Company recorded, in the second quarter of 2002, an additional estimate of $785 in selling and administrative expenses. The charge of $785 had a negative impact of $0.06 per basic share on net earnings in the second quarter and for the nine months ended September 30, 2002. During the third quarter, a trust was established with the intention of entering into a Consent Decree with the United States and the State of New York to settle all claims by the United States and the State of New York for past and future response costs and future actions at the Site. In September 2002, the Company paid $1,332 into a trust account which will be held in escrow, together with payments by the other members of the JDG, for the eventual settlement with the EPA of the Company's potential liability under CERCLA. During the third quarter of 2002, the Company also paid into the same trust account $18 for the eventual settlement of the Company's potential liability for natural resource damages ("NRD") claims, which also are expected to be settled in the Consent Decree. On February 13, 2002, the Company sold 13.5 acres of vacant land in Farmingdale, New York to an unrelated third party for gross proceeds of $3,335 which was reduced by $160 for closing costs. In addition, $235 of the sales price will be paid by the purchaser upon the earlier of February 13, 2003 or two business days after receipt by the purchaser of a certificate of occupancy on any building constructed on such land. The land was included in property, plant and equipment at December 31, 2001, with a book value of $500. After transaction related costs of $407, a gain of $2,428 ($1,457 after-tax, or $0.17 per basic share) was recorded in the first quarter. In connection with this sale, an option was granted to the buyer for the remaining 8.5 acres of improved land and buildings owned by the Company. The option is for a purchase price of no less than $5,000 and cannot be exercised before December 1, 2004 or after December 1, 2005. Interest expense, net of interest income, for the third quarter of 2002 was $1,083 compared to $1,569 in 2001. Interest expense, net of interest income, for the first nine months of 2002 was $3,427 compared to $5,393 in 2001. The decrease in net interest expense is due primarily to a reduction in average outstanding borrowings and also to decreased borrowing rates. Average outstanding borrowings decreased by approximately $9,800 and $15,200 for the third quarter and nine months ended September 30, 2002, respectively, as compared to the third quarter and nine months ended September 30, 2001. Income taxes are based on the Company's expected annual effective tax rate of 39% in 2002 and 40% in 2001. The decrease in the effective tax rate for 2002 is primarily due to the reduced effect of non-deductible expenses on taxable income. Net earnings for the third quarter of 2002 were $5,096 or $0.59 per basic share compared to net earnings of $2,374 or $0.28 per basic share in 2001. Net earnings for the nine months ended September 30, 2002 were $14,633 or $1.70 per basic share compared to $6,959 or $0.83 per basic share in 2001. Net earnings for the nine months of 2002 include a gain on the sale of land in the first quarter of $1,457 or $0.17 per basic share as more fully described above and in note 6 to the consolidated financial statements. -13- LIQUIDITY AND CAPITAL RESOURCES At September 30, 2002 the Company had cash and cash equivalents of $3,374 compared to $2,688 at December 31, 2001 and $5,451 at September 30, 2001. Net cash provided by operating activities was $9,862 for the nine months ended September 30, 2002, due principally to net earnings of $14,633, depreciation and amortization of $5,545, increases in accounts payable and accrued liabilities of $11,394 and $2,470, respectively, partially offset by increases of $7,912 in accounts receivable and $11,248 in inventories. The increase in accounts receivable is attributable to increased sales volume and the timing of shipments during the third quarter. The increase in inventories and accounts payable is due to the timing of purchases of raw materials and components to support projected sales levels. Net cash used in investing activities for the nine months ended September 30, 2002 was $2,490 due to expenditures of $5,430 for property, plant and equipment, partially offset by net proceeds of $2,940 from the sale of land in the first quarter. Net cash used in financing activities for the nine months ended September 30, 2002 of $6,667 was due primarily to a payment of $4,000 in the second quarter reducing the outstanding principal of the senior notes and the acquisition of $2,491 of treasury stock in connection with stock option exercises. On March 26, 2002, the senior notes were amended and restated. The senior note holder executed a Release and Termination Agreement of the collateral liens granted in the previous amendment. The notes require annual principal repayments of $8,000 on May 31, 2003 and May 31, 2004 and $16,000 on May 31, 2005. The amended agreement is unsecured and includes covenants, which provide among other things for the maintenance of financial covenants and ratios relating to consolidated net worth, restrictions on cash dividends, the purchase of treasury stock and certain other expenditures. On March 26, 2002, the Company amended and restated the revolving credit agreement entered into in December 1998 and amended on February 25, 2000. The amendment provides credit of $45,000 and extends the expiration to March 26, 2005. As a result of this amendment, the Company's credit line increased to $45,000 from $43,500. Under the terms of the agreement, interest rates on borrowings are based on, at the Company's option, LIBOR or prime rates. The terms of the agreement include a commitment fee based on unutilized amounts and an annual agency fee. The new deferred financing fees associated with the March 26, 2002 amendment and the unamortized deferred financing fees related to the February 25, 2000 agreement are now being amortized over the term of the new agreement. Covenants provide among other things, for the maintenance of financial covenants and ratios relating to consolidated net worth, restrictions on cash dividends, the purchase of treasury stock and certain other expenditures. The agreement is unsecured and no compensating balances are required. The lenders under the amended February 25, 2000 revolving credit agreement executed a Release and Termination Agreement of the collateral liens granted in the previous amendment. On August 5, 2002, the Company announced a series of actions, beginning in the fourth quarter of 2002, to transfer all manufacturing operations from its Farmingdale, New York facility to its Rocky Point, North Carolina facility. It is estimated that the transfer will be completed by the third quarter of 2004. On October 2, 2002 an agreement was signed with a general contractor to expand the Rocky Point, North Carolina facility from approximately 225,000 square feet to approximately 430,000 square feet. The contract is estimated to cost $7,747, of which $2,500 is projected to be incurred within the next 12 months, and be completed during the fourth quarter of 2003. CONTRACTUAL OBLIGATIONS In order to aggregate all contractual obligations as of September 30, 2002, the Company has included the following table: Payments Due by Period --------------------------------------------- Less Than 1 - 2 2 - 3 3 - 5 Total 1 Year Years Years Years ----- ------ ----- ----- ----- Long-term debt $37,066 $ 8,377 $ 8,394 $20,295 $ -- Revolving credit agreement 25,000 -- -- 25,000 -- Operating leases 5,574 2,528 2,056 674 316 Construction commitment 7,747 2,500 5,247 -- -- ------- ------- ------- ------- ------- Total Contractual Obligations $75,387 $13,405 $15,697 $45,969 $ 316 ======= ======= ======= ======= ======= -14- The Company believes that cash flows from operations, cash on hand and amounts available from the credit facility will be sufficient to enable the Company to meet its anticipated cash requirements through 2003. However, there can be no assurance that the combination of cash flow from future operations, cash on hand and amounts available from the credit facility will be sufficient to meet the Company's cash requirements. Additionally, in the event of a decrease in demand for its products or reduced sales, such developments, if significant, would reduce the Company's cash flow from operations and could adversely affect the Company's ability to achieve certain financial covenants under the senior note and revolving credit agreements. If the Company is unable to satisfy such financial covenants, the Company could be required to adopt one or more alternatives, such as reducing or delaying certain operating expenditures and/or delaying capital expenditures. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which establishes an accounting standard requiring the recording of the fair value of liabilities associated with the retirement of long-lived assets in the period in which they are incurred. The Company must adopt SFAS No. 143 on January 1, 2003. The Company has not determined the effect, if any, that the adoption of SFAS No. 143 will have on the Company's consolidated financial statements. On July 30, 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146 requires that a liability be recognized for costs associated with an exit or disposal activity only when the liability is incurred. SFAS No. 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities. SFAS No. 146 is effective for exit and disposal activities initiated after December 31, 2002. The Company has not determined the effect, if any, that the adoption of SFAS No. 146 will have on the Company's consolidated 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, certain risks, uncertainties and other factors that could cause actual results to differ materially from any future results implied by such forward-looking statements. Factors that might cause such a difference include, but are not limited to: delays in introducing new products or failure of consumers to accept new products; actions by competitors which may result in mergers, technology improvement or new product introductions; the dependence on certain national chain drug stores, food stores and mass merchandiser relationships due to the concentration of sales generated by such chains; changes in fashion-oriented color cosmetic trends; the effect on sales of lower retailer inventory targets; the effect on sales of political and/or economic conditions; the Company's estimates of costs and benefits, cash flow from operations and capital expenditures; interest rate or foreign exchange rate changes affecting the Company and its market sensitive financial instruments including the Company's qualitative and quantitative estimates as to market risk sensitive instruments; changes in product mix to products which are less profitable; shipment delays; depletion of inventory and increased production costs resulting from disruptions of operations at any of our manufacturing or distribution facilities; foreign currency fluctuations affecting our results of operations and the value of our foreign assets and liabilities; the relative prices at which we sell our products and our foreign competitors sell their products in the same market; our operating and manufacturing costs outside of the United States; changes in the laws, regulations and policies, including changes in accounting standards, that effect, or will effect, us in the United States and/or abroad; and trends in the general economy. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. Without limitation, use of the following words is intended to identify forward-looking statements: "may," "will," "should," "expect," "anticipate," "look forward to," "estimate," "indications," "intend," "plan," "momentum," or "continue" or the negative thereof or other variations thereon. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis, judgment, belief or expectation only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. In addition to the disclosure contained herein, readers should carefully review any disclosure of risks and uncertainties contained in other documents the Company files or has filed from time to time with the Securities and Exchange Commission pursuant to the Exchange Act. -15- Item 4. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures Within the 90 days prior to the filing of this report, the Company evaluated, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-14 and 15d-14). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting management to material information required to be included in the Company's periodic Securities and Exchange Commission filings. (b) Changes in Internal Controls There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date the Company carried out its evaluation. PART II - OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 99.1 Certification of Chief Executive Officer Exhibit 99.2 Certification of Chief Financial Officer (b) Reports on Form 8-K None -16- 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 NOVEMBER 14, 2002 /S/ DAN K. WASSONG - ------------------------------ --------------------------- Dan K. Wassong Chairman, President and Chief Executive Officer DATE NOVEMBER 14, 2002 /S/ ENZO J. VIALARDI - -------------------------------- -------------------- Enzo J. Vialardi Executive Vice President and Chief Financial Officer -17- CERTIFICATIONS I, Dan K. Wassong, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Del Laboratories, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ DAN K. WASSONG ------------------ Dan K. Wassong Chief Executive Officer CERTIFICATIONS I, Enzo J. Vialardi, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Del Laboratories, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ ENZO J. VIALARDI ---------------------- Enzo J. Vialardi Chief Financial Officer EX-99.1 3 exh99-1.txt CERTIFICATION FOR CEO Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Del Laboratories, Inc. (the "Company") on Form 10Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I Dan K. Wassong, Chief Executive Officer of the Company, certify, pursuant to Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /S/ DAN K. WASSONG - ------------------ Dan K. Wassong Chief Executive Officer November 14, 2002 EX-99.2 4 exh99-2.txt CERTIFICATION OF CFO Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Del Laboratories, Inc. (the "Company") on Form 10Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I Enzo J. Vialardi, Chief Financial Officer of the Company, certify, pursuant to Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /S/ ENZO J. VIALARDI - -------------------- Enzo J. Vialardi Chief Financial Officer November 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----