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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, 2003
-----------------

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number 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 I.D. Number)
incorporation or organization)

178 EAB PLAZA, UNIONDALE, NY 11556
---------------------------------------- ----------
(address of Principal Executive Offices) (Zip Code)


Registrant's telephone number, including area code: (516) 844-2020
--------------

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. [ ]


Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Yes [X] No [ ]

The aggregate market value of the Common Equity of the Registrant as of the last
business day of the most recently completed second fiscal quarter was
$216,559,621. The aggregate market value of the Common Equity held by
non-affiliates of the Registrant as of the most recently completed second
quarter was $111,158,361. On such date, the closing price for the Common Equity
was $23.50 per share.

The number of shares of Common Stock outstanding as of March 10, 2004 was
9,721,309 shares.



DOCUMENTS INCORPORATED BY REFERENCE:

Part of the Form 10-K into
which the Document is

DOCUMENT INCORPORATED
- ------------------------------------------ ----------------------------------
Definitive Proxy Statement for 2004 Annual Part III, Items 10,11,12 and 13
Meeting of Stockholders






Part I

Item 1 - Business

Del Laboratories, Inc. (the "Company") manufactures, markets and distributes
cosmetics and proprietary over-the-counter pharmaceuticals. The Company's
principal cosmetic products are nail care products, nail color, color cosmetic,
beauty implements, bleaches and depilatories, personal care products, and other
related cosmetic items. The Company's cosmetics products are marketed under such
well-known brand names as Sally Hansen Hard as Nails and Sally Hansen
Professional Nail (nail care and nail color products), Healing Beauty (skin care
make-up), CornSilk (face make-up), LaCross (beauty implements), N.Y.C. New York
Color (color cosmetics), and Naturistics (color cosmetics). The Company's
proprietary pharmaceutical products include oral analgesics, first-aid products,
eye/ear medications, diabetes treatments and baby care products. The Company's
pharmaceutical products are marketed under such well-known brand names as Orajel
and Tanac (oral analgesics), Pronto (pediculicides), Stye (ophthalmic ointment),
Dermarest (psoriasis), Auro-Dri (ear remedy), DiabetAid (diabetes symptom
relief) and Gentle Naturals (baby care products). The Company's products are
sold principally in the United States and Canada to wholesalers and independent
chain drug, mass merchandisers and food stores.

The Company seeks to increase sales by aggressively marketing its products under
established brand names. The Company targets the mass market, which accounts for
a major portion of the color cosmetics market and the majority of the
over-the-counter pharmaceuticals market. The Company's customers in the mass
market channel include major drug store chains: Walgreens, Rite Aid, CVS and
Eckerd; major national mass merchandiser chains: Wal-Mart, K-Mart and Target,
and numerous regional chain drug stores and mass merchandisers. The Company also
distributes its pharmaceutical products to drug wholesalers, including McKesson
HBOC, Amerisource-Bergen Brunswig and Cardinal Health, Inc. and national food
chains, including Ahold, Safeway, Kroger and Albertson's. Other than Wal-Mart
Stores, Inc., which accounted for 25.6%, 25.4% and 23.1% of the Company's total
net sales for 2003, 2002 and 2001, respectively, and Walgreens which accounted
for 14.5%, 12.1% and 11.6% of the Company's total net sales in 2003, 2002 and
2001, respectively, no single customer accounted for more than 10% of the
Company's total net sales. Although the Company's loss of one or more customers
that may account for a significant portion of the Company's sales, or any
significant decrease in sales to any of these customers, could have a material
adverse effect on the Company's business, financial condition or results of
operations, the Company has no reason to believe that any such loss of customer
or decrease in sales will occur. In January 2002, K-Mart Corporation filed a
bankruptcy petition for reorganization under Chapter XI of the U. S. Bankruptcy
Code. The Company resumed shipments to K-Mart subsequent to their receipt of new
debtor-in-possession financing. K-Mart emerged from Chapter XI in May 2003.

The Company advertises its products on television, radio and in magazines.
Additionally, the Company has various co-operative programs with retailers to
further enhance consumer awareness of the Company's products and brands.
Advertising expenses, including co-operative advertising programs, were
approximately $37.7 million or 9.8% of net sales in 2003, $30.8 million or 8.8%
of net sales in 2002, and $30.5 million or 10.0% of net sales in 2001. In-store
displays and promotional activities are also utilized to attract consumer
attention and to inform them of the products available under the Company's
various brands.

The Company utilizes two in-house national sales organizations, one for its
cosmetics product lines and one for its pharmaceutical product lines. The
Company also employs independent manufacturers' representatives in selected
geographic areas where a full-time sales employee would not be economically
justified.



2


Certain financial information regarding the Company's industry
segments is set forth in the table below.


INDUSTRY SEGMENTS (In thousands of dollars)
-----------------

2003 2002 2001
--------- --------- ---------
Net sales to unaffiliated customers: (a)
Cosmetics $310,407 $283,856 $239,183
Pharmaceuticals 75,546 66,811 65,443

Operating income:
Cosmetics 24,580 23,543 12,002
Pharmaceuticals 11,923 9,751 11,405

Identifiable assets:
Cosmetics 191,032 139,465 126,058
Pharmaceuticals 30,888 29,131 25,549
Corporate (unallocated 41,292 42,386 38,594
assets)


(a) On January 1, 2002, the Company adopted EITF Issue No. 01-9. As a result,
certain sales incentives historically included in selling and administrative
expenses have been reclassified as reductions to net sales. 2001 net sales have
been reclassified to conform with the above presentation.

The Company was incorporated in Delaware in 1961. The Company's cosmetics
business is conducted primarily by the Company and its wholly-owned subsidiary,
Del Laboratories (Canada) Inc., which sells the Company's cosmetics products to
the Canadian market. The Company's pharmaceuticals business is conducted
primarily by the Company's wholly-owned subsidiary, Del Pharmaceuticals, Inc.,
and its wholly-owned subsidiary, Del Pharmaceutics (Canada) Inc., which sells
the Company's pharmaceutical products to the Canadian market.

The Company's products are sold in over forty foreign countries through a
limited number of subsidiaries and through contracts with local distributors and
licensees. Export net sales (which exclude sales in Canada and Puerto Rico) have
historically not exceeded 5% of the Company's total net sales in any year.
Export net sales represented approximately 2% of the Company's total net sales
in 2003, 2002 and 2001.

The Company sells standard packaged cosmetic and over-the-counter pharmaceutical
products. The Company's customers expect quick response on standard merchandise
orders. The Company does not have a material amount of order backlog. Consistent
with the packaged goods industry, the Company accepts authorized returns of
unmerchantable, defective or discontinued products.

The Company purchases raw materials used in its manufacturing processes from
various other manufacturers, paperboard suppliers and bottle distributors. The
Company has not experienced any difficulty obtaining raw materials and believes
that such materials are readily available.

The Company expended approximately $7,816,000, $6,391,000 and $5,414,000 in
2003, 2002 and 2001, respectively, on research activities relating to the
development of new products, clinical and regulatory affairs and quality
control, all of which are conducted internally by the Company.



3



Competition in both the cosmetics and over-the-counter pharmaceuticals markets
is intense. Many of the principal competitors in each of the Company's industry
segments are well-established firms with greater financial and marketing
resources. Frequent new product introductions and attendant advertising
characterize both industry segments in which the Company operates. Consumer
brand preferences in the Company's industry segments are generally influenced by
advertising, promotional support and price. The cosmetics industry is sensitive
to consumer purchasing power. The Company's competitors in the cosmetics market
include Revlon, Inc., Procter and Gamble (Cover Girl and Oil of Olay), L'Oreal
USA (Maybelline and L'Oreal) and, in the over-the-counter pharmaceuticals
market, Whitehall-Robbins Division of Wyeth Corp., Pfizer, Procter and Gamble
Co., Glaxo SmithKline, Bristol-Myers Squibb, Colgate Palmolive, Chattem, Inc.,
Bayer Corp. and Johnson and Johnson.

The Company has registered its principal trademarks in each segment of its
business both in the United States and in many countries throughout the world.
The Company considers its trademarks to be material assets, and the registration
and protection of its trademarks in the aggregate to be important to its
business, in that the success of certain of the products is due at least in part
to the goodwill associated with the Company's primary brand names. The Company
has also been issued several United States patents, expiring at various times
through 2020 and has licensed certain intellectual property from third parties.
While the Company believes its patents and licenses to be important, it does not
consider its business as a whole to be dependent on such licenses or patent
protection.

The Company currently has approximately 1,800 employees. Approximately 150 of
the Company's employees are represented by a labor union. The Company has not
experienced any work stoppages and considers its employee and labor relations to
be satisfactory.

The Company's 2003 Form 10-Q's and Form 10-K can be obtained from the Company's
website www.Dellabs.com.


ITEM 2 - PROPERTIES

The Company's corporate and administrative offices are located in 85,000 square
feet of leased space in Uniondale, New York. On July 17, 2003, the Company
entered into an agreement to extend the lease to December 31, 2014 for 44,000 of
the 85,000 square feet of space that it occupies. Simultaneously, the Company
entered into a lease agreement for the additional 41,000 of the 85,000 square
feet of space within the same building in Uniondale, New York which resulted in
the consolidation of the Company's corporate and administrative offices.

The Company's principal manufacturing facility and distribution center for both
the cosmetic and pharmaceutical segments are located in two Company-owned
buildings containing approximately 430,000 square feet, in Rocky Point, North
Carolina. Both buildings are of insulated metal construction. The buildings and
land are subject to a first mortgage.

The Company owns two buildings in Farmingdale, New York. One building is a brick
faced concrete block structure containing approximately 120,000 square feet of
floor space. This building used to be the principal manufacturing facility for
both the cosmetic and pharmaceutical segments, which was relocated to North
Carolina during 2003. The Company also owns a steel beamed and brick faced
concrete building, adjacent to the Farmingdale facility. This building used to
contain some of the Company's administrative offices, which were relocated to
the leased space in Uniondale, New York during the fourth quarter of 2003. On
February 13, 2002, the Company sold 13.5 acres of vacant land in Farmingdale,
New York. 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 $5,000,000 and cannot be
exercised before December 1, 2004 or after December 1, 2005.



4



The Company owns certain property that was used for manufacturing facilities for
its cosmetic segment in Newark, New Jersey. The Newark buildings are brick faced
concrete block and contain approximately 90,000 square feet of floor space. The
Company closed down production at the facility in the first quarter of 2002.

The Company 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 used by the cosmetic segment.

The Company owns property located in the City of Barrie, Province of Ontario,
Canada, consisting of a building with approximately 68,000 square feet of floor
space. The property is subject to a first mortgage. The facility is used for
manufacturing and shipping and contains the administrative offices of its
Canadian subsidiaries.

The Company 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, warehousing and distribution. The Company
owns a second building located in close proximity to the Little Falls facility
described above. 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 Company also has short-term leases for space in public warehouses used
primarily for the cosmetics segment.

The Company believes that its facilities are adequate to meet operating needs at
reasonable levels of production.

ITEM 3 - LEGAL PROCEEDINGS

The Company is involved in various claims and legal actions arising in the
ordinary course of business, including environmental matters. The effect of
final resolution of these matters on the Company's results of operations or
liquidity in a particular reporting period is not known. Management is of the
opinion that the ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial position.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this report.







5



PART II

ITEM 5 - MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock is traded on the American Stock Exchange under the
symbol "DLI". 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 as adjusted for the 5% stock dividends payable
on December 29 2003, and December 27, 2002, is as follows:


2003 2002
----- ----
HIGH LOW HIGH LOW
First Quarter $ 20.76 $ 16.29 $ 17.58 $ 14.06
Second Quarter $ 24.76 $ 17.98 $ 23.57 $ 17.60
Third Quarter $ 29.29 $ 21.67 $ 22.95 $ 16.24
Fourth Quarter $ 28.10 $ 22.48 $ 23.31 $ 15.47


There were 436 holders of record of the Company's common stock at December 31,
2003. This does not include beneficial holders whose shares are held of record
by nominees. The Company paid 5% stock dividends in December 2003 and 2002. The
Company has distributed uninterrupted dividends for the past twenty-eight years.

The terms of the Company's various borrowing agreements provide, among other
things, for certain restrictions on the payment of cash dividends, repurchase of
treasury stock and certain other expenditures.

Equity Compensation Plan Information

The following table sets forth certain information regarding the Company's
equity compensation plans as of December 31, 2003:



Number of
securities remaining
Numbers of available for future
securities to be Weighted-average issuance under equity
issued upon exercise exercise price compensation plans
of outstanding options, of outstanding options, (excluding securities
warrants and rights warrants and rights reflected in column (a))
Plan Category (a) (b) (c)
- ----------------------------- ------------------------ ----------------------- --------------------------

Equity compensation plans
approved by security holders 2,323,557 $16.51 475,732

Equity compensation plans not
approved by security holders None Not applicable Not applicable

RECENT SALES OF UNREGISTERED SECURITIES
- ---------------------------------------
The Company did not issue any unregistered securities in the years
ended December 31, 2003, 2002 or 2001.



6



ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA

The operating and balance sheet data below was derived from the consolidated
financial statements of the Company. The financial data should be read in
conjunction with the consolidated financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."



(Amounts in Thousands Except Per Share and Employee Data)

2003 2002 2001 2000 1999
-------- -------- -------- -------- ---------

Operating data:

Net sales (a) $385,953 $350,667 $304,626 $270,977 $ 241,456
Net earnings (loss) 20,374 19,503 9,797 4,717 (4,002)
Earnings (loss) per common share: (b)
Basic 2.11 2.05 1.05 0.51 (0.44)
Diluted 2.02 1.97 1.04 0.51 (0.44)

Dividends per share:
Cash - - - - .105
Stock 5% 5% 5% 5% 2%

Weighted-average common shares
outstanding: (b)
Basic 9,647 9,500 9,303 9,195 9,152
Diluted 10,098 9,903 9,452 9,292 9,152

Balance sheet data:

Total assets $263,212 $210,982 $190,201 $194,230 $ 180,561
Long-term debt 63,373 50,588 61,989 82,495 75,750
Working capital 102,513 81,236 72,279 85,666 74,472
Shareholders' equity 105,571 82,898 64,883 55,443 50,873

Other data:

Capital additions $ 18,200 $ 9,078 $ 5,552 $ 7,850 $ 7,288
Approximate # of employees 1,800 1,800 1,700 1,600 1,500



(a) On January 1, 2002, the Company adopted EITF Issue No. 01-9. As a result,
certain sales incentives historically included in selling and administrative
expenses have been reclassified as reductions to net sales. 2001, 2000 and
1999 net sales have been reclassified to conform with the above
presentation.

(b) Adjusted to reflect a 5% stock dividend effective December 1, 2003, a 5%
stock dividend effective November 29, 2002, a 5% stock dividend effective
December 1, 2001 and a 5% stock dividend effective November 30, 2000.


7


ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
-----------------------------------------------------------------------

OVERVIEW

Del Laboratories, Inc. is a fully integrated marketing and manufacturing company
operating in two major segments of the packaged consumer products business:
cosmetics and over-the-counter pharmaceuticals. Each of the Company's marketing
divisions is responsible for branded lines fitting into one of these general
categories and develops its own plans and goals consistent with its operating
environment and the Company's corporate objectives.

The Company owns a portfolio of highly recognized branded products which are
easy to use, competitively priced and trusted. As reported by ACNielsen, many of
the Company's brands have leading market positions in their product categories.
In our cosmetics segment, the Sally Hansen brand is the number one brand in the
mass market nail care category with market leadership positions in nail color,
nail treatment, and bleaches and depilatories. The Sally Hansen LaCross brand is
the leader in nail and beauty implements providing a line of high quality beauty
implements including nail clippers, files, scissors, tweezers and eyelash
curlers. N.Y.C. New York Color is one of the most successful new cosmetics
brands in the mass market. This highly recognizable brand of value cosmetics
offers a complete collection of high quality products at opening price points.
In our over-the-counter pharmaceutical segment, the Orajel brand is the leading
oral analgesic in the mass market channel, as reported by Information Resources,
Inc. The Orajel family of products has been developed with unique formulations
specifically targeted at distinct oral pain and baby care indications. Our
Dermarest brand is the most complete line of non-prescription products for
relief of psoriasis and eczema and is the market share leader in the
psoriasis/eczema treatment category.

The Company believes it has outstanding customer relationships with a
diversified group of prominent retailers across multiple distribution channels
including mass merchandisers, drug chains, drug wholesalers and food retailers
and wholesalers. Del has a strong track record of developing innovative new
products and successful brand extensions. An in-house research and development
department focuses on product development, clinical and regulatory affairs and
quality control.

As discussed in more detail throughout our MD&A:

o We recognized a charge of $2,033,000 ($1,255,000 after-tax, or $0.13 per
basic share) during fiscal 2003 for severance costs and related benefits
associated with the transfer of our principal manufacturing operations from
New York to North Carolina

o In the prior fiscal year ended December 31, 2002, we recognized a gain of
$2,428,000 ($1,532,000 after-tax, or $0.16 per basic share) associated with
the sale of vacant land in Farmingdale, N.Y.

o We had recoveries of $744,485 in fiscal 2003 related to the favorable
settlement of accounts receivable fully reserved in fiscal years 2001 and
2002 in connection with the K-Mart Chapter XI bankruptcy filing.

o In fiscal 2003, the Company refinanced an existing five year mortgage on
its property in North Carolina with a seven year $12,480,000 mortgage in
connection with the expansion of the North Carolina manufacturing and
distribution facility.

o On March 12, 2004, the Company obtained a commitment from the lender under
the senior notes to extend the maturity of the notes, extend the principal
payment schedule, reduce the interest rate and reduce or eliminate certain
restrictive covenants. The Company is also in negotiations with the lenders
under the revolving credit agreement to extend the maturity, reduce the
interest rate and reduce or eliminate certain restrictive covenants. The
Company anticipates that formal agreements as discussed above, covering the
senior notes and the revolving credit agreement will be executed before
April 15, 2004.





8



RESULTS OF OPERATIONS

Consolidated net sales in 2003 were $386.0 million, an increase of 10.1%
compared to net sales of $350.7 million in 2002.

The Cosmetic segment of the business generated net sales in 2003 of $310.4
million, an increase of 9.4% compared to net sales of $283.9 million in 2002.
The increase over prior year is due primarily to volume growth in the Sally
Hansen family of brands. As reported by ACNielsen, the Sally Hansen, brand
remains the number one brand in the mass market nail care category increasing
its market share to 25.4% for the year. In nail color, Sally Hansen the number
one brand, increased its market share to 27.4%. The Sally Hansen, LaCross
implement brand, the number one brand, increased its market share to 23.1%. In
bleaches and depilatories, the Sally Hansen brand, the number one brand,
increased its market share to 29.2%. Sally Hansen also maintained its number one
market share in nail treatment with a 55% share of market. Sally Hansen Healing
Beauty, a line of skincare makeup, was successfully added in 2003 as a new
product line under the Sally Hansen brand. The N.Y.C. New York Color brand of
cosmetics continued its excellent performance as one of the most successful new
mass market cosmetics brands with a double-digit increase in sales. The brand is
now sold in over 13,000 retail outlets in the U.S. and as a result of its broad
distribution in mass retail outlets, is the number one value cosmetic brand
in Canada and Puerto Rico. Net sales of the Naturistics cosmetics brand
decreased in 2003 due to the elimination of the line by certain retail
customers. The product mix within the Naturistics cosmetics brand has been
repositioned in order to facilitate the introduction of a sub-brand of lip gloss
items called Miss Kiss.

The over-the-counter Pharmaceutical segment of the business generated net sales
in 2003 of $75.5 million, an increase of 13.0% compared to net sales of $66.8
million in 2002. The increase is primarily due to volume growth in the Orajel
brand and increased sales of the Dermarest brand of psoriasis and eczema
treatments. Orajel, the core brand of the Pharmaceutical segment continues its
leadership position in the oral analgesics category with a 27.9% share of market
for the year, as reported by Information Resources, Inc. In addition, the
dermarest brand expanded its leadership position in the over-the-counter
psoriasis/eczema treatment category with over a 30% share of market for the
year as reported by Information Resources, Inc.

Cost of goods sold for fiscal year 2003 was $185.8 million or 48.1% of net
sales, compared to $171.3 million or 48.9% of net sales in fiscal 2002. The
improvement in margin is primarily related to increased efficiencies in plant
operations, a reduction in the provision for slow moving inventory, and an
improvement in the recovery back to inventory of returned merchandise.

Selling and administrative expenses were $161.6 million in 2003, or 41.9% of net
sales compared to $146.0, or 41.6% of net sales in 2002. The increase in selling
and administrative expenses as a percentage of net sales in 2003 is principally
due to an increase of approximately $10.0 million in advertising expenses and
display costs primarily in support of the core Sally Hansen franchise and the
new Healing Beauty product line. Also included in selling and administrative
expenses for fiscal 2003 are recoveries of $744.0 thousand related to the
favorable settlement of fully reserved accounts receivable in connection with
the fiscal 2002 K-Mart Chapter XI bankruptcy filing.

On May 30, 2003, the Company announced a formal plan for the transfer of its
principal manufacturing operations, for both the Cosmetic and Pharmaceutical
segments, to Rocky Point, North Carolina from Farmingdale, New York. Pursuant to
the Company's formal severance policy for non-union employees and severance
benefits due under the union contract resulting from the plant closure, charges
of $2.0 million ($1.3 million after-tax, or $0.13 per basic share) for severance
costs and related benefits for approximately 370 union and non-union employees
associated with this transfer were recorded in fiscal 2003. Additional severance
benefits earned by employees being terminated will be recognized as a charge in
the financial statements as such severance benefits are earned. The Company
estimates that an additional $71.0 thousand will be incurred during the first
six months of fiscal 2004 for severance costs and related benefits. Of the $2.1
million of the total severance costs and related benefits, approximately $1.8
million will be paid during the first six months of 2004. The move to North
Carolina will consolidate the Company's principal manufacturing operation with
its principal distribution facility and result in expected improvement in
operating efficiencies and reduced manufacturing expenses. It is expected that
the relocation will be completed by April 2004.




9



Net interest expense of $3.9 million in fiscal year 2003 decreased approximately
$0.5 million from fiscal year 2002. Average borrowing levels for fiscal 2003
increased by approximately $5.7 million, resulting in an increase in interest
costs of approximately $0.3 million. This increase was more than offset by lower
interest costs of approximately $0.8 million due to a reduction of approximately
132 basis points on average borrowings in fiscal 2003.

Other income (net) in fiscal year 2003 was $338 thousand, an improvement of $743
thousand compared to other expense (net) in fiscal year 2002, principally due to
gains on foreign exchange transactions.

The Company's effective annual tax rate for 2003 was 38.1% compared to 36.9% for
2002. The higher effective tax rate in 2003 compared to 2002 is primarily
attributable to the recording of a lower foreign tax credit benefit, an increase
in the amount of permanent non-deductible expenses and the increased effect of
such non-deductible expenses on taxable income for 2003.

Net earnings for the year 2003 were $20.4 million, or $2.11 per basic share. The
results for 2003 include after-tax charges of $1.3 million, or $0.13 per basic
share related to severance costs associated with the relocation of the Company's
principal manufacturing operations from Farmingdale, N.Y. to Rocky Point, North
Carolina. Net earnings for the year 2002 were $19.5 million, or $2.05 per basic
share. The earnings for 2002 include an after-tax gain of $1.5 million, or $0.16
per basic share, related to the sale in February 2002 of vacant land in
Farmingdale, N.Y.

The Company believes that general inflation has had no significant impact on its
earnings from operations during the last three years.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

Net sales were $350.7 million and $304.6 million for 2002 and 2001,
respectively, an increase of $46.1 million or 15.1%. Net sales for 2001 include
a reclassification to conform with current year presentation in accordance with
EITF Issue No. 01-9. On January 1, 2002, the Company adopted EITF Issue No. 01-9
(previously Issue Nos. 00-14 and 00-25). As a result, certain sales incentives
historically included in selling and administrative expenses have been
reclassified as reductions to net sales. Cosmetic net sales were $283.9 million
and $239.2 million for 2002 and 2001, respectively, an increase of $44.7 million
or 18.7%. The increase is due primarily to volume growth in the Sally Hansen
family of brands. According to ACNielsen, the Sally Hansen brand remains the
number one brand in the mass market nail care category and finished the year
with a 14% increase in retail sales, while the brand continues as the leader in
the mass market nail color category with a 31% share of market. The N.Y.C. New
York Color brand of cosmetics achieved a 33% increase in retail sales according
to ACNielsen. Pharmaceutical net sales were $66.8 million and $65.4 million for
2002 and 2001, respectively, an increase of $1.4 million or 2.1%. The 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. Increased
Pharmaceutical sales in 2002 compared to 2001 were partially reduced by higher
promotional costs in 2002 compared to 2001 and the reclassification of these
promotional costs as a reduction from revenue in accordance with EITF Issue No.
01-9. While the Orajel brand sales only had a slight increase over prior year
due to a reduction of inventory levels by wholesalers and retailers, the brand
increased its leadership position in the oral analgesics category with a 27.7%
share of market for the year as reported by Information Resources, Inc.

Cost of sales were $171.3 million or 48.9% of net sales in 2002, compared to
$146.6 million or 48.1% in 2001, an increase of $24.7 million or 16.8%. The
increase is primarily due to higher manufacturing costs associated with the
higher sales volume in Cosmetics and a change in sales mix in Pharmaceuticals
primarily attributable to the new Gentle Naturals and DiabetAid brands. Selling
and administrative expenses were $146.0 million or 41.6% of net sales in 2002
compared to $134.6 million or 44.2% of net sales in 2001. The expenses include
charges of $0.4 million in 2002 and $3.1 million in 2001 for a provision for
doubtful accounts related to the K-Mart Chapter XI bankruptcy filing. Before
this charge, selling and administrative expenses in prior year were $131.5 or
43.2% of net sales. The increase in selling and administrative expenses in 2002
is primarily due to higher shipping costs related to increased sales, increased
selling costs, and increased compensation and pension expenses. The improvement
in selling and administrative expenses, as a percentage of net sales, is
attributable to net sales increasing at a higher rate than increases in
expenses.





10




In September 2001, the Company received notice from the Environmental Protection
Agency ("EPA") that it was, along with 81 others, a Potentially Responsible
Party regarding a Superfund Site ("the Site") located in Glen Cove, New York.
According to the notice received from the EPA, the Company's involvement related
to empty drums coming to the Site in 1977 and 1978. In the third quarter of
2001, the Company recorded an estimate of $550 thousand 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 thousand in selling and administrative expenses.
During the third quarter of 2002, a trust was established with the intention of
entering into a Consent Decree with the United States and the State of New York
to settle all claims by the United States and the State of New York for past and
future response costs and future actions at the Site. In September 2002, the
Company paid $1,332 thousand into a trust account which was held in escrow,
together with payments by the other members of the JDG, for the eventual
settlement with the EPA of the Company's potential liability under CERCLA.
During the third quarter of 2002, the Company also paid into the same trust
account an additional $18 thousand 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. The charge of $785 thousand ($495
thousand after-tax) reduced basic earnings per share by $0.05 for the year 2002.
During the second quarter of 2003, the United States, the State of New York, and
the Federal District Court approved the aforementioned 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 $3.3 million which
was reduced by $160 thousand for closing costs. In addition, $235 thousand of
the sales price was paid by the purchaser on February 12, 2003. The land was
included in property, plant and equipment at December 31, 2001, with a book
value of $500 thousand. After transaction related costs of $407 thousand, a gain
of $2.4 million was recorded in the first quarter of 2002. In connection with
this sale, an option was granted to the buyer for the remaining 8.5 acres of
improved land and buildings owned by the Company. The option is for a purchase
price of no less than $5.0 million and cannot be exercised before December 1,
2004 or after December 1, 2005. The gain of $2.4 million ($1.5 million
after-tax) increased basic earnings per share by $0.17 for the year 2002.

Interest expense, net of interest income, was $4.4 million in 2002 compared to
$6.8 million in 2001. The decrease in net interest expense in 2002 compared to
2001 is due primarily to a reduction in average outstanding borrowings of
approximately $14.0 million and to a reduction of approximately 200 basis points
in average borrowing rates.

The Company's effective annual tax rate for 2002 was 36.9% compared to 39.4% for
2001. The decrease in the effective tax rate is primarily due to the decrease in
the amount of permanent non-deductible expenses in comparison to the prior year
and the reduced effect of such non-deductible expenses on taxable income for
2002. The Company's tax expense was also reduced in 2002 by a change in the
valuation allowance of approximately $818 thousand resulting from the
utilization of foreign and other tax credits, as well as the recognition of
foreign tax credit carry forwards of $305 thousand, as it was determined that it
is more likely than not that such carry forwards will be utilized in the future.

As a result of the above net earnings increased to $19.5 million, or 5.6% of net
sales in 2002, compared to $9.8 million, or 3.2% of net sales in 2001. The
Company believes that general inflation has had no significant impact on its
earnings from operations during the last three years.


11




LIQUIDITY AND CAPITAL RESOURCES

CASH FLOW OVERVIEW

Cash and cash equivalents increased $1.6 million during fiscal 2003, to $2.1
million at December 31, 2003, primarily from $8.7 million provided by operating
activities, $12.5 million provided by borrowings under a mortgage on the North
Carolina facility, and $12.0 million provided by the revolving credit agreement.
Of the funds provided by operating and financing activities, approximately $10.5
million was used to finance the North Carolina expansion project, $8.0 million
was used to reduce a portion of the outstanding principal balance on the senior
notes, $7.7 million was used for manufacturing machinery and equipment, $3.9
million was used to refinance the previously outstanding mortgage on the North
Carolina property and $1.4 million was used to acquire shares of the
Company's common stock from employees upon their tendering of such shares to
pay for stock options being exercised.

OPERATING ACTIVITIES

Net cash provided by operating activities in fiscal year 2003 was $8.7 million
due primarily to net earnings before depreciation and amortization of $28.6
million and an increase in accounts payable of $10.8 million. These increases in
net cash provided by operating activities were partially offset by increases in
accounts receivable of $23.6 million and increases in inventories of $10.9
million. The increases in accounts payable and inventories are due to the timing
of purchases of raw materials and components to support projected sales levels.
The increase in accounts receivable is due to the timing of shipments during the
fourth quarter of 2003.

Net cash provided by operating activities in fiscal year 2002 was $13.8 million
due primarily to net earnings before depreciation and amortization of $27.1
million and an increase in accounts payable of $10.8 million. These increases in
net cash provided by operating activities were partially offset by the higher
inventories of $17.2 million. The increases in accounts payable and inventories
are due to the timing of purchases of raw materials and components to support
projected sales levels.

Net cash provided by operating activities in fiscal year 2001 was $26.1 million
due primarily to net earnings before depreciation and amortization of $18.3
million and an increase in accrued liabilities of $5.5 million primarily
attributable to increased advertising and promotional costs.

INVESTING ACTIVITIES

Net cash used in investing activities in fiscal year 2003, 2002 and 2001 was
$18.0 million, $6.1 million and $5.5 million, respectively. In fiscal year 2003,
approximately $10.5 million was used for capital spending related to the
expansion of the North Carolina facility and $7.7 million for capital spending
related to manufacturing machinery and equipment. The Company anticipates
capital spending related to manufacturing machinery and equipment to approximate
$9.5 million in fiscal year 2004. In fiscal year 2002, approximately $9.1
million was used for capital spending related to manufacturing machinery and
equipment and approximately $2.9 million was provided by the sale of land. 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 $5.0 million and cannot be exercised before
December 1, 2004 or after December 1, 2005. In fiscal year 2001, approximately
$5.5 million was used for capital spending related to manufacturing machinery
and equipment.





12


FINANCING ACTIVITIES

In May 2003, the Company made a principal payment of $8.0 million under the
senior notes reducing the outstanding principal balance to $24.0 million at
December 31, 2003. Of the outstanding principal $8.0 million is due on May 31,
2004 and $16.0 million is due on May 31, 2005. The senior notes are unsecured,
carry an interest rate 9.5%, and include covenants which provide among other
things for the maintenance of financial ratios relating to consolidated net
worth, restrictions on cash dividends, the purchase of treasury stock and
certain other expenditures. On March 12, 2004, the Company obtained a commitment
from the lender under the senior notes to extend the maturity of the notes to
April 2011, revise the principal payment schedule to have principal payments of
$6.0 million begin in April 2008 and continue annually in April of each year
through April 2011, reduce the interest rate and reduce or eliminate certain
restrictive covenants. The Company anticipates that the formal agreement will be
executed before April 15, 2004.

The Company has a revolving credit agreement with three banks which provides
credit of $45.0 million of which $34.0 million was outstanding at December 31,
2003. Under the terms of the agreement which expires on March 26, 2005, interest
rates on outstanding borrowings are based on, at the Company's option, LIBOR or
prime rates. The weighted-average interest rate for 2003 was 3.1% compared to
4.1% in 2002. The agreement contains covenants which provide, among other
things, for the maintenance of financial 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 Company is negotiating with the lenders under the
revolving credit agreement to extend the expiration date of the $45.0 million
revolving credit agreement, reduce the interest rate and reduce or eliminate
certain restrictive covenants. The Company anticipates that the formal agreement
will be executed before April 15, 2004.

At December 31, 2002, the Company had an outstanding balance of $4.0 million
under a five-year mortgage on the land and buildings in North Carolina. In March
2003, the Company refinanced the then outstanding balance on the existing five
year mortgage of $3.9 million with a seven year $12.5 million combination
mortgage and construction loan facility. The mortgage and construction loan
facility was used to provide construction funding as funds were expended during
the building expansion project in North Carolina. The outstanding mortgage of
$12.5 million at December 31, 2003 includes an interest rate based on LIBOR
plus 1.75%, which totaled 2.87%, monthly principal payments beginning April 15,
2004 based on a 20 year amortization schedule, a balloon payment due in March
2010, and terms that provide for the maintenance of certain financial ratios.

The Company does not use any off-balance sheet financing arrangements.

DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS

In order to aggregate all contractual obligations as of December 31, 2003, the
Company has included the following table:



PAYMENTS DUE BY PERIOD
($000)

LESS 1 - 2 2 - 3 3 - 5 AFTER 5
TOTAL 1 YEAR YEARS YEARS YEARS YEARS
-------- -------- -------- -------- -------- --------

Long-term debt $ 37,694 $ 8,647 $ 18,011 $ 859 $ 1,793 $ 8,384
Revolving credit agreement 34,000 -- 34,000 -- -- --
Capital leases 439 113 120 128 78 --
Operating leases 32,648 3,370 3,136 2,943 5,478 17,721
-------- -------- -------- -------- -------- --------
Total contractual obligations (a) $104,781 $ 12,130 $ 55,267 $ 3,930 $ 7,349 $ 26,105
======== ======== ======== ======== ======== ========


(a) The Company expects to contribute approximately $6.0 million in fiscal year
2004 to fund its pension plans. These expected pension contributions are not
included in the above table. For further information regarding pension
contributions, see Note 7(a) of the Notes to Consolidated Financial Statements.




13


FUTURE CAPITAL REQUIREMENTS

The Company's near-term cash requirements are primarily related to the funding
of operations, capital expenditures and interest obligations on outstanding
debt. The Company believes that cash flows from operating activities, cash on
hand and amounts available from the credit facility will be sufficient to enable
the Company to meet its anticipated cash requirements for 2004. However, there
can be no assurance that the combination of cash flow from future operations,
cash on hand and amounts available from the credit facility will be sufficient
to meet the Company's cash requirements. Additionally, in the event of a
decrease in demand for its products or reduced sales, such developments, if
significant, would reduce the Company's cash flow from operations and could
adversely affect the Company's ability to achieve certain financial covenants
under the senior note and revolving credit agreements. If the Company is unable
to satisfy such financial covenants, the Company could be required to adopt one
or more alternatives, such as reducing or delaying certain operating
expenditures and/or delaying capital expenditures.

DISCUSSION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company makes estimates and assumptions in the preparation of its financial
statements in conformity with accounting principles generally accepted in the
United States of America. Actual results could differ significantly from those
estimates under different assumptions and conditions. The Company believes that
the following discussion addresses the Company's most critical accounting
policies, which are those that are most important to the portrayal of the
Company's financial condition and results of operations and which require
management's most difficult and subjective judgments, often as a result of the
need to make estimates about the effect of matters that are inherently
uncertain. Note 1 of the notes to the consolidated financial statements includes
a summary of the significant accounting policies used in the preparation of the
accompanying consolidated financial statements. The following is a brief
discussion of the more critical accounting policies employed by the Company.

REVENUE RECOGNITION

The Company sells its products to chain drug stores, mass volume retailers,
supermarkets, wholesalers and overseas distributors. Sales of such products are
denominated in U.S. dollars and sales in Canada are denominated in Canadian
dollars. The Company's accounts receivable reflect the granting of credit to
these customers. The Company generally grants credit based upon analysis of the
customer's financial position and previously established buying and selling
patterns. The Company does not bill customers for shipping and handling costs
and, accordingly, classifies such costs as selling and administrative expense.
Revenues are recognized and discounts are recorded when merchandise is shipped.
Net sales are comprised of gross revenues less returns, various promotional
allowances and trade discounts and allowances. The Company allows customers to
return their unsold products when they meet certain criteria as outlined in the
Company's sales policies. The Company regularly reviews and revises, as deemed
necessary, its estimates of reserves for future sales returns based primarily
upon actual return rates by product and planned product discontinuances. The
Company records estimated reserves for future sales returns as a reduction of
sales, cost of sales and accounts receivable. Returned products which are
recorded as inventories are valued based on estimated realizable value. The
physical condition and marketability of the returned products are the major
factors considered by the Company in estimating realizable value. Actual
returns, as well as estimated realizable values of returned products, may differ
significantly, either favorably or unfavorably, from estimates if factors such
as economic conditions, customer inventory levels or competitive conditions
differ from expectations.




14



Effective January 1, 2002 the Company adopted Emerging Issues Task Force
("EITF") Issue No. 01-9, "Accounting for Consideration Given by a Vendor to a
Customer". EITF Issue No. 01-9 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. In addition, EITF Issue No. 01-9
requires that unless specific criteria are met, consideration from a vendor to a
retailer be recorded as a reduction from revenue, as opposed to a selling
expense. In accordance with EITF Issue No. 01-09, costs of $39.6, $35.3 and
$28.1 million were recorded as a reduction of net sales for the years ended
December 31, 2003, 2002 and 2001, respectively. In 2001, these costs were
included in selling and administrative expenses and have been reclassified to
conform with the current year presentation.


PROMOTIONAL ALLOWANCES AND CO-OPERATIVE ADVERTISING

The Company has various performance-based arrangements with retailers to
reimburse them for all or a portion of their promotional activities related to
the Company's products. These sales incentives offered voluntarily by the
Company to customers, without charge, that can be used in or that are
exercisable by a customer as a result of a single exchange transaction, are
recorded as a reduction of net sales at the later of the sale or the offer, and
primarily allow customers to take deductions against amounts owed to the Company
for product purchases. The Company also has co-operative advertising
arrangements with retail customers to reimburse them for all or a portion of
their advertising of the Company's products. The estimated liabilities for these
co-operative advertising arrangements are recorded as advertising expense as
incurred, or in the period the related revenue is recognized, depending on the
terms of the arrangement, and included in selling and administrative expenses,
since the Company receives an identifiable benefit from retail customers for an
amount equal to or less than the fair value of such advertising cost. These
arrangements primarily allow retail customers to take deductions against amounts
owed to the Company for product purchases. The Company regularly reviews and
revises the estimated accruals for these promotional allowance and co-operative
advertising programs. Actual costs incurred by the Company may differ
significantly, either favorably or unfavorably, from estimates if factors such
as the level and success of the retailers' programs or other conditions differ
from our expectations.



15


ACCOUNTS RECEIVABLE

In estimating the collectibility of our trade receivables, the Company evaluates
specific accounts when it becomes aware of information indicating that a
customer may not be able to meet its financial obligations due to a
deterioration of its financial condition, lower credit ratings or bankruptcy.
The Company also reviews the related aging of past due receivables in assessing
the realization of these receivables. The allowance for doubtful accounts is
determined based on the best information available to us on specific accounts
and is also developed by using percentages applied to certain receivables.


INVENTORIES

Inventories are stated at the lower of cost or market value. Cost is principally
determined by the first-in, first-out method. The Company records a reduction to
the cost of inventories based upon its forecasted plans to sell, historical
scrap and disposal rates and the physical condition of the inventories. These
reductions are estimates, which could vary significantly, either favorably or
unfavorably, from actual requirements if future economic conditions, the timing
of new product introductions, customer inventory levels, fashion-oriented color
cosmetic trends or competitive conditions differ from our expectations.


PROPERTY, PLANT AND EQUIPMENT AND OTHER LONG-LIVED ASSETS

Property, plant and equipment is recorded at cost and is depreciated on a
straight-line basis over the estimated useful lives of such assets. Leasehold
improvements are amortized on a straight-line basis over the lesser of the
estimated useful lives or the lease term. Changes in circumstances, such as
technological advances, changes to the Company's business model or changes in
the Company's capital strategy could result in the actual useful lives differing
from the Company's estimates. In those cases where the Company determines that
the useful life of property, plant and equipment should be shortened, the
Company would depreciate the net book value in excess of the salvage value, over
its revised remaining useful life, thereby increasing depreciation expense.
Factors such as changes in the planned use of equipment, fixtures, software or
planned closing of facilities could result in shortened useful lives.

Intangible assets with determinable lives and other long-lived assets, other
than goodwill, are reviewed by the Company for impairment whenever events or
changes in circumstances indicate that the carrying amount of any such asset may
not be recoverable. Recoverability of assets to be held and used is measured by
comparison of the carrying amount of an asset to the future net cash flows
expected to be generated by the asset. If the sum of the undiscounted cash flows
(excluding interest) is less than the carrying value, the Company recognizes an
impairment loss, measured as the amount by which the carrying value exceeds the
fair value of the asset. The estimate of cash flow is based upon, among other
things, certain assumptions about expected future operating performance. The
Company's estimates of undiscounted cash flow may differ from actual cash flow
due to, among other things, technological changes, economic conditions, changes
to its business model or changes in its operating performance.

Goodwill must be tested annually for impairment at the reporting unit level. The
Company's reporting units are its Cosmetic and Pharmaceutical segments. If an
indication of impairment exists, the Company is required to determine if such
reporting unit's implied fair value is less than its carrying value in order to
determine the amount, if any, of the impairment loss required to be recorded.
The annual testing performed as of January 1, 2003, indicated that there was no
impairment to goodwill.

The remaining useful lives of intangible assets subject to amortization are
evaluated each reporting period to determine whether events and circumstances
warrant a revision to the remaining period of amortization. If the estimate of
an intangible asset's remaining useful life is changed, the remaining carrying
amount of the intangible asset should be amortized prospectively over that
revised remaining useful life.




16



PENSION BENEFITS

The Company sponsors pension and other retirement plans in various forms
covering all eligible employees. Several statistical and other factors which
attempt to anticipate future events are used in calculating the expense and
liability related to the plans. These factors include assumptions about the
discount rate, expected return on plan assets and rate of future compensation
increases as determined by the Company, within certain guidelines and in
conjunction with its actuarial consultants. In addition, the actuarial valuation
incorporates subjective factors such as withdrawal and mortality rates to
estimate the expense and liability related to these plans. The actuarial
assumptions used by the Company may differ significantly, either favorably or
unfavorably, from actual results due to changing market and economic conditions,
higher or lower withdrawal rates or longer or shorter life spans of
participants.

NEW ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities" ("FIN No. 46"). FIN No. 46 was subject to
significant interpretation by the FASB, and was revised and reissued in December
2003 ("FIN No. 46R"). FIN No. 46R states that if an entity has a controlling
financial interest in a variable interest entity, the assets, the liabilities
and results of activities of the variable interest entity should be included in
the consolidated financial statements of the entity. The provisions of FIN No.
46 and FIN No. 46R are applicable for all entities that are considered special
purpose entities ("SPE") by the end of the first reporting period ending after
December 15, 2003. The provisions of FIN No. 46R are applicable to all other
types of entities for reporting periods ending after March 15, 2004. The
adoption of FIN No. 46 and FIN No. 46R did not have any impact on the Company's
2003 consolidated financial statements, as the Company does not have any SPE's.
The Company is in the process of assessing the applicability of all other types
of entities but does not expect that the adoption of the other provisions that
are applicable in 2004 will have an impact on the Company's consolidated
financial statements.

On April 22, 2003, the Financial Accounting Standards Board ("FASB") determined
that stock-based compensation should be recognized as a cost in the financial
statements and that such cost be measured according to the fair value of the
stock options. The FASB has not as yet determined the methodology for
calculating fair value and plans to issue an exposure draft and final statement
in 2004. The Company will continue to monitor communications on this subject
from the FASB in order to determine the impact on the Company's consolidated
financial statements.

ITEM 7A - MARKET RISK SENSITIVE INSTRUMENTS

The market risk inherent in the Company's market risk sensitive instruments is
the potential loss arising from material adverse changes in interest rates and
foreign currency exchange rates.

INTEREST RATE RISK

The Company's borrowings at December 31, 2003 under the revolving credit
agreement expose earnings to changes in short-term interest rates since interest
rates on the underlying obligations are either variable or fixed for such a
short period of time as to effectively become variable. The Company believes
that a hypothetical 10% increase or decrease in interest rates would increase or
decrease annual interest expense by approximately $108,000 for the year ended
December 31, 2003.

FOREIGN EXCHANGE RISK

The Company is subject to risk from changes in the foreign exchange rate for its
foreign subsidiaries which use a foreign currency as their functional currency
and is translated into U.S. dollars. Such changes result in cumulative
translation adjustments which are included in shareholders' equity and in the
determination of other comprehensive income (loss). Intercompany transactions
between the Company and its foreign subsidiaries are recorded by the foreign
subsidiaries in their functional currency. The potential translation and
transaction loss resulting from a hypothetical 10% adverse change in the quoted
foreign currency exchange rate amounts to approximately $1.2 million at
December 31, 2003.





17



FORWARD-LOOKING STATEMENTS

Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-K 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.




18



ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See consolidated financial statements and schedule included separately herein.


ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A - CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company evaluated, under
the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and Chief Financial Officer, the
effectiveness of the design and operation of the Company's disclosure controls
and procedures (as defined in Exchange Act Rules 13a - 15(e) and 15d - 15(e)).
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures were
effective as of the end of the period covered by this report.

The Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, has evaluated the Company's internal control over
financial reporting to determine whether any changes occurred during the period
covered by this report that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting. Based on
that evaluation, there has been no such change during the period covered by this
report.




19


PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

(a) The information required with respect to Directors is set forth under the
captions "Election of Directors - Information Concerning Directors" and the
information required with respect to compliance with section 16(a) of the
Exchange Act is set forth under the caption "Security Ownership of Certain
Beneficial Owners - Section 16 (a) Beneficial Ownership Reporting Compliance" in
the Company's definitive Proxy Statement for the 2004 Annual Meeting of
Shareholders to be filed pursuant to Regulation 14A and is incorporated herein
by reference.

(b) The Company has adopted a Code of Ethics that applies to the Company's Chief
Executive Officer, Chief Financial Officer, Controller, Treasurer, and Financial
Reporting Officer, or persons performing similar functions. A copy of the
Company's Code of Ethics is filed as Exhibit 14.1 hereto.

(c) The executive officers of the Company, the positions held by them, their
ages and the years in which they began to serve in the position or office held
as of December 31, 2003 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 73 1969

Charles J. Hinkaty Vice President, President of
Del Pharmaceuticals, Inc., Director 54 1985

Enzo J. Vialardi Executive Vice President,
Chief Financial Officer 67 1998

William H. McMenemy Executive Vice President of Marketing
Cosmetics Division, North America 57 1980

Harvey P. Alstodt Executive Vice President of Sales
Cosmetics Division, North America 64 1988

Timothy A. Hogan, Jr. Executive Vice President, Global Operations 63 2002

Gene L. Wexler Vice President, General Counsel
and Secretary 48 1999

Thomas Redder Vice President, Chief Information Officer 56 1996


There is no arrangement or understanding between any executive officer and any
other person pursuant to which he was selected as an officer. No family
relationship exists among any of the executive officers and directors of the
Company.

During the past five years, the principal occupation and employment of each of
the Company's executive officers has been his service in the respective position
shown in the above table, except as follows:

Timothy A. Hogan, Jr. has been Executive Vice President, Global Operations of
the Company since February 2002. From 1998 to February 2002, he was President
and Chief Executive Officer of Dermablend, a Division of L'Oreal USA. From 1996
to 1998 he was Chief Executive Officer of S & H Global Marketing.

Gene L. Wexler has been Vice President, General Counsel and Secretary of the
Company since September 1999. From January 1994 through March 1999, he was Vice
President, General Counsel and Assistant Secretary at Genovese Drug Stores, Inc.



20


ITEM 11 - EXECUTIVE COMPENSATION

The information required is set forth under the caption "Executive Compensation"
in the Company's definitive Proxy Statement for the 2004 Annual Meeting of
Shareholders to be filed pursuant to Regulation 14A and is incorporated herein
by reference.

ITEM 12 - 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 the Company's definitive Proxy Statement for the 2004
Annual Meeting of Shareholders to be filed pursuant to Regulation 14A and is
incorporated herein by reference.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required is set forth under the caption "Executive Compensation"
in the Company's definitive Proxy Statement for the 2004 Annual Meeting of
Shareholders to be filed pursuant to Regulation 14A and is incorporated herein
by reference.

ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required is set forth under the caption "Independent Auditors"
in the Company's definitive Proxy Statement for the 2004 Annual Meeting of
Shareholders to be filed pursuant to Regulation 14A and is incorporated herein
by reference.

PART IV

ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

a) Documents filed as part of this report:

(1) and (2) See Consolidated Financial Statements and Schedule included
herein.

(3) Exhibit Index.

b) The Company filed a Form 8-K with the SEC, dated October 29, 2003 to report
under Item 12 of that Form that a press release was issued on October 28,
2003 announcing earnings for the three and nine months ended September 30,
2003. A copy of the press release was filed as an exhibit to the Form 8-K.

The Company filed a Form 8-K with the SEC, dated November 21, 2003 to report
under Item 9 of that Form that a press release was issued on November 20, 2003
announcing that a 5% stock dividend was declared. A copy of the press release
was filed as an exhibit to the Form 8-K.

The Company filed a Form 8-K with the SEC, dated February 26, 2004 to report
under Item 12 of that Form that a press release was issued on February 25, 2004
announcing earnings for the three and twelve months ended December 31, 2003. A
copy of the press release was filed as an exhibit to the Form 8-K.



21




EXHIBIT INDEX
-------------


ITEM TITLE EXHIBIT NO. DESCRIPTION
- ---------- ----------- -----------

Articles of 3.1 (a) Restated Certificate of Incorporation as filed with the
Incorporation Delaware Secretary of State on March 29, 1996.
and By-Laws
3.2 (b) Certificate of Amendment filed with the Delaware Secretary of State on June 4, 1996.

3.3 (c) Certificate of Amendment of the Restated Certificate of Incorporation filed with the
Delaware Secretary of State on June 3, 1998.

3.4 (a) By-Laws as amended through December 14, 1995.

Material 10.1 (d) Employee Pension Plan, effective January 1, 1997 (amended and
Contracts restated).

10.2 (g) Amendment No. 1 to Employee Pension Plan.

10.3 Amendment No. 2 to Employee Pension Plan.

10.4 (d) Employee Stock Ownership Plan, effective January 1, 1997 (amended and
restated).

10.5 (g) Amendment No. 1 to Employee Stock Ownership Plan.

10.6 Amendment No. 2 to Employee Stock Ownership Plan.

10.7 Amendment No. 3 to Employee Stock Ownership Plan.

10.8 (d) 401(k) Plan effective January 1, 1997 (amended and restated).

10.9 (g) Amendment No. 1 to 401(k) Plan.

10.10 (g) Amendment No. 2 to 401(k) Plan.

10.11 Amendment No. 3 to 401(k) Plan.

10.12 (g) Amended and Restated Supplemental Executive Retirement Plan.

10.13 (g) 1994 Stock Plan, as amended and restated on May 23, 2002.

10.14 (e) Annual Incentive Plan, as amended as of May 27, 1999.

10.15 (c) Amended and Restated Employment Agreement dated as of July 1, 1999 between the Registrant
and Dan K. Wassong.

10.16 (g) Amendment dated April 22, 2002 to Dan K. Wassong Employment Agreement.





22


ITEM TITLE EXHIBIT NO. DESCRIPTION
- ---------- ----------- -----------

10.17 (g) Employment Agreement dated April 1, 2002 with Charles J. Hinkaty.

10.18 (d) Employment Agreement with Harvey P. Alstodt, dated April 1, 2001.

10.19 (g) Amendment dated June 1, 2002 to Harvey P. Alstodt Employment
Agreement.

10.20 (d) Employment Agreement with William H. McMenemy, dated April 1, 2001.

10.21 (d) Amendment to Employment Agreement with William H. McMenemy,
dated September 7, 2001.

10.22 Employment Agreement With Enzo J. Vialardi, dated April 1, 2003.

10.23 (d) Change in Control Agreement with Harvey P. Alstodt, dated April 16, 2001.

10.24 (d) Change in Control Agreement with William H. McMenemy, dated
April 16, 2001.

10.25 (g) Change in Control Agreement with Charles J. Hinkaty, dated April 16, 2002.

10.26 Change in Control Agreement with Enzo J. Vialardi, dated April 1, 2003.

10.27 (f) Life Insurance Agreement, dated as of February 18, 1993.

10.28 (d) Amended and Restated Loan Agreement dated as of March 26, 2002
among the Registrant, as borrower, Del Pharmaceuticals, Inc. ("DPI"),
Parfums Schiaparelli, Inc. ("Parfums"), Royce & Rader, Inc. ("Royce") and
565 Broad Hollow Realty Corp. ("565"), as guarantors, and JP Morgan
Chase, as agent for the lenders.

10.29 (d) Amended and Restated Loan Agreement dated as of March 26, 2002 among the Registrant,
DPI, Parfums, Royce, 565 and Jackson National Life Insurance Company.

Code of Ethics 14.1 Code of Ethics



23



ITEM TITLE EXHIBIT NO. DESCRIPTION
- ---------- ----------- -----------

Subsidiaries of 21.1 List of Subsidiaries.
Registrant

Consents of Experts 23.1 Consent of KPMG LLP dated March 12, 2004.
and Counsel

Additional Exhibits 31.1 Certification of Chief Executive Officer

31.2 Certification of Chief Financial Officer

32.1 Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350

32.2 Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350




(a) These exhibits were filed as exhibits to the Registrants Form 10-K for the
year ended December 31, 1995 as follows: Restated Certificate, Exhibit 1;
and By-Laws, Exhibit 2.

(b) This exhibit was filed as Exhibit 1 to the Registrant's Form 10-Q for the
quarter ended June 30, 1996.

(c) These exhibits were filed as exhibits to the Registrant's Form 10-K for
the year ended December 31, 1999, as follows: 3.3 above was filed as
Exhibit 3.3 and 10.15 above was filed as Exhibit 10.14 to the 1999 10-K.

(d) These exhibits were filed as exhibits to the Registrant's Form 10-K for
the year ended December 31, 2001, as follows: Exhibits 10.4, 10.8, 10.18,
10.20, 10.21, 10.23, 10.24, 10.28 and 10.29 above were filed,
respectively, as Exhibits 10.2, 10.3, 10.16, 10.17, 10.18, 10.20, 10.21,
10.24 and 10.25 to the 2001 10-K.

(e) This exhibit was filed as Exhibit B to the Registrant's Definitive Proxy
Statement dated May 27, 1999, relating to the Registrant's 1999 Annual
Meeting of Stockholders.

(f) This exhibit was filed as Exhibit 9 to the Registrant's Form 10-K for the
year ended December 31, 1993.

(g) These exhibits were filed as exhibits to the Registrant's Form 10-K for
the year ended December 31, 2002, as follows: Exhibits 10.2, 10.5, 10.9,
10.10, 10.12, 10.13, 10.16, 10.17, 10.19 and 10.25 above were filed,
respectively, as Exhibits 10.2, 10.4, 10.6, 10.7, 10.8, 10.9, 10.12,
10.13, 10.15 and 10.21 to the 2002 10-K.







24



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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)

By /s/ DAN K. WASSONG March 12, 2004
-----------------------------------------------------
Dan K. Wassong, Chairman, President
and 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 in
the capacities and on the dates indicated.

By /s/ DAN K. WASSONG March 12, 2004
-----------------------------------------------------
Dan K. Wassong, Chairman, President and
Chief Executive Officer (Principal Executive Officer)

By /s/ CHARLES J. HINKATY March 12, 2004
-----------------------------------------------------
Charles J. Hinkaty,
Director, Vice President

By /s/ MARTIN E. REVSON March 12, 2004
-----------------------------------------------------
Martin E. Revson, Director

By /s/ ROBERT A. KAVESH March 12, 2004
-----------------------------------------------------
Robert A. Kavesh, Director

By /s/ STEVEN KOTLER March 12, 2004
-----------------------------------------------------
Steven Kotler, Director

By /s/ MARCELLA MAXWELL March 12, 2004
-----------------------------------------------------
Marcella Maxwell, Director

By /s/ ENZO J. VIALARDI March 12, 2004
-----------------------------------------------------
Enzo J. Vialardi, Executive Vice President,
Chief Financial Officer

By /s/ PETER LOMBARDO March 12, 2004
-----------------------------------------------------
Peter Lombardo, Vice President,
Controller


25





DEL LABORATORIES, INC. AND SUBSIDIARIES

Index to Consolidated Financial Statements
and Schedule




Independent Auditors' Report F-2


Financial Statements:

Consolidated Balance Sheets as of December 31, 2003 and 2002. F-3

Consolidated Statements of Earnings for the years ended
December 31, 2003, 2002 and 2001. F-4

Consolidated Statements of Shareholders' Equity for the years
ended December 31, 2003, 2002 and 2001. F-5

Consolidated Statements of Cash Flows for the years ended
December 31, 2003, 2002 and 2001. F-6


Notes to Consolidated Financial Statements. F-7

Financial Statement Schedule:


II Valuation and Qualifying Accounts for the years ended
December 31, 2003, 2002 and 2001. F-35



All other schedules are omitted as the required information is
inapplicable or the information is presented in the consolidated
financial statements or related notes.






F-1







Independent Auditors' Report


The Board of Directors and Shareholders
Del Laboratories, Inc.:


We have audited the accompanying consolidated balance sheets of
Del Laboratories, Inc. and subsidiaries (the Company) as of
December 31, 2003 and 2002, and the related consolidated
statements of earnings, shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31,
2003. 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 auditing standards
generally accepted in the United States of America. 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, 2003 and 2002, and the results of their operations and their
cash flows for each of the years in the three-year period ended
December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America. 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.


/s/ KPMG LLP
------------
Melville, New York
February 24, 2004,
except as to note 6
which is as of March 12, 2004





F-2






DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2003 and December 31, 2002


ASSETS 2003 2002
------------- -------------

Current assets:

Cash and cash equivalents $ 2,112,993 $ 500,953
Accounts receivable, less allowance for doubtful accounts
of $4,390,971 in 2003 and $4,962,351 in 2002 75,130,274 51,080,170
Inventories 92,518,239 79,912,957
Income taxes receivable -- 1,319,326
Deferred income taxes 8,041,527 7,933,362
Prepaid expenses and other current assets 2,671,041 2,980,976
------------- -------------
Total current assets 180,474,074 143,727,744
------------- -------------

Property, plant and equipment, at cost 81,250,307 62,477,682
Less accumulated depreciation and amortization (31,976,378) (25,043,601)
------------- -------------
Net property, plant and equipment 49,273,929 37,434,081

Intangibles arising from acquisitions, net 7,760,980 8,379,610
Goodwill 6,281,777 6,281,777
Other assets 13,261,870 10,139,139
Deferred income taxes 6,158,908 5,019,337
------------- -------------

Total assets $ 263,211,538 $ 210,981,688
============= =============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt $ 8,759,759 $ 8,395,929
Accounts payable 43,871,750 32,396,863
Accrued liabilities 25,022,499 21,699,293
Income taxes payable 307,470 --
------------- -------------

Total current liabilities 77,961,478 62,492,085

Long-term pension liability, less current portion 9,767,453 10,656,343
Deferred income taxes 5,205,313 4,347,509
Deferred liability 1,333,590 --
Long-term debt, less current portion 63,372,979 50,587,548
------------- -------------

Total liabilities 157,640,813 128,083,485
------------- -------------

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 10,000,000 10,000,000
Additional paid-in capital 8,822,705 5,393,282
Accumulated other comprehensive loss (2,593,805) (4,278,351)
Retained earnings 95,309,193 86,232,280
------------- -------------

111,538,093 97,347,211

Less: Treasury stock at cost, 289,308 shares
in 2003 and 872,261 shares in 2002 (5,325,118) (13,666,758)
Receivables for stock options exercised (642,250) (782,250)
------------- -------------
Total shareholders' equity 105,570,725 82,898,203
------------- -------------

Total liabilities and shareholders' equity $ 263,211,538 $ 210,981,688
============= =============


The accompanying notes are an integral part of the
consolidated financial statements.




F-3








DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31, 2003, 2002 and 2001



2003 2002 2001
------------- ------------- -------------


Net sales $ 385,953,035 $ 350,667,475 $ 304,626,160

Cost of goods sold 185,772,330 171,345,644 146,648,074
Selling and administrative expenses 161,643,938 146,028,011 134,571,146
Severance expenses (note 10) 2,033,381 -- --
------------- ------------- -------------

Operating income 36,503,386 33,293,820 23,406,940

Other income (expense):
Gain on sale of land -- 2,428,425 --
Interest expense, net (3,943,445) (4,402,315) (6,779,171)
Other income (expense), net 338,381 (404,949) (466,200)
------------- ------------- -------------


Earnings before income taxes 32,898,322 30,914,981 16,161,569
Income taxes 12,524,258 11,412,034 6,364,587
------------- ------------- -------------
Net earnings $ 20,374,064 $ 19,502,947 $ 9,796,982
============= ============= =============

Earnings per common share:
Basic $ 2.11 $ 2.05 $ 1.05
============= ============= =============
Diluted $ 2.02 $ 1.97 $ 1.04
============= ============= =============

Weighted average common shares outstanding:
Basic 9,646,837 9,499,706 9,303,494
============= ============= =============
Diluted 10,098,487 9,903,347 9,452,084
============= ============= =============








The accompanying notes are an integral part of the
consolidated financial statements.







F-4





DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 2003, 2002 and 2001

Additional Accumulated Other
Common Paid-In Comprehensive Retained Treasury
Stock Capital Income (Loss) Earnings Stock
------------- ------------- ------------- ------------- -------------

Balances at December 31, 2000 $ 10,000,000 $ -- $ (1,258,571) $ 74,086,264 $ (26,296,754)
Transactions arising from stock
option exercises:
Income tax benefit -- 602,046 -- -- --
Issuance of treasury stock
(268,582 shares) -- (602,046) -- (766,929) 3,043,271
Acquisition of treasury stock
(181,834 shares) -- -- -- -- (2,294,412)
Issuance of treasury stock for ESOP
stock contributions
(46,468 shares) -- 35,186 -- (57,228) 522,042
Repayment of receivables -- -- -- -- --
Stock dividend -- 799,959 -- (6,067,650) 5,267,691
Net earnings -- -- -- 9,796,982 --
Foreign currency translation
adjustment -- -- (516,639) -- --
Minimum pension liability
adjustment, net of tax -- -- (475,115) -- --
Total comprehensive income -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Balances at December 31, 2001 10,000,000 835,145 (2,250,325) 76,991,439 (19,758,162)
Transactions arising from stock
option exercises:
Income tax benefit -- 2,575,483 -- -- --
Issuance of treasury stock
(638,616 shares) -- (1,514,005) -- -- 8,129,489
Acquisition of treasury stock
(439,297 shares) -- -- -- -- (9,103,532)
Issuance of treasury stock for ESOP
stock contributions
(18,793 shares) -- 34,764 -- -- 265,236
Repayment of receivables -- -- -- -- --
Stock dividend -- 3,461,895 -- (10,262,106) 6,800,211
Net earnings -- -- -- 19,502,947 --
Foreign currency translation
adjustment -- -- 103,303 -- --
Minimum pension liability
adjustment, net of tax -- -- (2,131,329) -- --
Total comprehensive income -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Balances at December 31, 2002 10,000,000 5,393,282 (4,278,351) 86,232,280 (13,666,758)
Transactions arising from stock
option exercises:
Income tax benefit -- 1,472,052 -- -- --
Issuance of treasury stock
(434,223 shares) -- (889,813) -- -- 6,728,855
Acquisition of treasury
stock (321,261 shares) -- -- -- -- (7,137,203)
Issuance of treasury stock for ESOP --
stock contributions
(12,991 shares) -- 72,252 -- -- 227,769
Repayment of receivables -- -- -- -- --
Stock dividend -- 2,774,932 -- (11,297,151) 8,522,219
Net earnings -- -- -- 20,374,064 --
Foreign currency translation adjustment -- -- 2,093,430 -- --
Minimum pension liability
adjustment, net of tax -- -- (408,884) -- --
Total comprehensive income -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Balances at December 31, 2003 $ 10,000,000 $ 8,822,705 $ (2,593,805) $ 95,309,193 $ (5,325,118)
============= ============= ============= ============= =============




Receivables For
Stock Options Shareholders'
Exercised Equity
--------------- -----------------

Balances at December 31, 2000 $ (1,088,250) $ 55,442,689
Transactions arising from stock
option exercises:
Income tax benefit -- 602,046
Issuance of treasury stock
(268,582 shares) -- 1,674,296
Acquisition of treasury stock
(181,834 shares) -- (2,294,412)
Issuance of treasury stock for ESOP
stock contributions
(46,468 shares) -- 500,000
Repayment of receivables 153,000 153,000
Stock dividend -- --
Net earnings -- --
Foreign currency translation
adjustment -- --
Minimum pension liability
adjustment, net of tax -- --
Total comprehensive income -- 8,805,228
------------- -------------
Balances at December 31, 2001 (935,250) 64,882,847
Transactions arising from stock
option exercises:
Income tax benefit -- 2,575,483
Issuance of treasury stock
(638,616 shares) -- 6,615,484
Acquisition of treasury stock
(439,297 shares) -- (9,103,532)
Issuance of treasury stock for ESOP
stock contributions
(18,793 shares) -- 300,000
Repayment of receivables 153,000 153,000
Stock dividend -- --
Net earnings -- --
Foreign currency translation
adjustment -- --
Minimum pension liability
adjustment, net of tax -- --
Total comprehensive income -- 17,474,921
------------- -------------
Balances at December 31, 2002 (782,250) 82,898,203
Transactions arising from stock
option exercises:
Income tax benefit -- 1,472,052
Issuance of treasury stock
(434,223 shares) -- 5,839,042
Acquisition of treasury
stock (321,261 shares) -- (7,137,203)
Issuance of treasury stock for ESOP
stock contributions
(12,991 shares) -- 300,021
Repayment of receivables 140,000 140,000
Stock dividend -- --
Net earnings -- --
Foreign currency translation adjustment -- --
Minimum pension liability
adjustment, net of tax -- --
Total comprehensive income -- 22,058,610
------------- -------------
Balances at December 31, 2003 $ (642,250) $ 105,570,725
============= =============


The accompanying notes are an integral part of the
consolidated financial statements.



F-5





DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2003, 2002 and 2001


2003 2002 2001
------------ ------------ ------------
Cash flows from operating activities:

Net earnings $ 20,374,064 $ 19,502,947 $ 9,796,982
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 8,256,734 7,577,216 8,504,377
Deferred income taxes (98,195) 336,734 (3,581,074)
Provision for doubtful accounts 302,215 1,041,604 4,057,092
Gain on sale of land -- (2,428,425) --
Other non-cash operating items 140,000 128,134 (572,546)
Changes in operating assets and liabilities:
Accounts receivable (23,626,932) (882,270) 4,767,771
Inventories (10,880,181) (17,157,054) (4,439,908)
Prepaid expenses and other current assets 85,939 (678,458) 1,022,026
Other assets and pension liability (4,628,986) (235,446) (3,674,972)
Accounts payable 10,841,624 10,791,467 535,175
Accrued liabilities 3,257,170 (1,324,936) 5,463,722
Deferred liability 1,465,027 -- --
Income taxes receivable / payable 3,251,351 (2,873,083) 4,272,049
------------ ------------ ------------

Net cash provided by operating activities 8,739,830 13,798,430 26,150,694
------------ ------------ ------------

Cash flows provided by (used in) investing activities:
Net proceeds from sales of land and facility 235,000 2,940,291 12,882
Intangible assets acquired (60,000) -- --
Property, plant and equipment additions (18,199,720) (9,078,213) (5,551,577)
------------ ------------ ------------

Net cash used in investing activities (18,024,720) (6,137,922) (5,538,695)
------------ ------------ ------------

Cash flows provided by (used in) financing activities:
Principal borrowings (payments) under revolving credit
agreement, net 12,000,000 (3,000,000) (16,000,000)
Principal payments under mortgages (124,057) (357,631) (218,022)
Principal payment under senior notes (8,000,000) (4,000,000) (4,000,000)
Repayment of mortgage (3,863,190) -- --
Borrowings under mortgage and construction loan 12,480,000 -- --
Payment of capital lease obligations (104,070) -- --
Repayments on receivables for stock options exercised -- 13,000 13,000
Proceeds from the exercise of stock options 117,181 129,421 --
Acquisition of treasury stock (1,415,342) (2,617,471) (620,114)
------------ ------------ ------------

Net cash provided by (used in) financing activities 11,090,522 (9,832,681) (20,825,136)
------------ ------------ ------------

Effect of exchange rate changes on cash (193,592) (14,425) (9,439)
------------ ------------ ------------

Net increase (decrease) in cash and cash equivalents 1,612,040 (2,186,598) (222,576)

Cash and cash equivalents at beginning of year 500,953 2,687,551 2,910,127
------------ ------------ ------------

Cash and cash equivalents at end of year $ 2,112,993 $ 500,953 $ 2,687,551
============ ============ ============



The accompanying notes are an integral part of the
consolidated financial statements.



F-6










DEL LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------

DESCRIPTION OF BUSINESS
-----------------------

Del Laboratories, Inc. and subsidiaries (the Company) is a
manufacturer and distributor of cosmetic and proprietary
pharmaceutical products. The principal products in the cosmetics
segment are nail care, nail color, color cosmetics, beauty
implements, bleaches and depilatories, personal care products and
other related cosmetic items. The principal products in the
pharmaceutical segment are of a proprietary nature and range from
oral analgesics to acne treatment products and first aid products.

PRINCIPLES OF CONSOLIDATION
---------------------------

The consolidated financial statements of 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 statement of earnings accounts are translated at
average exchange rates during the period. The resulting
translation adjustments are recorded as a component of
shareholders' equity. Gains or losses resulting from foreign
currency transactions are included in other income (expense). All
intercompany accounts and transactions have been eliminated in
consolidation.

REVENUE RECOGNITION
-------------------

The Company sells its products to chain drug stores, mass volume
retailers, supermarkets and wholesalers and overseas distributors.
Sales of such products are principally denominated in U.S. dollars
and sales in Canada are denominated in Canadian dollars. The
Company's accounts receivable reflect the granting of credit to
these customers. The Company generally grants credit based upon
analysis of the customer's financial position and previously
established buying and selling patterns. The Company does not bill
customers for shipping and handling costs and, accordingly,
classifies such costs as selling and administrative expense.
Revenues are recognized and discounts are recorded when
merchandise is shipped. Net sales are comprised of gross revenues
less returns, various promotional allowances and trade discounts
and allowances. The Company allows customers to return their
unsold products when they meet certain criteria as outlined in the
Company's sales policies. The Company regularly reviews and
revises, as deemed necessary, its 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.




F-7






DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


Effective January 1, 2002, the Company adopted Emerging Issues
Task Force ("EITF") Issue No. 01-9, "Accounting for Consideration
Given by a Vendor to a Customer". ETIF Issue No. 01-9, 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. In addition,
EITF Issue No. 01-9 requires that unless specific criteria are
met, consideration from a vendor to a retailer be recorded as a
reduction from revenue, as opposed to a selling expense. In
accordance with EITF Issue No. 01-9, costs of $39,612,565,
$35,320,217 and $28,052,879 were recorded as a reduction of net
sales for the years ended December 31, 2003, 2002 and 2001,
respectively. In 2001, these costs were included in selling and
administrative expenses and have been reclassified to conform with
this presentation.

CASH AND CASH EQUIVALENTS
-------------------------

The Company considers all highly liquid debt instruments with
original maturities of three months or less to be cash
equivalents. At December 31, 2003 and 2002, cash equivalents were
$5,344 and $76,306, respectively.

INVENTORIES
-----------

Inventories are valued at the lower of cost (principally
first-in/first-out) or market value. The Company records
reductions to the cost of inventories based upon its forecasted
plans to sell, historical scrap and disposal rates and physical
condition of the inventories. The components of inventories were
as follows:
2003 2002
---- ----

Raw materials $40,586,347 $35,941,512
Work in process 4,856,207 3,878,087
Finished goods 47,075,685 40,093,358
---------- ----------
$92,518,239 $79,912,957
=========== ===========



PROPERTY, PLANT AND EQUIPMENT
-----------------------------

The Company provides for depreciation on the straight-line method
over the estimated useful lives of the assets. Leasehold
improvements are amortized on a straight-line basis over the
lesser of the estimated useful lives or the lease term. The range
of estimated lives applicable to the assets are as follows:

Building, building improvements
and leasehold improvements 10 to 50 years
Machinery and equipment 3 to 15 years
Furniture and fixtures 3 to 10 years




F-8





DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


ADVERTISING COSTS AND PROMOTIONAL ALLOWANCES
--------------------------------------------

The Company advertises on television, radio and in magazines.
Additionally, the Company has various co-operative advertising
programs with retailers. Advertising costs are expensed in the
year incurred. Advertising expenses, including co-operative
advertising programs, were $37,659,329, $30,756,104 and
$30,455,913 in 2003, 2002 and 2001, respectively. The Company also
has various performance-based arrangements with retailers to
reimburse them for all or a portion of their promotional
activities related to the Company's products. These sales
incentives offered voluntarily by the Company to customers,
without charge, that can be used in or that are exercisable by a
customer as a result of a single exchange transaction, are
recorded as a reduction of net sales at the later of the sale or
the offer, and primarily allow customers to take deductions
against amounts owed to the Company for product purchases. The
Company also has co-operative advertising arrangements with retail
customers to reimburse them for all or a portion of their
advertising of the Company's products. The estimated liabilities
for these co-operative advertising arrangements are recorded as
advertising expense as incurred, or in the period the related
revenue is recognized, depending on the terms of the arrangement,
and included in selling and administrative expenses, since the
Company receives an identifiable benefit from retail customers for
an amount equal to or less than the fair value of such advertising
cost. These arrangements primarily allow retail customers to take
deductions against amounts owed to the Company for product
purchases. The Company regularly reviews and revises the estimated
accruals for these promotional allowance and co-operative
advertising programs. Actual costs incurred by the Company may
differ significantly, either favorably or unfavorably, from
estimates if factors such as the level and success of the
retailers' programs or other conditions differ from the Company's
expectations.

RESEARCH AND DEVELOPMENT
------------------------

The Company expended $7,815,687, $6,391,161 and $5,413,716 in
2003, 2002 and 2001, 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.

INCOME TAXES
------------

Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.




F-9






DEL LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


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.

STOCK DIVIDENDS
---------------

On November 20, 2003, the Company's Board of Directors approved a
5% stock dividend. As a result, 462,998 shares of treasury stock
were issued on December 29, 2003 to shareholders of record on
December 1, 2003. Accordingly, all share and per share amounts
have been adjusted to reflect the 5% stock dividend distributed
December 29, 2003.

On November 7, 2002, the Company's Board of Directors approved a
5% stock dividend. As a result, 434,835 shares of treasury stock
were issued on December 27, 2002 to shareholders of record on
November 29, 2002. 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.

STOCK OPTION PLANS
------------------

The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB No. 25), and
related interpretations, in accounting for its fixed plan stock
options. Under APB No. 25, compensation expense would be recorded
if, on the date of grant, the market price of the underlying stock
exceeded its exercise price. Accordingly, no compensation cost has
been recognized. Had compensation cost for the stock option plans
been determined based on the fair value at the grant dates for
awards under the plans, consistent with the alternative method set
forth under SFAS No. 123, "Accounting for Stock-Based
Compensation", and SFAS No. 148 "Accounting for Stock-Based
Compensation-Transition and Disclosure", the Company's net
earnings and net earnings per share would have been reduced. The
following table illustrates the effect on net earnings and net
earnings per share if the Company had applied the fair value
recognition provisions of SFAS No. 123, to stock based employee
compensation:





YEAR ENDED DECEMBER 31: 2003 2002 2001
----------------------- ------------- ------------- -------------

Net earnings, as reported $ 20,374,064 $ 19,502,947 $ 9,796,982
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects $ (2,281,346) $ (1,870,075) $ (1,073,289)
------------- ------------- -------------
Pro forma net earnings $ 18,092,718 $ 17,632,872 $ 8,723,693
============= ============= =============
Earnings per share:

Basic - as reported $ 2.11 $ 2.05 $ 1.05
============= ============= =============
Basic - pro forma $ 1.87 $ 1.86 $ 0.94
============= ============= =============

Diluted - as reported $ 2.02 $ 1.97 $ 1.04
============= ============= =============
Diluted - pro forma $ 1.79 $ 1.78 $ 0.93
============= ============= =============






F-10





DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED



The fair value of each option grant was estimated at the date of
grant using the Black-Scholes option pricing model with the
following weighted-average assumptions for 2003, 2002 and 2001,
respectively: dividend yields 0%, 0%, and 0%; expected lives of
5.0, 5.9, and 6.2 years; risk-free interest rates of 2.51%, 4.39%,
and 4.92%; and expected volatility of 33.2%, 39.1%, and 48.8%. The
weighted-average fair value of options granted during 2003, 2002
and 2001 were $7.65, $9.90, and $6.59, respectively.

On April 22, 2003, the Financial Accounting Standards Board
("FASB") determined that stock-based compensation should be
recognized as a cost in the financial statements and that such
cost be measured according to the fair value of the stock options.
The FASB has not as yet determined the methodology for calculating
fair value and plans to issue an exposure draft and final
statement in 2004. The Company will continue to monitor
communications on this subject from the FASB in order to determine
the impact on the Company's consolidated financial statements.


IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
-----------------------------------------------------------
DISPOSED OF
-----------

The Company accounts for long-lived assets, other than goodwill,
in accordance with the provisions of SFAS No. 144, "Accounting for
the Impairment of Long-Lived Assets" which addresses financial
accounting and reporting for the impairment or disposal of
long-lived assets. The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate
that the carrying amount of any such asset may not be recoverable.
The Company bases its evaluation on such impairment indicators
such as the nature of the assets, future economic benefit of the
assets and any historical or future profitability measurements, as
well as other external market conditions or factors that may be
present. Recoverability of assets to be held and used is measured
by comparison of the carrying amount of an asset to the future net
cash flows expected to be generated by the asset. If the sum of
the undiscounted cash flows (excluding interest) is less than the
carrying value, the Company recognizes an impairment loss,
measured as the amount by which the carrying value exceeds the
fair value of the asset. The estimate of cash flow is based upon,
among other things, certain assumptions about expected future
operating performance. The Company's estimates of undiscounted
cash flow may differ from actual cash flow due to, among other
things, technological changes, economic conditions, changes to its
business model or changes in its operating performance.






GOODWILL AND OTHER INTANGIBLE ASSETS
------------------------------------

The Company accounts for goodwill and other intangible assets in
accordance with the provisions of SFAS No. 142, "Goodwill and
Other Intangible Assets," which requires that the amortization of
goodwill be replaced with periodic tests of the goodwill's
impairment at the reporting unit level. The Company's reporting
units are its Cosmetic and Pharmaceutical segments. If an
indication of impairment exists, the Company is required to
determine if such reporting unit's implied fair value is less than
its carrying value in order to determine the amount, if any, of
the impairment loss required to be recorded. The annual testing
performed as of January 1, 2003, indicated there was no impairment
to goodwill.

Additionally under SFAS No. 142, intangible assets with
determinable lives, other than goodwill, must be amortized over
their useful lives. The remaining useful lives of intangible
assets are evaluated each reporting period to determine whether
events or circumstances warrant a revision to the remaining period
of amortization. If the estimate of an intangible asset's
remaining useful life is changed, the carrying amount of the
intangible asset should be amortized prospectively over that
revised remaining useful life.


F-11







DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


USE OF ESTIMATES
----------------

The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America 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.

RECLASSIFICATIONS
-----------------

Certain reclassifications were made to prior year amounts in order
to conform to the current year's presentation.

NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------

In January 2003, the FASB issued Interpretation No. 46
"Consolidation of Variable Interest Entities" ("FIN No. 46"). FIN
No. 46 was subject to significant interpretation by the FASB, and
was revised and reissued in December 2003 ("FIN No. 46R"). FIN No.
46R states that if an entity has a controlling financial interest
in a variable interest entity, the assets, the liabilities and
results of activities of the variable interest entity should be
included in the consolidated financial statements of the entity.
The provisions of FIN No. 46 and FIN No. 46R are applicable for
all entities that are considered special purpose entities ("SPE")
by the end of the first reporting period ending after December 15,
2003. The provisions of FIN No. 46R are applicable to all other
types of entities for reporting periods ending after March 15,
2004. The adoption of FIN No. 46 and FIN No. 46R did not have any
impact on the Company's 2003 consolidated financial statements, as
the Company does not have any SPE's. The Company is in the process
of assessing the applicability of all other types of entities but
does not expect that the adoption of the other provisions that are
applicable in 2004 will have an impact on the Company's
consolidated financial statements.




F-12



DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED






(2) SUPPLEMENTAL CASH FLOW INFORMATION

The following is supplemental information relating to the
consolidated statements of cash flows:

2003 2002 2001
---------- ----------- ----------

Cash paid for :
Interest $3,969,595 $ 4,466,594 $7,741,517
========== =========== ==========
Income taxes $9,551,098 $14,068,067 $5,703,546
========== =========== ==========

Non-cash transactions:
Income tax benefit arising from
stock options exercised $1,472,052 $ 2,575,483 $ 602,046
========== =========== ==========
Shares tendered by optionees to
exercise stock options $5,721,865 $ 6,486,015 $1,674,296
========== =========== ==========
Issuance of treasury stock
for ESOP stock contributions(a) $ 300,021 $ 300,000 $ 500,000
========== =========== ==========
Equipment acquired under
capitalized leases $ 543,087 $ -- $ --
========== =========== ==========

(a) The treasury stock issued includes $200,000 for settlement
of contribution for the year 2000, and $300,000 for the year
2001.



(3) PROPERTY, PLANT AND EQUIPMENT
-----------------------------

The components of property, plant and equipment, at cost, were as
follows:



2003 2002
----------- -----------

Land $ 1,919,346 $ 1,809,171
Building, building improvements and leasehold improvements 21,260,525 19,952,181
Machinery and equipment 39,115,315 31,732,963
Furniture and fixtures 6,804,758 6,414,762
Construction in progress 12,150,363 2,568,605
----------- -----------
$81,250,307 $62,477,682
=========== ===========


Depreciation expense for 2003, 2002 and 2001 was $7,578,104,
$6,899,339 and $7,623,533, respectively.






F-13




DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED




(4) GOODWILL AND OTHER INTANGIBLES ARISING FROM ACQUISITIONS
--------------------------------------------------------



Goodwill represents the excess of the purchase prices paid for
companies and product lines over amounts assigned to the fair
value of the net tangible assets as well as purchased intellectual
property rights and trademarks. Total goodwill is comprised of
$3,519,638 for the cosmetic operating segment and $2,762,139
relates to the pharmaceutical operating segment. Based upon the
Company's annual impairment test, goodwill of $6,281,777 is not
impaired under the provisions of SFAS No. 142.

The components of intangible assets arising from acquisitions were
as follows:




DECEMBER 31, 2003
-----------------
GROSS CARRYING ACCUMULATED NET BOOK
VALUE AMORTIZATION VALUE
----- ------------ -----

Intellectual property rights $10,557,573 $ 3,006,043 $ 7,551,530
Trademarks and other 3,060,200 2,850,750 209,450
----------- ----------- -----------

$13,617,773 $ 5,856,793 $ 7,760,980
=========== =========== ===========

DECEMBER 31, 2002
-----------------
GROSS CARRYING ACCUMULATED NET BOOK
VALUE AMORTIZATION VALUE
----- ------------ -----

Intellectual property rights $10,557,573 $ 2,478,163 $ 8,079,410
Trademarks and other 3,000,200 2,700,000 300,200
----------- ----------- -----------

$13,557,773 $ 5,178,163 $ 8,379,610
=========== =========== ===========




In 1998, the Company acquired the intellectual property rights of
the CornSilk brand of facial make-up for $11,039,474. In September
1999, the Company entered into an agreement with the former owner
of CornSilk related to this acquisition. Under the provisions of
this agreement, adjustments to the original purchase price were
negotiated. As a result, the intangible assets arising from the
acquisition were reduced by approximately $481,901. The
intellectual property rights are being amortized over 20 years.
Upon adoption of SFAS No. 142, the remaining useful lives were
still deemed appropriate.

The remaining trademarks and other at December 31, 2003 are the
Quencher trademarks acquired in 1984, the Healing Beauty trademark
acquired in 2003, and the Miss Kiss domain name acquired in 2003
which are being amortized over 20 years.

Amortization expense amounted to $678,630, $677,877 and $880,844
for 2003, 2002 and 2001, respectively. The estimated amortization
expense for the years ending December 31, 2004, 2005, 2006, 2007
and 2008 is $680,879, $530,879, $530,879, $530,879 and $530,879,
respectively.





F-14






DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED



(5) INCOME TAXES
------------
The components of income tax expense benefit were as follows:





2003 FEDERAL STATE FOREIGN TOTAL
------------ ------------ ------------ ------------ ------------

Current tax $ 9,785,609 $ 1,375,689 $ 1,461,155 $ 12,622,453
Deferred tax 21,863 (120,058) -- (98,195)
------------ ------------ ------------ ------------
$ 9,807,472 $ 1,255,631 $ 1,461,155 $ 12,524,258
============ ============ ============ ============
2002
------------
Current tax $ 8,850,967 $ 855,284 $ 1,369,049 $ 11,075,300
Deferred tax 223,943 112,791 -- 336,734
------------ ------------ ------------ ------------
$ 9,074,910 $ 968,075 $ 1,369,049 $ 11,412,034
============ ============ ============ ============
2001
------------
Current tax $ 8,016,707 $ 492,938 $ 1,436,016 $ 9,945,661
Deferred tax (3,039,908) (541,166) -- (3,581,074)
------------ ------------ ------------ ------------
$ 4,976,799 $ (48,228) $ 1,436,016 $ 6,364,587
============ ============ ============ ============



Total income tax expense differed from the statutory rate of 35% of
earnings before income taxes, as a result of the following items:





2003 2002 2001
---- ---- ----

Tax provision at statutory rate $11,514,413 $10,820,244 $5,656,549
Increase (decrease) in tax resulting from:
State income taxes, net of Federal
income tax benefit 816,160 629,249 (31,348)
Amortization of intangibles 52,500 52,500 123,540
Officers' life insurance 157,810 79,740 102,185
Meals and entertainment 153,630 136,621 107,036
Extraterritorial income exclusion (84,000) (91,000) (87,500)
Change in the beginning of the year
valuation allowance - (818,047) (349,286)
Foreign rate differential and benefit of
foreign tax credit (365,458) 188,372 379,679
Other, net 279,203 414,355 463,732
--------------- --------------- ---------------
Actual provision for income taxes $12,524,258 $11,412,034 $6,364,587
=============== =============== ===============




F-15







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
consolidated balance sheets. Significant components of the
Company's deferred tax assets and liabilities as of December 31,
were as follows:






2003 2002
---- ----
Deferred tax assets:

Accounts receivable, principally
due to allowance for doubtful accounts $ 1,124,868 $ 1,134,878

Supplemental Executive Retirement Plan
(SERP), principally due to
accrual for financial statement purposes 2,577,154 2,349,714

Inventory, principally due to reserve 4,618,109 4,661,187

Pension accrual for financial reporting purposes
and other compensation benefits 4,524,017 4,083,607

Tax credit carry forwards 110,145 305,020

Real estate lease allowance 393,169
-

Other 852,973 418,293
---------- ----------

Deferred tax assets 14,200,435 12,952,699
---------- ----------

Deferred tax liabilities

Property, plant and equipment,
principally due to differences
in depreciation methods (5,006,812) (4,347,509)

Other (198,501) --
---------- ----------


Deferred tax liabilities (5,205,313) (4,347,509)
----------- -----------

Net deferred tax assets $8,995,122 $8,605,190
=========== ===========




At December 31, 2003 and 2002, deferred tax assets of $1,901,000
and $1,619,000, respectively, were recorded on the consolidated
balance sheet relating to the additional minimum pension liability
(note 7(a)). Such liability, net of the related deferred tax
asset, was recorded as a component of accumulated other
comprehensive loss, in accordance with SFAS No. 87, "Employers'
Accounting for Pensions" and SFAS No. 130, "Reporting
Comprehensive Income."

A valuation allowance is recorded when management determines that
it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The Company considers
the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies, among other
factors, in making this assessment. There was no valuation
allowance as of December 31, 2003 or 2002 as the Company believes
it is more likely than not that the net deferred tax assets will
be realized.




F-16



DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(6) LONG-TERM DEBT
--------------
The components of long-term debt are as follows at
December 31:




2003 2002
---- ----


9.5% senior notes $ 24,000,000 $ 32,000,000
Notes payable under revolving credit agreement 34,000,000 22,000,000
Mortgages on land and building 13,693,722 4,983,477
Obligations under capital leases 439,016 --
------------- ------------
$ 72,132,738 $ 58,983,477
Less current portion 8,759,759 8,395,929
------------- ------------
$ 63,372,979 $ 50,587,548
============= ============



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 senior
notes of which $24,000,000 was outstanding at December 31, 2003,
require annual principal repayments of $8,000,000 on May 31, 2004
and $16,000,000 on May 31, 2005. The amended agreement is
unsecured and includes covenants, which provide among other things
for the maintenance of financial ratios relating to consolidated
net worth, restrictions on cash dividends, the purchase of
treasury stock and certain other expenditures. On March 12, 2004,
the Company obtained a commitment from the lender under the senior
notes to extend the maturity of the notes, revise the principal
payment schedule to have principal payments of $6.0 million begin
in April, 2008 and continue annually in April of each year through
April, 2011, reduce the interest rate and reduce or eliminate
certain restrictive covenants. It is expected that the revised
agreement will be executed before April 15, 2004.

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 $45,000,000 of
which $34,000,000 was outstanding at December 31, 2003, 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 2003 and 2002 were 3.1% and 4.1%, respectively.
The terms of the agreement include a commitment fee based on
unutilized amounts and an annual agency fee. The deferred
financing fees associated with the March 26, 2002 amendment and
the unamortized deferred financing fees related to the February
25, 2000 agreement are being amortized over the term of the new
agreement. Covenants provide, among other things, for the
maintenance of financial 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 previous amended February 25, 2000 revolving credit
agreement.

On March 21, 2003, the Company refinanced the mortgage on its
property in North Carolina with a seven-year $12,480,000
combination mortgage and construction loan facility. Of this
facility, $12,480,000 was drawn through December 31, 2003, of
which $3,863,190 was used to pay the outstanding balance on the
existing mortgage and $8,616,810 was used for funding of
construction costs in connection with the expansion in North
Carolina. The mortgage and construction loan facility provided
construction funding as funds were expended during the facility
expansion project. The mortgage includes an interest rate based on
LIBOR plus 1.75%, which totaled 2.87% as of December 31, 2003,
monthly principal payments beginning April 15, 2004 based on a 20
year amortization schedule, a balloon payment due in March 2010
and terms that provide for the maintenance of certain financial
ratios.

F-17





DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


On February 22, 2000, the Company purchased a manufacturing,
warehousing and office facility in Barrie, Ontario for $1,828,000.
The outstanding balance of this mortgage at December 31, 2003 is
$1,213,722. The purchase was financed with a combination of a
mortgage bridge loan and a five-year mortgage.

The Company also leases certain equipment under long-term capital
leases, some of which include options to purchase the equipment
for a nominal cost at the termination of the lease.

The aggregate maturities of long-term debt and minimum payments
under capital lease obligations for each of the five years
subsequent to December 31, 2003 and thereafter, are as follows:

2004 $ 8,759,759
2005 52,131,006
2006 986,939
2007 959,928
2008 910,708
Thereafter 8,384,398
------------
$ 72,132,738
============

(7) EMPLOYEE RETIREMENT PLANS
-------------------------

(a) PENSION PLANS
-------------
The Company maintains two non-contributory defined benefit pension
plans covering all U.S. eligible employees. The Del Non-Union Plan
formula is based on years of service and the employee's
compensation during the five years before retirement. The Del
LaCross Union Plan formula is based on years of service. The
LaCross Plan covers former employees of the Company's Newark, New
Jersey facility which ceased operations during 2002. As a result
of this closure, more than 20% of plan participants in the LaCross
Plan were terminated, which resulted in a partial termination of
the plan. Due to the partial termination of the plan, all affected
participants became fully vested in their accrued benefits at
their termination date. The Company made contributions to these
plans of $2,742,770, $5,217,735 and $2,042,391 in 2003, 2002 and
2001, respectively. Assets held by these plans consist of cash and
cash equivalents, fixed income securities consisting of U.S.
government and corporate bonds and common stocks. The Company also
has a defined benefit supplemental executive retirement plan
(SERP) for certain of its executives. The SERP is a non-qualified
plan under the Internal Revenue Code. The assets in the SERP
trust, which were $4,152,063 and $4,133,583 as of December 31,
2003 and 2002, respectively, are considered assets of the Company,
not plan assets, and as such, are included in other assets on the
accompanying consolidated balance sheets. The assets of the SERP,
which consist of cash and cash equivalents, are held-to-maturity
securities and, as such, are carried at cost plus accrued
interest. The Company made no contributions during 2003 and 2002
to the SERP trust. A contribution of $1,450,000 was made in 2001.


F-18






DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


Total pension expense for 2003, 2002 and 2001 amounted to $4,488,991,
$3,473,671 and $2,488,178, respectively. The change in benefit obligation,
change in plan assets and funded status as of December 31, 2003 and 2002 and
components of net periodic cost for 2003, 2002 and 2001 of the Company's
domestic plans are set forth in the following tables:




2003
----

DEL NON- DEL LACROSS
UNION PLAN UNION PLAN SERP
------------ ------------ ------------

Change in benefit obligation:
Benefit obligation at the beginning of the year $ 30,052,538 $ 1,257,641 $ 6,988,279
Service cost 2,591,173 -- 50,329
Interest cost 2,056,268 82,520 413,800
Actuarial loss (gain) 3,786,244 63,584 (268,869)
Benefits paid (1,009,228) (88,403) (15,289)
------------ ------------ ------------
Benefit obligation at the end of the year $ 37,476,995 $ 1,315,342 $ 7,168,250
------------ ------------ ------------

Change in plan assets:
Fair value of assets at the beginning of the year $ 17,695,887 $ 1,258,353 $ --
Actual gain on plan assets 2,720,598 9,325 --
Employer contributions 2,727,481 -- 15,289
Benefits paid (1,009,228) (88,403) (15,289)
------------ ------------ ------------
Fair value of assets at the end of the year $ 22,134,738 $ 1,179,275 $ --
------------ ------------ ------------

Funded status $(15,342,257) $ (136,067) $ (7,168,250)
Unamortized prior service cost 345,810 -- 529,132
Unrecognized net actuarial loss 12,027,762 571,692 (54,228)
------------ ------------ ------------
Net amount recognized $ (2,968,685) $ 435,625 $ (6,693,346)
============ ============ ============

Amounts recognized in the balance sheet consist of:
Accrued liability $ (7,708,176) $ (136,067) $ (7,138,318)
Intangible asset (included in other long-term assets) 345,810 -- 444,972
Accumulated other comprehensive loss 4,393,681 571,692 --
------------ ------------ ------------
Net amount recognized $ (2,968,685) $ 435,625 $ (6,693,346)
============ ============ ============

Accumulated benefit obligation: $ 29,842,914 $ 1,315,342 $ 7,138,318
============ ============ ============










F-19








DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2002
----

DEL NON- DEL LACROSS
UNION PLAN UNION PLAN SERP
------------ ------------ ------------

Change in benefit obligation:

Benefit obligation at the beginning of the year $ 22,842,997 $ 1,188,676 $ 6,604,492
Service cost 2,008,569 86,661 37,441
Interest cost 1,782,579 -- 453,466
Actuarial loss (gain) 4,234,510 143,724 (91,088)
Benefits paid (979,919) (161,420) (16,032)
Plan Amendments 163,802 -- --
------------ ------------ ------------
Benefit obligation at the end of the year $ 30,052,538 $ 1,257,641 $ 6,988,279
------------ ------------ ------------

Change in plan assets:
Fair value of assets at the beginning of the year $ 14,931,149 $ 1,159,821 $ --
Actual gain (loss) on plan assets (1,098,291) (98,803) --
Employer contributions 4,842,948 358,755 16,032
Benefits paid (979,919) (161,420) (16,032)
------------ ------------ ------------
Fair value of assets at the end of the year $ 17,695,887 $ 1,258,353 $ --
------------ ------------ ------------

Funded status $(12,356,651) $ 712 $ (6,988,279)
Unrecognized transition asset (1,937) -- --
Unamortized prior service cost 395,879 -- 805,813
Unrecognized net actuarial loss 10,113,344 426,271 124,663
------------ ------------ ------------
Net amount recognized $ (1,849,365) $ 426,983 $ (6,057,803)
============ ============ ============

Amounts recognized in the balance sheet consist of:
(Accrued) prepaid benefit (liability) asset $ (6,422,980) $ 426,983 $ (6,960,844)
Intangible asset (included in other long-term assets) 395,879 -- 805,813
Accumulated other comprehensive loss 4,177,736 -- 97,228
------------ ------------ ------------
Net amount recognized $ (1,849,365) $ 426,983 $ (6,057,803)
============ ============ ============

Accumulated benefit obligation: $ 24,118,867 $ 1,257,641 $ 6,960,844
============ ============ ============







2003
-------------------------------------------------
DEL NON- DEL LACROSS
UNION PLAN UNION PLAN SERP
----------- ----------- -----------

Components of net periodic cost:
Service cost $ 2,591,173 $ -- $ 50,329
Interest cost 2,056,268 82,520 413,800
Expected return on plan assets (1,577,122) (103,043) --
Amortization of unrecognized transition asset (1,937) -- --
Recognized prior service cost 50,069 -- 276,681
Recognized net (gain) loss 728,350 11,881 (89,978)
----------- ----------- -----------
Net periodic cost $ 3,846,801 $ (8,642) $ 650,832
=========== =========== ===========







F-20









DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


2002
------------------------------------------------------

DEL NON- DEL LACROSS
UNION PLAN UNION PLAN SERP
----------- ----------- -----------

Components of net periodic cost:
Service cost $ 2,008,569 $ -- $ 37,441
Interest cost 1,782,579 86,661 453,466
Expected return on plan assets (1,352,233) (105,654) --
Amortization of unrecognized transition (asset) obligation (62,576) -- --
Recognized prior service cost 50,069 -- 276,684
Recognized net (gain) loss 332,477 155 (33,967)
----------- ----------- -----------
Net periodic cost $ 2,758,885 $ (18,838) $ 733,624
=========== =========== ===========







2001
------------------------------------------------------
DEL NON- DEL LACROSS
UNION PLAN UNION PLAN SERP
---------- ---------- ----

Components of net periodic cost:
Service cost $ 1,429,528 $ 23,591 $ 57,380
Interest cost 1,516,455 83,232 451,747
Expected return on plan assets (1,307,742) (72,958) --
Amortization of unrecognized transition asset (62,576) 12,388 --
Recognized prior service cost 35,269 4,432 276,684
Recognized net (gain) loss -- 4,286 (20,198)
Curtailment -- 56,660 --
----------- ----------- -----------
Net periodic cost $ 1,610,934 $ 111,631 $ 765,613
=========== =========== ===========



The weighted-average actuarial assumptions used to determine net periodic
costs for the years ended December 31, 2003, 2002 and 2001, respectively,
were:

2003 2002 2001
---- ---- ----

Discount rate 6.75% 7.25% 7.75%
Rate of compensation increase 4.50% 4.50% 4.50%
Expected long-term rate of return on plan assets 8.50% 8.50% 9.00%




The expected long-term return on assets was developed using the Building
Block Method covered under the Actuarial Standard of Practice No. 27. Under
this approach, the weighted average return is developed based on applying
historical average total returns by asset class to the plan's current asset
allocation. The calculation of the weighted average expected long-term rate
of return uses the 50-year historical market performance over the period
from 1953 - 2002. The 50-year period was selected as a reasonable estimate
of the runout period of expected future benefit payments.





F-21






DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


The weighted-average actuarial assumptions used to determine
benefit obligations at December 31, 2003, 2002 and 2001,
respectively, were:

2003 2002 2001
---- ---- ----

Discount rate 6.25% 6.75% 7.25%
Rate of compensation increase 4.50% 4.50% 4.50%

PLAN ASSETS
-----------

The Company's Investment Committee has adopted an investment
policy designed to meet or exceed the assumption for the expected
rate of return on plan assets of the Employees' Pension Plan. The
Company retains an investment advisor to assist the Company in
selecting and evaluating the performance of professional
investment managers that invest the plan assets in equity and
fixed income securities. The investments are generally
well-diversified to avoid undue exposure to any single economic or
industry sector, or individual security. The Company has advised
the investment managers that investment of plan assets in
derivatives or in the common stock of Del Laboratories, Inc. is
prohibited. All assets have a readily ascertainable market value
and are readily marketable. Equity investments are listed on the
New York, American or principal regional exchanges or traded on
the over-the-counter market with the requirement that such
investments have adequate market liquidity.

The Company has established target ranges for the investment of
the Employees' Pension Plan assets of 55% for equities and 45% for
fixed income securities. Within the equity securities asset class,
the investment policy provides for investments in a wide range of
publicly-traded securities encompassing large, mid-size, and small
capitalization stocks. The mix of equity securities allocates
approximately 70% to value style investing and approximately 30%
to growth style investing. Within the fixed income portfolio, the
investment policy provides for investments in a wide range of
publicly-traded debt securities consisting of investment grade,
liquid securities such as certificates of deposit, commercial
paper, U.S. Treasury bills and other Treasury obligations,
government agency paper, and high quality, short-term corporate
securities that do not exceed a two-year maturity.

The Company temporarily established a policy of investing 100% of
the assets of the LaCross pension plan in fixed income securities.
This policy was developed since no new participants would be
joining the plan and all existing plan participants are former
employees of the Newark, New Jersey manufacturing facility, which
was closed in 2002. The Company is in the process of re-defining
the long-term investment strategy for the plan assets in order to
develop returns consistent with future benefit obligations.

The Company's pension plan weighted-average asset allocations were
approximately as follows:

2003
------------------------------------------

DEL NON- DEL LACROSS
UNION PLAN UNION PLAN SERP
---------- ---------- ----

Asset Category
Equity Securities 51% 0% 0%
Debt securities 29% 0% 0%
US Government 9% 0% 0%
Obligations
Other 11% 100% 100%
------------ ------------ -------------

Total 100% 100% 100%
============ ============ ==============




F-22







DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED






2002
---------------------------------------

DEL NON- DEL LACROSS
UNION PLAN UNION PLAN SERP
---------- ---------- ----

Asset Category
Equity Securities 30% 0% 0%
Debt securities 14% 0% 0%
US Government 23% 0% 0%
Obligations
Other 33% 100% 100%
----------- ------------ ---------

Total 100% 100% 100%
=========== =========== =========




The forementioned equity securities for 2003 and 2002, do not
include any Del Laboratories, Inc. stock.


CASH FLOW
---------

The Company expects to contribute approximately $5,215,000 and
$808,000, to its Non-Union Plan and SERP respectively, in 2004. It
is anticipated that no contribution will be made to the LaCross
Plan.

Minimum pension liabilities for the underfunded Del Non-Union Plan
and SERP are included in the long-term pension liability on the
accompanying consolidated balance sheets. The minimum pension
liability of $5,756,155 and $5,476,656 at December 31, 2003 and
December 31, 2002, respectively, has been recorded with a
corresponding amount of an intangible asset of $790,782 and
$1,201,692 and accumulated other comprehensive losses of
$4,965,373 and $4,274,964 at December 31, 2003 and December 31,
2002, respectively. The accumulated other comprehensive losses are
net of deferred income taxes of $1,901,000 and $1,619,006 at
December 31, 2003 and 2002, respectively. The minimum pension
liability will change from year to year as a result of revisions
to actuarial assumptions and experienced gains or losses.

The Company contributes to a multi-employer pension plan for the
benefit of its union employees. This plan is a defined benefit
plan based on years of service and the costs recognized for 2003,
2002 and 2001 were approximately $371,000, $447,000 and $439,000,
respectively.

The Company maintains a defined contribution plan for the benefit
of its Canadian employees. The costs recognized for 2003, 2002 and
2001 were approximately $84,000, $57,000 and $59,000 in U.S.
dollars, respectively.









F-23




DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(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 $300,000 for 2003, 2002
and 2001, respectively. On November 20, 2003, the Company funded
its fiscal 2003 contribution of $300,000 to the Employee Stock
Ownership Trust with 12,991 treasury shares (as restated for 5%
stock dividend). As a result, an increase of $72,252 was recorded
to additional paid-in capital representing the cost of treasury
shares which were less than the market price on that date. On
October 7, 2002, the Company funded its fiscal 2002 contribution
of $300,000 to the Employee Stock Ownership Trust with 18,793
treasury shares (as restated for 5% stock dividend). As a result,
an increase of $34,764 was recorded to additional paid-in capital
representing the cost of treasury shares which were less than the
market price on that date. On October 4, 2001, the Company funded
its fiscal 2001 contribution of $300,000 to the Employee Stock
Ownership Trust with 23,545 treasury shares (as restated for 5%
stock dividend). As a result, an increase of $35,186 was recorded
to additional paid-in capital representing the cost of treasury
shares which were less than the market price on that date. At
December 31, 2003, the trust held 541,534 shares of the Company's
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 on the first day of the month following the date of
hire 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, as amended. Plan
participants are allowed to contribute a specified percentage of
their base salary. The Company retains the right to make optional
contributions for any plan year. Optional contributions were not
made by the Company in 2003, 2002 and 2001.


(8) SHAREHOLDERS' EQUITY
--------------------
(a) STOCK OPTION PLANS
------------------

The 1994 Stock Plan, as amended (the 1994 Plan) provides for the
granting of incentive and non-incentive options and other
stock-based awards. A total of 4,147,535 shares have been
authorized for issuance under the 1994 Plan. At December 31, 2003,
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 (the Committee) determines the persons to whom
options will be granted, the prices at which options may be
exercised, the vesting period 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.


F-24





DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED



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, if the Committee elects to have a restricted
period, 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.
At December 31, 2003, 1,392,705 of the 2,323,557 options
outstanding were exercisable under the 1994 Plan, at a
weighted-average exercise price of $14.74.

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
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, 2001, all options outstanding under the 1984 Plan were
exercised at a weighted-average exercise price of $2.46. No
further options will be granted or are outstanding under the 1984
Plan.

Limited stock appreciation rights also may be granted under the
1994 Plan, which will be effective only upon a change in control
of the Company (as defined). To date, no such appreciation rights
were granted. 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.

In 2003, the Company acquired 321,261 shares (adjusted for the 5%
stock dividend) of its common stock from optionees in connection
with stock option exercises for $7,137,203. The market value on
the date of exercise of shares previously owned for more than six
months used by optionees to pay for the exercise price was
$5,721,865. Additionally, the market value of shares acquired from
optionees to pay for income tax liabilities remitted to taxing
authorities by the Company, amounted to $1,415,338. The market
value of these acquisitions totaling $7,137,203 is reflected in
the accompanying consolidated statement of shareholders' equity.




F-25









DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED




Shares outstanding, option prices and option transactions during the last
three years, are summarized below:






1994 STOCK OPTION PLAN
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
------ --------------

Outstanding December 31, 2000 2,095,228 $ 12.59
Granted 477,318 10.75
Exercised (159,600) 8.82
Fortfeited (8,450) 10.03
----------
Outstanding December 31, 2001 2,404,496 12.48
Granted 786,907 20.16
Exercised (638,616) 10.36
Fortfeited (29,839) 15.01
----------
Outstanding December 31, 2002 2,522,948 15.38
Granted 256,359 22.18
Exercised (434,223) 13.45
Fortfeited (21,527) 13.20
----------
Outstanding December 31, 2003 2,323,557 $ 16.51
==========



1984 STOCK OPTION PLAN
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
------ --------------

Outstanding December 31, 2000 108,980 $ 2.46
Granted - -
Exercised (108,980) 2.46
Fortfeited - -
--------
Outstanding December 31, 2001 - -
Granted - -
Exercised - -
Fortfeited - -
--------
Outstanding December 31, 2002 - -
Granted - -
Exercised - -
Fortfeited - -
--------
Outstanding December 31, 2003 - $ -
========







F-26





DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


The following table summarizes information about stock options at
December 31, 2003:




OUTSTANDING STOCK OPTIONS EXERCISABLE STOCK OPTIONS
------------------------- -------------------------

WEIGHTED- WEIGHTED-
REMAINING AVERAGE WEIGHTED-
RANGE OF CONTRACTUAL EXERCISE AVERAGE
EXERCISE PRICES SHARES LIFE PRICE SHARES EXERCISE PRICE
--------------- ------ ---- -------- ------ --------------

$ 6.00 to $10.00 455,187 6.13 $ 9.58 340,048 $ 9.64
$10.01 to $15.00 557,549 5.81 $11.91 479,278 $11.44
$15.01 to $20.00 557,026 5.62 $19.11 295,195 $18.80
$20.01 to $25.00 753,795 5.11 $22.18 278,184 $22.34
---------- ----------

$ 6.00 to $25.00 2,323,557 5.60 $16.51 1,392,705 $14.74
========== ==========



(b) RECEIVABLES 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 July 1, 1999, with the aggregate principal balance to be repaid,
with interest at the rate of 6.0% per annum, in annual amounts of
$140,000 for each year during the period from 2000 through 2007 and a
final payment of $82,250 on January 20, 2008, 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
Company and, provided further, that the Company may (but is not required
to) forgive, during any year until 2007, in excess of $140,000 of
principal. Whenever the Company forgives any principal or interest owed
by the officer to the Company, the Company has agreed to pay to the
officer such additional payment (a "Gross-Up Payment") in an amount such
that, after payment by the officer of all Federal, state and local taxes
and excise taxes if any, including any such taxes imposed on the
Gross-Up Payment, the officer retains an amount of the Gross-Up Payment
equal to such taxes imposed on the principal and interest forgiven. This
loan, which is a full recourse loan, must be secured by collateral with
a fair value of 110% of the unpaid principal. The loan balance at
December 31, 2003 was $642,250 and was collateralized by 168,961 shares
of the Company's common stock.

The balance of the loan made to the officer is reflected as a reduction
of shareholders' equity in the accompanying consolidated financial
statements.


F-27





DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


(9) ACCRUED LIABILITIES
-------------------

Accrued liabilities at December 31, 2003 and 2002 consisted of the
following:




2003 2002
----------- -----------

Salaries, wages, commissions and employee benefits $ 4,662,263 $ 6,591,321
Pension liabilities, current portion 5,215,108 2,727,481
Interest 410,938 374,760
Advertising and promotion costs 7,385,349 7,426,457
Plant closure liabilities (note 10) 1,714,487 --
Other 5,634,354 4,579,274
----------- -----------
$25,022,499 $21,699,293
=========== ===========



(10) CLOSURE OF FARMINGDALE PLANT
----------------------------
On May 30, 2003, the Company announced the formal plan for the
transfer of its principal manufacturing operations, for both the
Cosmetic and Pharmaceutical segments, to Rocky Point, North
Carolina from Farmingdale, New York. Pursuant to the Company's
formal severance policy for non-union employees and, severance
benefits due under the union contract resulting from the plant
closure, a charge of $1,850,098 ($1,142,417 after-tax, or $0.12
per basic share) for severance costs and related benefits for
approximately 370 union and non-union employees associated with
this move was recorded in the second quarter of 2003. Additional
severance benefits earned by employees being terminated will be
recognized as a charge in the financial statements as such
severance benefits are earned. During the second half of 2003,
charges of $183,283 ($113,175 after-tax, or $0.01 per basic share)
were recorded for such earned severance benefits, net of
adjustments of $58,862 to the initial accrual. Through December
31, 2003, $127,207 of relocation and other move related costs were
expensed as incurred. The Company estimates that a total of
approximately $92,000 (Cosmetic segment - $60,000; Pharmaceutical
segment - $32,000), will be incurred for additional severance,
relocation and other move related costs during the first six
months of 2004. As of December 31, 2003, 186 union and non-union
employees have been terminated and $318,894 in severance benefits
were paid.



F-28






DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED



A summary of the activity in the accrual for the plant closure was as
follows:

Balance December 31, 2002 $ --

Provision 1,850,098
-----------

Balance June 30, 2003 $ 1,850,098
-----------

Provision 133,684
Payments (66,617)
Adjustments (14,742)
-----------

Balance September 30, 2003 $ 1,902,423
-----------

Provision 108,461
Payments (252,277)
Adjustments (44,120)
-----------

Balance December 31, 2003 $ 1,714,487
===========

(11) EARNINGS PER SHARE
------------------

A reconciliation between the numerators and denominators of the
basic and diluted earnings per common share is as follows:



2003 2002 2001
----------- ----------- -----------

Net earnings (numerator) $20,374,064 $19,502,947 $ 9,796,982
----------- ----------- -----------
Weighted-average common shares
(denominator for basic earnings per share) 9,646,837 9,499,706 9,303,494

Effect of dilutive securities:
Employee stock options 451,650 403,641 148,590
----------- ----------- -----------
Weighted-average common and potential
common shares outstanding
(denominator for diluted earnings per share) 10,098,487 9,903,347 9,452,084
=========== =========== ===========

Basic earnings per share $ 2.11 $ 2.05 $ 1.05
=========== =========== ===========

Diluted earnings per share $ 2.02 $ 1.97 $ 1.04
=========== =========== ===========




Employee stock options of 363,359, 520,571 and 1,309,557 shares
for 2003, 2002 and 2001, respectively, were not included in the
net earnings per share calculation because their effect would have
been anti-dilutive.





F-29



DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED



(12) COMMITMENTS AND CONTINGENCIES
-----------------------------

The Company is involved in various claims and legal actions
arising in the ordinary course of business, including
environmental matters. The final resolution of these matters on
the Company's results of operations or liquidity in a particular
reporting period is not known. Management is of the opinion that
the ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial position.

In September 2001, the Company received notice from the
Environmental Protection Agency ("EPA") that it was, along with 81
others, a Potentially Responsible Party regarding a Superfund Site
("the Site") located in Glen Cove, New York. According to the
notice received from the EPA, the Company's involvement related to
empty drums coming to the Site in 1977 and 1978. In the third
quarter of 2001, the Company recorded an estimate of $550,000 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 $785,000 in selling and administrative expenses. The
charge of $785,000 had a negative impact of $0.05 per basic share
on net earnings in the second quarter of 2002 and for the year
ended December 31, 2002. During the third quarter of 2002, a trust
was established with the intention of entering into a Consent
Decree with the United States and the State of New York to settle
all claims by the United States and the State of New York for past
and future response costs and future actions at the Site. In
September 2002, the Company paid $1,332,000 into a trust account
which was held in escrow, together with payments by the other
members of the JDG, for the eventual settlement with the EPA of
the Company's potential liability under CERCLA. During the third
quarter of 2002, the Company also paid into the same trust account
$18,000 for the eventual settlement of the Company's potential
liability for natural resource damages ("NRD") claims, which were
also expected to be settled in the Consent Decree. During the
second quarter of 2003, the United States, the State of New York
and the Federal District court approved the aforementioned Consent
Decree.

The Company leases executive office space, furniture, data
processing equipment, transportation equipment and warehouse space
under terms of leases expiring through 2015. Rent expense under
these operating leases aggregated approximately $5,525,398,
$5,157,622 and $4,829,659 in 2003, 2002 and 2001, respectively.
The Company's obligations under non-cancelable leases are
summarized as follows:


2004 $ 3,369,753
2005 3,135,673
2006 2,943,435
2007 2,759,637
2008 2,718,844
Thereafter 17,720,582
------------
$ 32,647,924
============



F-30





DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED



Included in the accompanying consolidated balance sheet at
December 31, 2003, is a deferred liability which represents
deferred rent expense, as well as a payment received by the
Company from a lessor at the lease inception, which will be
recorded as a reduction of rent expense over the life of the
lease. This liability resulted when the Company entered into a
lease agreement for approximately 41,000 square feet of leased
space in Uniondale, New York.




(13) 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 carrying value of the Company's borrowings under the long-term
revolving credit agreement approximates fair value as such
borrowings bear variable interest rates which fluctuate with
market conditions.

The fair value of the senior notes exceeds the carrying value at
December 31, 2003 by approximately $1,370,000. The fair value of
the senior notes is based upon discounted cash flows using rates
available to the Company for debt with similar terms and
maturities. The Company continually evaluates the benefits of
refinancing versus the related prepayment penalties. 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.



(14) 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 $3,335,000 which was reduced by $159,710 for closing
costs. In addition, $235,000 of the sales price was paid by the
purchaser on February 12, 2003. The land was included in property,
plant and equipment at December 31, 2001, with a book value of
$500,000. After transaction related costs of $406,575, the sale
resulted in a gain of $2,428,425 ($1,532,337 after-tax, or $0.16
per basic share). 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 $5,000,000 and cannot be exercised before
December 1, 2004 or after December 1, 2005.








F-31





DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED




(15) COMPREHENSIVE INCOME (LOSS)
---------------------------

The Company's items of other comprehensive income (loss) include a
foreign currency translation adjustment and a minimum pension liability
adjustment, net of the related tax effect. The components of
accumulated other comprehensive loss at December 31, 2003, 2002, and
2001 are as follows:





ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

FOREIGN MINIMUM
CURRENCY PENSION
TRANSLATION LIABILITY
ADJUSTMENT ADJUSTMENT TOTAL
----------- ----------- -----------

Balance at December 31, 2000 $(1,209,401) $ (49,170) $(1,258,571)

Foreign currency translation adjustment (516,639) -- (516,639)

Minimum pension liability adjustment,
net of taxes of $312,000 -- (475,115) (475,115)
----------- ----------- -----------

Balance at December 31, 2001 (1,726,040) (524,285) (2,250,325)

Foreign currency translation adjustment 103,303 -- 103,303

Minimum pension liability adjustment,
net of taxes of $1,271,212 -- (2,131,329) (2,131,329)
----------- ----------- -----------

Balance at December 31, 2002 (1,622,737) (2,655,614) (4,278,351)

Foreign currency translation adjustment 2,093,430 -- 2,093,430

Minimum pension liability adjustment,
net of taxes of $281,525 -- (408,884) (408,884)
----------- ----------- -----------

Balance at December 31, 2003 $ 470,693 $(3,064,498) $(2,593,805)
=========== =========== ===========









F-32



DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


(16) SEGMENT INFORMATION
-------------------

The Company operates in two segments, Cosmetic and Pharmaceutical, that have
been organized by the products and services they offer. The Cosmetic
segment's principal products are nail care, nail color, color cosmetics,
beauty implements, bleaches and depilatories, personal care products and
other related cosmetic items. The Pharmaceutical segment's principal
products are proprietary oral analgesics, acne treatment products and first
aid products. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates the performance of its operating segments based on operating
income. Certain assets, including property, plant and equipment and deferred
tax assets, are not allocated to the identifiable segments; depreciation of
unallocated assets is charged to the Cosmetic segment.



2003 2002 2001
------------- ------------- -------------

Net sales
Cosmetic $ 310,407,035 $ 283,856,475 $ 239,183,160
Pharmaceutical 75,546,000 66,811,000 65,443,000
------------- ------------- -------------
Consolidated $ 385,953,035 $ 350,667,475 $ 304,626,160
------------- ------------- -------------

Operating income
Cosmetic $ 24,580,386 $ 23,542,820 $ 12,001,940
Pharmaceutical 11,923,000 9,751,000 11,405,000
------------- ------------- -------------
Consolidated $ 36,503,386 $ 33,293,820 $ 23,406,940
------------- ------------- -------------

Gain on sale of land $ -- $ 2,428,425 $ --
------------- ------------- -------------
Interest expense, net $ 3,943,445 $ 4,402,315 $ 6,779,171
------------- ------------- -------------
Other income (expense), net $ 338,381 $ (404,949) $ (466,200)
------------- ------------- -------------
Earnings before income taxes $ 32,898,322 $ 30,914,981 $ 16,161,569
============= ============= =============
Identifiable assets
Cosmetic $ 191,031,176 $ 139,464,389 $ 126,058,623
Pharmaceutical 30,888,159 29,130,929 25,548,975
Corporate (unallocated assets) 41,292,203 42,386,370 38,593,455
------------- ------------- -------------
Consolidated $ 263,211,538 $ 210,981,688 $ 190,201,053
============= ============= =============
Depreciation and amortization
Cosmetic $ 7,851,409 $ 7,228,837 $ 7,990,549
Pharmaceutical 405,325 348,379 513,828
------------- ------------- -------------
Consolidated $ 8,256,734 $ 7,577,216 $ 8,504,377
============= ============= =============
Expenditures for property, plant and equipment
and long-lived assets
Cosmetic $ 1,897,287 $ 1,909,838 $ 1,747,751
Pharmaceutical 567,610 503,928 357,454
Corporate (unallocated assets) 15,794,823 6,664,447 3,446,372
------------- ------------- -------------
Consolidated $ 18,259,720 $ 9,078,213 $ 5,551,577
============= ============= =============






F-33






DEL LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Sales to one customer by the Cosmetic and Pharmaceutical segments
combined were 25.6%, 25.4% and 23.1% of consolidated net sales for
2003, 2002 and 2001, respectively, and combined sales to another
customer were 14.5%, 12.1% and 11.6% of consolidated net sales for
2003, 2002 and 2001, respectively.

Three customers accounted for 47.9% and two customers accounted
for 31.6% of the Company's accounts receivable at December 31,
2003 and 2002, respectively.

Operating income for 2003 includes severance expense of
$2,033,381. Of this amount, $1,321,698 was charged to the Cosmetic
segment and $711,683 was charged to the Pharmaceutical segment.

Operating income for 2003 includes a recovery of $744,485 related
to the 2001 charge for the K-Mart Chapter XI bankruptcy filing. Of
this amount, $610,485 was attributable to the Cosmetic segment and
$134,000 was attributable to the Pharmaceutical segment.

Operating income for 2002 and 2001, respectively, includes charges
of $400,000 and $3,100,000 related to the K-Mart Chapter XI
bankruptcy filing. Of this amount, $400,000 and $2,300,000 was
charged to the Cosmetic segment in 2002 and 2001, respectively,
and $800,000 was charged to the Pharmaceutical segment in 2001.


(17) UNAUDITED QUARTERLY FINANCIAL DATA
----------------------------------

The following is a summary of quarterly operating results:




YEAR ENDED DECEMBER 31, 2003
-----------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------

Net sales $93,363,000 $97,976,000 $99,716,000 $94,898,000
Cost of goods sold 45,658,000 47,170,000 49,017,000 43,927,000
Net earnings 4,325,000 4,940,000 4,651,000 6,458,000
Earnings per common share
Basic $ 0.45 $ 0.51 $ 0.48 $ 0.67
=========== =========== =========== ===========
Diluted $ 0.44 $ 0.49 $ 0.46 $ 0.63
=========== =========== =========== ===========



YEAR ENDED DECEMBER 31, 2002
-----------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
Net sales $79,940,000 $93,262,000 $95,215,000 $82,251,000
Cost of goods sold 37,377,000 44,979,000 48,024,000 40,966,000
Net earnings 4,948,000 4,589,000 5,096,000 4,870,000
Earnings per common share
Basic $ 0.53 $ 0.48 $ 0.53 $ 0.51
=========== =========== =========== ===========
Diluted $ 0.51 $ 0.46 $ 0.52 $ 0.49
=========== =========== =========== ===========




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.


F-34






SCHEDULE II







DEL LABORATORIES, INC. AND SUBSIDIARIES

Valuation and Qualifying Accounts

Years ended December 31, 2003, 2002 and 2001



ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
DESCRIPTION OF PERIOD EXPENSES (1) DEDUCTIONS(2) OF PERIOD
----------- ---------- ----------- --------- ----------

Year ended December 31, 2001
allowances for doubtful
accounts $1,000,000 $4,057,092 $ 855,092 $4,202,000
========== ========== ========= ==========
Year ended December 31, 2002
allowances for doubtful
accounts $4,202,000 $1,041,604 $ 281,253 $4,962,351
========== ========== ========= ==========
Year ended December 31, 2003
allowances for doubtful
accounts $4,962,351 $ 302,215 $ 873,595 $4,390,971
========== ========== ========= ==========



(1) Additions charged to costs and expenses in the year ended December
31, 2002 and 2001 include $400,000 and $3,100,000, respectively,
related to the K-Mart Chapter XI bankruptcy filing.

(2) Uncollectible accounts written off and net recoveries. Included
for the year ended December 31, 2003, is a recovery of $744,485
related to the K-Mart Chapter XI bankruptcy filing.









F-35





EXHIBIT INDEX
-------------


ITEM TITLE EXHIBIT NO. DESCRIPTION
- ---------- ----------- -----------

Articles of 3.1 (a) Restated Certificate of Incorporation as filed with the
Incorporation Delaware Secretary of State on March 29, 1996.
and By-Laws
3.2 (b) Certificate of Amendment filed with the Delaware Secretary of State on June 4, 1996.

3.3 (c) Certificate of Amendment of the Restated Certificate of Incorporation filed with the
Delaware Secretary of State on June 3, 1998.

3.4 (a) By-Laws as amended through December 14, 1995.

Material 10.1 (d) Employee Pension Plan, effective January 1, 1997 (amended and
Contracts restated).

10.2 (g) Amendment No. 1 to Employee Pension Plan.

10.3 Amendment No. 2 to Employee Pension Plan.

10.4 (d) Employee Stock Ownership Plan, effective January 1, 1997 (amended and
restated).

10.5 (g) Amendment No. 1 to Employee Stock Ownership Plan.

10.6 Amendment No. 2 to Employee Stock Ownership Plan.

10.7 Amendment No. 3 to Employee Stock Ownership Plan.

10.8 (d) 401(k) Plan effective January 1, 1997 (amended and restated).

10.9 (g) Amendment No. 1 to 401(k) Plan.

10.10 (g) Amendment No. 2 to 401(k) Plan.

10.11 Amendment No. 3 to 401(k) Plan.

10.12 (g) Amended and Restated Supplemental Executive Retirement Plan.

10.13 (g) 1994 Stock Plan, as amended and restated on May 23, 2002.

10.14 (e) Annual Incentive Plan, as amended as of May 27, 1999.

10.15 (c) Amended and Restated Employment Agreement dated as of July 1, 1999 between the Registrant
and Dan K. Wassong.

10.16 (g) Amendment dated April 22, 2002 to Dan K. Wassong Employment Agreement.







ITEM TITLE EXHIBIT NO. DESCRIPTION
- ---------- ----------- -----------

10.17 (g) Employment Agreement dated April 1, 2002 with Charles J. Hinkaty.

10.18 (d) Employment Agreement with Harvey P. Alstodt, dated April 1, 2001.

10.19 (g) Amendment dated June 1, 2002 to Harvey P. Alstodt Employment
Agreement.

10.20 (d) Employment Agreement with William H. McMenemy, dated April 1, 2001.

10.21 (d) Amendment to Employment Agreement with William H. McMenemy,
dated September 7, 2001.

10.22 Employment Agreement With Enzo J. Vialardi, dated April 1, 2003.

10.23 (d) Change in Control Agreement with Harvey P. Alstodt, dated April 16, 2001.

10.24 (d) Change in Control Agreement with William H. McMenemy, dated
April 16, 2001.

10.25 (g) Change in Control Agreement with Charles J. Hinkaty, dated April 16, 2002.

10.26 Change in Control Agreement with Enzo J. Vialardi, dated April 1, 2003.

10.27 (f) Life Insurance Agreement, dated as of February 18, 1993.

10.28 (d) Amended and Restated Loan Agreement dated as of March 26, 2002
among the Registrant, as borrower, Del Pharmaceuticals, Inc. ("DPI"),
Parfums Schiaparelli, Inc. ("Parfums"), Royce & Rader, Inc. ("Royce") and
565 Broad Hollow Realty Corp. ("565"), as guarantors, and JP Morgan
Chase, as agent for the lenders.

10.29 (d) Amended and Restated Loan Agreement dated as of March 26, 2002 among the Registrant,
DPI, Parfums, Royce, 565 and Jackson National Life Insurance Company.

Code of Ethics 14.1 Code of Ethics






ITEM TITLE EXHIBIT NO. DESCRIPTION
- ---------- ----------- -----------

Subsidiaries of 21.1 List of Subsidiaries.
Registrant

Consents of Experts 23.1 Consent of KPMG LLP dated March 12, 2004.
and Counsel

Additional Exhibits 31.1 Certification of Chief Executive Officer

31.2 Certification of Chief Financial Officer

32.1 Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350

32.2 Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350




(a) These exhibits were filed as exhibits to the Registrants Form 10-K for the
year ended December 31, 1995 as follows: Restated Certificate, Exhibit 1;
and By-Laws, Exhibit 2.

(b) This exhibit was filed as Exhibit 1 to the Registrant's Form 10-Q for the
quarter ended June 30, 1996.

(c) These exhibits were filed as exhibits to the Registrant's Form 10-K for
the year ended December 31, 1999, as follows: 3.3 above was filed as
Exhibit 3.3 and 10.15 above was filed as Exhibit 10.14 to the 1999 10-K.

(d) These exhibits were filed as exhibits to the Registrant's Form 10-K for
the year ended December 31, 2001, as follows: Exhibits 10.4, 10.8, 10.18,
10.20, 10.21, 10.23, 10.24, 10.28 and 10.29 above were filed,
respectively, as Exhibits 10.2, 10.3, 10.16, 10.17, 10.18, 10.20, 10.21,
10.24 and 10.25 to the 2001 10-K.

(e) This exhibit was filed as Exhibit B to the Registrant's Definitive Proxy
Statement dated May 27, 1999, relating to the Registrant's 1999 Annual
Meeting of Stockholders.

(f) This exhibit was filed as Exhibit 9 to the Registrant's Form 10-K for the
year ended December 31, 1993.

(g) These exhibits were filed as exhibits to the Registrant's Form 10-K for
the year ended December 31, 2002, as follows: Exhibits 10.2, 10.5, 10.9,
10.10, 10.12, 10.13, 10.16, 10.17, 10.19 and 10.25 above were filed,
respectively, as Exhibits 10.2, 10.4, 10.6, 10.7, 10.8, 10.9, 10.12,
10.13, 10.15 and 10.21 to the 2002 10-K.