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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED
September 30, 2002 Commission File No. 0-22429
DHB INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 11-3129361
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
555 WESTBURY AVENUE, CARLE PLACE, NEW YORK 11514
(Address of principal executive offices)
Registrant's telephone number: (516) 997-1155
Former name, former address and former fiscal year, if changed since last
report:
________________________________________________________________________________
Not applicable
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.)
Yes [ ] No [X]
As of November 1, 2002, there were 40,413,746 shares of Common Stock, $.001 par
value outstanding.
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1
INDEX
PAGE
____
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2002
(unaudited) and December 31, 2001 3
Unaudited Consolidated Statements of Income
For The Three and Nine Months
Ended September 30, 2002 and 2001 4
Unaudited Consolidated Statements of Cash Flows For
The Nine Months Ended September 30, 2002 and 2001 5
Notes to Unaudited Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 14
Item 4. Controls and Procedures 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15-16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Certifications 18-20
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
DHB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
Unaudited
September 30, December 31,
2002 2001
_____________ ____________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,659 $ 145
Accounts receivable, less allowance for doubtful accounts
of $985 and $792, respectively 13,905 11,253
Inventories 33,313 24,582
Prepaid expenses and other current assets 1,118 1,402
________ _________
Total Current Assets 50,995 37,382
________ _________
PROPERTY AND EQUIPMENT 1,597 2,017
________ _________
OTHER ASSETS
Investments in non-marketable securities 942 942
Deferred tax assets 159 259
Deposits and other assets 230 296
________ _________
Total Other Assets 1,331 1,497
________ _________
TOTAL ASSETS $ 53,923 $ 40,896
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 8,352 $ 13,299
Accrued expenses and other current liabilities 4,408 2,515
Current maturities of long term debt 1 772
________ _________
Total Current Liabilities 12,761 16,586
________ _________
LONG TERM LIABILITIES
Notes payable-bank 14,859 8,442
Long term debt, net of current maturities -- 863
Note payable - stockholder 1,500 10,000
________ _________
Total Long Term Debt 16,359 19,305
________ _________
Total Liabilities 29,120 35,891
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Convertible Preferred Stock, $6.00 par value, 500,000
shares authorized, issued and outstanding 3,000 --
Common stock $.001 par value, 100,000,000 shares authorized,
40,413,746 and 31,481,914 shares issued and outstanding
at Sept. 30, 2002 and Dec. 31, 2001, respectively 40 31
Additional paid in capital 30,433 24,109
Accumulated deficit (8,622) (19,082)
Accumulated other comprehensive loss (48) (53)
________ _________
STOCKHOLDERS' EQUITY 24,803 5,005
________ _________
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 53,923 $ 40,896
======== =========
See accompanying notes to the unaudited consolidated financial statements
3
DHB INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
_____________________________ ____________________________
2002 2001 2002 2001
________ ________ ________ ________
Net sales $ 30,146 $ 24,010 $ 97,796 $ 67,698
Cost of sales 21,005 17,281 69,165 49,812
________ ________ ________ ________
Gross profit 9,141 6,729 28,631 17,886
Selling, general
and administrative expenses 7,282 3,282 16,607 9,706
________ ________ ________ ________
Income from operations 1,859 3,447 12,024 8,180
________ ________ ________ ________
Other income (expense)
Interest expense (538) (657) (1,474) (1,897)
Other income 35 31 78 3
________ ________ ________ ________
Total other income (expense) (503) (626) (1,396) (1,894)
________ ________ ________ ________
Income before income taxes 1,356 2,821 10,628 6,286
Income taxes 81 28 168 168
________ ________ ________ ________
Net income $ 1,275 $ 2,793 $ 10,460 $ 6,118
======== ======== ======== ========
Earnings per common share:
Basic shares $ 0.03 $ 0.09 $ 0.29 $ 0.19
======== ======== ======== ========
Diluted shares $ 0.03 $ 0.08 $ 0.24 $ 0.17
======== ======== ======== ========
Weighted average shares outstanding:
Basic shares 40,413,746 31,411,180 36,262,668 31,541,536
Effect of convertible preferred 500,000 - 500,000 -
Warrants 2,913,834 4,255,716 6,756,985 4,478,044
__________ __________ __________ __________
Diluted shares 43,827,580 35,666,896 43,519,653 36,019,580
========== ========== ========== ==========
See accompanying notes to the unaudited consolidated financial statements
4
DHB INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(In thousands, except per share data)
2002 2001
________ ________
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 10,460 $ 6,118
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 377 391
Stock issued for services -- 465
Deferred income tax 100 20
Changes in assets and liabilities
(Increase) Decrease in:
Accounts receivable (2,652) (1,806)
Marketable securities -- 652
Inventories (8,731) (7,221)
Prepaid expenses and other current assets 284 (492)
Deposits and other assets 66 --
Increase (decrease) in:
Accounts payable (4,947) 2,427
Accrued expenses and other current liabilities 1,893 (3,237)
________ ________
Net cash used in operating activities (3,150) (2,683)
________ ________
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the disposition of assets 302 --
Purchase of equipment (259) (352)
________ ________
Net cash provided by (used in) investing activities 43 (352)
________ ________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of note payable- bank 6,417 10,000
Repayments of shareholder note (8,500) (6,047)
Principal payments on long-term debt (1,634) (20)
Purchase of treasury stock -- (1,737)
Exercise of warrants 6,333 --
Proceeds from the sale of convertible preferred 3,000 --
Net proceeds from sale of common stock -- 506
________ ________
Net cash provided by financing activities 5,616 2,702
________ ________
EFFECT OF FOREIGN CURRENCY TRANSLATION 5 (42)
________ ________
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 2,514 (375)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 145 567
________ ________
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 2,659 $ 192
======== ========
Supplemental cash flow information
Cash paid for:
Interest $ 1,474 $ 16
Taxes $ 71 $ 13
See accompanying notes to the unaudited consolidated financial statements
5
DHB INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
NOTE 1. BASIS OF PRESENTATION:
The accompanying financial statements of DHB Industries, Inc. and subsidiaries
(collectively "DHB" or the "Company") for the three and nine months ended
September 30, 2002 and 2001 have been prepared in accordance with accounting
principles generally accepted in the United States. The unaudited financial
statements include all adjustments, consisting only of normal and recurring
adjustments, which, in the opinion of management were necessary for a fair
presentation of financial condition, results of operations and cash flows for
such periods presented. However, these results of operations are not necessarily
indicative of the results for any other interim period or for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been omitted in accordance with published rules and
regulations of the Securities and Exchange Commission. These consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Company's Form 10-K for
the year ended December 31, 2001 filed with the Securities and Exchange
Commission on April 1, 2002, as amended by Form 10-K/A, filed on April 9, 2002.
NOTE 2. INVENTORIES:
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method and are summarized as follows:
September 30, December 31,
2002 2001
____________ ____________
Finished goods $ 3,706 $ 5,041
Work in process 11,457 6,917
Raw materials and supplies 18,150 12,624
_______ _______
$33,313 $24,582
======= =======
NOTE 3. LONG TERM DEBT:
On June 28, 2002, the Company amended its $18,800 revolving credit facility.
Previously, the facility provided a $15,500 asset-based revolver, a $1,500
capital expenditure line and a $1,800 term loan. The new facility provides for a
$25,000 asset-based revolving credit facility. The amendment allows the Company
to repay shareholder indebtedness under certain conditions. At closing, the
Company repaid $5,500 of $7,000 of outstanding shareholder indebtedness, which
reduced the balance owed to $1,500 at September 30, 2002.
6
DHB INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
NOTE 4. STOCKHOLDERS EQUITY:
Preferred Stock
On January 14, 2002, David H. Brooks, the principal stockholder of the Company
exchanged $3,000 of the approximately $10,000 of indebtedness due him on that
date for 500,000 shares of the Series A Convertible Preferred Stock of DHB
("Preferred Stock"). The Preferred Stock has a dividend rate equal to the amount
that would have been paid as interest on the exchanged indebtedness. Shares of
the Preferred Stock are convertible on a one-to-one basis at the option of the
holder into shares of the Company's Common Stock. The shares of Preferred Stock
are redeemable at the option of the Company on December 15, 2002 and on each
December 15th thereafter.
Warrants
No warrants were exercised during the three months ended September 30, 2002.
During the nine month period ended September 30, 2002, warrants were exercised
to purchase 8,931,832 shares of Common Stock, 5,715,226 of which were issued
pursuant to cashless exercises. The balance of the warrants exercised were
exercised at an average price of $1.97 per share. Pursuant to such warrant
exercises during the nine months ended September 30, 2002, the Company received
aggregate cash proceeds of approximately $6,300.
Warrants to purchase 560,000 and 4,526,500 shares of the Company's common stock
that were outstanding during the three months ended September 30, 2002 and 2001,
respectively, were not included in the computation of diluted earnings per share
because their effect would have been anti-dilutive, since the strike prices were
above the average fair market value of DHB's stock price. Warrants to purchase
200,000 and 946,500 shares of the Company's common stock that were outstanding
during the nine months ended September 30, 2002 and 2001, respectively, were not
included in the computation of diluted earnings per share because their effect
would have been anti-dilutive, since the strike prices were above the average
fair market value of DHB's stock price.
NOTE 5. OTHER COMPREHENSIVE INCOME:
The components of other comprehensive income, net of taxes, were as follows:
Three months ended Nine months ended
________________________ ___________________________
Sept 30, Sept 30, Sept 30, Sept 30,
2002 2001 2002 2001
________ ________ ________ _______
Net income $1,275 $2,793 $10,460 $6,118
Other comprehensive income (loss):
Unrealized gain on marketable securities 283
Foreign currency translation, net of tax (13) 3 5 (42)
______ ______ _______ ______
Comprehensive income $1,262 $2,796 $10,465 $6,359
====== ====== ======= ======
Accumulated other comprehensive income (loss) is comprised solely of foreign
currency translation losses at September 30, 2002 and December 31, 2001.
7
DHB INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
NOTE 6. SEGMENT INFORMATION:
The Company operates in two principal segments: Ballistic-resistant equipment
and protective athletic/sports products. Net sales, income from operations and
total assets for each of the Company's segments are as follows:
For the Three Months Ended For the Nine Months Ended
__________________________________ __________________________________
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
_____________ _____________ _____________ _____________
NET SALES
Ballistic-resistant equipment $ 28,737 $ 22,800 $ 93,386 $ 64,255
Protective athletic & sports products 1,409 1,210 4,410 3,443
________ ________ ________ ________
Total Net Sales $ 30,146 $ 24,010 $ 97,796 $ 67,698
======== ======== ======== ========
INCOME FROM OPERATIONS
Ballistic-resistant equipment $ 2,711 $ 4,138 $ 13,944 $ 10,181
Protective athletic & sports products 202 (56) 649 (338)
Corporate and Other (1) (1,054) (635) (2,569) (1,663)
________ ________ ________ ________
Total Income from Operations $ 1,859 $ 3,447 $ 12,024 $ 8,180
======== ======== ======== ========
September 30, December 31,
2002 2001
_____________ ____________
TOTAL ASSETS
Ballistic-resistant equipment $ 49,215 $ 36,426
Protective athletic & sports products 3,242 2,768
Corporate and Other (2) 1,466 1,702
________ ________
Total net assets $ 53,923 $ 40,896
======== ========
(1) Corporate and other expenses includes corporate general and administrative
expenses.
(2) Corporate and other assets are principally cash and deferred charges.
NOTE 7. COMMITMENT AND CONTIGIENCIES
The Company is party to various claims, legal actions and complaints arising in
the ordinary course of business. In the opinion of management, all such matters
are without merit or are of such kind, or involve such amounts, that an
unfavorable disposition would not have a material adverse effect on the
consolidated financial position, results of operations or liquidity of the
Company. In September 2002, the Company filed a joint resolution and settlement
with American Body Armor ending their patent infringement case. This agreement
will not have a material adverse effect on the Company's business, results of
operations or financial condition.
8
DHB INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
NOTE 7. COMMITMENT AND CONTIGIENCIES: (Continued)
The Company's Point Blank Body Armor subsidiary, a non-union facility, has
become the target of a union organizing campaign which has tried to force
recognition of the union without a democratic employee vote. In addition, a
union pension plan filed a shareholders derivative action against the officers
and directors of the Company and the Company as a nominal defendant. The
individual defendants deny any of the wrongdoings alleged in the complaint, and
the Company and the individual defendants are vigorously defending themselves
against this lawsuit.
NOTE 8. RECENTLY ISSUED ACCOUNTING STANDARDS:
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards (`SFAS") Statement No. 142, ACCOUNTING FOR
GOODWILL AND OTHER INTANGIBLE ASSETS. FAS 142 requires that intangible assets
with estimable useful lives be amortized over their respective useful lives to
their estimated residual values and reviewed for impairment in accordance with
SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, or, upon adoption of SFAS No. 144 (see
below). The Company adopted the provisions of SFAS 142 effective January 1,
2002. The adoption of SFAS 142 did not have a material impact on the financial
statements of the Company.
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, which addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. While SFAS No. 144 supersedes FAS No. 121, ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, it retains
many of the fundamental provisions of that Statement. The Company adopted the
provisions of SFAS No. 144 effective January 1, 2002. The adoption of SFAS No.
144 did not have a material impact on the financial statements of the Company.
In April 2002, the FASB issued SFAS No. 145, RESCISSION OF FASB STATEMENTS NO.
4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL CORRECTIONS
("SFAS No. 145"). This statement eliminates the requirement to report gains and
losses from extinguishment of debt as extraordinary unless they meet the
criteria of APB Opinion No. 30. SFAS No. 145 also requires sale-leaseback
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. SFAS No. 145 is effective for fiscal
years beginning after May 15, 2002. The impact of the adoption of SFAS No. 145
is not expected to have a material impact on the Company's financial position or
results of operations.
In June 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH
EXIT OR DISPOSAL ACTIVITIES ("SFAS No. 146"). SFAS No. 146 nullifies Emerging
Issues Task Force Issue No. 94-3 and requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. This statement also establishes that fair value is the objective for
initial measurement of the liability. SFAS No. 146 is effective for exit or
disposal activities that are initiated after December 31, 2002. The impact of
the adoption of SFAS No. 146 is not expected to have a material impact on the
Company's financial position or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002, COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2001.
For the third quarter ended September 30, 2002, total revenues were $30.1
million which is a 26% increase over revenues of $24.0 million for the third
quarter of 2001. The armor division's revenue increased $5.9 million to $28.7
million for the third quarter of 2002 as compared to $22.8 million for the third
quarter of 2001. The sports division's revenues were $1.4 million for the
quarter ended September 30, 2002, an increase of 16% over third quarter 2001
revenues of $1.2 million. Gross profit margins for the third quarter of 2002
increased to 30.3% versus 28.0% in the third quarter of 2001.
9
Selling, general and administrative expenses increased 122% to $7.3 million for
the third quarter of 2002 versus $3.3 million in the third quarter of 2001. The
substantial rise in selling, general and administrative expenses was primarily
due to sharply increased legal fees concerning the Company's successful defense
of a patent infringement suit, as well as legal and professional fees associated
with a union organizing campaign relating to the Company's Point Blank Body
Armor subsidiary.
The effective tax rate for the quarter ended September 30, 2002 and 2001 was
nominal due to the utilization of net operating loss carryforwards. As of
December 31, 2001, the Company retained an estimated loss carryforward of
approximately $16 million, which can be utilized in 2002 and subsequent years to
offset taxable income in those years.
Net income for the third quarter of 2002 was approximately $1.3 million or $0.03
cents per diluted share, which is a 54% decline compared to net income for third
quarter of 2001 of approximately $2.8 million or $0.08 per diluted share. The
diluted weighted average shares outstanding for the quarter ended September 30,
2002 were approximately 43.8 million as compared to approximately 35.7 million
diluted weighted average shares outstanding at September 30, 2001.
NINE MONTHS ENDED SEPTEMBER 30, 2002, COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2001.
For the nine months ended September 30, 2002, total revenues increased 44% to
approximately $97.8 million compared to approximately $67.7 million for the nine
months ended September 30, 2001. This growth represents continued demand across
all product lines in the Company's armor and sports divisions. The armor group's
revenue increased approximately 45% to $93.4 million for the nine months ended
September 30, 2002 as compared to approximately $64.2 million for the nine
months a year ago. The year to date sports group's revenue increased 28% to $4.4
million for 2002 as compared to $3.4 million for the nine months of 2001. The
Company's overall gross profit margin increased to 29.3% for the nine months
ended September 30, 2002 as compared to 26.4% for the same period last year.
Selling, general and administrative expenses increased to approximately 17% of
revenues, or $16.6 million for the nine months ended September 30, 2002 as
compared to 14.3% of revenues or $9.7 million for the equivalent period in 2001.
The primary reasons for the increase are the result of legal expenses associated
with the patent infringement lawsuit and legal and professional fees relating to
the union organizing efforts at the Company's Point Blank Body Armor facility.
In addition, certain other selling, general and administrative expenses
increased in conjunction with the increase in revenues for the nine months ended
September 30, 2002, which include higher research and development expenditures,
sales salaries and commissions.
Interest expense for the nine months ended September 30 2002 declined 22% to
approximately $1.5 million as compared to approximately $1.9 million for the
nine months ended September 30, 2001 as a result of lower cost of capital.
The effective tax rates for the first nine months of 2002 and 2001 were nominal
due to the utilization of net operating loss carryforwards. As of December 31,
2001, DHB retained an estimated loss carryforward of approximately $16 million,
which can be utilized in 2002 and subsequent years to offset taxable income in
those years.
For the nine months ended September 30, 2002, net income was a record $10.5
million or $0.24 per diluted share, while net income for the nine months ended
September 30, 2001 was approximately $6.1 million or $0.17 per diluted share, an
increase in net income of 71%. The weighted average shares outstanding on a
diluted basis for the first nine months of 2002 were 43.5 million as compared to
36.0 million for the first nine months of 2001.
10
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of liquidity are cash flows from operations and borrowings
under its $25 million credit facility with LaSalle Business Credit, Inc. On June
28, 2002, the Company signed an amendment to the LaSalle credit facility
increasing its $18.8 million revolving credit facility to $25 million. This
amendment significantly lowers DHB's overall cost of capital and interest
expense. The Company's primary capital requirements over the next twelve months
are to assist its subsidiaries, Point Blank Body Armor, Inc., Protective Apparel
Corporation of America (PACA) and NDL Products, Inc., in financing their working
capital requirements. Working capital is needed to finance the receivables,
manufacturing process and inventory. Working capital at September 30, 2002 was
approximately $38.2 million as compared to approximately $20.8 million at
December 31, 2001. Long-term debt decreased $3.7 million since December 31,
2001. The current ratio at September 30, 2002 was 4.0:1 as compared to 2.3:1 as
of December 31, 2001. At September 30, 2002, stockholders' equity was $24.8
million, which is 3.9 times higher than stockholders' equity as of December 31,
2001 of approximately $5.0 million.
For the three months ended September 30, 2002, there was $6 million of cash
provided by operations, which allowed the Company to reduce the outstanding
borrowings under the LaSalle credit facility to under $15 million as of
September 30, 2002. This reduced the cash used by operations for the nine months
ended September 30, 2002, to approximately $3.2 million as compared to cash used
by operating activities of approximately $2.7 million for the nine months ended
September 30, 2001. At September 30, 2002, the accounts receivable days
outstanding are averaging approximately 41 days.
11
PAYMENTS DUE BY PERIOD
Less
than 1-3 4-5 After
Contractual Obligations 1 year years years 5 years Total
_______________________ ______ _______ ______ _______ _______
Long-Term Debt $ 1 $16,359 $ -- $ -- $16,360
Employment Contract 712 1,965 -- -- 2,677
Operating Leases 896 2,618 1,387 2,133 7,034
______ _______ ______ ______ _______
Total Contractual Cash Obligations $1,609 $20,942 $1,387 $2,133 $26,071
====== ======= ====== ====== =======
CRITICAL ACCOUNTING POLICIES
The Company's significant accounting policies are described in Note 1 to the
consolidated financial statements included in Item 8 of the Company's Form 10-K
for the year ended December 31, 2001 filed with the Securities and Exchange
Commission on April 1, 2002 as amended by Form 10-K/A, filed on April 9, 2002.
The Company's management believes that its critical accounting polices include:
REVENUE RECOGNITION - The Company records product revenue at the time of
shipment. Returns are minimal and do not materially affect the Company's
financial statements.
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, liabilities and contingent assets and liabilities in the
financial statements and accompanying notes. Significant estimates inherent in
the preparation of the accompanying consolidated financial statements include
the carrying value of long-lived assets and allowances for receivables and
inventories. Actual results could differ from these estimates.
PROPERTIES
CORPORATE HEADQUARTERS. The Company's corporate headquarters are in a 3,750
square foot leased office located at 555 Westbury Avenue, Carle Place, NY 11514.
The lease expires on December 31, 2004.
PACA. The Company leases a 60,060 square foot manufacturing facility with
administrative offices at 179 Mine Lane, Jacksboro, Tennessee 37757, for its
subsidiary, PACA. The lease expires on April 15, 2006.
POINT BLANK/NDL FACILITY. The Company's subsidiary, Point Blank Body Armor
Inc., leases a 67,000 square foot office and manufacturing facility (the
"Oakland Park Facility") located at 4031 N.E. 12th Terrace, Oakland Park,
Florida 33334, from V.A.E. Enterprises ("V.A.E."), a partnership controlled by
Mrs. Terry Brooks, wife of Mr. David H. Brooks, and beneficially owned by Mr.
and Mrs. Brooks' minor children. The Company's subsidiary, NDL Products Inc.,
occupies a portion of the space in the Oakland Park Facility. The lease expires
on December 31, 2010. Management believes that the terms of the lease are no
less favorable to the Company than terms available from an unrelated third
party.
NDL WAREHOUSE. In October 2002, the Company entered into a two-year lease
for a 31,500 square foot warehouse adjacent to the Oakland Park, Facility from
an unrelated third party. This warehouse is located at 1201 NE 38th Street,
Oakland Park, Florida.
POINT BLANK INTERNATIONAL FACILITY. The Company's subsidiary, Point Blank
International S.A., leases a 5,700 square foot office and warehouse facility
located at Rue Leon Frederiq, 14, 4020 Liege, Belgium. This space is occupied
pursuant to a three-year lease expiring in March 2003 with options to renew for
an additional six years.
DC OFFICE. The Company opened a 2,192 square foot government and
international liaison and sales office at 1215 Jefferson Davis Highway,
Arlington, VA in May 2002. The lease expires on April 30, 2006.
12
EFFECT OF INFLATION AND CHANGING PRICES
The Company did not experience any measurable increases in raw material prices
during the three months ended September 30, 2002. The Company believes it will
be able to increase prices on its products to meet future price increases in raw
materials, should they occur.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains certain forward-looking statements and
information relating to the Company that is based on the beliefs of the
Company's management as well as assumptions made by, and information currently
available to the Company's management. When used in this document, the words
"anticipate," "believe," "estimate", "expect", "going forward", and similar
expressions, as they relate to the Company or Company management, are intended
to identify forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements reflect the current
views of the Company with respect to future events and are subject to certain
risks, uncertainties and assumptions, including, among others: risks associated
with the uncertainty of future financial results, additional financing
requirements, development of new products, government approval processes, the
impact of competitive products or pricing, technological changes, the effect of
economic conditions; and continuing industry-wide pricing pressures and other
industry conditions, as well as other risks and uncertainties, including without
limitation those set forth in other sections of this Form 10-Q, in the Company's
Annual Report on Form 10-K for the year ended December 31, 2001, and/or in the
Company's other documents filed with the Securities and Exchange Commission,
whether or not such documents are incorporated herein by reference. In assessing
forward-looking statements, readers are urged to read carefully all such
cautionary statements. Such forward-looking statements speak only as of the date
of this Form 10-Q, and the Company disclaims any obligation or undertaking to
update such statements. If one or more of these risks or uncertainties
materialize, or the underlying assumptions prove incorrect, actual results may
vary materially from those described herein as anticipated, believed, estimated
or expected.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not issue or invest in financial instruments or their
derivatives for trading or speculative purposes. The Company's market risk is
limited to fluctuations in interest rates as it pertains to its borrowings under
its $25 million credit facility with LaSalle. The Company can borrow at either
the prime rate of interest or LIBOR plus 2.50 percent. Any increase in these
reference rates could adversely affect the Company's interest expense. The
Company does not have any material sales, purchases, assets or liabilities
denominated in currencies other than the U.S. Dollar, and as such, is not
subject to foreign currency exchange rate risk.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of the filing of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as defined in Rules 13a-14 and
15d-14 of the Exchange Act. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated subsidiaries)
required to be included in the Company's periodic Securities and Exchange
Commission filings. No significant changes were made in the Company's internal
controls or in other factors that could significantly affect these internal
controls subsequent to the completion of their evaluation.
Disclosure controls and procedures are those controls and other procedures that
are designed to ensure that information required to be disclosed by the Company
in the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the Company's management, including the Company's principal executive officer
and principal financial officer, as appropriate to allow timely decisions
regarding required disclosure.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company filed a lawsuit in the Supreme Court of the State of New York,
County of Nassau against its insurance carrier as well as its insurance agent
for negligence and breach of fiduciary duties as a result of the damages the
Company suffered during Hurricane Irene in October 1999. The Company claims
damages of $9.4 million and is vigorously pursuing this action.
14
On or about June 21, 2001, American Body Armor and Equipment Inc. commenced
an action against the Company's subsidiary, PACA, in the United States District
Court of the Middle District of Florida. The Plaintiff claimed patent
infringement and sought damages. PACA filed an answer in this action and PACA
believed that the claimed patent was invalid and that PACA's products do not
infringe on plaintiff's patent. In September 2002, a joint resolution and
settlement was filed with the Court which will not have a material adverse
effect on the Company's business, results of operations, or financial position.
Other than as described in this Item 1. and in Item 5 hereof, the Company
is involved in other litigation, which management considers to be routine and
incidental to its business. Management does not expect the results of any of
these routine and incidental actions to have a material adverse effect on the
Company's business, results of operations or financial condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's annual meeting of stockholders was held on July
19, 2002.
(b) At the annual meeting, the Company's stockholders elected
David H. Brooks, Morton A. Cohen, Gary Nadelman, Dawn M.
Schlegel, and Jerome Krantz as Directors for a one-year term,
which expires at the annual meeting of stockholders in 2003.
(c) At the annual meeting, the Company's stockholders ratified the
appointment of Grant Thornton LLP as auditors of the Company
for 2002. The holders of approximately 37,191,427 million
shares of Common Stock voted to ratify the appointment, the
holders of 20,520 shares voted against the ratification,
and the holders of 3,050 shares abstained.
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ITEM 5. OTHER INFORMATION
On October 1, 2002, a shareholders derivative action was commenced in the
Supreme Court of the State of New York, County of Nassau on behalf of the
Company against the directors and officers of the Company and the Company as a
nominal defendant, by Plumbers & Pipefitters Local 112 Pension Fund,
derivatively on behalf of itself and all others similarly situated
("Plaintiff"). The complaint alleges that the individual defendants breached
their fiduciary duties, committed misrepresentations and abused their control.
The Plaintiff seeks judgment against all defendants for preliminary and
permanent relief, including injunctive relief, unspecified damages sustained by
the Company as a result of the alleged breaches of fiduciary duty, and punitive
damages. The individual defendants and the Company deny the wrongdoing alleged
in the complaint, and they intend to vigorously defend this lawsuit. The Company
maintains directors and officers liability insurance covering this type of
claim. At this time, it is not possible to reasonably determine whether this
lawsuit will have a material adverse effect on the Company's business, results
of operations or financial condition.
On or about October 30, 2002, the Company filed a lawsuit in the United
States District Court for the Southern District of Florida against certain union
leaders claiming defamation, conspiracy to defame and tortuous interference with
contractual and ongoing business relationships. The Company is vigorously
pursuing this action.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
99.1 Written Statement of the Chief Executive Officer Pursuant to
18 U.S.C.ss.1350, as adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Written Statement of the Chief Financial Officer Pursuant to
18 U.S.C.ss.1350, as adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
16
(B) REPORTS ON FORM 8-K
The Company has filed the following Reports on Form 8-K during the
quarter ended September 30, 2002:
Form 8-K filed July 12, 2002 to report the approval, on June 28, 2002,
from the Company's senior lender, LaSalle Business Credit, Inc., an ABN
AMRO Bank, N.V. affiliate ("LaSalle"), whereby LaSalle has increased
the Company's revolving credit facility $25 million.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned,
thereunto duly authorized.
Dated November 14, 2002 DHB INDUSTRIES, INC.
(Registrant)
SIGNATURE CAPACITY DATE
Chief Executive Officer
/s/ DAVID H. BROOKS and Chairman of the Board November 14, 2002
____________________
David H. Brooks
Chief Financial Officer and
/s/ DAWN M. SCHLEGEL Principal Accounting Officer November 14, 2002
____________________
Dawn M. Schlegel
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CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, David Brooks, Chairman and Chief Executive Officer of the Company certify
that:
1. I have reviewed this quarterly report on Form 10-Q of DHB Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
18
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ DAVID BROOKS
_____________________________________
David Brooks
President and Chief Executive Officer
19
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Dawn Schlegel, Chief Financial Officer of the Company certify that:
1. I have reviewed this quarterly report on Form 10-Q of DHB Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
20
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ DAWN SCHLEGEL
_____________________________________
Dawn Schlegel
Chief Financial Officer
21