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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
March 31, 2003 Commission File No. 0-22429
DHB INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 11-3129361
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation) 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 [ X ] No [ ]
As of May 9, 2003, there were 40,413,746 shares of Common Stock, $.001 par value
outstanding.
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1
INDEX
PART I. FINANCIAL INFORMATION Page
____
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2003
(Unaudited) and December 31, 2002 3
Unaudited Condensed Consolidated Statements of Operations For
The Three Months Ended March 31, 2003 and 2002 4
Unaudited Condensed Consolidated Statements of Cash Flows For
The Three Months Ended March 31, 2003 and 2002 5
Notes to Unaudited Condensed Consolidated Financial Statements 6-12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
12-15
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
Item 4. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Certifications 19-20
2
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
DHB INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2003 (UNAUDITED) AND DECEMBER 31, 2002
(In thousands, except share and per share data)
March 31, December 31,
ASSETS 2003 2002
_________ ____________
Current assets
Cash and cash equivalents $111 $393
Accounts receivable, less allowance for doubtful
accounts of $1,070 and $1,070, respectively 31,822 22,904
Inventories 41,833 33,360
Deferred income tax assets 784 3,319
Prepaid expenses and other current assets 1,091 971
_______ _______
Total current assets 75,641 60,947
_______ _______
Property and equipment, net 1,879 1,620
_______ _______
Other assets
Other investment 942 942
Deferred income tax assets 1,402 1,402
Deposits and other assets 494 460
_______ _______
Total other assets 2,838 2,804
_______ _______
Total assets $80,358 $65,371
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $7,688 $5,368
Accrued expenses and other current liabilities 2,622 2,454
Capital lease obligation 13 --
_______ _______
Total current liabilities 10,323 7,822
_______ _______
Long term liabilities
Notes payable-bank 31,883 24,354
Note payable - stockholder 1,500 1,500
Other liabilities 380 350
_______ _______
Total liabilities 44,086 34,026
_______ _______
Commitments and contingencies
Stockholders' equity
Convertible preferred stock 1 1
Common stock 40 40
Additional paid in capital 34,792 34,792
Other comprehensive loss (43) (41)
Retained earnings (accumulated deficit) 1,482 (3,447)
_______ _______
Total stockholders' equity 36,272 31,345
_______ _______
Total liabilities and stockholders' equity $80,358 $65,371
======= =======
(See Notes to Condensed Consolidated Financial Statements)
3
DHB INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share data)
For the Three Months
Ended March 31,
2003 2002
____ ____
Net sales $46,153 $33,636
Cost of goods sold 33,185 24,182
_______ _______
Gross profit 12,968 9,454
Selling, general and administrative expenses 5,793 4,228
_______ _______
Income before other income (expense) 7,175 5,226
_______ _______
Other income (expense)
Interest expense (329) (464)
Proceeds from settlement of lawsuit 739 --
Other income 13 23
_______ _______
Total other income (expense) 423 (441)
_______ _______
Income from continuing operations before income taxes 7,598 4,785
Income taxes 2,579 27
_______ _______
Net income 5,019 4,758
Dividend - preferred stock (90) --
_______ _______
Income available to common stockholders $4,929 $4,758
======= =======
Earnings per common share:
Basic shares $0.12 $0.15
===== =====
Diluted shares $0.12 $0.11
===== =====
Weighted average shares outstanding:
Basic shares 40,413,746 31,486,391
Effect of convertible preferred 500,000 436,857
Warrants 1,871,742 9,799,655
__________ __________
Diluted shares 42,785,488 41,722,903
========== ==========
(See Notes to Condensed Consolidated Financial Statements)
4
DHB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands, except share and per share data)
For the Three Months
Ended March 31,
CASH FLOWS FROM OPERATING ACTIVITIES 2003 2002
____ ____
Income available to common stockholders $4,929 $4,758
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 132 138
Amortization of deferred financing costs 34 28
Other liabilities 30 --
Deferred income tax assets 2,535 --
Changes in operating assets and liabilities
Accounts receivable (8,918) (4,033)
Inventories (8,473) (6,469)
Prepaid expenses and other current assets (120) 711
Deposits and other assets (68) 65
Accounts payable 2,320 45
Accrued expenses and other current liabilities 168 436
_______ _______
Net cash used in operating activities (7,431) (4,321)
_______ _______
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (371) (77)
_______ _______
Net cash used in investing activities (371) (77)
_______ _______
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds of notes payable- bank 7,529 3,723
Payments of note payable- stockholder -- (3,000)
Principal payments on long-term debt (7) (142)
Proceeds from the issuance of common stock -- 800
Proceeds from the issuance of preferred stock -- 3,000
_______ _______
Net cash provided by financing activities 7,522 4,381
_______ _______
Effect of foreign currency translation (2) 8
_______ _______
Net decrease in cash and cash equivalents (282) (9)
Cash and cash equivalents at beginning of the period 393 145
_______ _______
Cash and cash equivalents at end of the period $111 $136
======= =======
Supplemental cash flow information
Cash paid for:
Interest $321 $463
==== ====
Taxes $44 $22
=== ===
Property and equipment acquired under capital lease $20 $--
=== ===
(See Notes to Condensed Consolidated Financial Statements)
5
DHB INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of DHB
Industries, Inc. and subsidiaries (collectively "DHB" or the "Company") as of
March 31, 2003 and for the three months ended March 31, 2003 and 2002 have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("US GAAP"). 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 US GAAP 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, 2002 filed with the
Securities and Exchange Commission on March 31, 2003.
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:
MARCH 31, DECEMBER 31,
2003 2002
_________ ____________
Raw materials and supplies 13,887 $14,833
Work in process 12,041 9,116
Finished goods 15,905 9,411
_______ _______
$41,833 $33,360
======= =======
NOTE 3. LONG TERM DEBT
On September 24, 2001, the Company entered into a Loan and Security Agreement
(the "Credit Agreement"), as amended on June 28, 2002 and February 25, 2003,
which expires on September 24, 2004. Pursuant to the Credit Agreement, the
Company may borrow up to the lesser of (i) $35,000 during the period commencing
on February 18, 2003 and ending on August 31, 2003, $30,000 during the period
commencing on September 1, 2003 and ending on November 30, 2003, and $25,000 at
all times on and after December 1, 2003, or (ii) 85% of eligible accounts
receivable plus the lesser of $14,000 or certain percentages of eligible
inventory, as defined. Borrowings under the Credit Agreement bear interest, at
the Company's option, at the bank's prime rate or LIBOR plus 2 1/2% per annum
(4.25% and 3.928% at March 31, 2003 and December 31, 2002, respectively).
6
DHB INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
NOTE 4. STOCK BASED COMPENSATION
Warrants
During the three months ended March 31, 2003, the five members of the Board of
Directors were each awarded 50,000 warrants exercisable at $1.41 per share for
five years. In addition, during the three months ended March 31, 2003, the Board
of Directors awarded key employees 45,000 warrants exercisable at $2.01 per
share, which expire in February 2008.
No warrants were exercised during the three months ended March 31, 2003. During
the three month period ended March 31, 2002, warrants were exercised to purchase
383,333 shares of the Company's common stock. Pursuant to such warrant exercises
during the three months ended March 31, 2003, the Company received aggregate
cash proceeds of approximately $800.
Warrants to purchase 1,325,857 and 150,000 shares of the Company's common stock
that were outstanding during the three months ended March 31, 2003 and 2002,
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.
The Company accounts for stock-based compensation using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations ("APB
No. 25") and has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure, an amendment of FASB Statement No. 123" (SFAS No.
148"). Under APB No. 25, compensation expense is only recognized when the market
value of the underlying stock at the date of grant exceeds the amount an
employee must pay to acquire the stock. Accordingly, no compensation expense has
been recognized in the Condensed Consolidated Financial Statements in connection
with employee stock warrant grants.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options and warrants which have no vesting restrictions and
are fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock warrants have characteristics significantly
different from those of traded warrants and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock warrants.
The weighted-average warrant fair values and assumptions used to estimate these
values are as follows:
7
DHB INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
NOTE 4. STOCK BASED COMPENSATION - (Continued)
Grants Issued During
2003 2002
____ ____
Risk-free interest rate 3.942% 4.67%
Expected volatility of common stock 118.795% 94.5467%
Dividend yield 0.00% 0.00%
Expected option term 5 years 5.14 years
The Company's net income and earnings per share would have been reduced to the
pro forma amounts shown below if compensation cost had been determined based on
the fair value at the grant dates in accordance with SFAS No. 123 and 148,
"Accounting for Stock-Based Compensation."
For the Three Months
Ended March 31,
2003 2002
____ ____
Income available to common stockholders, as reported $4,929 $4,758
Deduct: compensation determined under fair value based
method for all awards, net of related tax effect 247 665
______ ______
Pro forma 4,682 4,093
______ ______
Basic earnings per common share
As reported $0.12 $0.15
Pro forma $0.12 $0.13
Diluted earnings per common share
As reported $0.12 $0.11
Pro forma $0.11 $0.10
Pro forma compensation expense may not be indicative of pro forma expense in
future years. For purposes of estimating the fair value of each warrant on the
date of grant, the Company utilized the Black-Scholes option-pricing model.
NOTE 5. OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income (loss) is comprised solely of foreign
currency translation losses at March 31, 2003 and 2002. The components of other
comprehensive income, net of taxes, were as follows:
Three months ended
March 31 March 31
2003 2002
______ ______
Income available to common stockholders $4,929 $4,758
Other comprehensive income (loss):
Foreign currency translation, net of tax (2) 8
______ ______
Comprehensive income $4,927 $4,766
====== ======
8
DHB INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED 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,
depreciation expense, interest expense, income taxes, and identifiable assets
for each of the Company's segments are as follows:
For The Three Months
Ended March 31,
NET SALES 2003 2002
____ ____
Ballistic-resistant equipment $44,619 $32,156
Protective athletic & sports products 1,534 1,480
_______ _______
Consolidated net sales $46,153 $33,636
======= =======
INCOME FROM OPERATIONS
Ballistic-resistant equipment $ 7,995 $5,744
Protective athletic & sports products 233 208
Corporate and other (1) (1,053) (726)
_______ _______
Consolidated operating income $ 7,175 $5,226
======= ======
DEPRECIATION EXPENSE
Ballistic-resistant equipment $ 72 $ 78
Protective athletic & sports products 14 31
_______ _______
86 109
Corporate and other 46 29
_______ _______
Consolidated depreciation expense $132 $138
======= =======
INTEREST EXPENSE
Ballistic-resistant equipment $ 284 $160
Protective athletic & sports products -- --
_______ _______
284 160
Corporate and other (2) 45 304
_______ _______
Consolidated interest expense $ 329 $ 464
======= ======
INCOME TAXES
Ballistic-resistant equipment $ 5 $ 5
Protective athletic & sports products -- --
_______ _______
5 5
Corporate and other (2) 2,574 22
_______ _______
Consolidated tax expense $2,579 $ 27
======= ======
9
DHB INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
NOTE 6. SEGMENT INFORMATION - (Continued)
March 31, December 31,
2003 2002
____ ____
IDENTIFIABLE ASSETS
Ballistic-resistant equipment $72,683 $56,471
Protective athletic & sports products 3,512 2,907
_______ _______
76,195 59,378
Corporate and other (2) 4,163 5,993
_______ _______
Consolidated net assets $80,358 $65,371
======= =======
(1) Corporate and other expenses includes corporate general and
administrative expenses.
(2) Corporate and other assets are principally deferred income tax assets,
other investment and property and equipment.
NOTE 7. CONTINGENCIES
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 the past several months, the UNITE Union, as part of its unsuccessful
organizing campaign, has filed three unfair labor practice charges against the
Company with the National Labor Relations Board ("NLRB"). The NLRB has completed
its investigation of the first of these charges and found it to be without
merit. The NLRB is currently investigating the remaining two charges. The
Company is confident it has not breached any provision of the National Labor
Relations Act.
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"). This case was dismissed with prejudice on March 13, 2003, without
liability to the Company or its officers or directors. The Company is seeking
dismissal of another identical suit brought on behalf of a second shareholder on
the same grounds that required dismissal in the other suit. The Company
maintains $10 million of directors and officers' liability insurance covering
this type of claim.
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 tortious interference
with contractual and ongoing business relationships. The case is still in its
preliminary stages, and the Company is vigorously pursuing this action.
10
DHB INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
NOTE 7. CONTINGENCIES - (Continued)
The Company has filed a lawsuit in the Supreme Court of the State of New York,
County of Nassau, against its insurance carrier and an insurance agent, for
negligence and breach of fiduciary duties as a result of damages the Company
incurred during Hurricane Irene in October 1999. The Company is vigorously
pursuing this action. On March 17, 2003, the Company entered into a settlement
agreement with its insurance agent for a $1.0 million payment to the Company.
The Company received a cash payment of approximately $739,000, which is net of
the associated legal fees of $261,000. The $739,000 received by the company is
included in other income during the three months ended March 31, 2003. The
lawsuit against the insurance carrier has been scheduled for trial in the fall
of 2003.
NOTE 8. RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2002, the Financial Accounting Standards Board ("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 did not 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 did not have a material impact on the Company's
financial position or results of operations.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, including Indirect Guarantees of
Indebtedness of Others," which expands previously issued accounting guidance and
disclosure requirements for certain guarantees. The interpretation requires an
entity to recognize an initial liability for the fair value of an obligation
assumed by issuing a guarantee. The provision for initial recognition and
measurement of the liability will be applied on a prospective basis to
guarantees issued or modified after December 31, 2002. The impact of the
adoption of FIN No. 45 did not have a material impact on its consolidated
financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure- an amendment of FASB Statement No.
123," which provides optional transition guidance for those companies electing
to voluntarily adopt the accounting provisions of
11
SFAS No. 123. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS 123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. The Company does not plan
to change its method of accounting for stock-based employee compensation. The
Company has adopted the interim disclosure provision for its financial reports,
for the quarter ended March 31, 2003. The adoption of SFAS No. 148, has not had
and is not expected to have a material impact on the Company financial position
or results of operation.
In January 2003, the FASB issued FASB Interpretation No. 46 "Consolidation of
Variable Interest Entities" ("FIN 46"). In general, a variable interest entity
is a corporation, partnership, trust, or any other legal structure used for
business purposes that either (a) does not have equity investors with voting
rights or (b) has equity investors that do not provide sufficient financial
resources for the entity to support its activities. A variable interest entity
often holds financial assets, including loans or receivables, real estate or
other property. A variable interest entity may be essentially passive or it may
engage in activities on behalf of another company. Until now, a company
generally has included another entity in its consolidated financial statements
only if it controlled the entity through voting interests. FIN 46 changes that
by requiring a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's residual
returns or both. FIN 46's consolidation requirements apply immediately to
variable interest entities created or acquired after January 31, 2003. The
consolidation requirements apply to older entities in the first fiscal year or
interim period beginning after June 15, 2003. Certain of the disclosure
requirements apply in all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established. The Company
adopted FIN 46 effective January 31, 2003. The adoption of FIN 46 has not had
and is not expected to have a material impact on the Company's consolidated
financial condition or results of operations taken as a whole.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003, COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2002
Primarily as a result of increased product demand at the Company's Armor Group,
the Company attained its highest consolidated net sales level in its history for
the three months ended March 31, 2003 of approximately $46.15 million, an
increase of 37% over consolidated net sales of $33.64 million for the three
months ended March 31, 2002. The Armor's Group's revenue increased nearly 39%
from $32.16 million for the three months ended March 31, 2002 to $44.62 million
for the three months ended March 31, 2003. The Sports Group's revenue for the
first quarter of 2003 increased 3% to $1.53 million, as compared to $1.48
million for the first quarter of 2002. Gross profit for the quarters ended March
31, 2003 and 2002 remained constant at 28% of revenues.
12
Comparing the first quarter of 2003 to the first quarter of 2002, the Company's
selling, general and administrative expenses as a percentage of sales remained
constant at approximately 13%. Driven primarily by the sales increases,
operating income increased to approximately $7.18 million for the first three
months of 2003 versus approximately $5.23 million for the first three months of
2002.
Interest expense for the three months ended March 31, 2003 was approximately
$329,000, a decrease of 29% from the corresponding 2002 period. This decrease
was due primarily to lower interest rates under the Company's revolving credit
facility. In March 2003, the Company signed a settlement agreement with its
insurance agent settling the lawsuit with its insurance agent for $1.0 million.
The Company received approximately $739,000, which is net of the associated
legal fees of $261,000. This $739,000 is included in other income during the
three months ended March 31, 2003. The Company still has pending its lawsuit
against the insurance carrier.
Due primarily to the increased sales volume, income before taxes was
approximately $7.60 million for the three months ended March 31, 2003 versus
income before taxes of approximately $4.79 million for the three months ended
March 31, 2002. Income taxes for the three months ended 2003 was $2.58 million
as compared to $27,000 for the three months ended March 31, 2002. The effective
tax rate for 2002 was nominal due to the utilization of net operating loss
carryforwards. The Company recorded a deferred tax asset in the fourth quarter
of 2002, which valued the net operating loss carryforward as a deferred tax
asset of $2.84 million at December 31, 2002.
Income available to common stockholders was $4.93 million for the three months
ended March 31, 2003 or $0.12 per diluted share as compared with income
available to common stockholders of $4.76 million or $0.11 per diluted share for
the three months ended March 31, 2002. The weighted average shares outstanding
on a diluted basis for the first three months of 2003 were 42,785,488 as
compared to 41,722,903 for the first three months of 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of liquidity are borrowings under its revolving credit
facility. On February 25, 2003, the Company signed an amendment to the credit
facility increasing the facility to $35 million (gradually decreasing to $25
million by November 30, 2003). 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 required to
finance the receivables, manufacturing process and inventory. Working capital at
March 31, 2003 was approximately $65.32 million as compared to approximately
$53.13 million at December 31, 2002. The current ratio at March 31, 2003 was
7.3:1 as compared to 7.8:1 as of December 31, 2002. At March 31, 2003,
stockholders' equity was $36.27 million, up from $31.35 million as of December
31, 2002.
In conjunction with the expansion of the Company's operations and revenues, the
Company used approximately $7.43 million of cash in its operating activities.
The primary factor contributing to this was the $8.92 million increase in
accounts receivable and $8.47 million increase in inventories which was offset
by the income available to common stockholders of $4.93 million,
13
an increase in accounts payable of $2.32 million and a decrease in deferred
taxes of $2.54 million. Although inventory increased in total, raw materials
inventory decreased by almost $1.0 million. Work in process increased by $2.93
million and finished goods increased by $6.49 million. The increase in work in
process and finished goods represent increased orders and shipments to the Armor
Group's customers. These increases were funded by increased borrowings under the
Company's credit facility. At March 31, 2003, the accounts receivable days
outstanding averaged approximately 61 days.
EFFECT OF INFLATION AND CHANGING PRICES
The Company did not experience any measurable increases in raw material prices
during the three months ended March 31, 2003. 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, 2002, 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 if the underlying assumptions prove incorrect, actual results
may vary materially from those described herein as anticipated, believed,
estimated or expected.
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 revolving credit facility. 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.
14
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 has filed a lawsuit in the Supreme Court of the State of New
York, County of Nassau, against its insurance carrier and an insurance agent,
for negligence and breach of fiduciary duties as a result of damages the Company
incurred during Hurricane Irene in October 1999. The Company is vigorously
pursuing this action. On March 17, 2003, the Company entered into a settlement
agreement with its insurance agent for a $1.0 million payment to the Company.
The Company received a cash payment of approximately $739,000, which is net of
the associated legal fees of $261,000. The $739,000 received by the company is
included in other income during the three months ended March 31, 2003. The
lawsuit against the insurance carrier has been scheduled for trial in the fall
of 2003.
In the past several months, the UNITE Union, as part of its unsuccessful
organizing campaign, has filed three unfair labor practice charges against the
Company with the National Labor Relations Board ("NLRB"). The NLRB has completed
its investigation of the first of these charges and found it to be without
merit. The NLRB is currently investigating the remaining two charges. The
Company is confident it has not breached any provision of the National Labor
Relations Act.
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"). This case was dismissed with prejudice on March 13, 2003, without
liability to the Company or its officers or directors. The Company is seeking
dismissal of another identical suit brought on behalf of a second shareholder on
the same grounds that required dismissal in the other suit. The Company
maintains $10 million of directors and officers' liability insurance covering
this type of claim.
15
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 tortious interference
with contractual and ongoing business relationships. The case is still in its
preliminary stages, and the Company is vigorously pursuing this action.
The Company is also involved in other litigation, which management
considers to be routine and incidental to the Company's 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
None
ITEM 5. OTHER INFORMATION
None
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
(B) REPORTS ON FORM 8-K
The Company filed the following Report on Form 8-K during the quarter
ended March 31, 2003:
Form 8-K filed February 25, 2003 to report an amendment and increase of
the Company's revolving credit facility.
16
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 May 9, 2003 DHB INDUSTRIES, INC.
(Registrant)
SIGNATURE CAPACITY DATE
Chief Executive Officer May 9, 2003
/s/ DAVID H. BROOKS and Chairman of the Board
____________________
Chief Financial Officer and Principal May 9, 2003
/s/ DAWN M. SCHLEGEL Accounting Officer
____________________
17
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, David H. 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 officer 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 officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer 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: May 9, 2003
/s/ DAVID H. BROOKS
___________________
David H. Brooks
President and Chief Executive Officer
18
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Dawn M. 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 officer 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 officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer 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: May 9, 2003
/s/ DAWN M. SCHLEGEL
_______________________
Dawn M. Schlegel
Chief Financial Officer
19