-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BTtJ2HXmdoPsk2odXjcV749Oaq9sPEr0EMb17MgRM6e5fzeWier2AW9ulWid9CAl wYsDGKDLB4NHOlMfSXE4eA== 0001092306-03-000215.txt : 20030514 0001092306-03-000215.hdr.sgml : 20030514 20030514170946 ACCESSION NUMBER: 0001092306-03-000215 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DHB INDUSTRIES INC CENTRAL INDEX KEY: 0000899166 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 113129361 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13112 FILM NUMBER: 03700025 BUSINESS ADDRESS: STREET 1: 555 WESTBURY AVE CITY: CARLE PLACE STATE: NY ZIP: 11514 BUSINESS PHONE: 5169971155 MAIL ADDRESS: STREET 1: 555 WESTBURY AVE CITY: CARLE PLACE STATE: NY ZIP: 11514 FORMER COMPANY: FORMER CONFORMED NAME: DHB CAPITAL GROUP INC /DE/ DATE OF NAME CHANGE: 19960518 10-Q 1 dhbform10q.txt FORM 10Q DATED 03-31-03 ================================================================================ 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. ================================================================================ 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 EX-99.1 3 exhibit99-1.txt CERTIFICATION PURSUANT TO 18 U.S.C. ... EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of DHB Industries, Inc. (the "Company") on Form 10-Q for the period ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David H. Brooks, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 9, 2003 By: /s/ DAVID H. BROOKS ______________________________ David H. Brooks Chairman and Chief Executive Officer This certification accompanies this Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. 20 EX-99.2 4 exhibit99-2.txt CERTIFICATION PURSUANT TO 18 U.S.C. ... EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of DHB Industries, Inc. (the "Company") on Form 10-Q for the period ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dawn M. Schlegel, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 9, 2003 By: /s/ DAWN M. SCHLEGEL ______________________________ Dawn M. Schlegel Chief Financial Officer This certification accompanies this Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. 21 -----END PRIVACY-ENHANCED MESSAGE-----