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| CAW > SEC Filings for CAW > Form 10-Q on 10-Jul-2008 | All Recent SEC Filings |
10-Jul-2008
Quarterly Report
Except for historical information contained herein, this "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains forward-looking statements. These statements involve known and unknown
risks and uncertainties that may cause actual results or outcomes to be
materially different from any future results, performances or achievements
expressed or implied by such forward-looking statements, and statements which
explicitly describe such issues. Investors are urged to consider any statement
labeled with the terms "believes," "expects," "intends'" or "anticipates" to be
uncertain and forward-looking.
For the three-month period ended May 31, 2008, the Company had revenues of
$17,389,985 and net income of $790,692 after provision for taxes of $687,239.
For the same quarter in 2007, revenues were $18,457,562 and net income was
$1,292,921 after a provision for taxes of $1,034,928. Earnings per share were
$0.11 (diluted) for the second quarter 2008 as compared to earnings of $0.18
(diluted) for the second quarter 2007. In accordance with EITF 01-9, the Company
has accounted for certain sales incentives offered to customers by charging them
directly to sales as opposed to advertising and promotional expenses. Net sales
for the second quarter of 2008 were reduced by $1,513,218 and offset by an equal
reduction of trade promotional expenses, which were included in the Company's
advertising expense budget. In the same period of the prior year, gross sales
were reduced by $1,562,498 and trade promotion was credited by that amount.
These accounting adjustments under EIFT 01-9 do not affect net income.
The Company's net sales decreased from $18,227,413 for the three-month period
ended May 31, 2007 to $17,258,060 for the three-month period ended May 31, 2008.
Sales incentives for the second quarter of 2008 decreased $49,280 from the
second quarter of 2007. Gross sales were lower in the second quarter of 2008
versus the same period in 2007 due to less promotional events then last year. In
addition, sales of the Mega-T diet product were down. The Company attributes the
sales decline to the heavily advertised former prescriptive diet aid by a
leading pharmaceutical company. The Company will be introducing several new
unique diet aids in their fourth quarter in order to offset the recent sales
decline in their Mega-T diet aid sales. In addition, the Company will be
introducing a number of new SKUs to their other brands also in the upcoming
third and fourth quarters. Sales returns and allowances were 16.3% of gross
sales for the three-month period ended May 31, 2008 versus 16.6% for the same
period last year. Sales returns were lower, with $1,700,731 or 8.1% of gross
sales for the second quarter of 2008, versus $1,866,574 or 8.4% for the second
quarter of 2007. Gross profit margins decreased slightly to 63.3% from 63.4% for
the three months ended May 31, 2008 and May 31, 2007 respectively.
The Company's gross sales net of returns by category for the second quarter of
2008 were: Skin Care $6,679,954, 35.6%; Dietary Supplement $5,715,588, 30.5%;
Oral Care $4,485,228, 23.9%; Nail Care $1,928,950, 10.3%; Fragrance $254,349,
1.3%; and Miscellaneous $(292,791) -1.6%; for a total of $18,771,278. The
Company makes every effort to control the cost of manufacturing and has had no
substantial cost increases. Income before taxes is $1,477,930 as compared to
$2,327,849 for the same quarter in 2007. Returns and accounts receivable
reserves accounted for $1,897,017 that was expensed against earnings for the
second quarter of 2008.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) (CONTINUED)
Advertising media expenditures were $75,755 lower in the second quarter of 2008
versus the same period in 2007. The reduction in advertising expense was due to
the Company working to adjust its business model by decreasing the amount of its
media advertising and focusing more on co-operative advertising with its retail
partners. A major portion of the Company's co-operative advertising is
reclassified as a reduction of net sales. Included in advertising media expense
is the cost of newspaper inserts. In addition to the increased focus on
co-operative advertising, the Company has strategically allocated increased
funding for the newspaper inserts. This expense increased from $43,608 in the
second quarter of 2007 to $324,953 in the second quarter of 2008. The Company,
as part of its new strategy, has also redesigned portions of its web site. Web
design costs that were expensed as part of advertising media expenditures for
the second quarter of 2008 were $101,515. The Company did not have any web
design expenses for the second quarter of 2007.
The selling, general and administrative expenses for the second quarter of 2008
increased $562,776 to $5,785,682 from $5,222,906 in the second quarter 2007. The
increase was primarily due to increased shipping costs of $152,608, increased
royalties of $66,327, increased rent, utilities and warehouse expenses of
$58,400, decrease in costs allocated to costs of goods sold of $160,161,
increased legal and accounting of $17,046 and increased personnel costs of
$59,491. As part of its efforts to enhance its marketing strategy, the Company
has invested to increase the marketing staff. This has resulted in increased
personnel and related support costs. It is anticipated that the positive results
of this marketing investment will be seen in future periods. The Company had
rent expense for the Company's new additional warehouse facility at 99 Murray
Hill Parkway, East Rutherford, while still paying rent at its Lodi facility. The
lease at the Lodi facility ended on April 30, 2008. Earnings were impacted
during the second quarter of 2007 by transaction expenses related to the
proposed acquisition of the Company by Dubilier as disclosed in Note 13.
Transaction expenses incurred during the three month period ended May 31, 2007
were $405,238.
The effective tax rate for the second quarter of 2008 was 46.5% versus 44.5% for
the second quarter of 2007. The increase in the tax rate was primarily due to
the amount of non-deductible expenses and adjustments as a percentage of pre-tax
income, which for the second quarter of 2008 were $96,953 or 6.56% of pre-tax
income versus $105,185 or 4.52% of pre-tax income for the second quarter of
2007.
For the six month period ended May 31, 2008, the Company had revenues of
$31,261,025 and net income of $1,134,375 after provision for taxes of $871,023.
For the six month period ended May 31, 2007, revenues were $32,285,140 and net
income was $1,765,669 after a provision for taxes of $1,375,339. Earnings per
share were $0.16 (diluted) for the first half of 2008 as compared to earnings of
$0.25 (diluted) for the first half of 2007. In accordance with EITF 01-9, the
Company has accounted for certain sales incentives offered to customers by
charging them directly to sales as opposed to advertising and promotional
expenses. Net sales for the first half of 2008 were reduced by $2,814,157 and
offset by an equal reduction of trade promotional expenses, which were included
in the Company's advertising expense budget. In the same period of the prior
year, gross sales were reduced by $2,708,201 and trade promotion was credited by
that amount. These accounting adjustments under EIFT 01-9 do not affect net
income.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) (CONTINUED)
The Company's net sales decreased from $31,806,885 for the six month period
ended May 31, 2007 to $30,897,205 for the six month period ended May 31, 2008.
Sales incentives for the first half of 2008 increased $105,956 from the first
half of 2007. Gross sales were lower in the first half of 2008 versus the same
period in 2007 due to less promotional events then last year. In addition, sales
of the Mega-T diet product were down. The Company attributes the sales decline
to the heavily advertised former prescriptive diet aid by a leading
pharmaceutical company. The Company will be introducing several new unique diet
aids in their fourth quarter in order to offset the recent sales decline in
their Mega-T diet aid sales. In addition, the Company will be introducing a
number of new SKUs to their other brands also in the upcoming third and fourth
quarters. Sales returns and allowances were 15.6% of gross sales for the six
month period ended May 31, 2008 versus 16.3% for the same period last year.
Sales returns were lower, with $2,567,226 or 6.9% of gross sales for the first
half of 2008, versus $2,943,356 or 7.6% for the first half of 2007. Gross profit
margins increased to 63.7% from 63.1% for the six months ended May 31, 2008 and
May 31, 2007 respectively.
The Company's gross sales net of returns by category for the first half of 2008
were: Skin Care $11,335,108, 33.6%; Dietary Supplement $9,730,592, 28.9%; Oral
Care $8,541,268, 25.3%; Nail Care $3,964,698, 11.8%; Fragrance $442,710, 1.3%;
and Miscellaneous $(303,014) -0.9%; for a total of $33,711,362. The Company
makes every effort to control the cost of manufacturing and has had no
substantial cost increases. Income before taxes for the first half of 2008 was
$2,005,398 as compared to $3,141,008 for the first half of 2007. Returns and
accounts receivable reserves accounted for $2,966,433 that was expensed against
earnings for the first half of 2008.
Advertising media expenditures were $257,584 lower in the first half of 2008
versus the same period in 2007. The reduction in advertising expense was due to
the Company working to adjust its business model by decreasing the amount of its
media advertising and focusing more on co-operative advertising with its retail
partners. A major portion of the Company's co-operative advertising is
reclassified as a reduction of net sales. Included in advertising media expense
is the cost of newspaper inserts. In addition to the increased focus on
co-operative advertising, the Company has strategically allocated increased
funding for the newspaper inserts. This expense increased from $199,909 in the
first half of 2007 to $526,342 in the first half of 2008. The Company, as part
of its new strategy, has redesigned portions of its web site. Web design costs
that were expensed as part of advertising media expenditures for the first half
of 2008 were $101,515. The Company did not have any web design expenses for the
first half of 2007.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) (CONTINUED)
The selling, general and administrative expenses for the first half of 2008
increased $1,538,538 to $11,266,843 from $9,728,305 in the first half of 2007.
The increase was primarily due to increased shipping costs of $235,397,
increased royalties of $42,497, increased rent, utilities and warehouse expenses
of $82,799, increased computer costs of $62,850, increased consulting and
temporary help of $86,048, decrease in costs allocated to costs of goods sold of
$427,407, increased legal and accounting of $119,140 and increased personnel
costs of $195,842. As part of its efforts to enhance its marketing strategy, the
Company has invested to increase the marketing staff. This has resulted in
increased personnel and related support costs. It is anticipated that the
positive results of this marketing investment will be seen in future periods.
The Company had rent expense for the Company's new additional warehouse facility
at 99 Murray Hill Parkway, East Rutherford, while still paying rent at its Lodi
facility. The lease at the Lodi facility ended on April 30, 2008. Earnings were
impacted during the first half of 2007 by transaction expenses related to the
proposed acquisition of the Company by Dubilier as disclosed in Note 13.
Transaction expenses incurred during the six month period ended May 31, 2007
were $717,850.
The effective tax rate for the first half of 2008 was 43.4% versus 43.8% for the
first half of 2007. Changes to the tax rate are due in part to changes in the
deferred tax assets.
The Company's financial position as of May 31, 2008 consisted of current assets
of $35,785,400 and current liabilities of $11,232,404, or a current ratio of 3.2
to 1. Shareholders' equity decreased from $30,750,318 as of November 30, 2007 to
$30,436,227 as of May 31, 2008. The decrease was due to dividends declared of
$1,481,433 during the first half of 2008, while net income increased $1,134,375
and unrealized income increased $32,967.
The Company's cash and cash equivalents were $3,419,861 as of May 31, 2008, a
decrease of $3,324,099 from November 30, 2007. The decrease was mainly due to
the Company purchasing marketable securities and the payment of dividends. As of
May 31, 2008, the Company had $9,923,738 of short term marketable securities and
$4,755,615 of non-current securities. The Company's cash and cash equivalents
together with both short and long term marketable securities, net of current
liabilities were $6,866,810 as of May 31, 2008.
The Company's cash flow from operations provided net cash of $25,632 for the six
months ended May 31, 2008. For the six months ended May 31, 2007, net cash of
$555,765 was used in the Company's operations.
The Company's long term investments as of May 31, 2008 were $4,755,615. Please
refer to footnote No. 7 of the financial statements for further information
regarding the Company's investments.
Accounts receivable, net of reserves, were $11,173,564 as compared to $9,119,179
as of May 31, 2008 and November 30, 2007, respectively. The increase in accounts
receivable is due to the timing of the Company's sales. Inventories, net of
reserves, were $8,547,771 as of May 31, 2008 as compared to $7,857,322 as of
November 30, 2007. Inventory is higher to satisfy sales requirements for the
third quarter of 2008. Accounts payable and accrued expenses increased to
$10,401,493 as of May 31, 2008 from $8,354,458 as of November 30, 2007. The
Company was not utilizing any of the funds available under its $25,000,000
unsecured credit line as of May 31, 2008.
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