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| CAW > SEC Filings for CAW > Form 10-Q on 14-Oct-2008 | All Recent SEC Filings |
14-Oct-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 August 31, 2008, the Company had revenues of
$14,148,729 and net income of $1,101,240 after provision for taxes of $737,733.
For the same quarter in 2007, revenues were $14,266,083 and net income was
$2,069,604 after a provision for taxes of $1,409,470. Earnings per share were
$0.16 (diluted) for the third quarter 2008 as compared to earnings of $0.29
(diluted) for the third 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 third quarter of 2008 were reduced by $856,218 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 $1,424,966 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 slightly from $13,939,369 for the three-month
period ended August 31, 2007 to $13,939,214 for the three-month period ended
August 31, 2008. Sales incentives for the third quarter of 2008 decreased
$568,748 from the third quarter of 2007. Sales of the Mega-T diet product were
lower than expected. 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 the fourth quarter
in order to offset the recent sales decline in the Mega-T diet aid sales. In
addition, the Company will also be introducing a number of new SKUs to their
other brands in the upcoming fourth quarter. Sales returns and allowances were
16.1% of gross sales for the three-month period ended August 31, 2008 versus
16.7% for the same period last year. Sales returns were higher, with $1,605,344
or 9.5% of gross sales for the third quarter of 2008, versus $1,131,848 or 6.7%
for the third quarter of 2007. Gross profit margins decreased to 62.3% from
64.6% for the three months ended August 31, 2008 and August 31, 2007
respectively. The gross margin was affected by the higher level of returns in
the third quarter of 2008 versus the same period in 2007.
The Company's gross sales net of returns and allowances by category for the
third quarter of 2008 were: Dietary Supplement $5,076,025, 33.9%; Skin Care
$4,293,548, 28.7%; Oral Care $3,688,602, 24.7%; Nail Care $1,612,984, 10.8%;
Fragrance $274,798, 1.8%; and Miscellaneous $4,626, 0.1%; for a total of
$14,950,583. The Company makes every effort to control the cost of manufacturing
and has had no substantial cost increases. Income before taxes is $1,839,153 as
compared to $3,479,074 for the same quarter in 2007. Returns and accounts
receivable reserves accounted for $1,698,459 that was expensed against earnings
for the third quarter of 2008 as opposed to $1,247,048 that was expensed for the
same period in 2007.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) (CONTINUED)
Advertising media expenditures were $1,299,435 in the third quarter of 2008
versus $154,376 in the same period in 2007, or an increase of $1,145,059. 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. The Company, as part of its advertising strategy, redesigned
portions of its consumer web site and advertised on the internet. Most of the
advertising expense in the third quarter of 2008 was for web advertising for the
Bikini Zone brand.
The selling, general and administrative expense for the third quarter of 2008
was $5,648,115 versus $5,522,600 in the third quarter 2007. The increase was
primarily due to increased charitable donations of inventory, shipping costs,
sales commissions, and legal and accounting fees for the registration of the
Company's international trademarks. As part of its efforts to enhance its
marketing strategy, the Company has invested in the increase of its 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 effective tax rate for the third quarter of 2008 was 40.1% versus 40.5% for
the third quarter of 2007. The decrease in the tax rate was primarily due to an
increase in the amount of deferred tax deductions during the third quarter of
2008 versus the same period in 2007.
For the nine month period ended August 31, 2008, the Company had revenues of
$45,409,755 and net income of $2,235,795 after provision for taxes of
$1,608,756. For the nine month period ended August 31, 2007, revenues were
$46,551,224 and net income was $3,835,276 after a provision for taxes of
$2,784,809. Earnings per share were $0.32 (diluted) for the first three quarters
of 2008 as compared to earnings of $0.54 (diluted) for the first three quarters
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 three
quarters of 2008 were reduced by $3,825,525 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 $4,308,867 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 $45,746,254 for the nine month period
ended August 31, 2007 to $44,836,421 for the nine month period ended August 31,
2008. Gross sales were lower in the first three quarters 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 the fourth quarter in order to offset the recent sales decline in their
Mega-T diet aid sales. In addition, the Company will also be introducing a
number of new SKUs to their other brands in the upcoming fourth quarter. Sales
returns and allowances were 15.8% of gross sales for the nine month period ended
August 31, 2008 versus 16.4% for the same period last year. Sales returns were
higher, with $4,172,570 or 7.8% of gross sales for the first three quarters of
2008, versus $4,075,204 or 7.4% for the same three quarters of 2007. Gross
profit margins decreased slightly to 63.2% from 63.5% for the nine months ended
August 31, 2008 and August 31, 2007 respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) (CONTINUED)
The Company's gross sales net of returns by category for the first three
quarters of 2008 were: Skin Care $15,628,657, 32.1%; Dietary Supplement
$14,806,617, 30.4%; Oral Care $12,229,870 25.1%; Nail Care $5,577,687, 11.5%;
Fragrance $717,508, 1.5%; and Miscellaneous $(298,389) -0.6%; for a total of
$48,661,950. The Company makes every effort to control the cost of manufacturing
and has had no substantial cost increases. Income before taxes for the first
three quarters of 2008 was $3,844,551 as compared to $6,620,085 for the first
three quarters of 2007. Returns and accounts receivable reserves accounted for
$4,664,892 that was expensed against earnings for the nine month period ended
August 31, 2008 versus $4,527,961 for the same period in 2007.
Advertising media expenditures were $7,710,677 for the nine month period ended
August 31, 2008 versus $6,823,807 for the nine month period ended August 31,
2007, or an increase of $886,870. The increase in advertising expense was due to
the Company continuing to work to adjust its business model by advertising on
internet web sites. The increased amount was spent on Bikini Zone web
advertising. 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 an increased focus on
co-operative advertising, the Company has strategically allocated increased
funding for the newspaper inserts. This expense increased from $207,625 in the
first three quarters of 2007 to $542,441 in the first three quarters 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 three quarters of 2008 were $133,615. The Company did
not have any web design expenses for the first three quarters of 2007.
The selling, general and administrative expenses for the nine month period ended
August 31, 2008 were $16,914,888 versus $15,250,296 for the same period in 2007.
The increase was primarily due to increased charitable donations of inventory of
$396,062, increased shipping costs of $301,319, increased sales commissions and
selling expenses of $170,357, increased royalties of $99,576, increased computer
costs of $61,348, decrease in costs allocated to costs of goods sold of
$241,124, increased legal and accounting of $89,619 primarily for the
registration of the Company's international trademarks and increased personnel
costs of $242,299. As part of its efforts to enhance its marketing strategy, the
Company has invested in the increase of its 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.
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 14. Transaction expenses incurred during the nine month period ended
August 31, 2007 were $717,850.
The effective tax rate for the first nine months of 2008 was 41.8% versus 42.1%
for the first nine months 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 August 31, 2008 consisted of current
assets of $34,409,921 and current liabilities of $8,657,593, or a current ratio
of 4.0 to 1. Shareholders' equity decreased from $30,750,318 as of November 30,
2007 to $30,515,556 as of August 31, 2008. The decrease was due to dividends
declared of $2,257,422 during the nine months of 2008, while net income
increased $2,235,795 and unrealized income decreased $213,136.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) (CONTINUED)
The Company's cash and cash equivalents were $5,121,420 as of August 31, 2008, a
decrease of $1,622,540 from November 30, 2007. The decrease was mainly due to
the Company purchasing marketable securities, capital expenditures and the
payment of dividends. As of August 31, 2008, the Company had $9,444,177 of short
term marketable securities and $3,675,000 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 $9,583,008 as of
August 31, 2008.
The Company's cash flow from operations provided net cash of $1,188,175 for the
nine months ended August 31, 2008. For the nine months ended August 31, 2007,
net cash of $1,657,016 was provided by the Company's operations.
The Company's long term investments as of August 31, 2008 were $3,675,000.
Please refer to footnote No. 7 of the financial statements for further
information regarding the Company's investments.
Accounts receivable, net of reserves, were $8,280,323 as compared to $9,119,179
for August 31, 2008 and November 30, 2007, respectively. Inventories, net of
reserves, were $8,845,081 for August 31, 2008 as compared to $7,857,322 for
November 30, 2007. Inventory is higher to satisfy sales and customer
requirements for the fourth quarter of 2008. Accounts payable and accrued
expenses decreased to $7,825,152 for August 31, 2008 from $8,354,458 for
November 30, 2007. The Company was not utilizing any of the funds available
under its $20,000,000 unsecured credit line as of August 31, 2008.
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