FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended August 31, 2003 Commission File Number 2-85538 CCA INDUSTRIES, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 04-2795439 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification Number) 200 Murray Hill Parkway East Rutherford, NJ 07073 (Address of principal executive offices) (Zip Code) (201) 330-1400 Registrant's telephone number, including area code Not applicable Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock, $.01 Par Value - 6,318,614 shares as of August 31, 2003 Class A Common Stock, $.01 Par Value - 958,230 shares as of August 31, 2003 CCA INDUSTRIES, INC. AND SUBSIDIARIES INDEX Page Number PART I FINANCIAL INFORMATION: Consolidated Balance Sheets as of August 31, 2003 and November 30, 2002. . . . . . . . . . . . 1-2 Consolidated Statements of Operations for the three months and nine months ended August 31, 2003 and 2002 . . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Comprehensive Income for the three months and nine months ended August 31, 2003 and 2002 . . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows for the nine months ended August 31, 2003 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . 5-6 Notes to Consolidated Financial Statements . . . . . . . . .7-17 Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . 18-19 PART II OTHER INFORMATION AND REPORTS ON FORM 8-K. . . . . . . 20-21 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18, UNITED STATES CODE, SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 . . . . . . . . . . . . . .23 CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18, UNITED STATES CODE, SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 . . . . . . . . . . . . . .24 CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
A S S E T S August 31, November 30, 2003 2002 Current Assets Cash and cash equivalents $ 3,677,532 $ 1,585,647 Short-term investments and marketable securities 3,281,204 3,479,544 Accounts receivable, net of allowances of $1,239,409 and $1,222,408, respectively 6,890,495 6,265,955 Inventories 5,791,287 3,743,131 Prepaid expenses and sundry receivables 438,731 363,457 Deferred income taxes 1,167,258 1,287,568 Prepaid income taxes and refunds due - 1,703 Deferred advertising 1,253,588 - Total Current Assets 22,500,095 16,727,005 Property and Equipment, net of accumulated depreciation and amortization 774,705 720,739 Intangible Assets, net of accumulated amortization of $215,151 at August 31, 2003 and $179,134 at November 30, 2002 544,243 577,414 Other Assets Marketable securities 7,180,453 6,723,518 Other 46,488 56,388 Total Other Assets 7,226,941 6,779,906 Total Assets $31,045,984 $24,805,064
See Notes Consolidated to Financial Statements. -1- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY August 31, November 30, 2003 2002 Current Liabilities Accounts payable and accrued liabilities $ 6,372,225 $ 5,284,109 Income taxes payable 1,353,704 178,690 Total Current Liabilities 7,725,929 5,462,799 Subordinated Debentures 497,656 501,656 Deferred Income Taxes 11,500 5,186 Shareholders' Equity Preferred stock, $1.00 par; authorized 20,000,000 shares; none issued Common stock, $.01 par; authorized 15,000,000 shares; issued 6,592,669 and 6,440,523 shares, respectively 65,927 64,405 Class A common stock, $.01 par; authorized 5,000,000 shares; 958,230 and 973,230 shares issued and outstanding, respectively 9,582 9,732 Additional paid-in capital 3,831,424 3,832,796 Retained earnings 19,463,373 15,389,415 Unrealized (losses) on marketable securities ( 200,701) ( 107,990) 23,169,605 19,188,358 Less: Treasury Stock (274,055 and 271,155 shares at August 31, 2003 and November 30, 2002, respectively) 358,706 352,935 Total Shareholders' Equity 22,810,899 18,835,423 Total Liabilities and Shareholders' Equity $31,045,984 $24,805,064
See Notes to Consolidated Financial Statements. -2- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) Three Months Ended Nine Months Ended August 31, August 31, 2003 2002 2003 2002 Revenues Sales of Health and Beauty Aid Products - Net $12,739,346 $11,391,258 $42,541,384 $34,763,488 Other income 113,191 120,056 437,185 307,367 12,852,537 11,511,314 42,978,569 35,070,855 Costs and Expenses Costs of sales 4,030,837 3,559,990 13,793,977 11,724,634 Selling, general and administrative expenses 4,195,547 4,039,125 13,232,809 11,640,576 Advertising, cooperative and promotions 2,404,560 2,536,666 7,760,818 7,658,588 Research and development 229,477 184,203 661,250 412,264 Provision for doubtful accounts ( 16,394) 6,287 216,499 ( 139,874) Interest expense 8,010 8,688 23,808 25,923 10,852,037 10,334,959 35,689,161 31,322,111 Income before Provision for Income Taxes 2,000,500 1,176,355 7,289,408 3,748,744 Provision for Income Taxes 713,375 453,533 2,844,562 1,507,873 Net Income $ 1,287,125 $ 722,822 $ 4,444,846 $ 2,240,871 Earnings per Share Basic $.18 $.10 $.61 $.32 Diluted $.17 $.10 $.59 $.30
See Notes to Consolidated Financial Statements. -3- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED) Three Months Ended Nine Months Ended August 31, August 31, 2003 2002 2003 2002 Net Income $1,287,125 $ 722,822 $4,444,846 $2,240,871 Other Comprehensive Income Unrealized holding gains (loss) on investments ( 109,960) 46,326 ( 92,711) 37,877 Provision (Benefit) for Taxes ( 39,212) 18,591 ( 36,179) 15,229 Other Comprehensive Income - Net ( 70,748) 27,735 ( 56,532) 22,648 Comprehensive Income $1,216,377 $ 750,557 $4,388,314 $2,263,519 Earnings Per Share: Basic $.17 $.11 $.61 $.32 Diluted $.16 $.10 $.58 $.30
See Notes to Consolidated Financial Statements. -4- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) Nine Months Nine Months Ended Ended August 31, August 31, 2003 2002 Cash Flows from Operating Activities: Net income $4,444,846 $2,240,871 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 275,301 275,175 (Gain) loss on sale of marketable securities and repurchase of debentures ( 22,758) 437 Decrease in deferred income taxes 126,624 126,650 (Increase) in accounts receivable - Net ( 624,540) ( 1,401,060) (Increase) decrease in inventory ( 2,048,156) 241,152 (Increase) decrease in prepaid expenses and miscellaneous receivables ( 75,274) 130,086 (Increase) in deferred advertising ( 1,253,588) ( 944,111) Increase in accounts payable and accrued liabilities 1,088,116 2,425,044 Increase in taxes payable 1,175,014 342,124 Decrease in other assets 9,900 - Decrease in prepaid income taxes and refunds due 1,703 220,286 Net Cash Provided by Operating Activities 3,097,188 3,656,654 Cash Flows from Investing Activities: Acquisition of property, plant and equipment ( 293,250) ( 442,160) Acquisition of intangible assets ( 2,846) ( 2,946) Proceeds of money due from officers - 2,070 Purchase of marketable securities ( 5,888,340) ( 4,997,568) Proceeds from sale and maturity of investments 5,555,792 1,329,413 Net Cash (Used in) Investing Activities ( 628,644) ( 4,111,191) Cash Flows from Financing Activities: Purchase of treasury stock ( 5,771) ( 87,960) Repurchase of outstanding debentures - ( 6,000) Dividends paid ( 370,888) - Net Cash (Used in) Financing Activities ( 376,659) ( 93,960) Net Increase (Decrease) in Cash 2,091,885 ( 548,497) Cash at Beginning of Period 1,585,647 2,555,938 Cash at End of Period $3,677,532 $2,007,441
See Notes to Consolidated Financial Statements. -5- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED) Nine Months Nine Months Ended Ended August 31, August 31, 2003 2002 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 31,441 $ 33,628 Income taxes 1,537,051 913,748
See Notes to Consolidated Financial Statements. -6- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial state- ments have been prepared in accordance with generally accepted ac- counting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accord- ingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended August 31, 2003 are not necessarily indicative of the results that may be expected for the year ended November 30, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended November 30, 2002. NOTE 2 - ORGANIZATION AND DESCRIPTION OF BUSINESS CCA Industries, Inc. ("CCA") was incorporated in the State of Dela- ware on March 25, 1983. CCA manufactures and distributes health and beauty aid products. CCA has several wholly-owned subsidiaries (CCA Cosmetics, Inc., CCA Labs, Inc., Berdell, Inc., Nutra Care Corporation, and CCA Online Industries, Inc.) and CCA Industries Canada (2003) Inc. (incorporated February 25, 2003), all of which are currently inactive. NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of CCA and its wholly-owned subsidiaries (collectively the "Company"). -7- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Use of Estimates: The consolidated financial statements include the use of estimates, which management believes are reasonable. The process of preparing financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. Short-Term Investments and Marketable Securities: Short-term investments and marketable securities consist of corporate and government bonds and equity securities. The Company has classi- fied its investments as Available-for-Sale securities. Accordingly, such investments are reported at fair market value, with the resul tant unrealized gains and losses reported as a separate component of shareholders' equity. Statements of Cash Flows Disclosure: For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with an original maturity of less than three months to be cash equivalents. Inventories: Inventories are stated at the lower of cost (first-in, first-out) or market. Product returns are recorded in inventory when they are received at the lower of their original cost or market, as appropriate. Obsolete inventory is written off and its value is removed from inventory at the time its obsolescence is determined. -8- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property and Equipment and Depreciation and Amortization Property and equipment are stated at cost. The Company charges to expense repairs and maintenance items, while major improvements and betterments are capitalized. When the Company sells or otherwise disposes of property and equipment items, the cost and related accumulated depreciation are removed from the respective accounts and any gain or loss is included in earnings. Depreciation and amortization are provided on the straight-line method over the following estimated useful lives or lease terms of the assets: Machinery and equipment 7-10 Years Furniture and fixtures 5-7 Years Tools, dies and masters 2-7 Years Transportation equipment 7 Years Leasehold improvements 7-10 Years or life of lease, whichever is shorter Intangible Assets: Intangible assets are stated at cost. Patents and trademarks are amortized on the straight-line method over a period of 17 years. Financial Instruments: The carrying value of assets and liabilities considered financial instruments approximate their respective fair value. Income Taxes: Income tax expense includes federal and state taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting and income tax purposes. Tax Credits: Tax credits, when present, are accounted for using the flow-through method as a reduction of income taxes in the years utilized. -9- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Earnings Per Common Share: The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" in 1998. Basic earnings per share is calculated using the average number of shares of common stock outstanding during the year. Diluted earnings per share is computed on the basis of the average number of common shares out standing plus the effect of outstanding stock options using the "treasury stock method" and convertible debentures using the "if- converted" method. Common stock equivalents consist of stock op- tions. Revenue Recognition: The Company recognizes net sales upon shipment of merchandise. Net sales comprise gross revenues less expected returns, trade discounts, customer allowances and various sales incentives. Although no legal right of return exists between the customer and the Company, it is an industry-wide practice to accept returns from customers. The Com- pany, therefore, records a reserve for returns equal to its gross profit on its historical percentage of returns on its last five months sales. Accounts Receivable: Accounts receivable with credit balances have been included as a current liability in "Accounts payable and accrued liabilities" in the accompanying balance sheet. The Company uses the allowance method to account for uncollectible accounts receivable. Accounts receivable are presented net of an allowance for doubtful accounts of $750,180 and $695,824 as of August 31, 2003 and November 30, 2002, respectively. Shipping and Handling Costs: The Company presents shipping and handling costs as part of Selling, general and administrative expense and not as part of Cost of sales. Freight costs were $2,302,746 and $1,605,771 for the nine months ended August 31, 2003 and 2002, respectively. Comprehensive Income: The Company adopted SFAS #130, Comprehensive Income, which considers the Company's financial performance in that it includes all changes in equity during the period from transactions and events from non- owner sources. Reclassifications Certain prior year amounts have been reclassified to conform to the 2003 presentation. -10- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 - INVENTORIES The components of inventory consist of the following: August 31, November 30, 2003 2002 Raw materials $3,728,163 $3,031,400 Finished goods 2,063,124 711,731 $5,791,287 $3,743,131 At August 31, 2003 and November 30, 2002, the Company had a reserve for obsolescence of $997,950 and $976,788, respectively. NOTE 5 - PROPERTY AND EQUIPMENT The components of property and equipment consisted of the following: August 31, November 30, 2003 2002 Machinery and equipment $ 104,718 $ 97,003 Furniture and equipment 665,554 552,615 Transportation equipment 10,918 10,918 Tools, dies, and masters 329,064 213,188 Leasehold improvements 279,366 222,646 1,389,620 1,096,370 Less: Accumulated depreciation and amortization 614,915 375,631 Property and Equipment - Net $ 774,705 $ 720,739 Depreciation expense for the nine months ended August 31, 2003 and 2002 amounted to $239,284 and $239,331, respectively. NOTE 6 - INTANGIBLE ASSETS Intangible assets consist of the following: August 31, November 30, 2003 2002 Patents and trademarks $759,394 $756,548 Less: Accumulated amortization 215,151 179,134 Intangible Assets - Net $544,243 $577,414 Amortization expense for the nine months ended August 31, 2003 and 2002 amounted to $36,017 and $35,844, respectively. -11- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - DEFERRED ADVERTISING In accordance with APB 28 Interim Financial Reporting the Company expenses its advertising and related costs proportionately over the interim periods based on its total expected costs per its various advertising programs. Consequently a deferral of $1,253,588 is accordingly reflected in the balance sheet for the interim period. This deferral is the result of the Company's $8,000,000 media budget and $5,000,000 for the year which contemplates lower spending in the 4th quarter than in the other three quarters. The table below sets forth the calculation: August August 2003 2002 (In Millions) (In Millions) Media advertising budget for the fiscal year $8.00 $7.50 Pro-rata portion for nine months $6.00 $5.63 Media advertising spent 6.70 6.40 Accrual (deferral) ($0.70) ($0.77) Anticipated Co-op advertising commitments $5.00 $4.00 Pro-rata portion for nine months 3.75 $3.00 Co-op advertising spent 4.30 3.17 Accrual (deferral) ($ .55) ($0.17) NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES The following items which exceeded 5% of total current liabilities are included in accounts payable and accrued liabilities as of: August 31, November 30, 2003 2002 (In Thousands) (In Thousands) a) Media advertising $ 1,053 $ * b) Coop advertising 925 804 c) Accrued returns 1,101 878 d) Accrued bonuses 717 467 e) Vacation accrual * 320 * under 5% $3,796 $2,469 All other liabilities were for trade payables or individually did not exceed 5% of total current liabilities. -12- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - OTHER INCOME Other income consists of the following at August 31: 2003 2002 Interest and dividend income $352,572 $265,399 Royalty income 58,699 41,821 Miscellaneous 22,914 147 $434,185 $307,367 NOTE 10 - SUBORDINATED DEBENTURES On August 1, 2000, the Company repurchased (pursuant to a tender offer) 278,328 shares of its outstanding common stock by issuing subordinated debentures equal to $2 per share, which accrue interest at 6% and are due to mature on August 1, 2005. The interest is payable semi-annually. NOTE 11 - COMMITMENTS AND CONTINGENCIES Litigation The Company has been named as a defendant in 10 lawsuits alleging that the plaintiffs were injured as a result of their purchasing and ingesting a diet suppressant containing phenylpropanolamine (PPA), which the Company utilized as its active ingredient in its products prior to November 2000. The lawsuits brought against the Company are for unspecified amounts of compensatory and exemplary damages. The Company is insured for three of the 10 cases. CCA has not renewed the product liability policy covering possible additional lawsuits that might commence against the Company in connection with PPA. Outside counsel has advised CCA that as a general matter the PPA cases are defensible, and the Company plans to vigorously defend its positions. However, there can be no assurances the current PPA litigations will not have a material adverse effect on the Company's operations. Dividends In January 2003, the Company announced its first dividend of $0.12 per share payable to all holders of the Company's common stock, $0.06 payable to shareholders of record on April 1, 2003 and $0.06 payable to shareholders of record on November 1, 2003. -13- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES Short-term investments and marketable securities, which consist of stock and various corporate and government obligations, are stated at market value. The Company has classified its investments as Available-for-Sale securities and considers as current assets those investments which will mature or are likely to be sold in the next fiscal year. The remaining investments are considered non-current assets. The cost and market values of the investments at August 31, 2003 and November 30, 2002 were as follows: August 31, November 30, 2003 2002 Current: COST MARKET COST MARKET Corporate obligations $ 1,527,900 $ 1,532,368 $ 2,066,040 $ 2,071,603 Government obligations (including mortgage backed securities) 1,287,751 1,237,278 1,330,345 1,314,604 Common stock 304,379 287,638 - - Mutual funds 176,961 113,220 169,589 93,337 Other equity investments 111,750 110,700 - - Total 3,408,741 3,281,204 3,565,974 3,479,544 Non-Current: Corporate obligations 2,525,000 2,509,028 1,025,806 1,016,715 Government obli- gations 3,399,122 3,342,737 4,867,627 4,848,293 Preferred stock 1,229,495 1,228,688 751,645 758,510 Other equity investments 100,000 100,000 100,000 100,000 Total 7,253,617 7,180,453 6,745,078 6,723,518 Total $10,662,358 $10,461,657 $10,311,052 $10,203,062
-14- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED) The market value at August 31, 2003 was $10,462,657 as compared to $10,203,062 at November 30, 2002. The gross unrealized gains and losses were $43,968 and $244,669 for August 31, 2003 and $58,411 and ($166,401) for November 30, 2002. The cost and market values of the investments at August 31, 2003 were as follows: COL. A COL. B COL. C COL.D COL.E Amount at Which Each Portfolio Number of Market Of Equity Security Units-Principal Value of Issues and Each Amount of Each Issue Other Security Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet CORPORATE OBLIGATIONS: GMAC Smartnotes 10/15/03 4.600% 250,000 $ 250,000 $ 250,708 $ 250,708 GMAC Smartnotes 10/15/03 4.750 325,000 325,000 325,959 325,959 GMAC Smartnotes 5/15/04 4.250 250,000 250,000 252,165 252,165 GMAC Smartnotes 5/15/05 5.000 175,000 175,000 177,048 177,048 GMAC Smartnotes 8/15/04 2.650 250,000 250,000 248,053 248,053 GMAC Smartnotes 6/15/05 3.550 200,000 200,000 198,532 198,532 GMAC Smartnotes 5/15/06 4.050 400,000 400,000 395,788 395,788 Household Finance Corp. Internotes 5/15/04 4.250 250,000 250,000 254,273 254,273 International Business Machines 9/22/03 5.370 100,000 102,040 100,209 100,209 Colgate-Palmolive 12/1/03 5.270 100,000 100,860 101,001 101,001 Ford Motor Credit 5/22/06 4.750 250,000 250,000 248,890 248,890 CIT Group Inc. 1/15/06 4.000 200,000 200,000 202,158 202,158 CIT Group Inc. 3/15/05 3.200 100,000 100,000 100,799 100,799 CIT Group Inc. 7/15/05 2.000 100,000 100,000 98,741 98,741 GE Capital Group Internotes 2/15/06 2.450 250,000 250,000 247,660 247,660 GE Capital Group Internotes 7/15/06 2.150 200,000 200,000 195,132 195,132 Sears Roebuck Acceptance Corp. 5/15/06 3.500 250,000 250,000 249,078 249,078 American General Fin. Corp. 8/15/05 2.050 200,000 200,000 198,520 198,520 John Hancock Life Ins. Co. 7/15/06 2.250 200,000 200,000 196,682 196,682 4,052,900 4,041,396 4,041,396
-15- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED) COL. A COL. B COL. C COL. D COL. E Amount at Which Each Portfolio Number of Market Of Equity Security Units-Principal Value of Issues and Each Amount of Each Issue Other Security Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet GOVERNMENT OBLIGATIONS: US Treasury Note 7/31/05 1.500% 250,000 $ 249,531 $ 248,203 $ 248,203 Federal Home Loan Bank 8/21/06 2.590 200,000 200,000 198,812 198,812 Federal Home Loan Bank 7/24/06 2.125 100,000 100,000 96,750 96,750 FNMA 5/15/06 2.250 200,000 198,772 198,062 198,062 FHLB 9/15/03 5.125 255,000 266,200 255,398 255,398 FHLMC 2/27/07 2.000 100,000 100,000 100,344 100,344 FHLMC 11/15/17 4.250 200,000 200,000 193,938 193,938 FHLMC 2/27/12 4.000 225,000 225,000 227,180 227,180 FHLMC 10/15/09 3.000 250,000 250,000 246,720 246,720 FHLMC 11/15/09 3.000 250,000 250,000 240,455 240,455 FNMA 8/15/12 4.000 250,000 250,000 249,688 249,688 FHLMC 1/30/06 2.000 250,000 250,000 250,625 250,625 Tennessee Valley Authority Power Bonds 5/1/29 6.500 26,000 688,530 692,380 692,380 Tobacco Settlement Fin Corp. N 6/1/15 5.000 200,000 198,500 166,498 166,498 NJ EDA Trans Sublease RV Lightrail 199A FSA 5/1/04 5.000 300,000 317,444 308,082 308,082 Port Authority NY & NJ Cons 88th SR BE 10/1/04 4.500 225,000 238,789 233,082 233,082 CLOSED END MUNICIPAL BONDS/MUTUAL FUNDS: Muniyield New Jersey Insd Frd Inc. 6,500 96,905 90,935 90,935 Muniholdings New Jersey Insd FD Inc. 6,900 94,549 94,116 94,116 Nuveen New Jersey Invt Quality Municipal Fund 6,200 95,162 92,194 92,194 Nuveen New Jersey Prem Inc Municipal Fund 5,200 78,639 79,300 79,300 Van Kamp Amer Cap Inv Gr NJ 4,800 80,502 78,528 78,528 Blackrock New Jersey Municipal Inc. 6,000 87,989 80,520 80,520 Eaton Vance New Jersey Municipal Inc. 5,600 85,506 78,120 78,120 Nuveen New Jersey Dividend Advantage 5,700 84,855 80,085 80,085 4,686,873 4,580,015 4,580,015
-16- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED) COL. A COL. B COL. C COL.D COL.E Amount at Which Each Portfolio Number of Market Of Equity Security Units-Principal Value of Issues and Each Amount of Each Issue Other Security Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet EQUITY: Preferred Stock: Public Income NTS General Electric Cap Corp. 11/15/32 6.100% 14,800 $ 379,495 $ 375,328 $ 375,328 Merrill Lynch Trust 9/30/08 7.280 6,000 150,000 159,000 159,000 Corporate Backed Trust Certificates For AIG Sun America 5/17/07 6.700 6,000 150,000 154,800 154,800 Corporate Backed Trust Certificates For Bristol Myers Squibb 5/23/07 6.800 6,000 150,000 155,460 155,460 Morgan Stanley Cap Tr 7/15/33 5.750 4,000 100,000 93,360 93,360 ABN AMRO Cap Fund 7/3/08 5.900 2,000 50,000 47,880 47,880 JP Morgan Chase Cap IX 6/15/33 5.875 2,000 50,000 47,500 47,500 Wells Fargo Cap Tr VIII 8/1/33 5.625 8,000 200,000 195,360 195,360 1,229,495 1,228,688 1,228,688 Common Stock: DTE Energy Co. 1,200 51,649 41,892 41,892 Consolidated Edison Inc. 3,800 153,485 150,214 150,214 Progress Energy Inc. 1,000 48,000 40,490 40,490 Public Service Enterprise Group 1,300 51,245 55,042 55,042 304,379 287,638 287,638 Mutual Funds: Dreyfus Premier Limited Term High Income CL B 15,968.952 176,961 113,220 113,220 Other Equity Investments: Aberdeen Asia Pacific Income Fund 100,000 100,000 100,000 Enterprise Production Partners LP 5,000 111,750 110,700 110,700 211,750 210,700 210,700 $10,662,358 $10,461,657 $10,461,657
-17- CCA INDUSTRIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) For the three month period ended August 31, 2003, the Company had revenues of $12,852,537 and net income of $1,287,125 after a provision for taxes of $713,375. Last year, for the August 31 quarter, the Company had $11,511,314 of revenue and net income of $722,822. This represents a 12% and 78% improvement in revenues and net income, respectively Gross margins decreased slightly from 68.7% to 68.4%. Selling, general and administrative (SG&A) expenses increased to $4,195,547 from $4,039,125, as a result of an increase in staff and sales commissions. For the three month period ending August 2003, advertising, cooperative and promotional allowance expenditures were $2.40 million. Last year, for the same three-month period ending August 31, 2002, they were $2.54 million. Advertising expenditures were 18.9% of sales compared to 22.3% last year. Since both co-op advertising and promotions have a material effect on the Company's operation, the Company attempts to anticipate its advertising and promotional commitments as a percent of gross sales in order to control its effect on its net income. In accordance with APB No. 28, Interim Financial Reporting, the Company expenses its advertising and related costs proportion ately over the interim periods based on its total expected costs per its various advertising programs. Consequently, a deferral of $.7 million for media expense and $.55 million for co-op expenditures for the nine month period is reflected in the balance sheet. The Company deferred $.770 million of media costs in the prior year for the nine-month period. The deferral is the result of the Company's current $8.0 million media budget for the entire year, which is predicated on substantially lower spending in the third and fourth quarters. Co-op expenditures are budgeted at $5.0 million for the year. Specifically, the Company spent $6.7 million for media advertising in the nine months and $4.3 million for co-op advertising. The difference between the actual expense and the budgeted expense is deferred or accrued over the subsequent three month period, and by the end of the year will be fully expensed. For the nine month period ended August 31, 2003, the Company had revenue of $42,978,569 and a net income of $4,444,846 after a provision for income taxes of $2,844,562. In the prior year's period, the Company had revenues of $35,070,855 and net income of $2,240,871 after a provision for income taxes of $1,507,873. Gross profit margins for the nine-month period ending August 31, 2003 increased from 66.3% in the prior year to 67.6%. For the nine month period ended August 2003, advertising, cooperative and promotional allowance expenditures were $7,760,818 as compared to $7,658,588 for the nine-month period ending August 31, 2002. The company budgeted a national advertising expenditure for the current year at 8 million up from 7.5 million and budgeted co-op and promotions from 4 million to 5 million allo cated over the current fiscal year. The co-op and promotions allowances increase were partially reversed by co-op advertising credits previously accrued in the prior year not taken by our customers, because the proposed promotion did not consummate. The reversed credits were allocated over the current fiscal year. Advertising expenditures were 18.2% of sales vs 22% last year. -18- CCA INDUSTRIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) For the nine-month period ending August 31, 2003, research and develop ment expenses were $661,250 compared to $412,264 last year. The Company's financial position as of August 31, 2003 consists of current assets of $22,500,095 and current liabilities of $7,725,929. In addition, shareholders' equity increased from $18,835,423 at November 30, 2002 to $22,810,899 at August 31,2003 primarily due to net income earned during the period. The Company generated $3,097,188 in cash from operations primarily due to the nine month net income of $4.44 million, and an increase in taxes payable and decrease in deferred taxes of $1.3 million, partially reversed by a $2.04 million seasonal increase in deferred costs and accounts receivable of $625,000. The $3.1 million cash generated by operations, however, was partially used to pay dividends of $371,000, acquisition of fixed assets of $293,000 and net purchases of marketable securities of $332,548. -19- PART II, ITEM 6. (Continued) EXHIBIT 11 CCA INDUSTRIES, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED) Three Months Ended Nine Months Ended August 31, August 31, 2003 2002 2003 2002 Item 6. Weighted average shares outstanding - Basic 7,276,844 7,018,192 7,211,350 7,036,369 Net effect of dilutive stock options--based on the treasury stock method using average market price 397,390 566,851 382,246 525,643 Weighted average shares outstanding - Diluted 7,674,234 7,585,043 7,593,596 7,562,012 Net income $1,287,125$ 722,822 $4,444,846 $2,240,871 Per share amount Basic $.18 $.10 $.61 $.32 Diluted $.17 $.10 $.59 $.30
-20- CCA INDUSTRIES, INC. PART II OTHER INFORMATION Additional Exhibits Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Title 18, United States Code, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. All other information pertaining to Part II is omitted pursuant to the instructions pertaining to that part. The Company did not file any reports on Form 8-K during the nine months ended August 31, 2003. -21- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: October 7, 2003 CCA INDUSTRIES, INC. By: Dunnan Edell, President By: Ira W. Berman, Secretary -22- CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 David Edell, Chief Executive Officer of CCA Industries, Inc. and John Bingman, Chief Financial Officer of CCA Industries, Inc., each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, that the quarterly report of CCA Industries, Inc. on Form 10-Q for the fiscal quarter ended August 31, 2003 (the "Quarterly Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that based on the officers' knowledge the financial statements contain no material misstatements, and the statements fairly present the Company's financial position and results of operations, and have evaluated the effectiveness of the internal controls within 90 days prior to the report and indicated if there were any significant changes in internal controls. Date: October 7, 2003 /s/ ------------------------------------ David Edell Chief Executive Officer Date: October 7, 2003 /s/ ------------------------------------ John Bingman Chief Financial Officer -23- CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 David Edell, Chief Executive Officer of CCA Industries, Inc. and John Bingman, Chief Financial Officer of CCA Industries, Inc., each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the quarterly report of CCA Industries, Inc. on Form 10-Q for the fiscal quarter ended August 31, 2003 (the "Quarterly Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of CCA Industries, Inc. Date: October 7, 2003 /s/ ------------------------- David Edell Chief Executive Officer Date: October 7, 2003 /s/ -------------------------- John Bingman Chief Financial Officer -24-