UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-7753
DECORATOR INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1001433
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10011 Pines Blvd., Suite #201, Pembroke Pines, Florida 33024
- ------------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 436-8909
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of each class Outstanding at November 16, 2004
------------------- --------------------------------
Common Stock, Par Value $.20 Per Share 2,824,235 shares
EXPLANATORY NOTE
The purpose of this amendment on Form 10-Q/A to the Quarterly Report on Form
10-Q of Decorator Industries, Inc. for the quarter ended October 2, 2004 is to
restate its financial statements for the thirteen weeks and thirty-nine weeks
ended October 2, 2004 and related disclosures, as described in Note 1 to the
financial statements. Additional information about the decision to restate these
financial statements can be found in the Company's Form 8-K/A, filed with the
Securities and Exchange Commission on April 6, 2005.
No attempt has been made in this Form 10-Q/A to modify or update other
disclosures presented in the original report on Form 10-Q. The Form 10-Q/A does
not reflect events occurring after the filing of the Form 10-Q or modify or
update these disclosures, including the exhibits to the Form 10-Q affected by
subsequent events. Information not affected by the restatement is unchanged and
reflects the disclosures made at the time of the original filing of the Form
10-Q on November 16, 2004. Accordingly, this Form 10-Q/A should be read in
conjunction with the Company's filings made with the Securities and Exchange
Commission subsequent to the filing of the original Form 10-Q. The following
items have been amended as a result of the restatement:
o Part I - Item 1 - Financial Statements
o Part I - Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
o Part I - Item 4 - Controls and Procedures
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
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DECORATOR INDUSTRIES, INC
BALANCE SHEETS
ASSETS
------ OCTOBER 2, JANUARY 3,
2004 2004
----------- -----------
(RESTATED)
(UNAUDITED)
CURRENT ASSETS:
Cash and Cash Equivalents $ 114,032 $ 3,991,631
Accounts Receivable, less allowance for
doubtful accounts ($200,202 and $200,598) 4,569,218 3,519,418
Inventories 5,635,021 4,123,397
Other Current Assets 408,916 274,285
----------- -----------
TOTAL CURRENT ASSETS 10,727,187 11,908,731
----------- -----------
Property and Equipment
Land, Buildings & Improvements 7,241,898 5,114,341
Machinery, Equipment, Furniture & Fixtures 6,455,589 6,064,877
----------- -----------
Total Property and Equipment 13,697,487 11,179,218
Less: Accumulated Depreciation and Amortization 5,724,738 5,157,452
----------- -----------
Net Property and Equipment 7,972,749 6,021,766
----------- -----------
Goodwill, less accumulated Amortization of $1,348,569 2,731,717 2,731,717
Identifiable intangible asset, less accumulated Amortization
of $449,422 3,488,590 --
Other Assets 260,484 426,108
----------- -----------
TOTAL ASSETS $25,180,727 $21,088,322
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 3,288,482 $ 1,878,683
Current Maturities of Long-term Debt 170,745 166,251
Accrued Expenses:
Compensation 1,008,020 940,158
Acquisition Liability 1,306,892 --
Other 1,449,430 915,777
----------- -----------
TOTAL CURRENT LIABILITIES 7,223,569 3,900,869
----------- -----------
Long-Term Debt 1,795,245 1,926,832
Deferred Income Taxes 662,000 646,000
----------- -----------
TOTAL LIABILITIES 9,680,814 6,473,701
----------- -----------
Stockholders' Equity
Common Stock $.20 par value: Authorized shares, 10,000,000;
Issued shares (4,487,728 and 4,485,728) 897,546 897,146
Paid-in Capital 1,415,506 1,426,435
Retained Earnings 21,357,648 20,576,497
----------- -----------
23,670,700 22,900,078
Less: Treasury stock, at cost: 1,663,493 and 1,686,840 shares 8,170,787 8,285,457
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 15,499,913 14,614,621
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $25,180,727 $21,088,322
=========== ===========
The accompanying notes are an integral part of the financial statements.
1
DECORATOR INDUSTRIES, INC
STATEMENTS OF EARNINGS
(UNAUDITED)
FOR THE THIRTEEN WEEKS ENDED FOR THE THIRTY-NINE WEEKS ENDED
--------------------------------------------- ----------------------------------------------
OCTOBER 2, 2004 SEPTEMBER 27, 2003 OCTOBER 2, 2004 SEPTEMBER 27, 2003
--------------------- ---------------------- ---------------------- ----------------------
(RESTATED) (RESTATED)
Net Sales $ 12,123,515 100.00% $ 10,984,598 100.00% $ 39,236,393 100.00% $ 31,531,366 100.00%
Cost of Products Sold 9,725,670 80.22% 8,632,287 78.59% 31,583,537 80.50% 24,658,537 78.20%
------------ ------------ ------------ ------------
Gross Profit 2,397,845 19.78% 2,352,311 21.41% 7,652,856 19.50% 6,872,829 21.80%
Selling and Administrative Expenses 1,893,218 15.62% 1,677,318 15.27% 5,930,139 15.11% 4,878,209 15.47%
------------ ------------ ------------ ------------
Operating Income 504,627 4.16% 674,993 6.14% 1,722,717 4.39% 1,994,620 6.33%
Other Income (Expense)
Interest and Investment
Income 20,148 0.17% 35,258 0.32% 73,624 0.19% 77,220 0.24%
Interest Expense (28,755) -0.24% (16,104) -0.14% (83,825) -0.21% (39,890) -0.13%
------------ ------------ ------------ ------------
Earnings Before Income Taxes 496,020 4.09% 694,147 6.32% 1,712,516 4.37% 2,031,950 6.44%
Provision for Income Taxes 201,000 1.66% 275,000 2.50% 678,000 1.73% 807,000 2.56%
------------ ------------ ------------ ------------
NET INCOME $ 295,020 2.43% $ 419,147 3.82% $ 1,034,516 2.64% $ 1,224,950 3.88%
============ ============ ============ ============
EARNINGS PER SHARE
BASIC $ 0.11 $ 0.15 $ 0.37 $ 0.44
============ ============ ============ ============
DILUTED $ 0.10 $ 0.15 $ 0.35 $ 0.44
============ ============ ============ ============
Weighted Average
Number of Shares Outstanding
Basic 2,820,107 2,795,166 2,813,256 2,793,207
Diluted 2,993,534 2,829,568 2,959,435 2,811,246
The accompanying notes are an integral part of the financial statements.
2
DECORATOR INDUSTRIES, INC
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THIRTY-NINE WEEKS ENDED
-------------------------------
OCTOBER 2, 2004 SEPTEMBER 27, 2003
--------------- ------------------
(RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,034,516 $ 1,224,950
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation and Amortization 1,033,674 525,261
Provision for Losses on Accounts Receivable -- 30,000
Deferred Taxes 13,000 87,000
(Gain) Loss on Disposal of Assets (62) 11,864
Increase (Decrease) from Changes in:
Accounts Receivable (1,049,800) (1,226,026)
Inventories (254,510) 201,767
Prepaid Expenses (131,631) (105,254)
Other Assets 165,624 100,170
Accounts Payable 1,409,799 696,997
Accrued Expenses 651,293 99,100
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,871,903 1,645,829
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisitions (4,269,422) --
Capital Expenditures (2,209,615) (694,064)
Proceeds from Property Dispositions 5,852 900
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (6,473,185) (693,164)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term Debt Payments (127,093) (105,062)
Dividend Payments (253,364) (251,359)
Proceeds from Exercise of Stock Options 42,640 --
Issuance of Stock for Directors Trust 61,500 30,000
Proceeds on Debt from Building -- 640,000
----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (276,317) 313,579
Net (Decrease) Increase in Cash and Cash Equivalents (3,877,599) 1,266,244
Cash and Cash Equivalents at Beginning of Year 3,991,631 2,117,762
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 114,032 $ 3,384,006
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 39,646 $ 26,043
Income Taxes $ 663,869 $ 533,059
The accompanying notes are an integral part of the financial statements.
3
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTY-NINE WEEKS ENDED OCTOBER 2, 2004 AND SEPTEMBER 27, 2003
(UNAUDITED)
NOTE 1. In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the
Company's financial position as of October 2, 2004, the changes therein
for the thirty-nine week period then ended and the results of
operations for the thirty-nine week periods ended October 2, 2004 and
September 27, 2003.
Following a review with the Securities and Exchange Commission (SEC) on
March 22, 2005 of the Company's accounting for the acquisition of
Fleetwood Enterprises' Drapery operations, it was the SEC's view that
the Company purchased a business rather than assets. Certain excess
costs associated with this acquisition were capitalized and being
amortized over the 6 year period of the exclusive supply agreement. The
SEC determined these costs should in fact have been expensed as
incurred to conform with Generally Accepted Accounting Principles
(GAAP). The financial position as of October 2, 2004, and the results
of operations for the thirteen weeks and thirty-nine weeks ended
October 2, 2004, have been restated to conform with this application of
GAAP.
NOTE 2. The financial statements included in the Form 10-Q/A are presented in
accordance with the requirements of the form and do not include all of
the disclosures required by accounting principles generally accepted in
the United States of America. For additional information, reference is
made to the Company's annual report on Form 10-K for the year ended
January 3, 2004. The results of operations for the thirty-nine week
periods ended October 2, 2004 and September 27, 2003 are not
necessarily indicative of operating results for the full year.
NOTE 3. INVENTORIES
-----------
Inventories at October 2, 2004 and January 3, 2004 consisted of the
following:
OCTOBER 2, 2004 JANUARY 3, 2004
--------------- ---------------
Raw Material and supplies $4,990,694 $3,506,619
In Process and Finished Goods 644,327 616,778
---------- ----------
Total Inventory $5,635,021 $4,123,397
========== ==========
NOTE 4. EARNINGS PER SHARE
------------------
Basic earnings per share is computed by dividi ng net income by
weighted-average number of shares outstanding. Diluted earnings per
share includes the dilutive effect of stock options. In accordance with
SFAS No. 128, the following is a reconciliation of the numerators and
denominators of the basic and diluted EPS computations.
4
FOR THE THIRTEEN WEEKS ENDED FOR THE THIRTY-NINE WEEKS ENDED
------------------------------------ ------------------------------------
OCTOBER 2, 2004 SEPTEMBER 27, 2003 OCTOBER 2, 2004 SEPTEMBER 27, 2003
--------------- ------------------ --------------- ------------------
Numerator:
Net income $ 295,020 $ 419,147 $1,034,516 $1,224,950
========== ========== ========== ==========
Denominator:
Weighted-average number of
common shares outstanding 2,820,107 2,795,166 2,813,256 2,793,207
Dilutive effect of
stock options on net income 173,427 34,402 146,179 18,039
---------- ---------- ---------- ----------
2,993,534 2,829,568 2,959,435 2,811,246
========== ========== ========== ==========
Diluted earnings per share: $ 0.10 $ 0.15 $ 0.35 $ 0.44
========== ========== ========== ==========
NOTE 5. BUSINESS ACQUISITION
--------------------
On January 23, 2004, the Company entered into an agreement, effective
January 26, 2004, to purchase the land, building, machinery, equipment,
inventory and other assets of Fleetwood Enterprises Inc.'s
("Fleetwood") drapery operation in Douglas, Georgia for a purchase
price of $4 million in cash, plus an additional amount for inventory of
up to $1,257,114. Payment for the inventory is due to Fleetwood on
January 24, 2005 and will include interest at 4%.
In connection with the acquisition, the Company and Fleetwood entered
into an agreement for the Company to be the exclusive supplier of
Fleetwood's drapery, bedspread, and other decor requirements for a
period of six years. If, at the end of three years, Fleetwood is
satisfied with the Company's performance under this agreement, it will
extend the terms of this agreement an additional three years.
The acquired business was engaged in the manufacture of curtains,
valances, bedspreads and other decor items. Fleetwood used the acquired
business to supply most of its Manufactured Housing and some of its
Recreational Vehicle requirements for these items. Sales to other
customers were negligible.
The Company has assigned the excess costs of this acquisition over the
value of the asset acquired to an identifiable intangible asset. This
intangible will be amortized over the life of the agreement with
Fleetwood. The agreement to expand its relationship and become
Fleetwood's exclusive supplier of the above mentioned products was the
primary factor in compelling the Company to make the purchase. The
asset is currently being amortized over six years. The remaining
benefits of the agreement with Fleetwood exceed the remaining
capitalized cost of the intangible asset.
The Company is unable to provide meaningful pro-forma financial
statements for this combination, because it is operating the business
on a substantially different basis than its predecessor.
The Company used internal funds for the purchase price paid at closing
and will likely generate sufficient funds internally to satisfy the
remaining obligation due in January 2005. At the date of closing, the
Company's $5,000,000 line of credit was unused. The Company does expect
to use its line of credit for working capital requirements during 2004.
5
Fleetwood was the Company's largest customer in 2003, representing
approximately 26% of total sales. The combined sales of the acquired
business and the Company's to Fleetwood's Manufactured Housing and
Recreational Vehicle businesses would have been approximately 36% of
the Company's total sales in 2003.
The total acquisition cost and liability is as follows:
Total Acquisition Cost $5,576,314
Cash Paid through October 2, 2004 4,269,422
----------
Acquisition Liability at October 2, 2004 $1,306,892
==========
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations.
----------------------
CAUTIONARY STATEMENT: THIS QUARTERLY REPORT ON FORM 10-Q MAY CONTAIN STATEMENTS
RELATING TO FUTURE EVENTS, INCLUDING RESULTS OF OPERATIONS, THAT ARE CONSIDERED
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS REPRESENT THE
COMPANY'S EXPECTATIONS OR BELIEF AS TO FUTURE EVENTS AND, BY THEIR VERY NATURE,
ARE SUBJECT TO RISKS AND UNCERTAINTIES WHICH MAY RESULT IN ACTUAL EVENTS
DIFFERING MATERIALLY FROM THOSE ANTICIPATED. IN PARTICULAR, FUTURE OPERATING
RESULTS AND FUTURE LIQUIDITY WILL BE AFFECTED BY THE LEVEL OF DEMAND FOR
RECREATIONAL VEHICLES, MANUFACTURED HOUSING AND HOTEL/MOTEL ACCOMMODATIONS AND
MAY BE AFFECTED BY CHANGES IN ECONOMIC CONDITIONS, INTEREST RATE FLUCTUATIONS,
COMPETITIVE PRODUCTS AND PRICING PRESSURES WITHIN THE COMPANY'S MARKETS, THE
COMPANY'S ABILITY TO CONTAIN ITS MANUFACTURING COSTS AND EXPENSES, AND OTHER
FACTORS. FORWARD-LOOKING STATEMENTS BY THE COMPANY SPEAK ONLY AS OF THE DATE
MADE, AND THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE SUCH
STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER SUCH DATE OR TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS.
FINANCIAL CONDITION
- -------------------
The Company's financial ratios changed significantly as illustrated below. The
financial condition remains strong, and the long-term debt to total
capitalization ratio remained low at 10.38%
OCTOBER 2, 2004 JULY 3, 2004 APRIL 3, 2004 JANUARY 3, 2004
--------------- ------------ ------------- ---------------
Current Ratio 1.49 1.63 1.56 3.05
Quick Ratio 0.70 0.85 0.80 2.00
LT Debt to Total Capital 10.38% 10.77% 11.33% 11.65%
Working Capital $3,503,618 $4,628,259 $3,974,043 $8,007,862
The change in the Company's financial ratios reflects the acquisition in January
2004 of Fleetwood's drapery operation in Douglas, Georgia. The Company paid
$4,000,000 at closing and on January 24, 2005 will pay up to $1,257,114, plus
interest at 4%, for inventory purchased from Fleetwood. The Company used
internal funds for the purchase price paid at closing and will likely generate
sufficient funds to satisfy the remaining obligation.
Days sales outstanding in accounts receivable were 33.5 days at October 2, 2004,
compared to 37.3 days at September 27, 2003. Net accounts receivable decreased
by $41,437 from September 27, 2003 to October 2, 2004, due to the improvement in
days sales outstanding. Inventories increased by $1,448,718 from September 27,
2003 to October 2, 2004. This increase is attributable to the acquisition of the
Fleetwood Drapery operation and to the overall increase in business.
6
In January 2004, the Company began assigning certain account receivables under a
"Receivables Servicing and Credit Approved Receivables Purchasing Agreement"
with CIT Group/Commercial Services Inc. Only receivables from sales to the
Hospitality industry may be assigned to CIT. Under the agreement CIT provides
credit checking, credit approval, and collection responsibilities for the
assigned receivables. If CIT approves an order from a Hospitality customer and
the resulting receivables are not paid or disputed by the Customer within ninety
days of sale, CIT will pay the receivable to the Company and assume ownership of
the receivable. CIT begins collection efforts for the assigned receivables (both
approved and not approved) when they are due (Hospitality sales are made on Net
30 terms). Approved receivables were approximately $600,000 at the end of the
third quarter. Hospitality customers are instructed to make payments directly to
CIT and CIT then wires collected funds to the Company. The Company pays CIT
six-tenths of a percent of all assigned receivables. Management believes this
cost will be mostly offset by reductions in Bad Debt expense and collection
costs. The Company entered into this arrangement to take advantage of CIT's
extensive credit checking and collection capabilities. Management believes this
arrangement will improve liquidity.
Capital expenditures, excluding the assets acquired from Fleetwood, were
$2,209,615 for the thirty-nine weeks ended October 2, 2004. This was primarily
due to the purchase of a manufacturing facility in Phoenix, Arizona for
$1,524,099, which closed in August 2004. The Company used its line of credit to
finance a portion of this purchase. Also contributing to the increase in capital
expenditures was $332,920 for a building addition to the Company's Elkhart,
Indiana facility, which increased the Company's pleated shade capacity by 50%.
As of October 2, 2004, the Company had no borrowings against its $5,000,000 line
of credit.
The opening of the Phoenix facility will not create a material adverse effect on
the liquidity of the Company. The resources required for the operation will be
similar to those required at the Company's other facilities. During its first
periods of operations, this facility will negatively affect the financial
performance of the Company. A positive contribution should be realized sometime
during 2005.
Management does not foresee any events which will adversely affect its liquidity
during 2004.
RESULTS OF OPERATIONS
- ---------------------
The following tables show the percentage relationship to net sales of certain
items in the Company's Statements of Earnings:
THIRD THIRD
QUARTER QUARTER YTD YTD
EARNINGS RATIOS 2004 2003 2004 2003
--------------- ------ ------ ------ ------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 80.2 78.6 80.5 78.2
Gross margin 19.8 21.4 19.5 21.8
Selling and administrative 15.6 15.3 15.1 15.5
Interest and investment income (0.2) (0.3) (0.2) (0.2)
Interest expense 0.2 0.1 0.2 0.1
Income taxes 1.7 2.5 1.7 2.6
Net income 2.4 3.8 2.6 3.9
7
THIRTEEN WEEK PERIOD ENDED OCTOBER 2, 2004, (THIRD QUARTER 2004) COMPARED TO
THIRTEEN WEEK PERIOD ENDED SEPTEMBER 27, 2003, (THIRD QUARTER 2003)
- -------------------------------------------------------------------
Net sales for the Third Quarter 2004 were $12,123,515, compared to $10,984,598
for the same period in the previous year, a 10.4% increase. Excluding sales
arising from the acquisition of Fleetwood's drapery operation, net sales of
existing business were virtually flat. Sales to the Company's recreational
vehicle customers increased about 11.3% compared to the same period of the prior
year, partially due to the additional Fleetwood business. Sales to the Company's
manufactured housing customers increased by 27.4%, due to the additional
Fleetwood business. Sales to the Company's hospitality customers decreased about
6.4% for the quarter ended October 2, 2004 compared to the same quarter of the
prior year.
Cost of products sold increased to $9,725,670, or 80.2% in the Third Quarter
2004, compared to $8,632,287, or 78.6% in the Third Quarter 2003. The major
reasons for the increase in this percentage were the higher costs of production
at the Douglas, Georgia facility acquired from Fleetwood and the transition
costs incurred by the Company to re-distribute most of the acquired business to
its other facilities. Without these expenses, the cost of products sold
percentage would have been 79.1%.
Selling and administrative expenses were $1,893,218 in the Third Quarter 2004
versus $1,677,318 in the Third Quarter 2003. The increase is largely due to
expenses associated with the Fleetwood acquisition, including amortization of
the intangible asset of $162,291. As a percentage of sales, selling and
administrative expenses increased from 15.3% to 15.6%. Excluding the
amortization of the intangible asset, selling and administrative expenses as a
percentage of sales would have decreased to 14.3% in the Third Quarter 2004.
Interest expense increased to $28,755 in the Third Quarter 2004 from $16,104 in
the Third Quarter 2003 mostly due to interest on the inventory purchased from
Fleetwood in January 2004.
Net income decreased to $295,020 in the Third Quarter of 2004 compared to
$419,147 in the Third Quarter of 2003, a decrease of 29.6%. This decrease is
largely the result of the costs of the Fleetwood acquisition as well as
increased administrative expenses. Diluted earnings per share decreased to $0.10
for the Third Quarter 2004 compared to $0.15 for the same period of the prior
year.
THIRTY-NINE WEEK PERIOD ENDED OCTOBER 2, 2004, (FIRST NINE MONTHS 2004) COMPARED
TO THIRTY-NINE WEEK PERIOD ENDED SEPTEMBER 27, 2003, (FIRST NINE MONTHS 2003)
- -----------------------------------------------------------------------------
Net sales for the First Nine Months 2004 were $39,236,393, compared to
$31,531,366 for the same period in the previous year, a 24.4% increase.
Excluding sales arising from the acquisition of Fleetwood's drapery operation,
net sales of existing business increased 12.4%. Sales to the Company's
recreational vehicle customers increased about 29.7% compared to the same period
of the prior year, partially due to the additional Fleetwood business. Sales to
the Company's manufactured housing customers increased by 31.6%, due to the
additional Fleetwood business. Sales to the Company's hospitality customers
increased about 4.6% for the nine months ended October 2, 2004 compared to the
same period of the prior year.
Cost of products sold increased to $31,583,537, or 80.5% in the First Nine
Months 2004, compared to $24,658,537, or 78.2% in the First Nine Months 2003.
The major reasons for the increase in this percentage were the higher costs of
production at the Douglas, Georgia facility acquired from Fleetwood and the
transition costs incurred by the Company to re-distribute most of the acquired
business to its other facilities. Without these expenses, the cost of products
sold percentage would have been 79.1%.
Selling and administrative expenses were $5,930,139 in the First Nine Months
2004 versus $4,878,209 in the First Nine Months 2003. The increase is largely
due to expenses associated with the Fleetwood acquisition, including
amortization of the intangible asset of $449,422, and to increases in personnel
costs. As a percentage of sales, selling and administrative expenses decreased
from 15.5% to 15.1% due to increased sales volume. Excluding the amortization of
8
the intangible asset, selling and administrative expenses would have decreased
to 14.0% for the First Nine Months 2004.
Interest expense increased to $83,825 in the First Nine Months 2004 from $39,890
in the First Nine Months 2003 because of interest on the inventory purchased
from Fleetwood in January 2004, interest on the loan secured by the Company's
Elkhart, Indiana facility which was not outstanding during the entire First Nine
Months 2003, and periodic borrowings on the Company's line of credit.
Net income decreased to $1,034,516 in the First Nine Months 2004 compared to
$1,224,950 in the First Nine Months 2003, a decrease of 15.5%. This decrease in
net income is largely the result of higher costs of goods sold due to the
acquisition of the Douglas, Georgia facility, partially offset by an increase in
net sales. Diluted earnings per share fell to $0.35 per share for the First
Nine Months 2004 compared to $0.44 for the same period of the prior year.
EBITDA
- ------
EBITDA represents income before income taxes, interest expense, depreciation and
amortization and is an approximation of cash flow from operations before tax.
The Company uses EBITDA as an internal measure of performance and believes it is
a useful and commonly used measure of financial performance in addition to
income before taxes and other profitability measures under Generally Accepted
Accounting Principles ("GAAP")
EBITDA is not a measure of performance under GAAP. EBITDA should not be
construed as an alternative to operating income and income before taxes as an
indicator of the Company's operations in accordance with GAAP. Nor is EBITDA an
alternative to cash flow from operating activities in accordance with GAAP. The
Company's definition of EBITDA can differ from that of other companies.
The following table reconciles Net Income, the most comparable measure under
GAAP to EBITDA for the Third Quarter 2004 and 2003, and the First Nine Months
2004 and 2003.
FOR THE THIRTEEN WEEKS ENDED FOR THE THIRTY-NINE WEEKS ENDED
------------------------------------- -------------------------------------
OCTOBER 2, 2004 SEPTEMBER 27, 2003 OCTOBER 2, 2004 SEPTEMBER 27, 2003
--------------- ------------------ --------------- ------------------
Net Income $ 295,020 $ 419,147 $1,034,516 $1,224,950
Add:
Income tax 201,000 275,000 678,000 807,000
Interest Expense 28,755 16,104 83,825 39,890
Depreciation and
amortization 359,773 174,956 1,033,674 525,261
---------- ---------- ---------- ----------
EBITDA $ 884,548 $ 885,207 $2,830,015 $2,597,101
========== ========== ========== ==========
9
Item 4. Controls and Procedures.
- ------- ------------------------
(a) The Company's principal executive officer and principal financial officer
have reviewed the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) as of October 2, 2004 and have
concluded that they were adequate and effective. As discussed in Note 1, the
Company restated previously reported quarterly financial results for 2004. The
Company has determined that the restatement of quarterly results was not the
result of a weakness in internal controls.
(b) During the most recent fiscal quarter, there were no changes in the
Company's internal control over financial reporting identified in connection
with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or
15d-15 that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits filed herewith:
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31.1 - Certification of President
31.2 - Certification of Chief Financial Officer
32 - Certificate required by 18 U.S.C.ss.1350.
(b) No reports on Form 8-K were filed by the Company during the
quarterly period ended October 2, 2004.
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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.
DECORATOR INDUSTRIES, INC.
(Registrant)
Date: April 25, 2005 By: /s/ William A. Bassett
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William A. Bassett,
President
Date: April 25, 2005 By: /s/ Michael K. Solomon
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Michael K. Solomon,
Chief Financial Officer
11