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 July 3, 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 August 17, 2004
------------------- ------------------------------
Common Stock, Par Value $.20 Per Share 2,819,706 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 July 3, 2004 is to
restate its financial statements for the thirteen weeks and twenty-six weeks
ended July 3, 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 August 17, 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 JULY 3, JANUARY 3,
------ 2004 2004
----------- -----------
(RESTATED)
(UNAUDITED)
CURRENT ASSETS:
Cash and Cash Equivalents $ 141,924 $ 3,991,631
Accounts Receivable, less allowance for
doubtful accounts ($200,202 and $200,598) 5,412,664 3,519,418
Inventories 5,701,348 4,123,397
Other Current Assets 690,058 274,285
----------- -----------
TOTAL CURRENT ASSETS 11,945,994 11,908,731
----------- -----------
Property and Equipment
Land, Buildings & Improvements 5,682,523 5,114,341
Machinery, Equipment, Furniture & Fixtures 6,362,926 6,064,877
----------- -----------
Total Property and Equipment 12,045,449 11,179,218
Less: Accumulated Depreciation and Amortization 5,527,189 5,157,452
----------- -----------
Net Property and Equipment 6,518,260 6,021,766
----------- -----------
Goodwill, less accumulated Amortization of $1,348,569 2,731,717 2,731,717
Identifiable intangible asset, less accumulated Amortization
of $287,131 3,599,558 --
Other Assets 258,052 426,108
----------- -----------
TOTAL ASSETS $25,053,581 $21,088,322
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 3,902,812 $ 1,878,683
Current Maturities of Long-term Debt 170,495 166,251
Accrued Expenses:
Compensation 845,159 940,158
Acquisition Liability 1,293,540 --
Other 1,105,729 915,777
----------- -----------
TOTAL CURRENT LIABILITIES 7,317,735 3,900,869
----------- -----------
Long-Term Debt 1,837,922 1,926,832
Deferred Income Taxes 670,000 646,000
----------- -----------
TOTAL LIABILITIES 9,825,657 6,473,701
----------- -----------
Stockholders' Equity
Common Stock $.20 par value: Authorized shares, 10,000,000;
Issued shares, 4,485,728 897,146 897,146
Paid-in Capital 1,381,503 1,426,435
Retained Earnings 21,147,220 20,576,497
----------- -----------
23,425,869 22,900,078
Less: Treasury stock, at cost: 1,669,022 and 1,686,840 shares 8,197,945 8,285,457
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 15,227,924 14,614,621
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $25,053,581 $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 TWENTY-SIX WEEKS ENDED
---------------------------- ------------------------------
JULY 3, 2004 JUNE 28, 2003 JULY 3, 2004 JUNE 28, 2003
---------------------- ---------------------- ---------------------- ----------------------
(RESTATED) (RESTATED)
Net Sales $ 14,320,830 100.00% $ 10,767,015 100.00% $ 27,112,878 100.00% $ 20,546,768 100.00%
Cost of Products Sold 11,349,047 79.25% 8,316,549 77.24% 21,857,867 80.62% 16,026,250 78.00%
------------ ------------ ------------ ------------
Gross Profit 2,971,783 20.75% 2,450,466 22.76% 5,255,011 19.38% 4,520,518 22.00%
Selling and Administrative
Expenses 2,081,898 14.54% 1,640,167 15.23% 4,036,921 14.89% 3,200,891 15.58%
------------ ------------ ------------ ------------
Operating Income 889,885 6.21% 810,299 7.53% 1,218,090 4.49% 1,319,627 6.42%
Other Income (Expense)
Interest,
Investment and
Other
Income 26,035 0.18% 26,071 0.24% 53,476 0.20% 41,962 0.20%
Interest Expense (28,308) -0.19% (13,442) -0.13% (55,070) -0.20% (23,786) -0.11%
------------ ------------ ------------ ------------
Earnings Before Income Taxes 887,612 6.20% 822,928 7.64% 1,216,496 4.49% 1,337,803 6.51%
Provision for Income Taxes 349,000 2.44% 325,000 3.02% 477,000 1.76% 532,000 2.59%
------------ ------------ ------------ ------------
NET INCOME $ 538,612 3.76% $ 497,928 4.62% $ 739,496 2.73% $ 805,803 3.92%
============ ============ ============ ============
EARNINGS PER SHARE
BASIC $ 0.19 $ 0.18 $ 0.26 $ 0.29
============ ============ ============ ============
DILUTED $ 0.18 $ 0.18 $ 0.25 $ 0.29
============ ============ ============ ============
Weighted Average Number of
Shares Outstanding
Basic 2,813,699 2,793,229 2,809,831 2,792,228
Diluted 2,956,044 2,796,524 2,942,386 2,802,086
The accompanying notes are an integral part of the financial statements.
2
DECORATOR INDUSTRIES, INC
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE TWENTY-SIX WEEKS ENDED
------------------------------
JULY 3, 2004 JUNE 28, 2003
------------ -------------
(RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 739,496 $ 805,803
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation and Amortization 673,901 350,305
Provision for Losses on Accounts Receivable -- 20,000
Deferred Taxes 15,000 38,000
(Gain) Loss on Disposal of Assets (584) 10,767
Increase (Decrease) from Changes in:
Accounts Receivable (1,893,246) (947,070)
Inventories (320,837) 349,444
Prepaid Expenses (406,773) (23,384)
Other Assets 168,056 (80,997)
Accounts Payable 2,024,129 1,018,074
Accrued Expenses (3,443) (65,605)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 995,699 1,475,337
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisitions (4,083,277) --
Capital Expenditures (552,420) (397,197)
Proceeds from Property Dispositions 1,150 900
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (4,634,547) (396,297)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term Debt Payments (84,666) (62,878)
Dividend Payments (168,773) (167,512)
Proceeds from Exercise of Stock Options 17,580 --
Issuance of Stock for Directors Trust 25,000 20,000
Proceeds on Debt from Building -- 640,000
----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (210,859) 429,610
Net (Decrease) Increase in Cash and Cash Equivalents (3,849,707) 1,508,650
Cash and Cash Equivalents at Beginning of Year 3,991,631 2,117,762
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 141,924 $ 3,626,412
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 26,527 $ 12,898
Income Taxes $ 621,757 $ 245,259
The accompanying notes are an integral part of the financial statements.
3
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
TWENTY-SIX WEEKS ENDED JULY 3, 2004 AND JUNE 28, 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 July 3, 2004, the changes therein
for the twenty-six week period then ended and the results of operations
for the twenty-six week periods ended July 3, 2004 and June 28, 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 July 3, 2004, and the results of
operations for the thirteen weeks and twenty-six weeks ended July 3,
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 twenty-six week
periods ended July 3, 2004 and June 28, 2003 are not necessarily
indicative of operating results for the full year.
NOTE 3. INVENTORIES
-----------
Inventories at July 3, 2004 and January 3, 2004 consisted of the
following:
JULY 3, 2004 JANUARY 3, 2004
------------ ---------------
Raw Material and supplies $5,238,787 $3,506,619
In Process and Finished Goods 462,561 616,778
---------- ----------
Total Inventory $5,701,348 $4,123,397
========== ==========
NOTE 4. EARNINGS PER SHARE
------------------
Basic earnings per share is computed by dividing 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 TWENTY-SIX WEEKS ENDED
--------------------------------- ---------------------------------
JULY 3, 2004 JUNE 28, 2003 JULY 3, 2004 JUNE 28, 2003
------------ ------------- ------------ -------------
Numerator:
Net income $ 538,612 $ 497,928 $ 739,496 $ 805,803
========== ========== ========== ==========
Denominator:
Weighted-average number of
common shares outstanding 2,813,699 2,793,229 2,809,831 2,792,228
Dilutive effect of
stock options on net income 142,345 3,295 132,555 9,858
---------- ---------- ---------- ----------
2,956,044 2,796,524 2,942,386 2,802,086
========== ========== ========== ==========
Diluted earnings per share: $ 0.18 $ 0.18 $ 0.25 $ 0.29
========== ========== ========== ==========
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
The total acquisition cost and liability is as follows:
Total Acquisition Cost $5,376,817
Cash Paid through July 3, 2004 4,083,277
----------
Acquisition Liability at July 3, 2004 $1,293,540
==========
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 10.77%
July 3, 2004 April 3, 2004 January 3, 2004
------------ ------------- ---------------
Current Ratio 1.63 1.56 3.05
Quick Ratio 0.85 0.80 2.00
LT Debt to Total Capital 10.77% 11.33% 11.65%
Working Capital $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 33.4 days at July 3, 2004,
compared to 35.8 days at June 28, 2003. Net accounts receivable increased by
$1,070,965 and inventories increased by $1,662,722 from June 28, 2003 to July 3,
2004. These increases are attributable to the acquisition of the Fleetwood
Drapery operation and to the overall increase in business.
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
6
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations. (continued)
----------------------------------
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). 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
$552,420 for the twenty-six weeks ended July 3, 2004. This was primarily due to
a building addition to the Company's Elkhart, Indiana facility of $303,410,
which increased the Company's pleated shade capacity by 50%.
The Company is under contract to purchase a manufacturing facility in Phoenix,
Arizona. The cost of this facility is $1,485,000 and is scheduled to close
before the end of August 2004. The Company will use its line of credit to
finance this purchase. As of this date, the Company has no borrowings against
its $5,000,000 line of credit.
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:
SECOND SECOND
QUARTER QUARTER YTD YTD
EARNINGS RATIOS 2004 2003 2004 2003
--------------- ------ ------ ------ ------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 79.3 77.2 80.6 78.0
Selling and administrative 14.5 15.2 14.9 15.6
Interest and investment income (0.2) (0.2) (0.2) (0.2)
Interest expense 0.2 0.1 0.2 0.1
Income taxes 2.4 3.0 1.8 2.6
Net income 3.8 4.6 2.7 3.9
THIRTEEN WEEK PERIOD ENDED JULY 3, 2004, (SECOND QUARTER 2004) COMPARED TO
- --------------------------------------------------------------------------
THIRTEEN WEEK PERIOD ENDED JUNE 28, 2003, (SECOND QUARTER 2003)
- ---------------------------------------------------------------
Net sales for the Second Quarter 2004 were $14,320,830, compared to $10,767,015
for the same period in the previous year, a 33% increase. Excluding sales
arising from the acquisition of Fleetwood's drapery operation, net sales of
existing business increased approximately 17%. Sales to the Company's
recreational vehicle customers increased about 36% 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 36%, due to the
additional Fleetwood business. Sales to the Company's hospitality customers
increased about 21% for the quarter ended July 3, 2004 compared to the same
quarter of the prior year.
7
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations. (continued)
----------------------------------
Cost of products sold increased to 79.3% in the Second Quarter 2004 compared to
77.2% a year ago. 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 78.5%. Increases in material
and labor expenses were responsible for the increase in cost of goods sold
percentage.
Selling and administrative expenses were $2,081,898 in the Second Quarter 2004
versus $1,640,167 in the Second Quarter 2003. The increase is largely due to
amortization expense of the intangible asset resulting from the Fleetwood
acquisition, expenses relating to the operations of the new Douglas facility,
and expenses related to the ongoing implementation of the Company's
Enterprise-Resource-Planning system. As a percentage of sales, selling and
administrative expenses decreased from 15.2% to 14.5% due to increased sales
volume.
Interest expense increased to $28,308 in the Second Quarter 2004 from $13,442 in
the Second Quarter 2003 because of periodic borrowings on the Company's line of
credit, interest on the inventory purchased from Fleetwood in January 2004, and
interest on the loan secured by the Company's Elkhart, Indiana facility which
was not outstanding during part of the Second Quarter 2003.
Net income increased to $538,612, in the Second Quarter of 2004 compared to
$497,928 in the Second Quarter of 2003, an increase of 8.2%. This increase is
largely the result of increased sales, partially offset by expenses relating to
the Fleetwood acquisition. Diluted earnings per share remained constant at $0.18
per share.
TWENTY-SIX WEEK PERIOD ENDED JULY 3, 2004, (FIRST SIX MONTHS 2004) COMPARED TO
- ------------------------------------------------------------------------------
TWENTY-SIX WEEK PERIOD ENDED JUNE 28, 2003, (FIRST SIX MONTHS 2003)
- -------------------------------------------------------------------
Net sales for the First Six Months 2004 were $27,112,878, compared to
$20,546,768 for the same period in the previous year, a 32% increase. Excluding
sales arising from the acquisition of Fleetwood's drapery operation, net sales
of existing business increased more than 18%. Sales to the Company's
recreational vehicle customers increased about 40% 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 34%, due to the
additional Fleetwood business. Sales to the Company's hospitality customers
increased about 10% for the six months ended July 3, 2004 compared to the same
period of the prior year.
Cost of products sold increased to 80.6% in the First Six Months 2004 compared
to 78.0% a year ago. 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%. Increases in material
and labor expenses were responsible for the increase in cost of goods sold
percentage.
Selling and administrative expenses were $4,036,921 in the First Six Months 2004
versus $3,200,891 in the First Six Months 2003. The increase is largely due to
amortization expense of the intangible asset resulting from the Fleetwood
acquisition, expenses for the operations of the new Douglas facility, and
expenses related to the ongoing implementation of the Company's
Enterprise-Resource-Planning system. As a percentage of sales, selling and
administrative expenses decreased from 15.6% to 14.9% due to increased sales
volume.
Interest expense increased to $55,070 in the First Six Months 2004 from $23,786
in the First Six Months 2003 because of periodic borrowings on the Company's
line of credit, interest on the inventory purchased from Fleetwood in January
2004, and interest on the loan secured by the Company's Elkhart, Indiana
facility which was not outstanding during the entire First Six Months 2003.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations. (continued)
----------------------------------
Net income decreased to $739,496 in the First Six Months 2004 compared to
$805,803 in the First Six Months 2003, a decrease of 8.2%. This decrease in net
income is largely the result of higher costs of goods sold due to the
acquisition of the Douglas, Georgia facility, mostly offset by an increase in
net sales. Diluted earnings per share decreased from $0.29 for the first half of
fiscal 2003 compared to $0.25 for the same period of the current 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 second quarter and first half of fiscal 2004 and 2003:
FOR THE THIRTEEN WEEKS ENDED FOR THE TWENTY-SIX WEEKS ENDED
------------------------------- -------------------------------
JULY 3, 2004 JUNE 28, 2003 JULY 3, 2004 JUNE 28, 2003
------------ ------------- ------------ -------------
Net Income $ 538,612 $ 497,928 $ 739,496 $ 805,803
Add:
Interest 28,308 13,442 55,070 23,786
Taxes 349,000 325,000 477,000 532,000
Depreciation & Amortization 359,143 173,994 673,901 350,305
---------- ---------- ---------- ----------
EBITDA $1,275,063 $1,010,364 $1,945,467 $1,711,894
========== ========== ========== ==========
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 July 3, 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.
(a) Exhibits filed herewith:
------------------------
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 July 3, 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