UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 2005
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 by check mark whether the registrant is a shell company (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 14, 2005
------------------- --------------------------------
Common Stock, Par Value $.20 Per Share 2,904,579
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DECORATOR INDUSTRIES, INC
BALANCE SHEETS
ASSETS OCTOBER 1, JANUARY 1,
2005 2005
----------- -----------
(UNAUDITED)
CURRENT ASSETS:
Cash and Cash Equivalents $ 434,883 $ 730,539
Accounts Receivable, less allowance for
doubtful accounts ($158,077 and $144,077) 5,314,453 3,464,674
Inventories 5,556,459 5,113,651
Other Current Assets 442,104 588,853
----------- -----------
TOTAL CURRENT ASSETS 11,747,899 9,897,717
----------- -----------
Property and Equipment
Land, Buildings & Improvements 7,249,467 7,250,064
Machinery, Equipment, Furniture & Fixtures 6,480,046 6,482,534
----------- -----------
Total Property and Equipment 13,729,513 13,732,598
Less: Accumulated Depreciation and Amortization 6,304,406 5,874,855
----------- -----------
Net Property and Equipment 7,425,107 7,857,743
----------- -----------
Goodwill, less accumulated Amortization of $1,348,569 2,731,717 2,731,717
Identifiable intangible asset, less accumulated Amortization
of $1,097,713 and $611,713 2,797,278 3,283,278
Other Assets 290,838 191,622
----------- -----------
TOTAL ASSETS $24,992,839 $23,962,077
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 3,268,284 $ 2,539,252
Current Maturities of Long-term Debt 200,363 170,709
Checks Issued but Not Yet Presented 434,861 --
Accrued Expenses:
Compensation 954,030 1,016,262
Acquisition Liability -- 1,067,472
Other 1,256,111 936,146
----------- -----------
TOTAL CURRENT LIABILITIES 6,113,649 5,729,841
----------- -----------
Long-Term Debt 1,595,082 1,752,568
Deferred Income Taxes 592,000 680,000
----------- -----------
TOTAL LIABILITIES 8,300,731 8,162,409
----------- -----------
Stockholders' Equity
Common Stock $.20 par value: Authorized shares, 10,000,000;
Issued shares, 4,545,955 and 4,489,728 909,191 897,946
Paid-in Capital 1,512,238 1,423,275
Retained Earnings 22,380,981 21,633,044
----------- -----------
24,802,410 23,954,265
Less: Treasury stock, at cost: 1,651,179 and 1,660,197 shares 8,110,302 8,154,597
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 16,692,108 15,799,668
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $24,992,839 $23,962,077
=========== ===========
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 1, 2005 OCTOBER 2, 2004 OCTOBER 1, 2005 OCTOBER 2, 2004
------------------ ------------------ ------------------- --------------------
Net Sales $12,597,173 100.0% $12,123,515 100.0% $ 38,304,507 100.0% $ 39,236,393 100.0%
Cost of Products Sold 10,098,594 80.2% 9,725,670 80.2% 30,615,829 79.9% 31,583,537 80.5%
----------- ----------- ------------ ------------
Gross Profit 2,498,579 19.8% 2,397,845 19.8% 7,688,678 20.1% 7,652,856 19.5%
Selling and Administrative Expenses 1,937,602 15.4% 1,893,218 15.6% 6,084,010 15.9% 5,930,139 15.1%
----------- ----------- ------------ ------------
Operating Income 560,977 4.4% 504,627 4.2% 1,604,668 4.2% 1,722,717 4.4%
Other Income (Expense)
Interest, Investment and
Other Income 23,866 0.2% 20,148 0.2% 64,025 0.2% 73,624 0.2%
Interest Expense (17,791) -0.1% (28,755) -0.3% (58,988) -0.2% (83,825) -0.3%
----------- ----------- ------------ ------------
Earnings Before Income Taxes 567,052 4.5% 496,020 4.1% 1,609,705 4.2% 1,712,516 4.3%
Provision for Income Taxes 220,000 1.7% 201,000 1.7% 603,000 1.6% 678,000 1.7%
----------- ----------- ------------ ------------
NET INCOME $ 347,052 2.8% $ 295,020 2.4% $ 1,006,705 2.6% $ 1,034,516 2.6%
=========== =========== ============ ============
EARNINGS PER SHARE
BASIC $ 0.12 $ 0.11 $ 0.35 $ 0.37
=========== =========== ============ ============
DILUTED $ 0.12 $ 0.10 $ 0.34 $ 0.35
=========== =========== ============ ============
Weighted Average Number of
Shares Outstanding
Basic 2,882,788 2,820,107 2,871,720 2,813,256
Diluted 2,979,321 2,993,534 2,996,446 2,959,435
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 1, 2005 OCTOBER 2, 2004
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,006,705 $ 1,034,516
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation and Amortization 1,084,040 1,033,674
Provision for Losses on Accounts Receivable 14,000 --
Deferred Taxes (87,000) 13,000
Loss (Gain) on Disposal of Assets 164,850 (62)
Increase (Decrease) from Changes in:
Accounts Receivable (1,863,779) (1,049,800)
Inventories (442,808) (254,510)
Prepaid Expenses 133,239 (131,631)
Other Assets (110,256) 165,624
Accounts Payable 729,032 1,409,799
Accrued Expenses 257,733 651,293
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 885,756 2,871,903
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisitions (1,067,472) (4,269,422)
Capital Expenditures (372,077) (2,209,615)
Proceeds from Property Dispositions 65,373 5,852
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,374,176) (6,473,185)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term Debt Payments (127,832) (127,093)
Dividend Payments (258,768) (253,364)
Change in Checks Issued but Not Yet Presented 434,861 --
Proceeds from Exercise of Stock Options 100,003 42,640
Issuance of Stock for Directors Trust 44,500 61,500
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 192,764 (276,317)
Net Decrease in Cash and Cash Equivalents (295,656) (3,877,599)
Cash and Cash Equivalents at Beginning of Year 730,539 3,991,631
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 434,883 $ 114,032
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 90,538 $ 39,646
Income Taxes $ 356,772 $ 663,869
The accompanying notes are an integral part of the financial statements.
3
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTY-NINE WEEKS ENDED OCTOBER 1, 2005 AND OCTOBER 2, 2004
(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
1, 2005, the changes therein for the thirty-nine week period
then ended and the results of operations for the thirty-nine
week periods ended October 1, 2005 and October 2, 2004.
NOTE 2. The financial statements included in the Form 10-Q 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 1, 2005.
The results of operations for the thirty-nine week periods
ended October 1, 2005 and October 2, 2004 are not necessarily
indicative of operating results for the full year.
NOTE 3. INVENTORIES
Inventories at October 1, 2005 and January 1, 2005 consisted of the
following:
OCTOBER 1, 2005 JANUARY 1, 2005
--------------- ---------------
Raw Material and supplies $4,750,409 $4,438,916
In Process and Finished Goods 806,050 674,735
---------- ----------
Total Inventory $5,556,459 $5,113,651
========== ==========
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:
FOR THE THIRTEEN WEEKS ENDED FOR THE THIRTY-NINE WEEKS ENDED
--------------------------------- ----------------------------------
OCTOBER 1, 2005 OCTOBER 2, 2004 OCTOBER 1, 2005 OCTOBER 2, 2004
--------------- --------------- --------------- ---------------
Numerator:
Net income $ 347,052 $ 295,020 $1,006,705 $1,034,516
========== ========== ========== ==========
Denominator:
Weighted-average number of
common shares outstanding 2,882,788 2,820,107 2,871,720 2,813,256
Dilutive effect of
stock options on net income 96,533 173,427 124,726 146,179
---------- ---------- ---------- ----------
2,979,321 2,993,534 2,996,446 2,959,435
========== ========== ========== ==========
Diluted earnings per share: $ 0.12 $ 0.10 $ 0.34 $ 0.35
========== ========== ========== ==========
4
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 improved as illustrated below. The financial
condition remains strong, and the long-term debt to total capitalization ratio
remained low at 8.72%
October 1, 2005 January 1, 2005
--------------- ---------------
Current Ratio 1.92:1 1.73:1
Quick Ratio 1.01:1 0.83:1
LT Debt to Total Capital 8.72% 9.98%
Working Capital $5,634,250 $4,167,876
The Company paid $1,067,472 (plus accrued interest) in January 2005 relating to
the January 2004 acquisition of Fleetwood Enterprises, Inc.'s drapery operation
in Douglas, Georgia. This payment represented the final payment of the purchase
price due to Fleetwood. The Company drew on its line of credit to make this
payment. At October 1, 2005, the Company had no outstanding borrowings on its
line of credit. The Company has used its line of credit periodically in 2005.
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). 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 is 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 has improved liquidity.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (CONTINUED)
Days sales outstanding in accounts receivable were 37.3 days at October 1, 2005
compared to 33.5 days at October 2, 2004. This was because an increased
percentage of the Company's sales were to the hospitality market in 2005 when
compared to 2004, which historically has had a slightly higher days sales
outstanding than the Company's other markets. Net accounts receivable increased
by $745,235 and inventories decreased by $78,562 from October 2, 2004 to October
1, 2005. The increase in net accounts receivable is primarily due to the
increase in sales to the hospitality market, which as mentioned previously has
historically had a higher days sales outstanding.
Capital expenditures were $372,077 for the thirty-nine weeks ended October 1,
2005, compared to $2,209,615 for the same period of the prior year. The prior
year expenditures included the purchase of a manufacturing facility in Phoenix,
Arizona for $1,524,099, and a building addition to the Company's Elkhart,
Indiana facility of $332,920, which increased the Company's pleated shade
capacity. The Company will spend approximately $400,000 to convert its
Enterprise-Resource-Planning (ERP) system to a different software platform.
Approximately $100,000 of this cost will be capitalized in 2005. Total capital
expenditures for 2005 are projected to approximate $600,000.
The Company had sporadic borrowings against its $5,000,000 line of credit during
the third quarter. The maximum borrowed was less than $300,000, and there were
no outstanding borrowings at the end of the third quarter.
Management does not foresee any events which will adversely affect its liquidity
during 2005.
SALES BY MARKET
The following table represents net sales to each of the three different markets
that the Company serves for the thirteen week and thirty-nine week periods ended
October 1, 2005 and October 2, 2004:
(DOLLARS IN THOUSANDS)
FOR THE THIRTEEN WEEKS ENDED FOR THE THIRTY-NINE WEEKS ENDED
-------------------------------------------- --------------------------------------------
OCTOBER 1, 2005 OCTOBER 2, 2004 OCTOBER 1, 2005 OCTOBER 2, 2004
------------------- ------------------- ------------------- -------------------
NET % OF NET % OF NET % OF NET % OF
SALES TOTAL SALES TOTAL SALES TOTAL SALES TOTAL
------- ------- ------- ------- ------- ------- ------- -------
Recreational Vehicle $ 7,227 57% $ 7,815 64% $21,579 56% $24,758 63%
Manufactured Housing 2,647 21% 2,256 19% 7,775 20% 7,129 18%
Hospitality 2,723 22% 2,053 17% 8,951 24% 7,349 19%
------- ------- ------- ------- ------- ------- ------- -------
Total Net Sales $12,597 100% $12,124 100% $38,305 100% $39,236 100%
======= ======= ======= =======
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (CONTINUED)
RESULTS OF OPERATIONS
THIRTEEN WEEK PERIOD ENDED OCTOBER 1, 2005, (THIRD QUARTER 2005) COMPARED TO
THIRTEEN WEEK PERIOD ENDED OCTOBER 2, 2004, (THIRD QUARTER 2004)
The following table shows a comparison of the results of operations between
Third Quarter 2005 and Third Quarter 2004:
THIRD QUARTER % THIRD QUARTER % $ INCREASE
2005 OF SALES 2004 OF SALES (DECREASE) % CHANGE
------------- -------- ------------- -------- ------------ --------
Net Sales $ 12,597,173 100% $ 12,123,515 100% $ 473,658 3.9%
Cost of Products Sold 10,098,594 80.2% 9,725,670 80.2% 372,924 3.8%
------------ ---- ------------ ---- ------------
Gross Profit 2,498,579 19.8% 2,397,845 19.8% 100,734 4.2%
Selling and Administrative Expenses 1,937,602 15.4% 1,893,218 15.6% 44,384 2.3%
------------ ---- ------------ ---- ------------
Operating Income 560,977 4.4% 504,627 4.2% 56,350 11.2%
Other Income (Expense)
Interest, Investment and
Other Income 23,866 0.2% 20,148 0.2% 3,718 18.5%
Interest Expense (17,791) -0.1% (28,755) -0.3% 10,964 -38.1%
------------ ---- ------------ ---- ------------
Earnings Before Income Taxes 567,052 4.5% 496,020 4.1% 71,032 14.3%
Provision for Income Taxes 220,000 1.7% 201,000 1.7% 19,000 9.5%
------------ ---- ------------ ---- ------------
NET INCOME $ 347,052 2.8% $ 295,020 2.4% $ 52,032 17.6%
============ ==== ============ ==== ============
Net sales for the Third Quarter 2005 were $12,597,173, compared to $12,123,515
for the same period in the previous year, a 3.9% increase. This is due to
increases of 17.3% and 32.6% to the Company's manufactured housing and
hospitality customers, respectively, partially offset by a drop in sales to the
Company's recreational vehicle customers of 7.5%. The recreational vehicle
industry reported an increase in shipments of 8.4% for the Third Quarter 2005
compared to the same period of the prior year, mostly due to increases in travel
trailer shipments for FEMA due to Hurricane Katrina. The manufactured housing
industry reported that shipments for the Third Quarter 2005 were essentially
flat compared to the same period of the prior year.
Cost of products sold remained unchanged at 80.2% compared to the same quarter
of the prior year.
Selling and administrative expenses were $1,937,602 in the Third Quarter 2005
versus $1,893,218 in the Third Quarter 2004. The increase in this amount was
largely due to increased selling expenses due to the increase in sales to the
Company's hospitality customers. The percentage of selling and administrative
expenses to net sales decreased from 15.6% to 15.4%. Fixed costs being spread
over a higher sales volume contributed to the decrease in this percentage.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (CONTINUED)
Interest expense decreased to $17,791 in the Third Quarter 2005 from $28,755 in
the Third Quarter 2004, mostly because of the interest on the Fleetwood
liability that was accruing during the Third Quarter 2004 that the Company did
not incur in the same period of the current year.
Net income increased to $347,052 in the Third Quarter 2005 compared to $295,020
in the Third Quarter 2004. This increase is the result of increased sales and a
lower percentage of selling and administrative expenses. Diluted earnings per
share increased from $0.10 per share during the Third Quarter 2004 to $0.12 per
share during the Third Quarter 2005.
THIRTY-NINE WEEK PERIOD ENDED OCTOBER 1, 2005, (FIRST NINE MONTHS 2005) COMPARED
TO THIRTY-NINE WEEK PERIOD ENDED OCTOBER 2, 2004, (FIRST NINE MONTHS 2004)
The following table shows a comparison of the results of operations between
First Nine Months 2005 and First Nine Months 2004:
FIRST FIRST
NINE MONTHS % NINE MONTHS % $ INCREASE
2005 OF SALES 2004 OF SALES (DECREASE) % CHANGE
------------ -------- ------------ -------- ------------ --------
Net Sales $ 38,304,507 100% $ 39,236,393 100% $ (931,886) -2.4%
Cost of Products Sold 30,615,829 79.9% 31,583,537 80.5% (967,708) -3.1%
------------ ---- ------------ ---- ------------
Gross Profit 7,688,678 20.1% 7,652,856 19.5% 35,822 0.5%
Selling and Administrative Expenses 6,084,010 15.9% 5,930,139 15.1% 153,871 2.6%
------------ ---- ------------ ---- ------------
Operating Income 1,604,668 4.2% 1,722,717 4.4% (118,049) -6.9%
Other Income (Expense)
Interest, Investment and
Other Income 64,025 0.2% 73,624 0.2% (9,599) -13.0%
Interest Expense (58,988) -0.2% (83,825) -0.3% 24,837 -29.6%
------------ ---- ------------ ---- ------------
Earnings Before Income Taxes 1,609,705 4.2% 1,712,516 4.3% (102,811) -6.0%
Provision for Income Taxes 603,000 1.6% 678,000 1.7% (75,000) -11.1%
------------ ---- ------------ ---- ------------
NET INCOME $ 1,006,705 2.6% $ 1,034,516 2.6% $ (27,811) -2.7%
============ ==== ============ ==== ============
Net sales for the First Nine Months 2005 were $38,304,507, compared to
$39,236,393 for the same period in the previous year, a 2.4% decrease. This is
due to a 12.8% drop in sales to the Company's recreational vehicle customers,
partially offset by increases of 9.1% and 21.8% to the Company's manufactured
housing and hospitality customers, respectively. The recreational vehicle
industry reported mixed results for the First Nine Months 2005, with travel
trailer shipments increasing by 6.6% and motor home shipments decreasing by
12.8% from a year earlier. Total combined recreational vehicle industry
shipments increased 2.9% for the First Nine Months 2005. The manufactured
housing industry reported that shipments for the First Nine Months 2005 were
essentially flat compared to the same period of the prior year.
Cost of products sold decreased to $30,615,829, or 79.9% in the First Nine
Months 2005, compared to $31,583,537, or 80.5% a year ago. The major reason for
the decrease in this percentage was a change in product mix.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (CONTINUED)
Selling and administrative expenses were $6,084,010 in the First Nine Months
2005 versus $5,930,139 in the First Nine Months 2004. The percentage of selling
and administrative expenses to net sales increased from 15.1% for the first Nine
Months of 2004 to 15.9% for the First Nine Months of 2005. This was partially
due to a one-time $165,647 pretax charge resulting from the Company's decision
to convert its ERP system to a different software platform. Without this charge,
selling and administrative expenses as a percentage of sales would have been
15.5% for the First Nine Months 2005. Excluding the software conversion, the
reason for the increase was largely due to selling expenses arising from the
increased hospitality sales.
Interest expense decreased to $58,988 in the First Nine Months 2005 from $83,825
in the First Nine Months 2004, mostly because of the interest on the Fleetwood
acquisition liability incurred in 2004. This liability was paid off in January
2005.
Net income decreased to $1,006,705 in the First Nine Months 2005 compared to
$1,034,516 in the First Nine Months 2004, a decrease of 2.7%. This decrease is
largely due to a lower sales volume as well as the one-time charge for the
disposal of the Company's financial software package. Diluted earnings per share
decreased from $0.35 for the First Nine Months 2004 compared to $0.34 for the
same period of the current year.
EBITDA
EBITDA represents income before income taxes, interest expense, depreciation and
amortization, and gain or loss on disposal of assets. EBITDA 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 thirteen week and thirty-nine week periods ended October
1, 2005 and October 2, 2004:
FOR THE THIRTEEN WEEKS ENDED FOR THE THIRTY-NINE WEEKS ENDED
---------------------------------- ----------------------------------
OCTOBER 1, 2005 OCTOBER 2, 2004 OCTOBER 1, 2005 OCTOBER 2, 2004
--------------- --------------- --------------- ---------------
Net Income $ 347,052 $ 295,020 $ 1,006,705 $ 1,034,516
Add:
Interest 17,791 28,755 58,988 83,825
Taxes 220,000 201,000 603,000 678,000
Depreciation & Amortization 350,930 359,773 1,084,040 1,033,674
Loss (Gain) on Disposal of Assets 4,228 522 164,850 (62)
----------- ----------- ----------- -----------
EBITDA $ 940,001 $ 885,070 $ 2,917,583 $ 2,829,953
=========== =========== =========== ===========
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 1, 2005 and have
concluded that they were adequate and effective.
(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
31.1 - Certification of Chief Executive Officer and President
31.2 - Certification of Chief Financial Officer
32 - Certificate required by 18 U.S.C.ss.1350.
10
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: November 14, 2005 By: /s/ William A. Bassett
------------------
William A. Bassett,
Chief Executive Officer and President
Date: November 14, 2005 By: /s/ Michael K. Solomon
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Michael K. Solomon,
Chief Financial Officer
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