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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 June 30, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
DECORATOR INDUSTRIES, INC.
--------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 1-7753 25-1001433
------------ ------ ----------
State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) file number) Identification No.)
10011 Pines Blvd., Suite #201, Pembroke Pines, Florida 33024
------------------------------------------------------------
(Address of principal executive offices)(Zip Code)
(954) 436-8909
--------------
Registrant's telephone number, including area code
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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [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 August 14, 2007
------------------- ------------------------------
Common Stock, Par Value $.20 Per Share 3,006,693 shares
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
DECORATOR INDUSTRIES, INC
BALANCE SHEETS
ASSETS
June 30, December 30,
2007 2006
----------- -----------
(UNAUDITED)
Current Assets:
Cash and Cash Equivalents $ 32,904 $ 11,379
Accounts Receivable, less allowance for
doubtful accounts ($258,809 and $201,355) 5,082,722 3,725,167
Inventories 6,265,827 5,651,252
Income Taxes Receivable 25,044 633,130
Other Current Assets 492,189 351,015
----------- -----------
Total Current Assets 11,898,686 10,371,943
----------- -----------
Property and Equipment
Land, Buildings & Improvements 9,193,421 9,191,174
Machinery, Equipment, Furniture & Fixtures 7,741,201 7,630,186
----------- -----------
Total Property and Equipment 16,934,622 16,821,360
Less: Accumulated Depreciation and Amortization 7,518,307 7,118,193
----------- -----------
Net Property and Equipment 9,416,315 9,703,167
----------- -----------
Goodwill, less accumulated Amortization of $1,348,569 3,195,371 2,731,717
Identifiable intangible asset, less accumulated Amortization
of $2,231,713 and $1,907,713 1,663,278 1,987,278
Other Assets 309,594 204,466
----------- -----------
Total Assets $26,483,244 $24,998,571
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 3,563,671 $ 1,900,471
Current Maturities of Long-term Debt 617,233 206,815
Checks Issued But Not Yet Presented 590,660 588,245
Accrued Expenses:
Compensation 528,704 804,929
Other 1,874,494 1,489,125
----------- -----------
Total Current Liabilities 7,174,762 4,989,585
----------- -----------
Long-Term Debt 1,192,000 1,741,444
Deferred Income Taxes 841,000 839,000
----------- -----------
Total Liabilities 9,207,762 7,570,029
----------- -----------
Stockholders' Equity
Common Stock $.20 par value: Authorized shares, 10,000,000;
Issued shares, 4,628,053 925,611 925,611
Paid-in Capital 1,823,601 1,797,810
Retained Earnings 22,490,108 22,698,567
----------- -----------
25,239,320 25,421,988
Less: Treasury stock, at cost: 1,621,360 and 1,627,388 shares 7,963,838 7,993,446
----------- -----------
Total Stockholders' Equity 17,275,482 17,428,542
----------- -----------
Total Liabilities and Stockholders' Equity $26,483,244 $24,998,571
=========== ===========
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
----------------------------------------------- ------------------------------------------------
June 30, July 1, June 30, July 1,
2007 2006 2007 2006
------------ ------------ ------------ ------------
Net Sales $ 12,671,235 100.0% $ 14,478,669 100.0% $ 24,918,652 100.0% $ 29,140,984 100.0%
Cost of Products Sold 10,421,302 82.2% 11,745,484 81.1% 20,738,310 83.2% 23,449,981 80.5%
------------ ------------ ------------ ------------
Gross Profit 2,249,933 17.8% 2,733,185 18.9% 4,180,342 16.8% 5,691,003 19.5%
Selling and Administrative
Expenses 2,149,300 17.0% 2,243,365 15.5% 4,221,578 16.9% 4,340,669 14.9%
------------ ------------ ------------ ------------
Operating Income/(Loss) 100,633 0.8% 489,820 3.4% (41,236) -0.1% 1,350,334 4.6%
Other Income (Expense)
Interest, Investment
and Other Income 32,290 0.3% 26,915 0.2% 55,491 0.2% 58,127 0.2%
Interest Expense (19,323) -0.2% (19,043) -0.1% (42,584) -0.2% (37,809) -0.1%
------------ ------------ ------------ ------------
Earnings Before Income Taxes 113,600 0.9% 497,692 3.5% (28,329) -0.1% 1,370,652 4.7%
Provision for Income Taxes 50,000 0.4% 185,000 1.3% 0 0.0% 510,000 1.7%
------------ ------------ ------------ ------------
Net Income/(Loss) $ 63,600 0.5% $ 312,692 2.2% $ (28,329) -0.1% $ 860,652 3.0%
============ ============ ============ ============
EARNINGS PER SHARE
Basic $ 0.02 $ 0.10 $ (0.01) $ 0.29
============ ============ ============ ============
Diluted $ 0.02 $ 0.10 $ (0.01) $ 0.28
============ ============ ============ ============
Weighted Average Number of
Shares Outstanding
Basic 3,004,209 2,985,524 3,002,719 2,968,016
Diluted 3,024,121 3,040,076 3,002,719 3,021,382
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
------------------------------
June 30, July 1,
2007 2006
------------ ------------
Cash Flows From Operating Activities:
Net (Loss)/Income $ (28,329) $ 860,652
Adjustments to Reconcile Net (Loss)/Income to Net Cash
Provided by Operating Activities
Depreciation and Amortization 740,557 706,466
Provision for Losses on Accounts Receivable 59,077 16,563
Deferred Taxes (11,000) 4,000
Stock-Based Compensation 14,899 27,885
Gain on Disposal of Assets (13,127) (725)
Increase/(Decrease) from Changes in:
Accounts Receivable (1,416,632) (1,169,907)
Inventories (394,962) (847,148)
Prepaid Expenses 479,912 (287,469)
Other Assets (105,128) (499,579)
Accounts Payable 1,663,200 1,083,400
Accrued Expenses (60,772) 926,145
----------- -----------
Net Cash Provided by Operating Activities 927,695 820,283
----------- -----------
Cash Flows From Investing Activities:
Net cash paid for acquisitions (538,654) --
Capital Expenditures (110,922) (673,344)
Proceeds from Property Dispositions 19,647 3,200
----------- -----------
Net Cash Used in Investing Activities (629,929) (670,144)
----------- -----------
Cash Flows From Financing Activities:
Long-term Debt Payments (109,026) (98,959)
Dividend Payments (180,130) (178,396)
Change in Checks Issued but Not Yet Presented 2,415 --
Proceeds from Exercise of Stock Options -- 164,453
Net Borrowings under Line-of-Credit Agreement (30,000) 19,000
Issuance of Stock for Directors Trust 40,500 40,500
----------- -----------
Net Cash Used in Financing Activities (276,241) (53,402)
Net Increase in Cash and Cash Equivalents 21,525 96,737
Cash and Cash Equivalents at Beginning of Year 11,379 490,377
----------- -----------
Cash and Cash Equivalents at End of Period $ 32,904 $ 587,114
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 38,601 $ 32,543
Income Taxes $ 49,511 $ 282,451
The accompanying notes are an integral part of the financial statements.
3
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
TWENTY-SIX WEEKS ENDED JUNE 30, 2007 AND JULY 1, 2006
(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 June 30, 2007, the changes therein
for the twenty-six week period then ended and the results of operations
for the twenty-six week periods ended June 30, 2007 and July 1, 2006.
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
December 30, 2006. The results of operations for the twenty-six week
periods ended June 30, 2007 and July 1, 2006 are not necessarily
indicative of operating results for the full year.
NOTE 3. INVENTORIES
Inventories at June 30, 2007 and December 30, 2006 consisted of the
following:
June 30, December 30,
2007 2006
---------- ------------
Raw Material and Supplies $5,212,632 $4,737,878
In Process and Finished Goods 1,053,195 913,374
---------- ------------
Total Inventory $6,265,827 $5,651,252
========== ============
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. No dilution is
shown for the twenty-six weeks ended June 30, 2007 since the effect of
the stock options on the net loss is antidilutive. 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 Twenty-Six Weeks Ended
---------------------------- ------------------------------
June 30, July 1, June 30, July 1,
2007 2006 2007 2006
------------ ----------- ------------ ------------
Numerator:
Net income/(loss) $ 63,600 $ 312,692 $ (28,329) $ 860,652
=========== =========== =========== ===========
Denominator:
Weighted-average number of
common shares outstanding 3,004,209 2,985,524 3,002,719 2,968,016
Dilutive effect of
stock options on net income 19,912 54,552 0 53,366
----------- ----------- ----------- -----------
3,024,121 3,040,076 3,002,719 3,021,382
=========== =========== =========== ===========
Diluted earnings per share: $ 0.02 $ 0.10 $ (0.01) $ 0.28
=========== =========== =========== ===========
4
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
TWENTY-SIX WEEKS ENDED JUNE 30, 2007 AND JULY 1, 2006
(UNAUDITED)
NOTE 5. BUSINESS ACQUISITION
On June 1, 2007, the Company acquired certain assets of Superior
Drapery ("Superior") for $820,752. The assets included inventory,
accounts receivable and office furniture and equipment. A second
closing payment of up to $169,613 may be due on August 31, 2007. Any
uncollected accounts receivable, acquired from Superior, will reduce
the amount of the second payment. Additional payments for the business
may be made over the next five years depending on the sales and
profitability of the business. The additional payments will be no more
than $1,250,000.
Superior is a supplier of window treatments and bed coverings sold
mostly to motels located in the northeastern United States.
5
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 as illustrated below. The financial
condition remains strong, and the long-term debt to total capitalization ratio
remained low at 6.46%
June 30, December 30,
2007 2006
---------- ------------
Current Ratio 1.66:1 2.08:1
Quick Ratio 0.79:1 0.95:1
LT Debt to Total Capital 6.46% 9.08%
Working Capital $4,723,924 $5,382,358
The decrease in the Company's Current Ratio, Quick Ratio, and Working Capital;
and the improvement in the Company's Long Term Debt to Total Capital is mostly
due to the effects of a balloon payment on the Company's loan secured by its
Elkhart, Indiana facility, which will become due in June 2008, as this balloon
payment has been reclassified from long term liabilities to short term
liabilities.
At June 30, 2007, the Company had outstanding borrowings of $377,000 on its line
of credit. The Company expects to continue to use its line of credit in 2007. In
the second quarter of 2007, the Company received over $649,000 in refunds for
overpayments of estimated 2006 federal and state income taxes. These refunds
helped provide greater liquidity for the remainder of fiscal 2007.
On June 1, 2007, the Company acquired certain assets of Superior Drapery
("Superior") for $820,752. The assets included inventory, accounts receivable
and office furniture and equipment. A second closing payment of up to $169,613
may be due on August 31, 2007. Any uncollected accounts receivable, acquired
from Superior, will reduce the amount of the second payment. Additional payments
for the business may be made over the next five years depending on the sales and
profitability of the business.
6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (continued)
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.
Days Sales Outstanding (DSO) in accounts receivable were 33.0 days at June 30,
2007 compared to 31.0 and 35.1 days at December 30, 2006 and July 1, 2006,
respectively. Net accounts receivable was $5,082,722 at June 30, 2007, compared
to $3,725,167 and $5,726,759 at December 30, 2006 and July 1, 2006,
respectively. The increase in accounts receivable from fiscal year end is due to
the Superior acquisition as well as the seasonality of the Company's sales,
while the decrease in accounts receivable from a year ago is due to the reduced
sales volumes in the current year, partially offset by the increased receivables
from the Superior acquisition. Inventories were $6,265,827 at June 30, 2007, as
compared to $5,651,252 and $6,647,701 at December 30, 2006 and July 1, 2006,
respectively. The increase in inventory from fiscal year end is due to the
Superior acquisition and the seasonality of the Company's sales. The decrease in
inventory compared to the prior year is due to decreased sales as well as the
Company's actions to decrease its inventory levels, partially offset by
additional inventories from the Superior acquisition.
Capital expenditures were $110,922 for the twenty-six weeks ended June 30, 2007,
compared to $673,344 for the same period of the prior year. The major reason for
this decrease was $379,819 in expenditures in the prior year to purchase a
building previously leased by the Company's Red Bay, Alabama operation. Capital
spending for the balance of 2007 should be significantly less than for the
comparable period of 2006.
Management does not foresee any events which will adversely affect its liquidity
during 2007.
SALES BY MARKET
The following table represents net sales to each of the three different markets
that the Company serves for the thirteen and twenty-six week periods ended June
30, 2007 and July 1, 2006:
(dollars in thousands)
For the Thirteen Weeks Ended For the Twenty-Six Weeks Ended
-------------------------------------------- --------------------------------------------
June 30, 2007 July 1, 2006 June 30, 2007 July 1, 2006
------------------- ------------------- ------------------- -------------------
Net % of Net % of Net % of Net % of
Sales total Sales total Sales total Sales total
------- ------- ------- ------- ------- ------- ------- -------
Recreational Vehicle $ 6,998 55% $ 8,250 57% $14,383 58% $17,377 60%
Manufactured Housing 2,248 18% 2,542 18% 4,162 17% 5,350 18%
Hospitality 3,425 27% 3,687 25% 6,374 25% 6,414 22%
------- ------- ------- ------- ------- ------- ------- -------
Total Net Sales $12,671 100% $14,479 100% $24,919 100% $29,141 100%
======= ======= ======= =======
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (continued)
RESULTS OF OPERATIONS
THIRTEEN WEEK PERIOD ENDED JUNE 30, 2007, (SECOND QUARTER 2007) COMPARED TO
THIRTEEN WEEK PERIOD ENDED JULY 1, 2006, (SECOND QUARTER 2006)
The following table shows a comparison of the results of operations between
Second Quarter 2007 and Second Quarter 2006:
Second Quarter % Second Quarter % $ Increase
2007 of Sales 2006 of Sales (Decrease) % Change
-------------- -------- -------------- -------- ------------ --------
Net Sales $ 12,671,235 100% $ 14,478,669 100% $ (1,807,434) -12.5%
Cost of Products Sold 10,421,302 82.2% 11,745,484 81.1% (1,324,182) -11.3%
------------ -------- ------------ -------- ------------
Gross Profit 2,249,933 17.8% 2,733,185 18.9% (483,252) -17.7%
Selling and Administrative Expenses 2,149,300 17.0% 2,243,365 15.5% (94,065) -4.2%
------------ -------- ------------ -------- ------------
Operating Income 100,633 0.8% 489,820 3.4% (389,187) -79.5%
Other Income (Expense)
Interest, Investment and
Other Income 32,290 0.3% 26,915 0.2% 5,375 20.0%
Interest Expense (19,323) -0.2% (19,043) -0.1% (280) 1.5%
------------ -------- ------------ -------- ------------
Earnings Before Income Taxes 113,600 0.9% 497,692 3.5% (384,092) -77.2%
Provision for Income Taxes 50,000 0.4% 185,000 1.3% (135,000) -73.0%
------------ -------- ------------ -------- ------------
Net Income $ 63,600 0.5% $ 312,692 2.2% $ (249,092) -79.7%
============ ======== ============ ======== ============
Net sales for the Second Quarter 2007 were $12,671,235, compared to $14,478,669
for the same period in the previous year, a 12.5% decrease. Sales to the
Company's recreational vehicle customers decreased 15.2% in Second Quarter 2007
when compared to the same period of the prior year. The recreational vehicle
industry reported a 10.3% decrease in shipments during the Second Quarter 2007
compared to the same period of the prior year. Sales to the Company's
manufactured housing customers decreased 11.6% in Second Quarter 2007 when
compared to the same period of the prior year. The manufactured housing industry
decreased shipments by 18.1% over the same period. Sales to the Company's
hospitality customers decreased 7.1% in the Second Quarter 2007 when compared to
the same period of the prior year.
Cost of products sold increased to 82.2% of net sales in the Second Quarter 2007
compared to 81.1% of net sales a year ago. The major reason for the increase in
this percentage was due to fixed expenses being spread over a lower sales
volume.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (continued)
Selling and administrative expenses were $2,149,300 in the Second Quarter 2007
versus $2,243,365 in the Second Quarter 2006. The percentage of selling and
administrative expenses to net sales increased from 15.5% to 17.0% as fixed
expenses were spread over a lower sales volume.
Interest expense increased to $19,323 in the Second Quarter 2007 from $19,043 in
the Second Quarter 2006, as the effective interest rates and outstanding loan
balances did not change significantly in the current quarter.
Net income was $63,600 in the Second Quarter 2007 compared to $312,692 in the
Second Quarter 2006. This decrease is the result of lower sales. Diluted
earnings per share decreased from $0.10 per share during the Second Quarter 2006
to $0.02 per share during the Second Quarter 2007.
TWENTY-SIX WEEK PERIOD ENDED JUNE 30, 2007, (FIRST SIX MONTHS 2007) COMPARED TO
TWENTY-SIX WEEK PERIOD ENDED JULY 1, 2006, (FIRST SIX MONTHS 2006)
The following table shows a comparison of the results of operations between
First Six Months 2007 and First Six Months 2006:
First First
Six Months % Six Months % $ Increase
2007 of Sales 2006 of Sales (Decrease) % Change
------------- -------- ------------ --------- ------------ --------
Net Sales $ 24,918,652 100% $ 29,140,984 100% $ (4,222,332) -14.5%
Cost of Products Sold 20,738,310 83.2% 23,449,981 80.5% (2,711,671) -11.6%
------------- -------- ------------ --------- ------------
Gross Profit 4,180,342 16.8% 5,691,003 19.5% (1,510,661) -26.5%
Selling and Administrative Expenses 4,221,578 16.9% 4,340,669 14.9% (119,091) -2.7%
------------- -------- ------------ --------- ------------
Operating (Loss)/Income (41,236) -0.1% 1,350,334 4.6% (1,391,570) -103.1%
Other Income (Expense)
Interest, Investment and
Other Income 55,491 0.2% 58,127 0.2% (2,636) -4.5%
Interest Expense (42,584) -0.2% (37,809) -0.1% (4,775) 12.6%
------------- -------- ------------ --------- ------------
Earnings Before Income Taxes (28,329) -0.1% 1,370,652 4.7% (1,398,981) -102.1%
Provision for Income Taxes 0 0.0% 510,000 1.7% (510,000) -100.0%
------------- -------- ------------ --------- ------------
Net (Loss)/Income $ (28,329) -0.1% $ 860,652 3.0% $ (888,981) -103.3%
============= ======== ============ ========= ============
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (continued)
Net sales for the First Six Months 2007 were $24,918,652, compared to
$29,140,984 for the same period in the previous year, a 14.5% decrease. Sales to
the Company's recreational vehicle customers decreased 17.2% in the First Six
Months 2007 when compared to the same period of the prior year. The recreational
vehicle industry reported a 12.9% decrease in shipments during the first half of
2007 compared to the same period of the prior year. Sales to the Company's
manufactured housing customers decreased 22.2% in the First Six Months 2007 when
compared to the same period of the prior year. The manufactured housing industry
decreased shipments by 27.5% over the same period. The Company believes that a
portion of the prior year industry manufactured housing sales is attributable to
the rebuilding efforts from the 2005 Gulf Coast hurricanes. Sales to the
Company's hospitality customers decreased 0.6%.
Cost of products sold increased to 83.2% of net sales in the First Six Months
2007 compared to 80.5% of net sales a year ago. The major reason for the
increase in this percentage was higher costs of materials, an increase in the
percentage of labor costs to sales and a higher percentage for factory overhead
due to fixed expenses being spread over a lower sales volume.
Selling and administrative expenses were $4,221,578 in the First Six Months 2007
versus $4,340,669 in the First Six Months 2006. Lower salaries, wages, and
commissions due to the decrease in sales were the primary reason for this
decrease. The percentage of selling and administrative expenses to net sales
increased from 14.9% to 16.9% as fixed expenses were spread over a lower sales
volume.
Interest expense increased to $42,584 in the First Six Months 2007 from $37,809
in the First Six Months 2006, due to greater outstanding borrowings during the
First Six Months 2007 on the company's revolving line of credit compared to the
same period of the prior year
Net loss was $28,329 in the First Six Months of 2007 compared to $860,652 of net
income in the First Six Months 2006. This decrease is the result of lower sales
in 2007. Diluted earnings per share decreased from $0.28 during the First Six
Months 2006 to a diluted loss per share of $0.01 during the First Six Months
2007.
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 U.S. 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.
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (continued)
The following table reconciles Net Income, the most comparable measure under
GAAP, to EBITDA for the thirteen and twenty-six week periods ended June 30, 2007
and July 1, 2006:
For the Thirteen Weeks Ended For the Twenty-Six Weeks Ended
---------------------------- ------------------------------
June 30, July 1, June 30, July 1,
2007 2006 2007 2006
------------ ----------- ------------ ------------
Net Income/(Loss) $ 63,600 $ 312,692 $ (28,329) $ 860,652
Add:
Interest 19,323 19,043 42,584 37,809
Taxes 50,000 185,000 -- 510,000
Depreciation & Amortization 366,903 353,252 740,557 706,466
Gain on Disposal of Assets -- (5) (13,127) (725)
----------- ----------- ----------- -----------
EBITDA $ 499,826 $ 869,982 $ 741,685 $ 2,114,202
=========== =========== =========== ===========
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 June 30, 2007 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.
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PART II - OTHER INFORMATION
Item 6. Exhibits
31.1 - Certification of Principal Executive Officer
31.2 - Certification of Principal Financial Officer
32 - Certificate required by 18 U.S.C.ss.1350.
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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: August 14, 2007 By: /s/ William A. Bassett
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William A. Bassett, Chief Executive Officer
and President
Date: August 14, 2007 By: /s/ Michael K. Solomon
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Michael K. Solomon, Chief Financial Officer
13