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 September 29, 2007
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 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 November 13, 2007
------------------- --------------------------------
Common Stock, Par Value $.20 Per Share 3,009,707 shares
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
DECORATOR INDUSTRIES, INC.
BALANCE SHEETS
ASSETS SEPTEMBER 29, DECEMBER 30,
2007 2006
------------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and Cash Equivalents $ 31,214 $ 11,379
Accounts Receivable, less allowance for
doubtful accounts ($278,809 and $201,355) 3,911,240 3,725,167
Inventories 6,048,250 5,651,252
Income Taxes Receivable 112,594 633,130
Other Current Assets 510,399 351,015
----------- -----------
TOTAL CURRENT ASSETS 10,613,697 10,371,943
----------- -----------
Property and Equipment
Land, Buildings & Improvements 9,193,421 9,191,174
Machinery, Equipment, Furniture & Fixtures 7,860,765 7,630,186
----------- -----------
Total Property and Equipment 17,054,186 16,821,360
Less: Accumulated Depreciation and Amortization 7,698,577 7,118,193
----------- -----------
Net Property and Equipment 9,355,609 9,703,167
----------- -----------
Goodwill, less accumulated Amortization of $1,348,569 3,204,765 2,731,717
Identifiable intangible asset, less accumulated Amortization
of $2,393,713 and $1,907,713 1,501,278 1,987,278
Other Assets 428,386 204,466
----------- -----------
TOTAL ASSETS $25,103,735 $24,998,571
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 2,791,718 $ 1,900,471
Current Maturities of Long-term Debt 605,111 206,815
Checks Issued But Not Yet Presented 499,187 588,245
Accrued Expenses:
Compensation 479,936 804,929
Other 1,576,354 1,489,125
----------- -----------
TOTAL CURRENT LIABILITIES 5,952,306 4,989,585
----------- -----------
Long-Term Debt 1,200,500 1,741,444
Deferred Income Taxes 854,000 839,000
----------- -----------
TOTAL LIABILITIES 8,006,806 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 1,834,837 1,797,810
Retained Earnings 22,285,515 22,698,567
----------- -----------
25,045,963 25,421,988
Less: Treasury stock, at cost: 1,618,346 and 1,627,388 shares 7,949,034 7,993,446
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 17,096,929 17,428,542
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $25,103,735 $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 THIRTY-NINE WEEKS ENDED
--------------------------------------- ----------------------------------------
SEPTEMBER 29, 2007 SEPTEMBER 30, 2006 SEPTEMBER 29, 2007 SEPTEMBER 30, 2006
------------------ ------------------ ------------------ ------------------
Net Sales $11,240,119 100.0% $12,469,174 100.0% $36,158,771 100.0% $41,610,158 100.0%
Cost of Products Sold 9,242,306 82.2% 10,715,218 85.9% 29,980,616 82.9% 34,165,199 82.1%
----------- ----------- ----------- -----------
Gross Profit 1,997,813 17.8% 1,753,956 14.1% 6,178,155 17.1% 7,444,959 17.9%
Selling and
Administrative Expenses 2,176,488 19.4% 2,069,259 16.6% 6,398,066 17.7% 6,409,928 15.4%
----------- ----------- ----------- -----------
Operating (Loss)/Income (178,675) -1.6% (315,303) -2.5% (219,911) -0.6% 1,035,031 2.5%
Other Income (Expense)
Interest, Investment and
Other Income 24,336 0.2% 32,866 0.2% 79,827 0.2% 90,993 0.2%
Interest Expense (26,053) -0.2% (24,444) -0.2% (68,637) -0.2% (62,253) -0.2%
----------- ----------- ----------- -----------
(Loss)/Earnings Before Income Taxes (180,392) -1.6% (306,881) -2.5% (208,721) -0.6% 1,063,771 2.5%
Provision for Income Taxes (66,000) -0.6% (120,000) -1.0% (66,000) -0.2% 390,000 0.9%
----------- ----------- ----------- -----------
NET (LOSS)/INCOME $ (114,392) -1.0% $ (186,881) -1.5% $ (142,721) -0.4% $ 673,771 1.6%
=========== =========== =========== ===========
EARNINGS PER SHARE
BASIC $ (0.04) $ (0.06) $ (0.05) $ 0.23
=========== =========== =========== ===========
DILUTED $ (0.04) $ (0.06) $ (0.05) $ 0.22
=========== =========== =========== ===========
Weighted Average Number of
Shares Outstanding
Basic 3,007,223 2,996,241 3,004,220 2,977,424
Diluted 3,007,223 2,996,241 3,004,220 3,030,863
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
-------------------------------
SEPTEMBER 29, 2007 SEPTEMBER 30, 2006
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss)/Income $ (142,721) $ 673,771
Adjustments to Reconcile Net (Loss)/Income to Net Cash
Provided by Operating Activities
Depreciation and Amortization 1,102,780 1,076,306
Provision for Losses on Accounts Receivable 79,087 91,658
Deferred Taxes 10,000 165,000
Stock-Based Compensation 20,689 37,893
(Gain)/Loss on Disposal of Assets (13,544) 339
Increase/(Decrease) from Changes in:
Accounts Receivable (265,160) 134,403
Inventories (177,385) (926,591)
Prepaid Expenses 366,152 (586,914)
Other Assets (223,920) 124,829
Accounts Payable 891,247 262,114
Accrued Expenses (238,067) 431,742
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,409,158 1,484,550
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisitions (717,661) --
Capital Expenditures (250,472) (2,331,569)
Proceeds from Property Dispositions 20,097 3,200
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (948,036) (2,328,369)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term Debt Payments (158,648) (153,104)
Dividend Payments (270,331) (268,270)
Change in Checks Issued but Not Yet Presented (89,058) 307,553
Proceeds from Exercise of Stock Options -- 164,453
Net Borrowings under Line-of-Credit Agreement 16,000 334,000
Issuance of Stock for Directors Trust 60,750 60,750
----------- -----------
NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES (441,287) 445,382
Net Increase/(Decrease) in Cash and Cash Equivalents 19,835 (398,437)
Cash and Cash Equivalents at Beginning of Year 11,379 490,377
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 31,214 $ 91,940
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 62,640 $ 55,075
Income Taxes $ 50,061 $ 516,015
The accompanying notes are an integral part of the financial statements.
3
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 2007 AND SEPTEMBER 30, 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 September 29, 2007, the changes
therein for the thirty-nine week period then ended and the results of
operations for the thirty-nine week periods ended September 29, 2007
and September 30, 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 thirty-nine week
periods ended September 29, 2007 and September 30, 2006 are not
necessarily indicative of operating results for the full year.
NOTE 3. INVENTORIES
Inventories at September 29, 2007 and December 30, 2006 consisted of
the following:
SEPTEMBER 29, 2007 DECEMBER 30, 2006
------------------ -----------------
Raw Material and Supplies $5,006,596 $4,737,878
In Process and Finished Goods 1,041,654 913,374
---------- ----------
Total Inventory $6,048,250 $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 periods with a net loss 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 THIRTY-NINE WEEKS ENDED
-------------------------------------- --------------------------------------
SEPTEMBER 29, 2007 SEPTEMBER 30, 2006 SEPTEMBER 29, 2007 SEPTEMBER 30, 2006
------------------ ------------------ ------------------ ------------------
Numerator:
Net income/(loss) $ (114,392) $ (186,881) $ (142,721) $ 673,771
=========== =========== =========== ===========
Denominator:
Weighted-average number of
common shares outstanding 3,007,223 2,996,241 3,004,220 2,977,424
Dilutive effect of
stock options on net income 0 0 0 53,439
----------- ----------- ----------- -----------
3,007,223 2,996,241 3,004,220 3,030,863
=========== =========== =========== ===========
Diluted earnings per share: $ (0.04) $ (0.06) $ (0.05) $ 0.22
=========== =========== =========== ===========
4
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 2007 AND SEPTEMBER 30, 2006
(UNAUDITED)
NOTE 5. BUSINESS ACQUISITION
On June 1, 2007, the Company acquired certain assets of Superior
Drapery ("Superior"). The assets included inventory, accounts
receivable and office furniture and equipment. The total price paid at
closings was $812,527 after adjustments. 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. An additional payment of $9,394 was due for the
third quarter of 2007.
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 6.56%
SEPTEMBER 29, 2007 DECEMBER 30, 2006
------------------ -----------------
Current Ratio 1.78:1 2.08:1
Quick Ratio 0.77:1 0.95:1
LT Debt to Total Capital 6.56% 9.08%
Working Capital $4,661,391 $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 September 29, 2007, the Company had outstanding borrowings of $423,000 on its
line of credit, which is included under long-term debt. 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 $812,527. The assets included inventory, accounts receivable
and office furniture and equipment. Additional payments for the business may be
made over the next five years depending on the sales and profitability of the
business. An additional payment of $9,394 was due for the third quarter of 2007.
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 30.9 days at September
29, 2007 compared to 31.0 and 30.9 days at December 30, 2006 and September 30,
2006, respectively. Net accounts receivable was $3,911,240 at September 29,
2007, compared to $3,725,167 and $4,347,354 at December 30, 2006 and September
30, 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 $6,048,250 at
September 29, 2007, as compared to $5,651,252 and $6,727,144 at December 30,
2006 and September 30, 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 $250,472 for the thirty-nine weeks ended September 29,
2007, compared to $2,331,569 for the same period of the prior year. The major
reason for this decrease was $1,415,706 in expenditures in the prior year to
purchase and expand a building previously leased by the Company's Red Bay,
Alabama operation and the building of a Company owned facility in Abbotsford,
Wisconsin. 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.
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (continued)
SALES BY MARKET
The following table represents net sales to each of the three different markets
that the Company serves for the thirteen and thirty-nine week periods ended
September 29, 2007 and September 30, 2006:
(dollars in thousands)
FOR THE THIRTEEN WEEKS ENDED FOR THE THIRTY-NINE WEEKS ENDED
--------------------------------------------- --------------------------------------------
SEPTEMBER 29, 2007 SEPTEMBER 30, 2006 SEPTEMBER 29, 2007 SEPTEMBER 30, 2006
------------------- ------------------ ------------------ ------------------
NET % OF NET % OF NET % OF NET % OF
SALES TOTAL SALES TOTAL SALES TOTAL SALES TOTAL
-------- ----- ------- ----- -------- ----- ------- -----
Recreational Vehicle $ 6,074 54% $ 7,389 59% $ 20,457 57% $24,766 60%
Manufactured Housing 2,043 18% 2,260 18% 6,205 17% 7,610 18%
Hospitality 3,123 28% 2,820 23% 9,497 26% 9,234 22%
-------- --- ------- --- -------- --- ------- ---
Total Net Sales $ 11,240 100% $12,469 100% $ 36,159 100% $41,610 100%
======== ======= ======== =======
RESULTS OF OPERATIONS
THIRTEEN WEEK PERIOD ENDED SEPTEMBER 29, 2007, (THIRD QUARTER 2007) COMPARED TO
THIRTEEN WEEK PERIOD ENDED SEPTEMBER 30, 2006, (THIRD QUARTER 2006)
The following table shows a comparison of the results of operations between
Third Quarter 2007 and Third Quarter 2006:
THIRD QUARTER % THIRD QUARTER % $ INCREASE
2007 OF SALES 2006 OF SALES (DECREASE) % CHANGE
------------- -------- ------------- -------- ------------ --------
Net Sales $ 11,240,119 100% $ 12,469,174 100% $ (1,229,055) -9.9%
Cost of Products Sold 9,242,306 82.2% 10,715,218 85.9% (1,472,912) -13.7%
------------ ---- ------------ ---- ------------ -----
Gross Profit 1,997,813 17.8% 1,753,956 14.1% 243,857 13.9%
Selling and Administrative Expenses 2,176,488 19.4% 2,069,259 16.6% 107,229 5.2%
------------ ---- ------------ ---- ------------ -----
Operating Loss (178,675) -1.6% (315,303) -2.5% 136,628 -43.3%
Other Income/(Expense)
Interest, Investment and
Other Income 24,336 0.2% 32,866 0.2% (8,530) -26.0%
Interest Expense (26,053) -0.2% (24,444) -0.2% (1,609) 6.6%
------------ ---- ------------ ---- ------------ -----
Loss Before Income Taxes (180,392) -1.6% (306,881) -2.5% 126,489 -41.2%
Provision for Income Taxes (66,000) -0.6% (120,000) -1.0% 54,000 -45.0%
------------ ---- ------------ ---- ------------ -----
NET LOSS $ (114,392) -1.0% $ (186,881) -1.5% $ 72,489 -38.8%
============ ==== ============ ==== ============ =====
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (continued)
Net sales for the Third Quarter 2007 were $11,240,119, compared to $12,469,174
for the same period in the previous year, a 9.9% decrease. Sales to the
Company's recreational vehicle customers decreased 17.8% in Third Quarter 2007
when compared to the same period of the prior year. The recreational vehicle
industry reported a 6.6% decrease in shipments during the Third Quarter 2007
compared to the same period of the prior year. Sales to the Company's
manufactured housing customers decreased 9.6% in Third Quarter 2007 when
compared to the same period of the prior year. The manufactured housing industry
decreased shipments by 10.0% over the same period. The sales decrease in the
Third Quarter 2007 can be partially attributed to the slowdown in the
recreational vehicle and manufactured housing markets as well as lower
performances by the Company's customers. Sales to the Company's hospitality
customers increased 10.7% in the Third Quarter 2007 when compared to the same
period of the prior year, largely due to the acquisition of Superior Drapery.
Cost of products sold decreased to 82.2% of net sales in the Third Quarter 2007
compared to 85.9% of net sales a year ago. The major reason for the decrease in
this percentage was a lower material cost, including a lower obsolescence charge
in Third Quarter 2007 compared to Third Quarter 2006.
Selling and administrative expenses were $2,176,488 in the Third Quarter 2007
versus $2,069,259 in the Third Quarter 2006. The major reasons for this increase
were attributable to the Superior Drapery business acquired in June 2007 and
sales commission expenses to the hospitality market. The Company also incurred
expense of $32,415 in the Third Quarter 2007 to comply with Sarbanes Oxley
Section 404. The percentage of selling and administrative expenses to net sales
increased from 16.6% to 19.4% due to the increase in expenses as well as fixed
expenses being spread over a lower sales volume.
Interest expense increased to $26,053 in the Third Quarter 2007 from $24,444 in
the Third Quarter 2006, due to higher outstanding borrowings on the Company's
revolving line of credit.
Net loss was $114,392 in the Third Quarter 2007 compared to a net loss of
$186,881 in the Third Quarter 2006. This improvement is primarily the result of
the charge for inventory obsolescence in the prior year, partially offset by the
effect of reduced sales in the current year. Diluted earnings per share improved
from $0.06 loss per share during Third Quarter 2006 to $0.04 loss per share
during the Third Quarter 2007.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (continued)
THIRTY-NINE WEEK PERIOD ENDED SEPTEMBER 29, 2007, (FIRST NINE MONTHS 2007)
COMPARED TO THIRTY-NINE WEEK PERIOD ENDED SEPTEMBER 30, 2006,
(FIRST NINE MONTHS 2006)
The following table shows a comparison of the results of operations between
First Nine Months 2007 and First Nine Months 2006:
FIRST FIRST
NINE MONTHS % NINE MONTHS % $ INCREASE
2007 OF SALES 2006 OF SALES (DECREASE) % CHANGE
------------ -------- ------------ -------- ----------- --------
Net Sales $ 36,158,771 100% $ 41,610,158 100% $(5,451,387) -13.1%
Cost of Products Sold 29,980,616 82.9% 34,165,199 82.1% (4,184,583) -12.2%
------------ ---- ------------ ---- -----------
Gross Profit 6,178,155 17.1% 7,444,959 17.9% (1,266,804) -17.0%
Selling and Administrative Expenses 6,398,066 17.7% 6,409,928 15.4% (11,862) -0.2%
------------ ---- ------------ ---- -----------
Operating (Loss)/Income (219,911) -0.6% 1,035,031 2.5% (1,254,942) -121.2%
Other Income (Expense)
Interest, Investment and
Other Income 79,827 0.2% 90,993 0.2% (11,166) -12.3%
Interest Expense (68,637) -0.2% (62,253) -0.2% (6,384) 10.3%
------------ ---- ------------ ---- -----------
(Loss)/Earnings Before Income Taxes (208,721) -0.6% 1,063,771 2.5% (1,272,492) -119.6%
Provision for Income Taxes (66,000) -0.2% 390,000 0.9% (456,000) -116.9%
------------ ---- ------------ ---- -----------
NET (LOSS)/INCOME $ (142,721) -0.4% $ 673,771 1.6% $ (816,492) -121.2%
============ ==== ============ ==== ===========
Net sales for the First Nine Months 2007 were $36,158,771, compared to
$41,610,158 for the same period in the previous year, a 13.1% decrease. Sales to
the Company's recreational vehicle customers decreased 17.4% in the First Nine
Months 2007 when compared to the same period of the prior year. The recreational
vehicle industry reported a 11.1% decrease in shipments during the first nine
months of 2007 compared to the same period of the prior year. Sales to the
Company's manufactured housing customers decreased 18.5% in the First Nine
Months 2007 when compared to the same period of the prior year. The manufactured
housing industry decreased shipments by 22.3% over the same period. The sales
decrease in the First Nine Months 2007 can be partially attributed to the
slowdown in the recreational vehicle and manufactured housing markets as well as
lower performances by the Company's customers. Sales to the Company's
hospitality customers increased 2.8%, mostly due to the Superior Drapery
acquisition.
Cost of products sold increased to 82.9% of net sales in the First Nine Months
2007 compared to 82.1% 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 $6,398,066 in the First Nine Months
2007 versus $6,409,928 in the First Nine Months 2006. The percentage of selling
and administrative expenses to net sales increased from 15.4% to 17.7% as fixed
expenses were spread over a lower sales volume.
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (continued)
Interest expense increased to $68,637 in the First Nine Months 2007 from $62,253
in the First Nine Months 2006, due to greater outstanding borrowings during the
First Nine Months 2007 on the company's revolving line of credit compared to the
same period of the prior year
Net loss was $142,721 in the First Nine Months of 2007 compared to $673,771 of
net income in First Nine Months 2006. This decrease is largely the result of
lower sales in 2007. Diluted earnings per share decreased from $0.22 earnings
during the First Nine Months 2006 to a diluted loss per share of $0.05 during
First Nine 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.
The following table reconciles Net Income, the most comparable measure under
GAAP, to EBITDA for the thirteen and thirty-nine week periods ended September
29, 2007 and September 30, 2006:
FOR THE THIRTEEN WEEKS ENDED FOR THE THIRTY-NINE WEEKS ENDED
---------------------------------------- ------------------------------------------
SEPTEMBER 29, 2007 SEPTEMBER 30, 2006 SEPTEMBER 29, 2007 SEPTEMBER 30, 2006
------------------ ------------------ ------------------ ------------------
Net Income/(Loss) $ (114,392) $ (186,881) $ (142,721) $ 673,771
Add:
Interest expense 26,053 24,444 68,637 62,253
Taxes (66,000) (120,000) (66,000) 390,000
Depreciation & Amortization 362,223 369,840 1,102,780 1,076,306
(Gain)/Loss on Disposal of Assets (417) 1,064 (13,544) 339
----------- ----------- ----------- -----------
EBITDA $ 207,467 $ 88,467 $ 949,152 $ 2,202,669
=========== =========== =========== ===========
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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 September 29, 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.
PART II - OTHER INFORMATION
Item 6. Exhibits
14 - Code of Conduct and Ethics
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: November 13, 2007 By: /s/ William A. Bassett
----------------------
William A. Bassett, Chief Executive Officer
Date: November 13, 2007 By: /s/ Michael K. Solomon
----------------------
Michael K. Solomon, Chief Financial Officer
13