-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NijQe9GOxiEU0vOZrog8ZjXNpdZTcme0DWHyQ4HDEoCJ2lPZi7Oiw1dxSn/A8y27 n9BN0rCql97Xz+qvUqGoaQ== 0001116502-05-002558.txt : 20051115 0001116502-05-002558.hdr.sgml : 20051115 20051115141959 ACCESSION NUMBER: 0001116502-05-002558 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20051001 FILED AS OF DATE: 20051115 DATE AS OF CHANGE: 20051115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DECORATOR INDUSTRIES INC CENTRAL INDEX KEY: 0000027613 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED TEXTILE PRODUCTS [2390] IRS NUMBER: 251001433 STATE OF INCORPORATION: PA FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07753 FILM NUMBER: 051205958 BUSINESS ADDRESS: STREET 1: 10011 PINES BLVD SUITE 201 CITY: PEMBROKE PINES STATE: FL ZIP: 33024 BUSINESS PHONE: 3054368909 10-Q 1 decorator10q.txt QUARTERLY REPORT 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 ----------------------- Michael K. Solomon, Chief Financial Officer 11 EX-31.1 2 ex31-1.txt CERTIFICATION EXHIBIT 31.1 I, William A. Bassett, Chief Executive Officer and President, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Decorator Industries, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 14, 2005 By: /s/ William A. Bassett ----------------------- William A. Bassett, Chief Executive Officer and President EX-31.2 3 ex31-2.txt CERTIFICATION EXHIBIT 31.2 I, Michael K. Solomon, Chief Financial Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Decorator Industries, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 14, 2005 By: /s/ Michael K. Solomon ----------------------- Michael K. Solomon, Chief Financial Officer EX-32 4 ex32.txt CERTIFICATION EXHIBIT 32 CERTIFICATION REQUIRED BY 18 U.S.C.SS.1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Decorator Industries, Inc. ("the Company") on Form 10-Q for the quarterly period ended October 1, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, William A. Bassett, Chief Executive Officer and President of the Company, and Michael K. Solomon, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. 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 ----------------------- Michael K. Solomon, Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----