10-Q 1 decorator_10q.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 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 ================================================================================ 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. 11 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. 12 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 ------------------------------------------- William A. Bassett, Chief Executive Officer and President Date: August 14, 2007 By: /s/ Michael K. Solomon ------------------------------------------- Michael K. Solomon, Chief Financial Officer 13