-----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, NXyLBUNsTVcUK244UvwHIuIQ78Kl8ZnqJ7r3HqeO8NKcthS4yVRczIfgGlC78eyg VnaGlGUWB2+hcKKKxXrVqw== 0001116502-08-001828.txt : 20081112 0001116502-08-001828.hdr.sgml : 20081111 20081112092856 ACCESSION NUMBER: 0001116502-08-001828 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20080927 FILED AS OF DATE: 20081112 DATE AS OF CHANGE: 20081112 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: 081178487 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 September 27, 2008 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, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [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 11, 2008 ------------------- -------------------------------- Common Stock, Par Value $.20 Per Share 2,937,767 shares PART I - FINANCIAL INFORMATION Item 1. Financial Statements. DECORATOR INDUSTRIES, INC. BALANCE SHEETS
ASSETS SEPTEMBER 27, DECEMBER 29, 2008 2007 ------------- ------------ (UNAUDITED) CURRENT ASSETS: Cash and Cash Equivalents $ 33,771 $ 17,544 Accounts Receivable, less allowance for doubtful accounts ($231,771 and $136,745) 4,241,115 3,423,072 Inventories 4,786,948 5,181,645 Income Taxes Receivable -- 575,594 Other Current Assets 499,606 292,777 Assets Held For Sale 2,620,057 -- ------------ ------------ TOTAL CURRENT ASSETS 12,181,497 9,490,632 ------------ ------------ Property and Equipment Land, Buildings & Improvements 6,209,604 9,193,421 Machinery, Equipment, Furniture & Fixtures and Software 8,082,969 7,985,675 ------------ ------------ Total Property and Equipment 14,292,573 17,179,096 Less: Accumulated Depreciation and Amortization 8,067,411 7,895,607 ------------ ------------ Net Property and Equipment 6,225,162 9,283,489 ------------ ------------ Goodwill, less accumulated Amortization of $1,348,569 3,783,867 3,629,943 Identifiable intangible asset, less accumulated Amortization of $2,555,713 -- 1,339,278 Deferred Income Taxes 331,000 -- Other Assets 389,283 520,562 ------------ ------------ TOTAL ASSETS $ 22,910,809 $ 24,263,904 ============ ============ LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts Payable $ 2,108,846 $ 2,315,836 Current Maturities of Long-term Debt 2,768,500 599,444 Checks Issued But Not Yet Presented 544,143 241,815 Accrued Expenses: Compensation 589,326 432,932 Other 2,252,866 1,987,226 ------------ ------------ TOTAL CURRENT LIABILITIES 8,263,681 5,577,253 ------------ ------------ Long-Term Debt 645,000 1,409,000 Deferred Income Taxes -- 866,000 ------------ ------------ TOTAL LIABILITIES 8,908,681 7,852,253 ------------ ------------ Stockholders' Equity Common Stock $.20 par value: Authorized shares, 10,000,000; Issued shares, 4,651,611 and 4,636,375 930,322 927,275 Paid-in Capital 1,973,125 1,880,861 Retained Earnings 19,411,604 21,530,436 ------------ ------------ 22,315,051 24,338,572 Less: Treasury stock, at cost: 1,713,844 and 1,613,844 shares 8,312,923 7,926,921 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 14,002,128 16,411,651 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 22,910,809 $ 24,263,904 ============ ============
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 27, SEPTEMBER 29, SEPTEMBER 27, SEPTEMBER 29, 2008 2007 2008 2007 ---------------------- ---------------------- -------------------- ---------------------- Net Sales $ 9,334,653 100.0% $ 11,240,119 100.0% $ 32,401,620 100.0% $ 36,158,771 100.0% Cost of Products Sold 7,785,917 83.4% 9,242,306 82.2% 27,159,748 83.8% 29,980,616 82.9% ------------ ------------ ------------ ------------ Gross Profit 1,548,736 16.6% 1,997,813 17.8% 5,241,872 16.2% 6,178,155 17.1% Selling and Administrative Expenses 2,184,202 23.4% 2,176,488 19.4% 8,344,805 25.8% 6,398,066 17.7% ------------ ------------ ------------ ------------ Operating Loss (635,466) -6.8% (178,675) -1.6% (3,102,933) -9.6% (219,911) -0.6% Other Income (Expense) Interest, Investment and Other Income 12,504 0.1% 24,336 0.2% 47,114 0.2% 79,827 0.2% Interest Expense (36,328) -0.4% (26,053) -0.2% (99,518) -0.3% (68,637) -0.2% ------------ ------------ ------------ ------------ Loss Before Income Taxes (659,290) -7.1% (180,392) -1.6% (3,155,337) -9.7% (208,721) -0.6% Provision for Income Taxes (252,000) -2.7% (66,000) -0.6% (1,212,000) -3.7% (66,000) -0.2% ------------ ------------ ------------ ------------ NET LOSS $ (407,290) -4.4% $ (114,392) -1.0% $ (1,943,337) -6.0% $ (142,721) -0.4% ============ ============ ============ ============ EARNINGS PER SHARE BASIC $ (0.14) $ (0.04) $ (0.66) $ (0.05) ============ ============ ============ ============ DILUTED $ (0.14) $ (0.04) $ (0.66) $ (0.05) ============ ============ ============ ============ Weighted Average Number of Shares Outstanding Basic 2,933,683 3,007,223 2,932,846 3,004,220 Diluted 2,933,683 3,007,223 2,932,846 3,004,220
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 27, SEPTEMBER 29, 2008 2007 --------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ (1,943,337) $ (142,721) Adjustments to Reconcile Net Loss to Net Cash (Used in)/Provided by Operating Activities Depreciation and Amortization 900,742 1,102,780 Provision for Losses on Accounts Receivable 177,647 79,087 Deferred Taxes (614,000) 10,000 Stock-Based Compensation 30,561 20,689 Gain on Disposal of Assets (3,301) (13,544) Noncash charges for asset impairment 1,270,077 -- Increase/(Decrease) from Changes in: Accounts Receivable (995,090) (265,160) Inventories 394,697 (177,385) Prepaid Expenses 447,765 366,152 Other Assets (744,520) (223,920) Accounts Payable (206,990) 891,247 Accrued Expenses 280,558 (238,067) ------------- ------------- NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES (1,005,191) 1,409,158 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net cash paid for acquisitions (12,448) (717,661) Capital Expenditures (181,171) (250,472) Proceeds from Property Dispositions 4,400 20,097 ------------- ------------- NET CASH USED IN INVESTING ACTIVITIES (189,219) (948,036) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Long-term Debt Payments (556,944) (158,648) Dividend Payments (175,495) (270,331) Change in Checks Issued but Not Yet Presented 302,328 (89,058) Net Borrowings under Line-of-Credit Agreement 1,962,000 16,000 Issuance of Stock for Directors Trust 64,750 60,750 Purchase of Common Stock for Treasury (386,002) -- ------------- ------------- NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES 1,210,637 (441,287) Net Increase in Cash and Cash Equivalents 16,227 19,835 Cash and Cash Equivalents at Beginning of Year 17,544 11,379 ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 33,771 $ 31,214 ============= ============= Supplemental Disclosures of Cash Flow Information: Cash Paid for: Interest $ 91,235 $ 62,640 Income Taxes $ 6,403 $ 50,061 Increase in Acquisition Cost/Goodwill $ 153,924 $ 717,661 Working Capital, other than Cash (141,476) -- ------------- ------------- Net Cash Paid for Acquisition/Goodwill $ 12,448 $ 717,661 ============= =============
The accompanying notes are an integral part of the financial statements. 3 DECORATOR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 2008 AND SEPTEMBER 29, 2007 (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 27, 2008, the changes therein for the thirty-nine week period then ended and the results of operations for the thirty-nine week periods ended September 27, 2008 and September 29, 2007. 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 29, 2007. The results of operations for the thirty-nine week periods ended September 27, 2008 and September 29, 2007 are not necessarily indicative of operating results for the full year. NOTE 3. INVENTORIES Inventories at September 27, 2008 and December 29, 2007 consisted of the following: SEPTEMBER 27, DECEMBER 29, 2008 2007 ------------ ------------ Raw Material and Supplies $ 3,907,515 $ 4,275,090 In Process and Finished Goods 879,433 906,555 ------------ ------------ Total Inventory $ 4,786,948 $ 5,181,645 ============ ============ 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 all periods 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 27, SEPTEMBER 29, SEPTEMBER 27, SEPTEMBER 29, 2008 2007 2008 2007 ------------- ------------- -------------- -------------- NUMERATOR: Net loss $ (407,290) $ (114,392) $ (1,943,337) $ (142,721) ============= ============= ============== ============== Denominator: Weighted-average number of common shares outstanding 2,933,683 3,007,223 2,932,846 3,004,220 Dilutive effect of stock options on net income 0 0 0 0 ------------- ------------- -------------- ------------- 2,933,683 3,007,223 2,932,846 3,004,220 ============= ============= ============== ============= Diluted earnings per share: $ (0.14) $ (0.04) $ (0.66) $ (0.05) ============= ============= ============== =============
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 GENERAL ECONOMIC CONDITIONS, INTEREST RATE FLUCTUATIONS, THE AVAILABILITY OF CONSUMER CREDIT, THE AVAILABILITY OF FLOOR-PLAN CREDIT FOR RECREATIONAL VEHICLE AND MANUFACTURED HOUSING RETAIL DEALERS, THE AVAILABILITY OF FINANCING FOR MANUFACTURERS, FUEL PRICES, 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 funded debt to total capitalization ratio remained low at 19.6% SEPTEMBER 27, DECEMBER 29, 2008 2007 ------------- ------------ Current Ratio 1.47:1 1.70:1 Quick Ratio 0.89:1 0.77:1 Funded Debt to Total Capital 19.6% 10.9% Working Capital $3,917,816 $3,913,379 The Quick Ratio and Working Capital position improved from year-end due to the reclassification of some real estate to Assets Held for Sale. In May 2006, the Company entered into a new line-of-credit agreement with Wachovia Bank. The agreement with Wachovia provides for a revolving line of credit of up to $5,000,000, and expires in June 2009. The interest rate is LIBOR plus 150 basis points and the Company is required to maintain certain financial covenants. The 2007 loss caused the Company to violate a financial covenant in its loan agreement with Wachovia Bank. The loan agreement states that the ratio of Senior Funded Debt to EBITDA may not exceed 2.75 to 1.00. The Company believes it is in compliance with all other conditions of the loan agreement. Wachovia has provided a waiver for this violation through the end of the third quarter of 2008. The waiver agreement changes the interest rate from LIBOR plus 150 basis points to LIBOR plus 275 basis points until the Company is in compliance with the covenant. The Company does not expect to be in compliance with the covenant by the end of the fourth quarter of 2008, unless it is able to sell its idled properties. At September 27, 2008, the Company had $2,636,000 in outstanding borrowings on its line-of-credit. The Company expects to use its line of credit throughout 2008. Wachovia advised the Company in July 2008 that the Bank would like to enter into a forbearance agreement during the remaining term of their commitment. To date, Wachovia has not delivered a forebearance agreement. Management believes that if the terms of the forbearance agreement are onerous or if Wachovia decides to accelerate repayment of the credit line that it has alternative sources of financing to replace the line with Wachovia. 5 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 a percentage 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 40.6 days at September 27, 2008 compared to 30.6 and 30.9 days at December 29, 2007 and September 29, 2007, respectively. Net accounts receivable were $4,241,115 at September 27, 2008, compared to $3,423,072 and $3,911,240 at December 29, 2007 and September 29, 2007, respectively. Inventories were $4,786,948 at September 27, 2008, as compared to $5,181,645 and $6,048,250 at December 29, 2007 and September 29, 2007, respectively. The increase in DSO is due to a greater focus on hospitality sales, which historically have longer collection times than the other two markets that the Company serves. The decrease in inventory is due to the reduction of excess inventories from last year. Accounts payable were $2,108,846 at September 27, 2008, as compared to $2,315,836 and $2,791,718 at December 29, 2007 and September 29, 2007, respectively. The reduction in accounts payable is due to lower sales activity. Capital expenditures were $181,171 for the nine months ended September 27, 2008, compared to $250,472 for the same period of the prior year. The Company idled three facilities during the Third Quarter of 2008. These facilities have been placed for sale, and the Company has reclassified $2,620,057 as Assets Held for Sale relating to this action. None of these facilities has any debt associated with it, and upon completion of the sales, the proceeds should provide enough funds to pay down the outstanding borrowings on the Company's line of credit. Management cannot predict when the sales will occur, but anticipates it will be in the current operating cycle. The savings from the idled facilities will begin to be seen in the fourth quarter and fully realized in 2009. The Company's recent performance has caused the Board of Directors to suspend the quarterly dividend. The Board will consider reinstatement of the dividend when the Company's performance returns to a consistent level of profitability. This action will help improve liquidity. 6 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 27, 2008 and September 29, 2007:
(dollars in thousands) FOR THE THIRTEEN WEEKS ENDED FOR THE THIRTY-NINE WEEKS ENDED ---------------------------------- ---------------------------------- SEPTEMBER 27, SEPTEMBER 29, SEPTEMBER 27, SEPTEMBER 29, 2008 2007 2008 2007 --------------- ---------------- --------------- ---------------- Net % of Net % of Net % of Net % of Sales total Sales total Sales total Sales total -------- ----- -------- ----- -------- ----- -------- ----- Recreational Vehicle $ 2,347 25% $ 6,074 54% $ 11,670 36% $ 20,457 57% Manufactured Housing 2,106 23% 2,043 18% 7,068 22% 6,205 17% Hospitality 4,882 52% 3,123 28% 13,664 42% 9,497 26% -------- ----- ------- ----- -------- ----- -------- ----- Total Net Sales $ 9,335 100% $ 11,240 100% $ 32,402 100% $ 36,159 100% ======== ======== ======== ========
RESULTS OF OPERATIONS The Company recorded a charge of $1,430,000 during the Second Quarter 2008. This charge included the impairment of the Company's Identifiable Intangible Asset. This asset arose from the Company's contract with Fleetwood Enterprises, signed in January 2004. The impairment charge of $1,015,278 was in addition to the regular quarterly amortization of $162,000 that the Company had been recognizing since the inception of the contract. Management's analysis determined that the revenues and profit margins provided by the contract had fallen sharply and impaired the asset. In addition to the impairment of the Intangible Asset, the Company recognized other impairment charges of $254,799 from obsolete software and the closure of three of its manufacturing facilities. The plant closures also include expenses of $159,923 for severance pay and rent. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (continued) THIRTEEN WEEK PERIOD ENDED SEPTEMBER 27, 2008, (THIRD QUARTER 2008) COMPARED TO THIRTEEN WEEK PERIOD ENDED SEPTEMBER 29, 2007, (THIRD QUARTER 2007) The following table shows a comparison of the results of operations between Third Quarter 2008 and Third Quarter 2007:
THIRD QUARTER % THIRD QUARTER % $ INCREASE 2008 OF SALES 2007 OF SALES (DECREASE) % CHANGE ------------- -------- ------------- ---------- ------------- -------- Net Sales $ 9,334,653 100% $ 11,240,119 100% $ (1,905,466) -17.0% Cost of Products Sold 7,785,917 83.4% 9,242,306 82.2% (1,456,389) -15.8% ------------- --------- ------------- ---------- ------------- Gross Profit 1,548,736 16.6% 1,997,813 17.8% (449,077) -22.5% Selling and Administrative Expenses 2,184,202 23.4% 2,176,488 19.4% 7,714 0.4% ------------- -------- ------------- ---------- ------------- Operating Loss (635,466) -6.8% (178,675) -1.6% (456,791) 255.7% Other Income/(Expense) Interest, Investment and Other Income 12,504 0.1% 24,336 0.2% (11,832) -48.6% Interest Expense (36,328) -0.4% (26,053) -0.2% (10,275) 39.4% ------------- -------- ------------- ---------- ------------- Earnings Before Income Taxes (659,290) -7.1% (180,392) -1.6% (478,898) 265.5% Provision for Income Taxes (252,000) -2.7% (66,000) -0.6% (186,000) 281.8% ------------- -------- ------------- ---------- ------------- NET LOSS $ (407,290) -4.4% $ (114,392) -1.0% $ (292,898) 256.0% ============= ======== ============= ========== =============
Net sales for the Third Quarter 2008 were $9,334,653, compared to $11,240,119 for the same period in the previous year, a 17.0% decrease. Sales to the Company's recreational vehicle customers decreased 61.4% in the Third Quarter 2008 when compared to the same period of the prior year. The recreational vehicle industry reported a 42.0% decrease in shipments during the Third Quarter 2008 compared to the same period of the prior year. Sales to the Company's manufactured housing customers increased 3.1% in the Third Quarter 2008 when compared to the same period of the prior year. The current year's sales increased due to the acquisition of Doris Lee Draperies in the fourth quarter of 2007, as the manufactured housing industry showed a 15.5% decrease in shipments from the prior year. Sales to the Company's existing manufactured housing customers declined by 25.3% in the Third Quarter 2008 compared to the same period of the prior year. Sales to the Company's hospitality customers increased 56.3% in the Third Quarter 2008 when compared to the same period of the prior year, due to increased marketing efforts and sales activity in the Company's hospitality business. Cost of products sold increased to 83.4% of net sales in the Third Quarter 2008 compared to 82.2% of net sales a year ago. The major reasons for the increase in this percentage were an increase in labor costs as a percent of sales due to lower production levels, a higher percentage for factory overhead due to fixed expenses being spread over a lower sales volume, and charges for inventory obsolescence due to falling demand in the recreational vehicle market. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (continued) Selling and administrative expenses were $2,184,202 in the Third Quarter 2008 versus $2,176,488 in the Third Quarter 2007. Increases in expenses related to the Company's hospitality business have been offset by reduced expenses in the recreational vehicle and manufactured housing businesses. The percentage of selling and administrative expenses to net sales increased from 19.4% in the Third Quarter 2007 to 23.4% in the Third Quarter 2008. The percentage increase from the prior year is due to fixed expenses being spread over a lower sales volume. Interest expense increased to $36,328 in the Third Quarter 2008 from $26,053 in the Third Quarter 2007, due to increased borrowings and higher interest rates on the Company's line of credit during the Third Quarter 2008. Net loss was $407,290 in the Third Quarter 2008 compared to $114,392 in the Third Quarter 2007. The increased loss is attributable to the loss of revenue. Diluted earnings per share decreased from $0.04 loss per share during the Third Quarter 2007 to $0.14 loss per share during the Third Quarter 2008. THIRTY-NINE WEEK PERIOD ENDED SEPTEMBER 27, 2008, (FIRST NINE MONTHS 2008) COMPARED TO THIRTY-NINE WEEK PERIOD ENDED SEPTEMBER 29, 2007, (FIRST NINE MONTHS 2007) The following table shows a comparison of the results of operations between First Nine Months 2008 and First Nine Months 2007:
FIRST FIRST NINE MONTHS % NINE MONTHS % $ INCREASE 2008 OF SALES 2007 OF SALES (DECREASE) % CHANGE ------------- -------- ------------- -------- ------------ -------- Net Sales $ 32,401,620 100% $ 36,158,771 100% $ (3,757,151) -10.4% Cost of Products Sold 27,159,748 83.8% 29,980,616 82.9% (2,820,868) -9.4% ------------- -------- ------------- -------- ------------ Gross Profit 5,241,872 16.2% 6,178,155 17.1% (936,283) -15.2% Selling and Administrative Expenses 8,344,805 25.8% 6,398,066 17.7% 1,946,739 30.4% ------------- -------- ------------- -------- ------------ Operating Loss (3,102,933) -9.6% (219,911) -0.6% (2,883,022) 1311.0% Other Income/(Expense) Interest, Investment and Other Income 47,114 0.2% 79,827 0.2% (32,713) -41.0% Interest Expense (99,518) -0.3% (68,637) -0.2% (30,881) 45.0% ------------- --------- ------------- -------- ------------ Earnings Before Income Taxes (3,155,337) -9.7% (208,721) -0.6% (2,946,616) 1411.7% Provision for Income Taxes (1,212,000) -3.7% (66,000) -0.2% (1,146,000) 1736.4% ------------- -------- ------------- -------- ------------ NET LOSS $ (1,943,337) -6.0% $ (142,721) -0.4% $ (1,800,616) 1261.6% ============= ======== ============= ======== ============
9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (continued) Net sales for the First Nine Months 2008 were $32,401,620, compared to $36,158,771 for the same period in the previous year, a 10.4% decrease. Sales to the Company's recreational vehicle customers decreased 43.0% in the First Nine Months 2008 when compared to the same period of the prior year. The recreational vehicle industry reported a 24.6% decrease in shipments during the first nine months of 2008 compared to the same period of the prior year. Sales to the Company's manufactured housing customers increased 13.9% in the First Nine Months 2008 when compared to the same period of the prior year. The current year's sales increased due to the acquisition of Doris Lee Draperies in the fourth quarter of 2007, as the manufactured housing industry showed a 10.2% decrease in shipments from the prior year. Sales to the Company's existing manufactured housing customers decreased 19.2% during the First Nine Months 2008 when compared to the same period of the prior year. Sales to the Company's hospitality customers increased 43.9% in the First Nine Months 2008 when compared to the same period of the prior year, due to increased sales activity in the Company's ongoing hospitality business, as well as the effect of the Superior Drapery acquisition which only reflected four months of operations for the First Nine Months 2007. Cost of products sold increased to 83.8% of net sales in the First Nine Months 2008 compared to 82.9% of net sales a year ago. The major reasons for the increase in this percentage were an increase in labor costs as a percent of sales due to lower production levels, and a higher percentage for factory overhead due to fixed expenses being spread over a lower sales volume. Selling and administrative expenses were $8,344,805 in the First Nine Months 2008 versus $6,398,066 in the First Nine Months 2007. The major reason for this increase was the charge of $1,430,000 to writeoff the Company's intangible asset and the closing of underperforming facilities. Also included in the First Nine Months 2008 expenses is an unusually high charge to the bad debt reserve of $177,647. Most of the bad debt charge has been established for customers in the recreational vehicle industry. Without these charges, selling and administrative expenses would have been $6,737,158. The major reasons for this increase were the increased commissions for hospitality market sales, the Superior Drapery business acquired in June 2007 and the Doris Lee Draperies business acquired in December 2007. The percentage of selling and administrative expenses to net sales increased from 17.7% for the First Nine Months 2007 to 25.8% for the First Nine Months 2008. Without the $1,430,000 and $177,647 charges, selling and administrative expenses for the First Nine Months 2008 would have been 20.8%. Interest expense increased to $99,518 in the First Nine Months 2008 from $68,637 in the First Nine Months 2007, due to greater outstanding borrowings and higher interest rates during the First Nine Months 2008 on the Company's revolving line of credit compared to the same period of the prior year. Net loss was $1,943,337 in the First Nine Months 2008 compared to $142,721 net loss in the First Nine Months 2007. The major reasons for the increased loss was the loss of revenue, the $1,430,000 asset impairment charge and the $177,647 bad debt expense. In addition, profitability was adversely affected by the assimilation costs of the customers acquired in the Doris Lee Draperies acquisition. These costs included the higher labor, freight, and other costs associated with moving production from the Doris Lee facility to the Company's own facilities. Diluted loss per share increased from $0.05 during the First Nine Months 2007 to $0.66 during the First Nine Months 2008. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (continued) 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 27, 2008 and September 29, 2007:
FOR THE THIRTEEN WEEKS ENDED FOR THE THIRTY-NINE WEEKS ENDED ---------------------------- ------------------------------- SEPTEMBER 27, SEPTEMBER 29, SEPTEMBER 27, SEPTEMBER 29, 2008 2007 2008 2007 ------------- ------------- --------------- ------------- Net Loss $ (407,290) $ (114,392) $ (1,943,337) $ (142,721) Add: Interest 36,328 26,053 99,518 68,637 Taxes (252,000) (66,000) (1,212,000) (66,000) Depreciation & Amortization 187,501 362,223 900,742 1,102,780 Gain on Disposal of Assets 699 (417) (3,301) (13,544) Noncash charge for Asset Impairment -- -- 1,270,077 -- ------------- ------------- --------------- -------------- EBITDA $ (434,762) $ 207,467 $ (888,301) $ 949,152 ============= ============= =============== ==============
11 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 27, 2008 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 5. Other Information The Company's recent performance has caused the Board of Directors to suspend the quarterly dividend. The Board will consider reinstatement of the dividend when the Company's performance returns to a consistent level of profitability. 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: November 11, 2008 By: /s/ William A. Johnson ------------------------------------- William A. Johnson, Chief Executive Officer and President Date: November 11, 2008 By: /s/ Michael K. Solomon ----------------------- Michael K. Solomon, Chief Financial Officer 13 EX-31.1 2 exhibit311.txt CERTIFICATION EXHIBIT 31.1 I, William A. Johnson, Principal Executive 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) 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 (d) 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 11, 2008 By: /s/ William A. Johnson ------------------------------------- William A. Johnson, Chief Executive Officer and President EX-32.1 3 exhibit312.txt CERTIFICATION EXHIBIT 31.2 I, Michael K. Solomon, Principal 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) 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 (d) 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 11, 2008 By: /s/ Michael K. Solomon ----------------------- Michael K. Solomon, Chief Financial Officer EX-32 4 exhibit32.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 September 27, 2008, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, William A. Johnson, Chief Executive Officer 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 11, 2008 By: /s/ William A. Johnson ------------------------------------- William A. Johnson, Chief Executive Officer and President Date: November 11, 2008 By: /s/ Michael K. Solomon ----------------------- Michael K. Solomon, Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----