- Juvenile sales and operations from earnings increase - RTA furniture operations continue to improve - Recreational/Leisure has strong sales quarter TSX: DII.B, DII.A
MONTREAL, May 2 /CNW Telbec/ - Dorel Industries Inc. (TSX: DII.B DII.A) today released results for the first quarter ended March 31, 2007. Revenue for the period was US$455.7 million, up slightly from US$451.0 million last year. Net income for the first quarter was US$27.9 million or US$0.85 per diluted share compared with US$24.2 million or US$0.74 per diluted share in 2006. As announced earlier this year, Dorel Europe is implementing significant operational changes related to its production facility in Italy and a similar initiative is in progress regarding facilities located in France. As such, first quarter 2007 results include pre-tax restructuring costs of US$2.1 million. After tax, this represents US$1.4 million or US$0.04 per diluted share. Therefore, adjusted net income for the first quarter, excluding all restructuring costs in both years, was US$29.3 million or US$0.89 per diluted share, versus US$24.5 million, or US$0.75 per diluted share in 2006. This represents an increase in net income of 19.7%.
Included in the 2007 adjusted net income of US$29.3 million, or US$0.89 per diluted share, is a non-cash income tax recovery of US$2.7 million or US$0.08 cents per share. Based on lower tax rates expected to apply in future periods in one of the Company's tax jurisdictions, the amount recovered represents the impact of this rate reduction.
The Company is including adjusted earnings figures in this press release that are considered non- GAAP financial measures, as it believes this permits more meaningful comparisons of its core business performance between the periods presented. Therefore the terms "adjusted earnings from operations", "adjusted gross margin", "adjusted net income" and "adjusted diluted earnings per share" should be considered as non-GAAP measures. Where applicable, the following segmented results exclude restructuring costs and use the term "adjusted" when describing these results. A reconciliation of adjusted earnings to GAAP earnings is attached to the end of this press release.
"The positive first quarter at several of our divisions demonstrates that our efforts in 2006 are paying off. Dorel Europe had its best quarter ever with record sales and earnings. Ameriwood posted earnings gains over last year on similar sales levels as things are moving in the right direction. Board prices have stabilized; the domestic plants are now better run with scrap levels down, board yield up and inventories remaining stable. Pacific Cycle domestic sales increased by almost nine percent over last year, driven by both bicycle sales and related products such as bike trailers," commented Dorel President and CEO, Martin Schwartz.
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Summary of Financial Highlights
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First quarter ended March 31
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All figures in thousands of US $, except per share amounts
2007 2006 Change%
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Revenue 455,669 451,024 1.0%
Adjusted net income(x) 29,316 24,483 19.7%
Per share - Basic 0.89 0.75 18.7%
Per share - Diluted 0.89 0.75 18.7%
Net income 27,939 24,181 15.5%
Per share - Basic 0.85 0.74 14.9%
Per share - Diluted 0.85 0.74 14.9%
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Average number of shares outstanding
- diluted weighted average 32,990,690 32,859,694
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(x)adjusted to exclude after-tax impact of restructuring costs
Juvenile Segment
First quarter Juvenile revenue was up 4.1%, or US$9.6 million, to US$245.2
million compared to US$235.6 million during the same period a year ago.
Adjusted earnings from operations increased 14% during the first quarter to
US$34.0 million from US$29.8 million last year. The revenue increase was led
by strong sales in Europe where revenues were up by 14% in Euro terms. The
stronger Euro in the first quarter of 2007 was also a contributor to revenue
growth, increasing the growth percentage to 24% for Europe as a whole. These
gains came from increased sales of car seats and strollers, mainly in Germany
and the United Kingdom.
Offsetting this strong performance was a revenue decline in North America
of 12%, as sales to mass merchant customers in the United States were down
from last year's first quarter levels. The lower sales levels were near plan,
as last year's strong first quarter results were not expected to be repeated.
This level of decline should not continue and expectations are that North
American revenues should stabilize for the balance of the year. Despite the
lower sales volumes, gross margins improved by 60 basis points over last year.
Dorel Distribution Canada continued its sales growth with its expanded
product lines, most notably as it now sells and services Pacific Cycle's
product offerings in Canada. At the end February 2007, Dorel acquired a 55%
interest IGC (Australia) Pty Ltd, based in Melbourne, Australia. Renamed IGC
Dorel Pty Ltd, one month revenue included in 2007 results was US$2.4 million
and this division was a contributor to earnings.
Home Furnishings Segment
Home Furnishings revenue was down 8.4% to US$122.6 million from
US$133.7 million during the first quarter a year ago. The majority of this
decline was at the Dorel Asia division. Approximately one half was due to
certain customers switching to a commission structure whereby, the revenue
recognized by Dorel represents only the commission earned as opposed to the
entire sale. Despite the lower revenues, Dorel Asia earnings were only
slightly lower than the prior year. For the entire segment, earnings from
operations decreased to US$2.4 million from US$4.6 million last year. Compared
to last year's adjusted earnings from operations of US$5.1 million that
excludes US$0.5 million related to last year's Ameriwood restructuring, the
earnings decline was 52.4%.
First quarter improvements at Ameriwood resulted in an adjusted gross
margin improvement of 310 basis points over 2006. Sales of RTA furniture at
Ameriwood were close to the levels recorded during the first quarter of 2006
and the division was slightly profitable. Particle board prices have
stabilized and are expected to remain at these levels through 2007.
Despite slightly higher sales levels, Cosco Home & Office earnings were
hampered by a less profitable mix of sales, higher inventory levels and
related carrying costs, and higher legal fees. These fees are due to its
ongoing claim against a major international law firm for its failure to timely
file a request for an administrative review of duties imposed on the Company
by the United States Department of Commerce. Positives in the quarter include
a number of new ladder and step stool items being secured with a major
retailer for 2007. Also doing well are articulating ladders, and Cosco Home &
Office has displaced a major competitor in the DIY space for this business.
First quarter sales at Dorel Home Products (DHP) were down in the first
two months of the year and as a result, gross margins were negatively impacted
as the ensuing low production levels and poor overhead absorption, severely
hampered margins. Both sales and earnings rebounded in March and this trend is
expected to extend into the second quarter. The focus at Dorel Home Products
is on adding new customers and offering additional items. The balance of the
year is expected to stabilize in futons with new designs being offered and
additional items introduced.
At Dorel Asia, new customers were added during the first quarter, mainly
among major and club format retailers. New juvenile products including a
wooden bunk bed and upholstered items, such as home theatre seating groups,
have been introduced. The rest of 2007 will see more of the same with a
continued broadening of Dorel Asia's product range and customer base.
Recreational/Leisure Segment
First quarter Recreational/Leisure revenue increased 7.6% to
US$87.9 million compared to last year's US$81.7 million. Earnings from
operations were down 2.8% to US$7.2 million from US$7.4 million. The decline
in gross margins and earnings in the quarter were the result of a decrease in
international licensing income. This decline offset the additional margin
dollars generated on domestic sales in the U.S.
Last year's modest decline in bicycle sales was reversed during the first
quarter as Pacific's main customers experienced strong sell-through. Sales to
the independent bicycle dealer network were solid, with same store sales up.
The InStep brand also had a good first quarter with its trailers and
strollers. First shipments of the new Schwinn electric bike were made during
the quarter. The potential for this model is anticipated to be particularly
strong in Europe. Playsafe swing sets continue to sell well with major
retailers and the brand is picking up market share in its second year. Sales
of gas-powered motor scooters were stable.
Added to Pacific's line-up this year is the electric ride-on toy business,
transferred from DJG USA. With Pacific's well-entrenched recreational
distribution channel and a specific team dedicated to the ride- ons, strong
growth is projected. Note that the comparative quarter revenue and earnings
figures have been restated to reflect the inclusion of the sales of these
items that were sold by DJG USA in the prior year. As such, 2006 revenues are
US$4.5 million higher than previously reported and earnings have been
increased by US$0.4 million. These same amounts have been reduced from the
Juvenile segment comparative figures as presented in this press release and
all related continuous disclosure documents.
Tax rate
The Company's effective tax rate in the first quarter of 2007 was 5.4%
compared to 18.1% in 2006. However, 2007 includes the US$2.7 million tax
recovery explained above. Excluding this recovery, the Company's tax rate
would have been 14.4%. This rate is in line with current revised expectations
for the Company's annual tax rate now expected to be from 14% to 18%.
Outlook
"Product development has been a keen focus throughout Dorel's various
businesses. The past several months have seen intense activity in all three
segments and the benefits of these efforts will be felt as early as the third
quarter. Our Quinny line, a premier lifestyle brand that has been highly
successful in Europe, is being introduced in the United States over the next
few months and completely redesigned and revamped Safety 1st packaging and
products will be launched later this year. Dorel Europe has consistently
demonstrated its innovative skills through a rigorous campaign of product
launches. The revolutionary Axiss, a high quality car seat featuring a height-
adjustable head-rest and a rotating mechanism to facilitate placement of the
child, was introduced to the market in March. Reaction has been excellent.
Pacific Cycle is widening its product platforms with additional recreational
items in the fish and game and back-yard categories, as well as a new line
later this year of electric assist motor products for commercial and
residential applications. There has been solid progress at Ameriwood and the
recently announced closure of one of our largest competitors should provide
opportunities going forward," concluded Mr. Schwartz.
Conference Call
Dorel Industries Inc. will hold a conference call to discuss these results
today, May 2, 2007 at 2:00 P.M. Eastern Time. Interested parties can join the
call by dialling 1-800-590-1817. The conference call can also be accessed via
live webcast at www.dorel.com, www.newswire.ca or www.q1234.com. If you are
unable to call in at this time, you may access a tape recording of the meeting
by calling 1-877-289-8525 and entering the passcode 21228378(number sign). on your phone.
This tape recording will be available on Wednesday, May 2, 2007 as of 4:00
P.M. until 11:59 P.M. on Wednesday, May 9, 2007.
Complete financial statements will be available on the Company's website,
www.dorel.com, and will be available through the SEDAR websites.
Profile
Dorel Industries (TSX: DII.B, DII.A) is a global consumer products company
engaged in the designing, manufacturing and marketing of a diverse portfolio
of powerful consumer brands, sold through its Juvenile, Home Furnishings, and
Recreational/Leisure segments. Headquartered in Montreal and with significant
operations in the United States and Europe, Dorel employs approximately 4,700
people in 15 countries. Annual sales are US$1.8 billion and are made in over
60 countries worldwide.
US operations include Dorel Juvenile Group, which markets the Cosco and
Safety 1st brands as well as Eddie Bauer and Disney Baby licensed products;
Ameriwood Industries, which markets ready-to-assemble furniture products under
the Ameriwood, Carina, SystemBuild, Altra Furniture and Ridgewood brands;
Cosco Home & Office, which markets home/office products under the Cosco brand
and Samsonite license as well as home healthcare products under the Cosco
Ability Essentials and Adepta brands; and Pacific Cycle, which markets several
brands including Schwinn, Mongoose, GT, InSTEP, Playsafe and Roadmaster. In
Canada, Dorel operates Dorel Distribution Canada, Ridgewood Industries and
Dorel Home Products. Dorel Europe markets juvenile products throughout Europe,
under the Bebe Confort, Maxi-Cosi, Quinny, Safety 1st, Babideal, Mon Bebe and
Baby Relax brands. Dorel Asia sources and imports home furnishings products.
Dorel is the majority owner of IGC Dorel Pty Ltd, a manufacturer and
distributor of juvenile products in Australia, whose two principal brands are
Bertini and Mother's Choice. Dorel also has eight offices in China,
headquartered in Shanghai, which oversee the sourcing, engineering and
logistics of the Company's Asian supplier chain.
Caution Concerning Forward-Looking Statements
Except for historical information provided herein, this press release may
contain information and statements of a forward-looking nature concerning the
future performance of Dorel Industries Inc. These statements are based on
suppositions and uncertainties as well as on management's best possible
evaluation of future events. The business of the Company and these forward-
looking statements are subject to a number of risks and uncertainties that
could cause actual results to differ from expected results. Important factors
which could cause such differences may include, without excluding other
considerations, increases in raw material costs, particularly for key input
factors such as particle board and resins; increases in ocean freight
container costs; failure of new products to meet demand expectations; changes
to the Company's effective income tax rate as a result of changes in the
anticipated geographic mix of revenues; the impact of price pressures exerted
by competitors, and settlements for product liability cases which exceed the
Company's insurance coverage limits. A description of the above mentioned
items and certain additional risk factors are discussed in the Company's
Annual MD&A and Annual Information Form, filed with the securities regulatory
authorities in Canada and the U.S. The risk factors outlined in the previously
mentioned documents are specifically incorporated herein by reference. The
Company's business, financial condition, or operating results could be
materially adversely affected if any of these risks and uncertainties were to
materialize. Given these risks and uncertainties, investors should not place
undue reliance on forward-looking statements as a prediction of actual
results.
DOREL INDUSTRIES INC.
CONSOLIDATED BALANCE SHEET
ALL FIGURES IN THOUSANDS OF US $
as at as at
March 31, December 30,
2007 2006
------------ ------------
(unaudited) (audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 18,510 $ 25,925
Accounts receivable 316,880 294,731
Income taxes receivable 8,917 8,264
Inventories 324,285 326,540
Prepaid expenses 11,171 9,652
Future income taxes 30,778 29,046
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710,541 694,158
PROPERTY, PLANT AND EQUIPMENT 141,772 142,002
GOODWILL 504,875 501,356
INTANGIBLE ASSETS 262,772 261,966
OTHER ASSETS 27,631 27,924
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$ 1,647,591 $ 1,627,406
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LIABILITIES
CURRENT LIABILITIES
Bank indebtedness $ 5,415 $ 3,733
Accounts payable and accrued liabilities 295,815 326,915
Income taxes payable 13,451 10,742
Dividends payable 4,177 -
Balance of sale payable 594 605
Current portion of long-term debt 62,722 7,832
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382,174 349,827
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LONG-TERM DEBT 320,870 375,135
PENSION & POST-RETIREMENT BENEFIT OBLIGATIONS 20,803 20,370
FUTURE INCOME TAXES 73,103 74,833
OTHER LONG-TERM LIABILITIES 8,342 7,719
SHAREHOLDERS' EQUITY
CAPITAL STOCK 177,271 162,555
CONTRIBUTED SURPLUS 6,885 6,061
RETAINED EARNINGS 590,782 567,020
ACCUMULATED OTHER COMPREHENSIVE INCOME 67,361 63,886
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842,299 799,522
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$ 1,647,591 $ 1,627,406
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DOREL INDUSTRIES INC.
CONSOLIDATED STATEMENT OF INCOME
ALL FIGURES IN THOUSANDS OF US $, EXCEPT PER SHARE AMOUNTS
Three months ended
--------------------------
March 31, March 31,
2007 2006
------------ ------------
(unaudited) (unaudited)
Sales $ 450,159 $ 444,891
Licensing and commission income 5,510 6,133
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TOTAL REVENUE 455,669 451,024
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EXPENSES
Cost of sales 344,502 349,916
Selling, general and administrative expenses 60,819 52,450
Depreciation and amortization 9,544 8,926
Research and development costs 2,608 2,281
Restructuring costs 2,126 -
Interest on long-term debt 6,548 7,774
Other interest - 143
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426,147 421,490
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Income before income taxes 29,522 29,534
Income taxes 1,583 5,353
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NET INCOME $ 27,939 $ 24,181
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EARNINGS PER SHARE
Basic $ 0.85 $ 0.74
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Diluted $ 0.85 $ 0.74
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SHARES OUTSTANDING
Basic - weighted average 32,951,162 32,859,217
Diluted - weighted average 32,990,690 32,859,694
DOREL INDUSTRIES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
ALL FIGURES IN THOUSANDS OF US $
Three months ended
--------------------------
March 31, March 31,
2007 2006
------------ ------------
(unaudited) (unaudited)
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net income $ 27,939 $ 24,181
Items not involving cash:
Depreciation and amortization 9,544 8,926
Amortization of deferred financing costs 42 398
Future income taxes (3,198) 1,352
Restructuring activities 2,114 -
Stock based compensation 824 617
Pension and post-retirement defined
benefit plan 750 605
Loss (gain) on disposal of property,
plant and equipment (9) 31
------------ ------------
38,006 36,110
Changes in non-cash balances related to
operations:
Accounts receivable (18,688) (9,135)
Inventories 8,531 324
Prepaid expenses (1,715) (1,357)
Accounts payable, accruals and other
liabilities (35,968) (13,018)
Income taxes 1,599 (1,472)
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(46,241) (24,658)
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CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (8,235) 11,452
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FINANCING ACTIVITIES
Bank indebtedness 1,297 (1,705)
Long-term debt (6,584) 8,843
Issuance of capital stock 14,698 17
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CASH PROVIDED BY FINANCING ACTIVITIES 9,411 7,155
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INVESTING ACTIVITIES
Acquisition of subsidiary companies (2,170) (4,946)
Additions to property, plant and
equipment - net (4,167) (3,471)
Deferred development costs (2,317) (1,843)
Funds held by ceding insurer - (25)
Intangible assets (118) (1,525)
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CASH USED IN INVESTING ACTIVITIES (8,772) (11,810)
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Effect of exchange rate changes on cash 181 41
------------ ------------
NET (DECREASE) INCREASE IN CASH (7,415) 6,838
Cash and cash equivalents, beginning of period 25,925 12,345
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 18,510 $ 19,183
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DOREL INDUSTRIES INC
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
ALL FIGURES IN THOUSANDS OF US $
Three months ended
March 31, March 31,
2007 2006
------------ ------------
(unaudited) (unaudited)
BALANCE, BEGINNING OF PERIOD $ 567,020 $ 478,155
Net income 27,939 24,181
Common dividends (4,177) -
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BALANCE, END OF PERIOD $ 590,782 $ 502,336
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DOREL INDUSTRIES INC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
ALL FIGURES IN THOUSANDS OF US $
Three months ended
March 31, March 31,
2007 2006
------------ ------------
(unaudited) (unaudited)
NET INCOME $ 27,939 $ 24,181
OTHER COMPREHENSIVE INCOME:
Net change in unrealized foreign currency
gains on translation of net investments
in self-sustaining foreign operations,
net of tax of nil 3,475 7,407
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COMPREHENSIVE INCOME $ 31,414 $ 31,588
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DOREL INDUSTRIES INC.
INDUSTRY SEGMENTED INFORMATION
FOR THE THREE MONTHS ENDED MARCH 31 (Unaudited)
ALL FIGURES IN THOUSANDS OF US $
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Total Juvenile
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2007 2006 2007 2006
Total Revenue $ 455,669 $ 451,024 $ 245,227 $ 235,623
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Cost of sales 344,502 349,916 167,088 168,027
Selling, general and
administrative 55,382 48,037 34,795 29,239
Depreciation and amortization 9,523 8,905 7,410 7,001
Research and development costs 2,608 2,281 1,918 1,511
Restructuring costs 2,126 - 2,126 -
---------------------------------------------
Earnings from Operations 41,528 41,885 $ 31,890 $ 29,845
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---------------------
Interest 6,548 7,917
Corporate expenses 5,458 4,434
Income taxes 1,583 5,353
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Net income $ 27,939 $ 24,181
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Earnings per Share
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Basic $ 0.85 $ 0.74
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Diluted $ 0.85 $ 0.74
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----------- ----------
Reconciliation to non-GAAP financial measures
---------------------------------------------
Earnings from Operations
as above $ 41,528 $ 41,885 $ 31,890 $ 29,845
Restructuring costs 2,126 - 2,126 -
Restructuring costs in cost
of sales - 464 - -
---------------------------------------------
Adjusted earnings from
Operations 43,654 42,349 $ 34,016 $ 29,845
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---------------------
Interest 6,548 7,917
Corporate expenses 5,458 4,434
Income taxes - as above 1,583 5,353
Income taxes on restructuring
costs 749 162
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Adjusted Net income $ 29,316 $ 24,483
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Adjusted Earnings per Share
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Basic $ 0.89 $ 0.75
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Diluted $ 0.89 $ 0.75
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Recreational
Home Furnishings / Leisure
---------------------------------------------
2007 2006 2007 2006
Total Revenue $ 122,553 $ 133,727 $ 87,889 $ 81,674
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Cost of sales 106,595 116,993 70,819 64,896
Selling, general and
administrative 11,251 9,711 9,336 9,087
Depreciation and amortization 1,606 1,649 507 255
Research and development costs 690 770 - -
Restructuring costs - - - -
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Earnings from Operations $ 2,411 $ 4,604 $ 7,227 $ 7,436
---------------------------------------------
---------------------------------------------
Reconciliation to non-GAAP financial measures
---------------------------------------------
Earnings from Operations
as above $ 2,411 $ 4,604 $ 7,227 $ 7,436
Restructuring costs - - - -
Restructuring costs in cost
of sales - 464 - -
---------------------------------------------
Adjusted earnings from
Operations $ 2,411 $ 5,068 $ 7,227 $ 7,436
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