"Despite our strong sales growth and significant improvement in operating profit, compared with the first quarter of this year, we were disappointed that gross margins and operating profits were below the same periods in 2005," Frierson continued.
"Compared with the prior-year periods, operating results were affected by a less profitable product mix, settlement expenses to terminate the defined benefit retirement plan that was frozen as to new benefits in 1993, start-up costs for our new tufting and carpet tile operations, and higher levels of off-quality production. Selling and administrative expenses significantly improved as a percentage of sales this year due to the higher sales volume and lower sample expenses during the second quarter.
"The expenses associated with termination of the defined benefit retirement plan and start-up costs of our North Georgia tufting operation are now behind us. The North Georgia tufting operation was running at full capacity during the month of June, with excellent quality and low manufacturing costs. We terminated the defined benefit plan in June of this year. The level of off-quality production generated by our operations (largely affected by outsourcing) was higher than in the previous year, but we addressed this problem and have made significant progress in this area. Product quality improved throughout the second quarter, and we have seen this progress continue into July. Our suppliers increased their prices for raw materials in early July, and we have implemented selling price increases to recover this higher cost.
marketing@alchempro.com
