"Gross profit and operating income dollars improved in the second quarter and first half of 2005 as a result of higher sales volume; however, as a percentage of sales, gross profit and operating income were lower in 2005 due to higher costs for raw materials, energy and manufacturing. Although they increased prices to offset higher raw material and energy expenses, there was a significant timing lag in this implementation, but they believe these increases are now in place.
"During April 2005, order entries in their Masland Residential, Masland Commercial and Dixie Home businesses increased 51 percent over the prior-year levels. This unusual escalation in business activity increased complexities and created a number of operational issues that resulted in fewer shipments from inventory, longer lead times, and greater difficulties in shipping on time. In response, they added staff, lengthened operating schedules, and accelerated their move into a new distribution facility.
As a result, manufacturing costs were affected by unusually high amounts of overtime, staffing and training expense, and the costs associated with the move of inventory and staff to their new distribution center. LIFO inventory liquidations that increased prior-year gross profit by 0.4 percent for the second quarter and 1 percent for the first six months also affected the year-over-year comparisons.
"Interest expense increased approximately $500,000 in the second quarter 2005 compared with the same period in 2004, principally due to market gains related to an interest rate hedge that reduced interest expense in the year-earlier period.
marketing@alchempro.com
