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 quarter ended June 28, 1997
[ ] 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, FL 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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------. -------.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JULY 28, 1997
Common Stock, $.20 par value 2,996,383 shares*
*Includes 35,914 shares issuable upon surrender of the
outstanding $.10 par common stock.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DECORATOR INDUSTRIES, INC.
BALANCE SHEET
JUNE 28, Dec. 28,
1997 1996
----------- -----------
ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash and Cash Equivalents $2,578,233 $4,714,356
Short-term Investments 2,632,914 2,539,613
Accounts Receivable, less allowance for
doubtful accounts ($223,188 and $232,302) 4,749,933 2,972,572
Inventories 4,102,458 3,083,004
Other Current Assets 459,930 333,269
----------- -----------
TOTAL CURRENT ASSETS 14,523,468 13,642,814
----------- -----------
PROPERTY AND EQUIPMENT:
Land, Buildings & Improvements 2,387,622 2,355,013
Machinery, Equipment, Furniture & Fixtures 3,633,706 3,042,968
----------- -----------
TOTAL PROPERTY & EQUIPMENT 6,021,328 5,397,981
Less: Accumulated Depreciation and Amortization 2,454,150 2,249,848
----------- -----------
NET PROPERTY & EQUIPMENT 3,567,178 3,148,133
----------- -----------
GOODWILL, less accumulated
amortization of $912,754 and $874,224 3,027,040 1,402,818
OTHER ASSETS 202,539 200,592
----------- -----------
TOTAL ASSETS $21,320,225 $18,394,357
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $4,285,985 $2,624,552
Current Maturities of Long-term Debt 42,021 41,685
Accrued Expenses:
Income Taxes 154,357 63,397
Compensation 1,073,577 1,443,921
Other 795,623 465,423
----------- -----------
TOTAL CURRENT LIABILITIES 6,351,563 4,638,978
----------- -----------
LONG-TERM DEBT 528,599 549,433
DEFERRED INCOME TAXES 195,000 195,000
----------- -----------
TOTAL LIABILITIES 7,075,162 5,383,411
----------- -----------
STOCKHOLDERS' EQUITY:
Common Stock $.20 par value: Authorized
shares, 5,000,000;
Issued shares, 3,452,732 and 2,725,462 690,573 545,094
Paid-in Capital 1,459,623 1,546,152
Retained Earnings 13,684,808 12,478,625
----------- -----------
15,835,004 14,569,871
Less: Treasury Stock, at cost: 464,154 and
369,087 shares 1,589,941 1,558,925
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 14,245,063 13,010,946
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $21,320,225 $18,394,357
=========== ===========
The accompanying notes are an integral part of the financial statements.
1
DECORATOR INDUSTRIES, INC.
STATEMENT OF EARNINGS
(UNAUDITED)
FOR THIRTEEN WEEKS ENDED: FOR TWENTY-SIX WEEKS ENDED:
------------------------ --------------------------
June 28, 1997 June 29, 1996 June 28, 1997 June 29, 1996
-------------------- -------------------- ----------- ------- ----------- -------
Net Sales $11,860,367 100.00% $10,540,139 100.00% $21,246,909 100.00% $19,988,882 100.00%
Cost of Products Sold 8,904,885 75.08% 7,706,744 73.12% 15,827,039 74.49% 14,818,923 74.14%
--------- --------- ----------- -----------
Gross Profit 2,955,482 24.92% 2,833,395 26.88% 5,419,870 25.51% 5,169,959 25.86%
Selling and
Administrative Expenses 1,652,735 13.93% 1,473,563 13.98% 3,083,074 14.51% 2,864,438 14.33%
--------- --------- ----------- -----------
Operating Income 1,302,747 10.98% 1,359,832 12.90% 2,336,796 11.00% 2,305,521 11.53%
Other Income (Expense):
Interest and
Investment Income 83,894 0.71% 45,059 0.43% 176,042 0.83% 102,846 0.51%
Interest Expense (7,090) -0.06% (9,343) -0.09% (17,682) -0.08% (21,093) -0.11%
--------- --------- ----------- -----------
Earnings Before
Income Taxes 1,379,551 11.63% 1,395,548 13.24% 2,495,156 11.74% 2,387,274 11.94%
Provision for
Income Taxes 500,000 4.22% 485,000 4.60% 913,000 4.30% 854,000 4.27%
--------- --------- ----------- -----------
NET INCOME $879,551 7.42% $910,548 8.64% $1,582,156 7.45% $1,533,274 7.67%
========= ========= ========== ===========
PRIMARY EARNINGS PER SHARE $0.29 $0.31 * $0.53 $0.53 *
===== ===== ===== =====
FULLY DILUTED EARNINGS PER SHARE $0.28 $0.30 * $0.50 $0.50 *
===== ===== ===== =====
Average Number of Shares
Outstanding:
Primary 2,979,651 2,908,738 * 2,973,084 2,896,797 *
Fully Diluted 3,174,203 3,098,126 * 3,184,645 3,100,457 *
* Restated to reflect the five-for-four stock split effective June 13, 1997.
The accompanying notes are an integral part of the financial statements.
2
DECORATOR INDUSTRIES, INC.
STATEMENT OF CASH FLOWS (UNAUDITED)
FOR 26 WEEKS ENDED:
June 28, 1997 June 29, 1996
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITES:
Net Income $1,582,156 $1,533,274
Adjustments to Reconcile Net Income
to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 242,831 199,175
Provision for Losses on Accounts Receivable (15,000) 25,000
(Gain) Loss on Disposal of Assets ---- 139
Increase (Decrease) from Changes In:
Accounts Receivable (1,066,220) (916,690)
Inventory (476,004) (5,612)
Short-term Investments (93,301) (2,407,150)
Prepaid Expenses (126,661) (31,255)
Other Assets (41,947) 86,054
Accounts Payable 1,661,433 909,224
Accrued Expenses 14,441 (85,621)
----------- --------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES 1,681,728 (693,462)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (226,057) (176,720)
Proceeds from Property Dispositions 800 1,410
Note Receivable 40,000 40,000
Acquisitions (3,263,720) ----
----------- ----------
NET CASH USED FOR INVESTING ACTIVITIES (3,448,977) (135,310)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term Debt Payments (20,834) (20,111)
Dividend Payments (375,974) (284,429)
Proceeds from Exercise of Stock Options 19,179 128,514
Cash in Lieu of Fractional Shares (1,064) ----
Issuance of Treasury Stock for
Directors' Compensation 9,819 ----
Stock Option Tax Benefit ---- 6,000
Purchase of Common Stock for Treasury ---- (769,829)
----------- ----------
NET CASH USED FOR FINANCING ACTIVITIES (368,874) (939,855)
NET DECREASE IN CASH AND
CASH EQUIVALENTS (2,136,123) (1,768,627)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 4,714,356 5,269,772
----------- ----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $2,578,233 $3,501,145
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid for:
Interest $18,093 $16,599
Income Taxes $706,883 $676,088
Cash Flows from Acquisitions:
Purchase Price $3,300,096
Less: Deferred Portion of Purchase Price (36,376)
Cash Used for Acquisitions $3,263,720
The accompanying notes are an integral part of the financial statements.
3
DECORATOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWENTY-SIX WEEKS ENDED JUNE 28, 1997 AND JUNE 29, 1996
(UNAUDITED)
NOTE 1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present
fairly the company's financial position as of June 28, 1997, the
changes therein for the twenty-six week period then ended and the
results of operations for the twenty-six week periods ended
June 28, 1997 and June 29, 1996.
NOTE 2. The consolidated 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 generally accepted
accounting principles. For additional information, reference is
made to the company's annual report on form 10-K for the year ended
December 28, 1996. The results of operations for the twenty-six week
periods ended June 28, 1997 and June 29, 1996 are not necessarily
indicative of operating results for the full year.
NOTE 3. INVENTORIES
Inventories at June 28, 1997 and December 28, 1996 consisted of the
following:
JUNE 28, 1997 DECEMBER 28, 1996
------------- -----------------
RAW MATERIAL AND
SUPPLIES $3,891,158 $2,854,066
IN PROCESS AND
FINISHED GOODS 211,300 228,938
---------- ----------
$4,102,458 $3,083,004
========== ==========
NOTE 4. EARNINGS PER SHARE
The excess of shares assumed to be issued under the stock option plans
over shares that could be purchased with the proceeds based on the
higher average or period ending market prices, was sufficient to
cause fully diluted earnings per share to be different from primary
earnings per share as shown in the consolidated statement of earnings.
NOTE 5. ACQUISITIONS
The Company acquired, effective March 15, 1997, the business and
certain assets of Specialty Window Coverings Corp., an Elkhart, Indiana
based manufacturer of pleated shades for the recreational vehicle
market. The purchase price was $2,455,783 in cash plus conditional
payments, based on earnings, of up to $2 million over the succeeding
two years. The company
4
DECORATOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TWENTY-SIX WEEKS ENDED JUNE 28, 1997 AND JUNE 29, 1996
(UNAUDITED)
assumed no liabilities. Specialty will continue to operate from its
existing facilities, which are being expanded from 20,000 to 35,000
square feet and which are leased from the former owners of Specialty.
Specialty had net sales of approximately $5 million in 1996. The
Company recognized goodwill of approximately $1.3 million in
connection with the acquisition.
On March 4, 1997, the Company further expanded its product line to
include furniture and cushions for the recreational vehicle market
by having purchased the assets of Action Design Interiors, also based
in Elkhart, Indiana.
The Company acquired, effective May 12, 1997, the business and certain
assets of Southern Interiors, Inc., a Memphis, Tennessee based
manufacturer of window coverings for the Hospitality (motel/hotel)
Market for $844,313 in cash plus conditional payments, not to exceed
$500,000, based on revenues over the next three years. The Company
assumed no liabilities and recognized goodwill of approximately
$400,000 in connection with the purchase. Southern Interiors
manufactures window coverings and accessories from fabric supplied
by its customers, largely hotel design and supply firms.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company's financial condition, as measured by the following ratios,
continues to be strong at the end of the Second Quarter.
JUNE 28, 1997 DECEMBER 28, 1996
------------- -----------------
Current Ratio 2:29 2:94
Quick Ratio 1:64 2:28
LT Debt to Total Capital 3.64% 4.03%
Working Capital $8,171,905 $9,003,836
Cash and Short-Term Investments totaled $5,211,147 at June 28, 1997. The
current cash balances and borrowing capacity keep the company well-positioned
to take advantage of internal growth or acquisition opportunities that might
arise.
RESULTS OF OPERATIONS:
The following tables show the percentage relationship to net sales of certain
items in the Company's Statement of Earnings and net sales dollars by market:
Second 26 Second 26
Quarter Weeks Quarter Weeks
1997 1997 1996 1996
-------- ------ ------- ------
EARNINGS RATIOS
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 75.1 74.5 73.1 74.1
Selling and administrative 13.9 14.5 14.0 14.3
Interest and investment income (.7) (.8) (.4) (.5)
Interest expense .1 .1 .1 .1
Income taxes 4.2 4.3 4.6 4.3
Net income 7.4 7.4 8.6 7.7
NET SALES BY MARKET
Manufactured housing $4,965 $9,538 $5,884 $11,130
Recreational vehicles 4,003 6,671 2,356 4,520
Hospitality 2,891 5,037 2,300 4,329
------- ------- ------- -------
Net sales - total $11,859 $21,246 $10,540 $19,979
======= ======= ======= =======
6
THIRTEEN WEEK PERIOD ENDED JUNE 28, 1997 (SECOND QUARTER 1997) COMPARED TO
THIRTEEN WEEK PERIOD ENDED JUNE 29, 1996 (SECOND QUARTER 1996)
Net sales for the Second Quarter were $11,860,367, compared to $10,540,139
for the same period the previous year, a 12.5% increase. Sales by acquired
businesses and increased sales by existing divisions to the Recreational
Vehicle Market were offset somewhat by a decline in sales to the Manufactured
Housing Market in some geographic regions.
Cost of products sold increased to 75.1% in the Second Quarter compared to
73.1% a year ago. The increase is the result of higher cost of products sold
percentages attributable to the acquired businesses and higher labor and
other start-up costs largely related to the growth of the Recreational
Vehicle products business.
Selling and administrative expenses were $1,652,735 in the Second Quarter
1997 versus $1,473,563 in the Second Quarter 1996. This increase is related
to the acquired businesses.
Net income in the Second Quarter was $879,551 or 29 cents per share
(primary), compared with $910,548 or 31 cents per share (primary) in the same
period a year ago. These results were a 3% and 6% decrease, respectively.
TWENTY-SIX WEEK PERIOD ENDED JUNE 28, 1997 (FIRST HALF 1997) COMPARED TO
TWENTY-SIX WEEK PERIOD ENDED JUNE 29, 1996 (FIRST HALF 1996)
Net sales for the first half of 1997 were $21,246,909 compared to $19,988,882
for the first half of 1996. Increases from acquisitions and in sales to the
Recreational Vehicle and Hospitality Markets were offset by a decline in
sales to the Manufactured Housing Market.
Net income was $1,582,156 in the first six months of 1997 versus $1,533,274
for the same period of 1996. Overall performance for the respective periods
was very comparable.
7
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10W - Stock Plan for Non-employee Directors and related Grantor
Trust Agreement, filed herewith.
27B - Financial data schedule, filed herewith.
(b) No reports on Form 8-K were filed by the Company
during the fiscal quarter ended June 28, 1997.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has caused
this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DECORATOR INDUSTRIES, INC.
(Registrant)
By: /s/ WILLIAM BASSETT
---------------------------
William Bassett, President
By: /s/ MICHAEL K.SOLOMON
-----------------------------
Date: August 8, 1997 Michael K. Solomon, Treasurer
8