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 September 27, 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.
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(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1001433
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10011 Pines Blvd., Suite 201, Pembroke Pines, FL 33024
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(Address of principal executive offices) (Zip Code)
954-436-8909
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(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 .
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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 October 31, 1997
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Common Stock, $.20 par value 2,980,468 shares*
*Includes 12,740 shares issuable upon surrender of the
outstanding $.10 par common stock.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DECORATOR INDUSTRIES, INC.
BALANCE SHEET
Sept. 27, 1997 Dec. 28, 1996
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ASSETS (UNAUDITED)
Current Assets:
Cash and Cash Equivalents $1,975,647 $4,714,356
Short-term Investments 2,786,309 2,539,613
Accounts Receivable, less allowance for
doubtful accounts ($237,008 and $232,302) 4,500,680 2,972,572
Inventories 4,379,415 3,083,004
Other Current Assets 575,719 333,269
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Total Current Assets 14,217,770 13,642,814
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Property and Equipment:
Land, Buildings & Improvements 2,399,660 2,355,013
Machinery, Equipment, Furniture & Fixtures 3,833,014 3,042,968
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Total Property & Equipment 6,232,674 5,397,981
Less: Accumulated Depreciation and Amortization 2,560,900 2,249,848
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Net Property & Equipment 3,671,774 3,148,133
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Goodwill, less accumulated
amortization of $937,844 and $874,224 3,001,950 1,402,818
Other Assets 167,546 200,592
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Total Assets $21,059,040 $18,394,357
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $3,685,141 $2,624,552
Current Maturities of Long-term Debt 42,192 41,685
Accrued Expenses:
Income Taxes -- 63,397
Compensation 1,180,700 1,443,921
Other 911,996 465,423
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Total Current Liabilities 5,820,029 4,638,978
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Long-Term Debt 518,125 549,433
Deferred Income Taxes 216,000 195,000
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Total Liabilities 6,554,154 5,383,411
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Stockholders' Equity:
Common Stock $.20 par value: Authorized shares, 5,000,000
Issued shares, 3,457,174 and 2,725,462 691,461 545,094
Paid-in Capital 1,497,503 1,546,152
Retained Earnings 14,112,469 12,478,625
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16,301,433 14,569,871
Less: Treasury Stock, at cost: 484,511 and 369,087 shares 1,796,547 1,558,925
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Total Stockholders' Equity 14,504,886 13,010,946
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Total Liabilities and Stockholders' Equity $21,059,040 $18,394,357
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The accompanying notes are an integral part of the financial statements.
1
DECORATOR INDUSTRIES, INC.
STATEMENT OF EARNINGS
(UNAUDITED)
FOR THIRTEEN WEEKS ENDED: FOR THIRTY-NINE WEEKS ENDED:
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September 27, 1997 September 28, 1996 September 27, 1997 September 28, 1996
------------------ ------------------ ------------------ ------------------
Net Sales $11,051,332 100.00% $9,599,140 100.00% $32,215,233 100.00% $29,581,102 100.00%
Cost of Products Sold 8,505,711 76.97% 7,073,219 73.69% 24,237,010 75.23% 21,899,101 74.03%
----------- ---------- ----------- -----------
Gross Profit 2,545,621 23.03% 2,525,921 26.31% 7,978,223 24.77% 7,682,001 25.97%
Selling and
Administrative Expenses 1,535,182 13.89% 1,376,076 14.34% 4,585,469 14.23% 4,226,635 14.29%
----------- ---------- ----------- -----------
Operating Income 1,010,439 9.14% 1,149,845 11.98% 3,392,754 10.53% 3,455,366 11.68%
Other Income (Expense):
Interest and
Investment Income 93,516 0.85% 76,912 0.80% 269,558 0.84% 179,758 0.61%
Interest Expense (3,355) -0.03% (8,270) -0.09% (21,037) -0.07% (29,363) -0.10%
----------- ---------- ----------- -----------
Earnings Before
Income Taxes 1,100,600 9.96% 1,218,487 12.69% 3,641,275 11.30% 3,605,761 12.19%
Provision for
Income Taxes 356,000 3.22% 405,000 4.22% 1,286,000 3.99% 1,259,000 4.26%
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Income from
Continuing Operations 744,600 6.74% 813,487 8.47% 2,355,275 7.31% 2,346,761 7.93%
----------- ---------- ----------- -----------
Loss on Discontinued
Operations, less
applicable income tax
of $66,000 and
$83,000 (108,400) -0.98% 0.00% (136,918) -0.43% 0.00%
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NET INCOME $ 636,200 5.76% $ 813,487 8.47% $ 2,218,357 6.89% $ 2,346,761 7.93%
=========== =========== =========== ===========
EARNINGS PER SHARE:
CONTINUING OPERATIONS $0.25 $0.28* $0.79 $0.81*
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PRIMARY $0.21 $0.28* $0.74 $0.81*
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FULLY DILUTED $0.20 $0.25* $0.70 $0.75*
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Average Number of Shares
Outstanding:
Primary 2,987,613 2,932,451* 2,974,438 2,908,682*
Fully Diluted 3,191,696 3,179,924* 3,186,995 3,126,946*
*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 39 WEEKS ENDED:
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Sept. 27, 1997 Sept. 28, 1996
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Cash Flows From Operating Activities:
Net Income $ 2,218,357 $ 2,346,761
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 380,648 304,189
Provision for Losses on Accounts Receivable (4,000) 37,500
Deferred Taxes 21,000 --
(Gain) Loss on Disposal of Assets (4,125) (422)
Increase (Decrease) from Changes In:
Accounts Receivable (827,967) (707,489)
Inventory (752,961) (111,610)
Short-term Investments (246,696) (2,444,490)
Prepaid Expenses (242,450) (68,600)
Other Assets (26,954) 127,225
Accounts Payable 1,060,589 492,775
Accrued Expenses 108,579 43,636
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Net Cash Provided by Operating Activities 1,684,020 19,475
Cash Flows From Investing Activities:
Capital Expenditures (442,939) (335,985)
Proceeds from Property Dispositions 4,375 3,210
Note Receivable 60,000 60,000
Acquisitions (3,288,720) --
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Net Cash Used for Investing Activities (3,667,284) (272,775)
Cash Flows From Financing Activities:
Long-term Debt Payments (30,801) (28,208)
Dividend Payments (584,512) (448,802)
Proceeds from Exercise of Stock Options 25,504 137,962
Cash in Lieu of Fractional Shares (1,133) (1,239)
Issuance of Treasury Stock for Directors' Compensation 22,092 --
Stock Option Tax Benefit 25,000 18,000
Purchase of Common Stock for Treasury (211,595) (769,829)
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Net Cash Used for Financing Activities (755,445) (1,092,116)
Net Decrease in Cash and Cash Equivalents (2,738,709) (1,345,416)
Cash and Cash Equivalents at Beginning of Year 4,714,356 5,269,772
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Cash and Cash Equivalents at End of Period $ 1,975,647 $ 3,924,356
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Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 19,701 $ 22,666
Income Taxes $ 1,181,883 $ 1,156,532
Cash Flows from Acquisitions:
Purchase Price $ 3,300,096 --
Less: Deferred Portion of Purchase Price (11,376) --
Cash Used for Acquisitions $ 3,288,720 --
The accompanying notes are an integral part of the financial statements.
3
DECORATOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 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 September 27, 1997, 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, 1997 and September 28, 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 thirty-nine week periods
ended September 27, 1997 and September 28, 1996 are not necessarily
indicative of operating results for the full year.
NOTE 3. INVENTORIES
Inventories at September 27, 1997 and December 28, 1996 consisted
of the following:
September 27, 1997 December 28, 1996
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Raw material and
Supplies $4,077,622 $2,854,066
In process and
Finished Goods 301,793 228,938
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$4,379,415 $3,083,004
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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
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DECORATOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996
(UNAUDITED)
earnings, of up to $2 million over the succeeding two years. The
Company assumed no liabilities. Specialty will continue to operate from
its existing facilities, which have been 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.
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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 Third Quarter.
September 27, 1997 December 28, 1996
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Current Ratio 2:44 2:94
Quick Ratio 1:69 2:28
LT Debt to Total Capital 3.64% 4.03%
Working Capital $8,397,741 $9,003,836
Cash and Short-Term Investments totaled $4,761,956 at September 27, 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:
Third 39 Third 39
Quarter Weeks Quarter Weeks
1997 1997 1996 1996
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Earnings Ratios
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 77.0 75.2 73.7 74.0
Selling and administrative 13.9 14.2 14.3 14.3
Interest and investment income (.9) (.8) (.8) (.6)
Interest expense .1 .1 .1 .1
Income taxes 3.2 4.0 4.2 4.3
Income from continuing operations 6.7 7.3
Loss on discontinued operations 1.0 .4
Net income 5.7 6.9 8.5 7.9
Net Sales by Market
Manufactured housing $ 4,534 $14,072 $5,548 $16,679
Recreational vehicles 4,221 10,892 2,109 6,630
Hospitality 2,296 7,251 1,942 6,272
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Net sales - total $11,051 $32,215 $9,599 $29,581
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6
THIRTEEN WEEK PERIOD ENDED SEPTEMBER 27, 1997 (THIRD QUARTER 1997) COMPARED TO
THIRTEEN WEEK PERIOD ENDED SEPTEMBER 28, 1996 (THIRD QUARTER 1996)
Net sales for the Third Quarter 1997 were $11,051,332, compared to $9,599,140
for the same period the previous year, a 15.1% increase. Sales by acquired
businesses and increased sales by existing divisions to the Recreational Vehicle
Market and Hospitality Market were offset somewhat by a decline in sales to the
Manufactured Housing Market.
Cost of products sold increased to 77.0% in the Third Quarter 1997 compared to
73.7% a year ago. The increase is the result of higher cost of products sold
percentages attributable to the acquired businesses, higher expenses associated
with the growth of existing businesses and market conditions which have resulted
in a lowering of operating margins.
Selling and administrative expenses were $1,535,182 in the Third Quarter 1997
versus $1,376,076 in the Third Quarter 1996. This increase is from the selling
and administrative expenses of the acquired businesses.
The decline in net income was primarily due to the decision to discontinue the
manufacturing and sale of products for the retail market.
THIRTY-NINE WEEK PERIOD ENDED SEPTEMBER 27, 1997 (FIRST NINE MONTHS OF 1997)
COMPARED TO THIRTY-NINE WEEK PERIOD ENDED SEPTEMBER 28, 1996 (FIRST NINE MONTHS
OF 1996)
Net sales for the first nine months of 1997 were $32,215,233 compared to
$29,581,102 for the first nine months of 1996. Increases from acquisitions and
increases in sales to the Recreational Vehicle and Hospitality Markets were
somewhat offset by a decline in sales to the Manufactured Housing Market.
Net income from continuing operations was $2,355,275 in the first nine months of
1997 versus $2,346,761 for the same period of 1996. Overall performance for the
respective periods was very comparable. The decline in net income was primarily
due to the discontinuation of operations referred to above.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27C - Financial data schedule, filed herewith.
(b) No reports on Form 8-K were filed by the Company during the
fiscal quarter ended September 27, 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
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William Bassett, President
By: /s/ Michael K. Solomon
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Date: November 3, 1997 Michael K. Solomon, Treasurer
8