UNITED STATES
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 quarterly period ended October 3, 1998
OR
[ ] 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, Florida 33024
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 436-8909
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 (or for such shorter period that the registrant was
required to file such reports), 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.
Title of each class Outstanding at November 9, 1998
------------------- -------------------------------
Common Stock, Par Value $.20 Per Share 3,568,822*
*Includes 3,756 shares issuable upon surrender of the outstanding $.10 par
Common Stock.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
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DECORATOR INDUSTRIES, INC.
BALANCE SHEET
October 3, 1998 Jan. 3, 1998
--------------- ------------
ASSETS (UNAUDITED)
------
Current Assets:
Cash and cash equivalents $2,135,307 $3,157,861
Short-term investments 1,669,651 2,006,882
Accounts receivable, less allowance for
doubtful accounts ($264,453 and $218,018) 5,184,540 3,643,503
Inventories 5,986,501 4,578,381
Other current assets 400,943 256,425
-------------------- -----------------
Total Current Assets 15,376,942 13,643,052
-------------------- -----------------
Property and equipment:
Land, buildings & improvements 2,673,412 2,182,228
Machinery, equipment, furniture and fixtures 4,024,868 3,500,122
-------------------- -----------------
Total property and equipment 6,698,280 5,682,350
Less: accumulated depreciation and amortization 2,517,383 2,208,956
-------------------- -----------------
Net property and equipment 4,180,897 3,473,394
-------------------- -----------------
Goodwill, less accumulated
amortization of $1,042,995 and $963,466 3,315,923 3,010,422
Other assets 191,677 174,400
==================== =================
Total Assets $23,065,439 $20,301,268
==================== =================
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current Liabilities:
Accounts payable $4,478,177 $3,114,661
Current maturities of long-term debt 42,953 42,423
Accrued expenses:
Income taxes 9,707 ------
Compensation 1,434,800 1,323,276
Other 633,705 756,442
-------------------- -----------------
Total Current Liabilities 6,599,342 5,236,802
-------------------- -----------------
Long-term debt 470,787 506,169
Deferred income taxes 251,000 211,000
-------------------- -----------------
Total Liabilities 7,321,129 5,953,971
-------------------- -----------------
Stockholders' Equity:
Common stock $.20 par value: authorized shares, 10,000,000;
issued shares, 4,345,033 and 3,463,840 869,007 692,794
Paid-in capital 1,344,686 1,513,280
Retained earnings 16,449,916 14,588,269
-------------------- -----------------
18,663,609 16,794,343
Less: Treasury stock, at cost: 744,594 and 554,100 shares 2,919,299 2,447,046
-------------------- -----------------
Total Stockholders' Equity 15,744,310 14,347,297
-------------------- -----------------
Total Liabilities and Stockholders' Equity $23,065,439 $20,301,268
==================== =================
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:
-------------------------------------------- --------------------------------------------------
October 3, 1998 September 27, 1997 October 3, 1998 September 27, 1997
-------------------- ---------------------- -------------------- --------------------
Net sales $13,210,272 $11,051,332 $39,569,202 $32,215,233
Cost of products sold 10,415,178 8,505,711 30,777,968 24,237,010
---------------- --------------- ---------------- ---------------
Gross profit 2,795,094 2,545,621 8,791,234 7,978,223
Selling and
Administrative expenses 1,688,577 1,535,182 5,037,211 4,585,469
---------------- --------------- ---------------- ---------------
Operating income 1,106,517 1,010,439 3,754,023 3,392,754
Interest and
investment income 26,444 93,516 175,930 269,558
Interest expense (3,446) (3,355) (9,648) (21,037)
---------------- --------------- ---------------- ---------------
Earnings before 1,129,515 1,100,600 3,920,305 3,641,275
income taxes
Provision for income taxes 418,000 356,000 1,417,000 1,286,000
---------------- --------------- ---------------- ---------------
Income from
continuing operations 711,515 744,600 2,503,305 2,355,275
Loss on discontinued
operations, less applicable
income tax of ------ (108,400) ------ (136,918)
$66,000 and $83,000
---------------- --------------- ---------------- ---------------
Net income $711,515 $636,200 $2,503,305 $2,218,357
================ =============== ================ ===============
Earnings per share:
Continuing operations $0.20 $0.20 * $0.69 $0.64 *
===== ===== ===== =====
Basic $0.20 $0.17 * $0.69 $0.60 *
===== ===== ===== =====
Diluted $0.19 $0.16 * $0.64 $0.56 *
===== ===== ===== =====
Weighted-average number of
shares outstanding:
Basic 3,639,427 3,734,516 * 3,651,533 3,718,047 *
Diluted 3,918,213 3,989,620 * 3,917,363 3,983,744 *
* Restated to reflect the five-for-four stock split effective July 21, 1998.
The accompanying notes are an integral part of the financial statements.
2
DECORATOR INDUSTRIES, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THIRTY-NINE WEEKS ENDED:
October 3, 1998 Sept. 27, 1997
--------------- --------------
Cash Flows From Operating Activities:
Net income $2,503,305 $2,218,357
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 416,472 380,648
Provision for losses on accounts receivable 36,000 (4,000)
Deferred taxes (13,000) 21,000
(Gain) loss on disposal of assets (4,806) (4,125)
(Increase) decrease in accounts receivable (1,577,038) (827,967)
(Increase) decrease in inventories (1,408,120) (752,961)
(Increase) decrease in prepaid expenses (151,518) (242,450)
(Increase) decrease in other assets (17,277) (26,954)
Increase (decrease) in accounts payable 1,363,516 1,060,589
Increase (decrease) in accrued expenses (1,506) 108,579
----------------------- --------------------
Net Cash Provided by Operating Activities 1,146,028 1,930,716
----------------------- --------------------
Cash Flows From Investing Activities:
Capital expenditures (1,050,928) (442,939)
Proceeds from property dispositions 11,290 4,375
Short-term investments 337,231 (246,696)
Note receivable 60,000 60,000
Net cash paid for acquisitions (385,030) (3,288,720)
----------------------- --------------------
Net Cash Used in Investing Activities (1,027,437) (3,913,980)
----------------------- --------------------
Cash Flows From Financing Activities:
Long-term debt payments (34,852) (30,801)
Dividend payments (663,220) (584,512)
Cash in lieu of fractional shares ------ (1,133)
Proceeds from exercise of stock options 7,619 25,504
Stock option tax benefit ------ 25,000
Purchase of common stock for treasury (488,192) (211,595)
Issuance of stock for director's compensation 37,500 22,092
----------------------- --------------------
Net Cash Used in Financing Activities (1,141,145) (755,445)
Net (decrease) in cash and cash equivalents (1,022,554) (2,738,709)
Cash and cash equivalents at beginning of year 3,157,861 4,714,356
======================= ====================
Cash and Cash Equivalents at End of Period $2,135,307 $1,975,647
======================= ====================
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $27,364 $19,701
Income taxes $1,410,237 $1,181,883
Cash flows from acquisitions:
Purchase price $385,030 $3,300,096
Less: deferred portion of purchase price ------ ($11,376)
Cash used for acquisitions $385,030 $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 OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
(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 October 3, 1998, the changes therein for the thirty-nine
week period then ended and the results of operations for the
thirty-nine week periods ended October 3, 1998 and September
27, 1997.
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 January 3, 1998. The results
of operations for the thirty-nine week periods ended October
3, 1998 and September 27, 1997 are not necessarily indicative
of operating results for the full year.
NOTE 3. INVENTORIES
-----------
Inventories at October 3, 1998 and January 3, 1998 consisted
of the following:
October 3, 1998 January 3, 1998
--------------- ---------------
Raw Material
and Supplies $5,635,457 $ 4,343,132
In Process and 351,044
Finished Goods 235,249
============== ===============
Total Inventory $5,986,501 $4,578,381
============== ===============
NOTE 4. EARNINGS PER SHARE
------------------
The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share" in 1997. SFAS
No. 128 simplifies the computation of earnings per share
("EPS") previously required in Accounting Principles Board
(APB) Opinion No. 15, "Earnings Per Share," by replacing
primary and fully diluted EPS with basic and diluted EPS.
Under SFAS No. 128, basic EPS is calculated by dividing net
income by the weighted-average common shares outstanding
during the period. Diluted EPS reflects the potential dilution
to basic EPS that could occur upon conversion or exercise of
securities, options, or other such items, to common shares
using the treasury stock method based upon the
weighted-average fair value of the Company's common shares
during the period. SFAS No. 128 was required to be adopted by
the Company in its year-end 1997 Annual Report, and earnings
per share for prior periods have been restated in accordance
with SFAS No. 128.
4
DECORATOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THIRTY-NINE WEEKS ENDED OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
(UNAUDITED)
NOTE 5. ACQUISITIONS
------------
The cash payments for acquisitions of $385,030 represents the
additional consideration due for the acquisitions of Specialty
Window Coverings and Southern Interiors, Inc., which were made
in March 1997 and May 1997, respectively. Additional
consideration may be due Specialty after April 3, 1999 and
Southern after July 1, 1999 and July 1, 2000.
5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations.
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FINANCIAL CONDITION
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The Company's financial condition, as measured by the following ratios,
continues to be strong at the end of the Third Quarter.
October 3, 1998 January 3, 1998
--------------- ---------------
Current Ratio 2:33 2:61
Quick Ratio 1:42 1:73
LT Debt to Total Capital 3.06% 3.71%
Working Capital $8,777,600 $8,406,250
The Company is constructing a new facility in Goshen, Indiana to replace a
leased facility. This facility will be funded with long-term debt. The expansion
of the Bloomsburg, Pennsylvania facility was finalized in the third quarter.
This expansion has been funded by working capital. Cash and Short-term
Investments totaled $3,804,958 at October 3, 1998. Inventories have increased by
$1,408,120 during 1998. The increase results in part from the inventory required
to support the higher revenues and also from seasonal requirements. Management
expects these inventories to be somewhat reduced by year end. Management does
not foresee any events which will adversely affect its liquidity during 1998,
and, further, the Company's financial condition is more than adequate to finance
internal growth and any additional acquisitions of businesses.
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
1998 1998 1997 1997
---- ---- ---- ----
Earnings Ratios
---------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 78.8 77.8 77.0 75.2
Selling and administrative 12.8 12.7 13.9 14.2
Interest and investment income (0.2) (0.4) (0.9) (0.8)
Interest expense 0.0 0.0 0.1 0.1
Income taxes 3.2 3.6 3.2 4.0
Income from continuing operations 5.4 6.3 6.7 7.3
Loss on discontinued operations 1.0 0.4
Net income 5.4 6.3 5.7 6.9
Net Sales by Market (in thousands)
----------------------------------
Manufactured housing $ 5,476 $ 15,769 $ 4,534 $ 14,072
Recreational vehicles 5,587 16,094 4,221 10,892
Hospitality 2,147 7,706 2,296 7,251
============ ============ ============ ============
Net sales - total $ 13,210 $ 39,569 $ 11,051 $ 32,215
============ ============ ============ ============
6
Thirteen Week Period Ended October 3, 1998, (Third Quarter 1998) compared to
Thirteen Week Period Ended September 27, 1997, (Third Quarter 1997)
- -------------------------------------------------------------------
Net sales for the Third Quarter 1998 were $13,210,272, compared to $11,051,332
for the same period the previous year, a 19.5% increase. Net sales to the
recreational vehicle and manufactured housing markets increased by 32.4% and
20.8% respectively, with hospitality sales declining by 6.5%.
Cost of products sold increased to 78.8% in the Third Quarter 1998
compared to 77.0% a year ago. The increase is the result of higher costs
associated with the growth of existing businesses.
Selling and administrative expenses decreased to 12.8% in 1998 compared to 13.9%
in 1997. The favorable variance can be attributed to the increased sales from
existing and acquired businesses.
Net income increased 11.8% to $711,515 from $636,200 for the same period a year
ago. Basic earnings per share rose to 20 cents per share from 17 cents in the
third quarter of last year.
Thirty-nine Week Period Ended October 3, 1998, (First Nine Months of 1998)
compared to Thirty-nine Week Period Ended September 27, 1997, (First Nine Months
- --------------------------------------------------------------------------------
of 1997)
- --------
Net sales for the first nine months 1998 were $39,569,202, compared to
$32,215,233 for the same period the previous year, a 22.8% increase. Net sales
to all markets reflected increases with the largest increase coming from sales
to the recreational vehicle market. Sales from comparable operations accounted
for $3,915,472, or almost 53%, of the increase; the remaining increase of
$3,438,497 is attributed to the acquisitions made in 1997.
Cost of products sold increased to 77.8% in the Third Quarter 1998 compared to
75.2% a year ago. The increase is the result of higher cost of products sold
percentages attributable to the acquired businesses and from the higher costs
associated with the growth of existing businesses.
Selling and administrative expenses were $5,037,211 in the first nine months of
1998 versus $4,585,469 in the first nine months of 1997. Most of the increase is
attributable to the selling and administrative expenses of the acquired
businesses. As a percentage of sales, selling and administrative expenses
decreased to 12.7% in 1998 compared to 14.2% in 1997. The favorable variance can
be attributed to the increased sales from existing and acquired businesses.
Income from continuing operations increased 6% to $2,503,305 from $2,355,275 in
the first nine months of 1997. Basic earnings per share rose to 69 cents per
share from 60 cents in the first nine months of last year.
7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits:
--------
27G Financial data schedule, filed herewith.
(b) No reports on Form 8-K were filed by the Company during the
quarterly period ended October 3, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
DECORATOR INDUSTRIES, INC.
(Registrant)
Date: November 12, 1998 By: /s/ William A. Bassett
----------------- --------------------------
William A. Bassett, President
Date: November 12, 1998 By: /s/ Michael K. Solomon
----------------- --------------------------
Michael K. Solomon, Treasurer
8