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 July 3, 1999
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.
- --------------------------------------------------------------------------------
(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, Florida 33024
(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 August 6, 1999
------------------- -----------------------------
Common Stock, Par Value $.20 Per Share 3,370,271
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
- ------ --------------------
DECORATOR INDUSTRIES, INC.
BALANCE SHEET
July 3, 1999 Jan. 2, 1999
------------ ------------
ASSETS (UNAUDITED)
------
Current Assets:
Cash and Cash Equivalents $1,384,562 $2,633,999
Short-term Investments 1,853,701 861,032
Accounts Receivable, less allowance for
doubtful accounts ($138,033 and $111,706) 5,208,680 3,847,435
Inventories 5,378,153 5,725,226
Other Current Assets 361,740 349,394
-------------------- -----------------
Total Current Assets 14,186,836 13,417,086
-------------------- -----------------
Property and Equipment:
Land, Buildings & Improvements 4,002,886 2,676,183
Machinery, Equipment, Furniture and Fixtures 4,391,933 4,124,579
-------------------- -----------------
Total Property and Equipment 8,394,819 6,800,762
Less: Accumulated Depreciation and Amortization 2,811,558 2,635,683
-------------------- -----------------
Net Property and Equipment 5,583,261 4,165,079
-------------------- -----------------
Goodwill, less accumulated
amortization of $1,128,014 and $1,070,336 3,623,542 3,288,582
Other Assets 469,864 591,947
-------------------- -----------------
Total Assets $23,863,503 $21,462,694
==================== =================
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current Liabilities:
Accounts Payable $4,403,901 $2,869,889
Current Maturities of Long-term Debt 103,607 43,133
Accrued Expenses:
Income Taxes 169,748 ------
Compensation 1,078,562 1,373,572
Other 881,982 886,331
-------------------- -----------------
Total Current Liabilities 6,637,800 5,172,925
-------------------- -----------------
Long-Term Debt 1,862,839 463,037
Deferred Income Taxes 296,000 267,000
-------------------- -----------------
Total Liabilities 8,796,639 5,902,962
-------------------- -----------------
Stockholders' Equity
Common stock $.20 par value: Authorized shares, 10,000,000;
Issued shares, 4,408,831 and 4,373,916 881,391 874,784
Paid-in Capital 1,418,364 1,396,137
Retained Earnings 17,818,749 16,756,377
-------------------- -----------------
20,118,504 19,027,298
Less: Treasury stock, at cost: 1,022,646 and 812,500 shares 5,051,640 3,467,566
-------------------- -----------------
Total Stockholders' Equity 15,066,864 15,559,732
-------------------- -----------------
Total Liabilities and Stockholders' Equity $23,863,503 $21,462,694
==================== =================
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:
------------------------------------------------- ----------------------------------------------------
July 3, 1999 July 4, 1998 July 3, 1999 July 4, 1998
------------ ------------ ------------ ------------
Net sales $14,382,345 100.00% $13,709,226 100.00% $27,594,217 100.00% $26,358,930 100.00%
Cost of products sold 11,153,416 77.55% 10,699,593 78.05% 21,468,449 77.80% 20,362,790 77.25%
------------- --------------- --------------- ---------------
Gross profit 3,228,929 22.45% 3,009,633 21.95% 6,125,768 22.20% 5,996,140 22.75%
Selling and
Administrative expenses 1,859,514 12.93% 1,686,503 12.30% 3,640,716 13.19% 3,348,633 12.70%
------------- --------------- --------------- ---------------
Operating income 1,369,415 9.52% 1,323,130 9.65% 2,485,052 9.01% 2,647,507 10.04%
Interest and
investment income 12,950 -0.09% 78,651 -0.57% 30,857 -0.11% 149,486 -0.57%
Interest expense (23,686) 0.17% (2,878) 0.02% (28,214) 0.10% (6,203) 0.02%
------------- --------------- --------------- ---------------
Earnings before 1,358,679 9.44% 1,398,903 10.20% 2,487,695 9.02% 2,790,790 10.59%
income taxes
Provision for income taxes 514,000 3.57% 487,000 3.55% 940,000 3.41% 999,000 3.79%
------------- --------------- --------------- ---------------
Net income $ 844,679 5.87% $ 911,903 6.65% $ 1,547,695 5.61% $1,791,790 6.80%
============= =============== =============== ===============
Earnings per share:
Basic $0.25 $0.25 $0.45 $0.49
===== ===== ===== =====
Diluted $0.24 $0.23 $0.43 $0.45
===== ===== ===== =====
Weighted-average number of
shares outstanding:
Basic 3,418,314 3,662,245 3,472,609 3,659,120
Diluted 3,575,523 3,948,675 3,634,857 3,916,938
The accompanying notes are an integral part of the financial statements.
2
DECORATOR INDUSTRIES, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR TWENTY-SIX WEEKS ENDED:
July 3, 1999 July 4, 1998
------------ ------------
Cash Flows From Operating Activities:
Net income $1,547,695 $1,791,790
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 324,108 272,236
Provision for losses on accounts receivable 26,000 26,000
Deferred taxes 14,000 (21,000)
(Gain) loss on disposal of assets (1,137) (2,644)
(Increase) decrease in accounts receivable (1,307,927) (1,235,519)
(Increase) decrease in inventories 347,073 (1,075,214)
(Increase) decrease in prepaid expenses 25,668 (116,348)
(Increase) decrease in other assets 122,083 (440,625)
Increase (decrease) in accounts payable 1,534,012 2,084,989
Increase (decrease) in accrued expenses (129,611) (217,357)
----------------------- -------------------
Net Cash Provided by Operating Activities 2,501,964 1,066,308
----------------------- -------------------
Cash Flows From Investing Activities:
Capital expenditures (1,689,760) (318,634)
Proceeds from property dispositions 6,100 5,135
Short-term investments (992,669) (56,343)
Note receivable ------ 40,000
Net cash paid for acquisitions (392,638) (385,781)
----------------------- -------------------
Net Cash Used in Investing Activities (3,068,967) (715,623)
----------------------- -------------------
Cash Flows From Financing Activities:
Long-term debt payments (39,724) (22,852)
Dividend payments (485,140) (410,428)
Proceeds on debt from new building 1,397,667 ------
Proceeds from exercise of stock options 18,833 7,619
Purchase of common stock for treasury (1,599,808) ------
Issuance of stock for director's compensation 25,738 25,000
----------------------- -------------------
Net Cash Used in Financing Activities (682,434) (400,661)
----------------------- -------------------
Net (decrease) in cash and cash equivalents (1,249,437) (49,976)
Cash and cash equivalents at beginning of year 2,633,999 3,157,861
---------------------- -------------------
Cash and Cash Equivalents at End of Period $1,384,562 $3,107,885
======================= ===================
Supplemental disclosures of cash flow information: Cash paid for:
Interest $25,268 $17,828
Income taxes $612,375 $900,820
Cash flows from acquisitions:
Purchase price $392,638 $385,781
The accompanying notes are an integral part of the financial statements.
3
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
TWENTY-SIX WEEKS ENDED JULY 3, 1999 AND JULY 4, 1998
(UNAUDITED)
NOTE 1. In the opinion of management, the accompanying unaudited
financial statements contain all adjustments necessary to
present fairly the Company's financial position as of July 3,
1999, the changes therein for the twenty-six week period then
ended and the results of operations for the twenty-six week
periods ended July 3, 1999 and July 4, 1998.
NOTE 2. The 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 2, 1999. The results of operations
for the twenty-six week periods ended July 3, 1999 and July 4,
1998 are not necessarily indicative of operating results for
the full year.
NOTE 3. INVENTORIES
-----------
Inventories at July 3, 1999 and January 2, 1999 consisted of
the following:
July 3, 1999 January 2, 1999
------------ ---------------
Raw Material
and Supplies $5,129,064 $ 5,462,938
In Process and
Finished Goods 249,089 262,288
--------------------- ---------------------
Total Inventory $ 5,378,153 $ 5,725,226
===================== =====================
NOTE 4. EARNINGS PER SHARE
------------------
Basic earnings per share is computed by dividing net income by
weighted-average number of shares outstanding. Diluted
earnings per share includes the dilutive effect of stock
options. In accordance with SFAS No. 128, the following is a
reconciliation of the numerators and denominators of the basic
and diluted EPS computations.
Thirteen weeks ended: Twenty-six weeks ended:
--------------------- -----------------------
July 3, 1999 July 4, 1998 July 3, 1999 July 4, 1998
------------ ------------ ------------ ------------
Numerator:
Net income $844,679 $911,903 $1,547,695 $1,791,790
=============== ================ ================ ===============
Denominator:
Weighted-average number
of common shares
outstanding 3,418,314 3,662,245 3,472,609 3,659,120
Dilutive effect of
stock options on net
income 157,209 286,430 162,248 257,818
--------------- ---------------- ---------------- ---------------
3,575,523 3,948,675 3,634,857 3,916,938
=============== ================ ================ ===============
Diluted earnings per
share: $0.24 $0.23 $0.43 $0.45
=============== ================ ================ ===============
4
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 1999.
July 3, 1999 January 2, 1999
------------ ---------------
Current Ratio 2:14 2:59
Quick Ratio 1:33 1:49
LT Debt to Total Capital 13.13% 3.45%
Working Capital $7,549,036 $8,244,161
Days sales outstanding in accounts receivable were 32.9 days at July 3, 1999
compared to 32.2 days at July 4, 1998. Accounts receivable increased by 35%
while inventories have decreased 6% during 1999. A significant use of working
capital was for the purchase of Common Stock for Treasury ($1,599,808) during
1999. Capital expenditures total $1,689,760 for the first six months of 1999.
The capital expenditures have, in part, been funded by a $1,500,000 industrial
revenue bond issued for the construction of our new Goshen, Indiana facility and
equipment at that location.
Cash and Short-Term Investments totaled $3,238,263 at July 3, 1999. Management
does not foresee any events which will adversely affect its liquidity during
1999, 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:
Second Second
Quarter YTD Quarter YTD
1999 1999 1998 1998
---- ---- ---- ----
Earnings Ratios
---------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 77.55 77.80 78.05 77.25
Selling and administrative 12.93 13.19 12.30 12.70
Interest and investment income (0.09) (0.11) (0.57) (0.57)
Interest expense 0.17 0.10 0.02 0.02
Income taxes 3.57 3.41 3.55 3.79
Net income 5.87 5.61 6.65 6.80
5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations. (Continued)
- --------------
Thirteen Week Period Ended July 3, 1999, (Second Quarter 1999) compared to
Thirteen Week Period Ended July 4, 1998, (Second Quarter 1998)
- --------------------------------------------------------------
Net sales for the Second Quarter 1999 were $14,382,345, compared to $13,709,226
for the same period the previous year, a 4.9% increase. This increase was the
result of growth in sales to the recreational vehicle industry and to a lesser
degree, increased sales to the manufactured housing industry.
Cost of products sold decreased to 77.5% in the Second Quarter 1999 compared to
78.0% a year ago. This decrease was the result of reduced material costs, offset
in part by somewhat higher labor costs.
Selling and administrative expenses were 12.9% in the Second Quarter 1999 versus
12.3% in the Second Quarter 1998. The increase is the result of additional
personnel required to support the higher levels of business activity.
Interest and investment income was $66,000 less in the Second Quarter 1999 than
the amount earned in the Second Quarter 1998. The lower income in the current
period was due to a market loss on investments versus a market gain a year ago
and from smaller investable balances in the current quarter.
Net income decreased to $844,679 from $911,903 for the same period a year ago
but improved from $703,016 achieved in the prior quarter. Diluted earnings per
share increased to 24 cents per share from 23 cents in the second quarter of
last year.
Twenty-six Week Period Ended July 3, 1999, (First Six Months of 1999) compared
to Twenty-six Week Period Ended July 4, 1998, (First Six Months of 1998)
- ---------------------------------------------------------------------
Net sales for the first six months 1999 were $27,594,217 up from $26,358,930 in
the prior year, a 4.7% increase. The bulk of the increase comes from sales to
the recreational vehicle industry.
Cost of products sold increased to 77.8% in the first six months of 1999
compared to 77.2% a year ago. The increase is the result of higher costs
associated with the growth of the recreational vehicle business.
Selling and administrative expenses were 13.2% in the first six months of 1999
versus 12.7% in the first six months of 1998. The increase results from
additional personnel required to support the higher levels of business activity
and the relocation of the Goshen facilities.
Interest and investment income was $119,000 less in the first six months of 1999
compared to a year ago. The lower income was due to a market loss on investments
versus a market gain a year ago and from smaller investable balances in the
current period.
Net income for the six months decreased to $1,547,695 or 43 cents per share
(diluted) compared to $1,791,790 or 45 cents per share (diluted) in the same
period of 1998.
6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations. (Continued)
- --------------
Year 2000 Issues
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in system failure or
miscalculations causing disruptions in operations, including, among other
things, a temporary inability to process transactions, generate invoices, or
engage in similar normal business activities.
Based on management's assessment, the Company determined that it would be
required to modify or replace portions of its software and hardware so that its
computer systems will properly recognize dates beyond December 31, 1999. The
majority of the Company's manufacturing processes are not dependent on
computers. The Company presently believes that its planned modification or
replacement of software and hardware will mitigate the Year 2000 issue. If such
modifications and replacements are not made, or are not completed timely, the
Year 2000 issue would not have a material adverse effect on the Company. The
Company has created no formal contingency plans in the event that the Year 2000
readiness is not completed on schedule. However, even if such modifications are
not completed or completed timely, the Company believes that this would cause
only minor problems and delays.
The Company plans to complete the Year 2000 project in October 1999. The total
cost incurred to date related to the Year 2000 project, which have been charged
to expense, have not been material, and the Company does not anticipate that the
expected remaining costs will be material.
The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remedy their own Year 2000 issues.
Failure on the part of these entities to timely remediate their Year 2000 issues
could result in disruptions in the Company's supply of materials, disruptions in
its customers' ability to conduct business and interruptions to the Company's
daily operations. Management believes that its exposure to third party risk is
minimal because it does not rely significantly on any one supplier or customer.
There can be no guarantee, however, that the systems of other unrelated entities
on which the Company's systems and operations rely will be corrected on a timely
basis and will not have a material adverse effect on the Company.
7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
(a) Exhibits:
27J - Financial data schedule, filed herewith.
(b) No reports on Form 8-K were filed by the Company during the quarterly period
ended July 3, 1999.
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: August 9, 1999 By: /s/ William A. Bassett
-------------- ----------------------------------
William A. Bassett, President
Date: August 9, 1999 By: /s/ Michael K. Solomon
-------------- ----------------------------------
Michael K. Solomon, Treasurer
8