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 2, 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.
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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
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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.
TITLE OF EACH CLASS OUTSTANDING AT NOVEMBER 5, 1999
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Common Stock, Par Value $.20 Per Share 3,257,109
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
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DECORATOR INDUSTRIES, INC.
BALANCE SHEET
October 2, 1999 Jan. 2, 1999
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ASSETS (UNAUDITED)
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CURRENT ASSETS:
Cash and Cash Equivalents $ 678,569 $ 2,633,999
Short-term Investments 956,489 861,032
Accounts Receivable, less allowance for
doubtful accounts ($161,730 and $111,706) 4,698,352 3,847,435
Inventories 6,399,840 5,725,226
Other Current Assets 418,862 349,394
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TOTAL CURRENT ASSETS 13,152,112 13,417,086
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Property and Equipment:
Land, Buildings & Improvements 4,096,728 2,676,183
Machinery, Equipment, Furniture and Fixtures 4,706,765 4,124,579
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8,803,493 6,800,762
Total Property and Equipment
Less: Accumulated Depreciation and Amortization 2,957,538 2,635,683
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Net Property and Equipment 5,845,955 4,165,079
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Goodwill, less accumulated
amortization of $1,158,943 and $1,070,336 3,679,894 3,288,582
Other Assets 279,907 591,947
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TOTAL ASSETS $22,957,868 $21,462,694
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LIABILITIES & STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts Payable $ 4,121,239 $ 2,869,889
Current Maturities of Long-term Debt 103,684 43,133
Accrued Expenses:
Compensation 1,331,183 1,373,572
Other 754,239 886,331
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TOTAL CURRENT LIABILITIES 6,310,345 5,172,925
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Long-Term Debt 1,837,100 463,037
Deferred Income Taxes 322,000 267,000
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TOTAL LIABILITIES 8,469,445 5,902,962
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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 1,422,449 1,396,137
Retained Earnings 18,148,432 16,756,377
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20,452,272 19,027,298
Less: Treasury stock, at cost: 1,153,290 and 812,500 shares 5,963,849 3,467,566
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TOTAL STOCKHOLDERS' EQUITY 14,488,423 15,559,732
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $22,957,868 $21,462,694
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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:
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OCTOBER 2, 1999 OCTOBER 3, 1998
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Net sales $13,171,213 100.00% $13,210,272 100.00%
Cost of products sold 10,494,572 79.68% 10,415,178 78.84%
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Gross profit 2,676,641 20.32% 2,795,094 21.16%
Selling and
Administrative expenses 1,767,151 13.42% 1,688,577 12.78%
--------------- ---------------
Operating income 909,490 6.90% 1,106,517 8.38%
Interest and
investment income 10,723 -0.08% 26,444 -0.20%
Interest expense (22,946) 0.17% (3,446) 0.03%
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Earnings before 897,267 6.81% 1,129,515 8.55%
income taxes
Provision for income taxes 339,000 2.57% 418,000 3.16%
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NET INCOME 558,267 4.24% 711,515 5.39%
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EARNINGS PER SHARE:
Basic $0.17 $0.20
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Diluted $0.16 $0.19
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Weighted-average number of
shares outstanding:
Basic 3,335,317 3,639,427
Diluted 3,479,267 3,918,213
[RESTUBBED TABLE]
FOR THIRTY-NINE WEEKS ENDED:
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OCTOBER 2, 1999 OCTOBER 3, 1998
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Net sales $40,765,429 100.00% $39,569,202 100.00%
Cost of products sold 31,963,021 78.41% 30,777,968 77.78%
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Gross profit 8,802,408 21.59% 8,791,234 22.22%
Selling and
Administrative expenses 5,407,867 13.26% 5,037,211 12.73%
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Operating income 3,394,541 8.33% 3,754,023 9.49%
Interest and
investment income 41,580 -0.10% 175,930 -0.44%
Interest expense (51,160) 0.13% (9,648) 0.02%
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Earnings before 3,384,961 8.30% 3,920,305 9.91%
income taxes
Provision for income taxes 1,279,000 3.14% 1,417,000 3.58%
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NET INCOME 2,105,961 5.16% 2,503,305 6.33%
============== ===============
EARNINGS PER SHARE:
Basic $0.62 $0.69
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Diluted $0.59 $0.64
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Weighted-average number of
shares outstanding:
Basic 3,426,845 3,651,533
Diluted 3,582,993 3,917,363
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 2, 1999 OCTOBER 3, 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,105,961 $ 2,503,305
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 501,997 416,472
Provision for losses on accounts receivable 50,000 36,000
Deferred taxes 15,000 (13,000)
(Gain) loss on disposal of assets (5,543) (4,806)
(Increase) decrease in accounts receivable (900,917) (1,577,038)
(Increase) decrease in inventories (674,614) (1,408,120)
(Increase) decrease in prepaid expenses (29,468) (151,518)
(Increase) decrease in other assets 312,040 (17,277)
Increase (decrease) in accounts payable 1,251,350 1,363,516
Increase (decrease) in accrued expenses (174,481) (1,506)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 2,451,325 1,146,028
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,101,312) (1,050,928)
Proceeds from property dispositions 11,900 11,290
Short-term investments (95,457) 337,231
Note receivable -- 60,000
Net cash paid for acquisitions (479,918) (385,030)
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NET CASH USED IN INVESTING ACTIVITIES (2,664,787) (1,027,437)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt payments (65,386) (34,852)
Dividend payments (713,221) (663,220)
Proceeds on debt from new building 1,500,000 --
Proceeds from exercise of stock options 18,833 7,619
Purchase of common stock for treasury (2,520,432) (488,192)
Issuance of stock for director's compensation 38,238 37,500
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NET CASH USED IN FINANCING ACTIVITIES (1,741,968) (1,141,145)
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(1,955,430) (1,022,554)
Net (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year 2,633,999 3,157,861
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 678,569 $ 2,135,307
=========== ===========
Supplemental disclosures of cash flow information: Cash paid for:
Interest $ 48,734 $ 27,364
Income taxes $ 1,147,775 $ 1,410,237
Cash flows from acquisitions:
Purchase price $ 479,918 $ 385,030
The accompanying notes are an integral part of the financial statements.
3
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTY-NINE WEEKS ENDED OCTOBER 2, 1999 AND OCTOBER 3, 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 October 2, 1999, the changes
therein for the thirty-nine week period then ended and the results
of operations for the thirty-nine week periods ended October 2,
1999 and October 3, 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 thirty-nine week periods
ended October 2, 1999 and October 3, 1998 are not necessarily
indicative of operating results for the full year.
NOTE 3. INVENTORIES
-----------
Inventories at October 2, 1999 and January 2, 1999 consisted of the
following:
OCTOBER 2, 1999 JANUARY 2, 1999
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Raw Material
and Supplies $6,071,804 $ 5,462,938
In Process and
Finished Goods 328,036 262,288
=============== ===============
Total Inventory $ 6,399,840 $ 5,725,226
=============== ===============
NOTE 4. EARNINGS PER SHARE
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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: THIRTY-NINE WEEKS ENDED:
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OCT. 2, 1999 OCT. 3, 1998 OCT. 2, 1999 OCT. 3, 1998
------------ ------------ ------------ ------------
Numerator:
Net income $558,267 $711,515 $2,105,961 $2,503,305
=============== ================ ================ ===============
Denominator:
Weighted-average number
of common shares
outstanding 3,335,317 3,639,427 3,426,845 3,651,533
Dilutive effect of
stock options on net
income 143,950 278,786 156,148 265,830
--------------- ---------------- ---------------- ---------------
3,479,267 3,918,213 3,582,993 3,917,363
=============== ================ ================ ===============
Diluted earnings per
share: $0.16 $0.19 $0.59 $0.64
===== ===== ===== =====
4
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 1999.
OCTOBER 2, 1999 JANUARY 2, 1999
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Current Ratio 2:08 2:59
Quick Ratio 1:07 1:49
LT Debt to Total Capital 13.97% 3.45%
Working Capital $6,841,767 $8,244,161
Days sales outstanding in accounts receivable were 32.5 days at October 2, 1999
compared to 35.7 days at October 3, 1998. A significant use of working capital
was for the purchase of Common Stock for Treasury ($2,520,432) during 1999.
Capital expenditures total $2,101,312 for the first nine 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 $1,635,058 at October 2, 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
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The following tables show the percentage relationship to net sales of certain
items in the Company's Statement of Earnings:
Third Third
Quarter Quarter YTD YTD
1999 1998 1999 1998
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EARNINGS RATIOS
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Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 79.68 78.84 78.41 77.78
Selling and administrative 13.42 12.78 13.26 12.73
Interest and investment income (0.08) (0.20) (0.10) (0.44)
Interest expense 0.17 0.03 0.13 0.02
Income taxes 2.57 3.16 3.14 3.58
Net income 4.24 5.39 5.16 6.33
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS. (Continued)
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THIRTEEN WEEK PERIOD ENDED OCTOBER 2, 1999, (THIRD QUARTER 1999) COMPARED TO
THIRTEEN WEEK PERIOD ENDED OCTOBER 3, 1998, (THIRD QUARTER 1998)
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Net sales for the Third Quarter 1999 were $13,171,213, compared to $13,210,272
for the same period the previous year, a slight decrease. Increased sales to the
recreational vehicle market were offset by decreased sales to the manufactured
housing market. This decrease was the result of a weakness in the manufactured
housing market, caused by an excess inventory of manufactured homes available to
the market. Industry analysts suggest that the weakness should be resolved
within six to twelve months as the inventory levels are reduced.
Cost of products sold increased to 79.7% in the Third Quarter 1999 compared to
78.8% a year ago. This increase was the result of productivity issues largely
related to products for the recreational vehicle market.
Selling and administrative expenses were 13.4% in the Third Quarter 1999 versus
12.8% in the Third Quarter 1998. The increase is the result of additional
personnel required to support the higher levels of business activity.
Interest and investment income was $15,721 less in the Third Quarter 1999 than
the amount earned in the Third Quarter 1998. The lower income in the current
period resulted from smaller investable balances in the current quarter.
Interest expense increased because of the additional long-term debt incurred by
the Company in the second quarter.
Net income decreased to $558,267 from $711,515 for the same period a year ago.
Diluted earnings per share decreased to 16 cents per share from 19 cents in the
third quarter of last year.
THIRTY-NINE WEEK PERIOD ENDED OCTOBER 2, 1999, (FIRST NINE MONTHS OF 1999)
COMPARED TO
THIRTY-NINE WEEK PERIOD ENDED OCTOBER 3, 1998, (FIRST NINE MONTHS OF 1998)
- --------------------------------------------------------------------------
Net sales for the first nine months of 1999 were $40,765,429 up from $39,569,202
in the prior year, a 3.0% increase. The increase comes mainly from sales to the
recreational vehicle market with a slight increase in the hospitality market and
a decrease in sales to the manufactured housing market.
Cost of products sold increased to 78.4% in the first nine months of 1999
compared to 77.8% 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 13.3% in the first nine months of 1999
versus 12.7% in the first nine 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 $134,350 less in the first nine months of
1999 compared to a year ago. The lower income was due to a market loss on
investments versus a small gain a year ago and from smaller investable balances
in the current period.
Net income for the nine months decreased to $2,105,961 or 59 cents per share
(diluted) compared to $2,503,305 or 64 cents per share (diluted) in the same
period of 1998.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS. (Continued)
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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 November 1999. The total
costs 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.
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(a) EXHIBITS:
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27K - Financial data schedule, filed herewith.
(b) No reports on Form 8-K were filed by the Company during the quarterly
period ended October 2, 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: November 12, 1999 By: /s/ William A. Bassett
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William A. Bassett, President
Date: November 12, 1999 By: /s/ Michael K. Solomon
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Michael K. Solomon, Treasurer
8