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 June 30, 2001
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
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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 August 3, 2001
------------------- -----------------------------
Common Stock, Par Value $.20 Per Share 2,835,001
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
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DECORATOR INDUSTRIES, INC.
BALANCE SHEET
June 30, 2001 December 30, 2000
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ASSETS (UNAUDITED)
------
Current Assets:
Cash and Cash Equivalents $ 1,865,848 $ 307,819
Accounts Receivable, less allowance for
doubtful accounts ($212,810 and $144,395) 3,688,191 3,494,676
Inventories 4,076,059 5,203,240
Other Current Assets 636,218 947,134
----------- -----------
Total Current Assets 10,266,316 9,952,869
----------- -----------
Property and Equipment:
Land, Buildings & Improvements 4,140,443 4,144,229
Machinery, Equipment, Furniture and Fixtures 5,485,620 5,326,181
----------- -----------
Total Property and Equipment 9,626,063 9,470,410
Less: Accumulated Depreciation and Amortization 3,870,435 3,659,764
----------- -----------
Net Property and Equipment 5,755,628 5,810,646
----------- -----------
Goodwill, less accumulated
amortization of $1,296,275 and $1,243,980 2,784,011 2,836,306
Other Assets 280,105 255,566
----------- -----------
Total Assets $19,086,060 $18,855,387
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current Liabilities:
Accounts Payable $ 2,909,036 $ 2,393,004
Current Maturities of Long-term Debt 105,500 104,640
Accrued Expenses:
Compensation 618,562 789,681
Other 1,329,773 1,510,897
----------- -----------
Total Current Liabilities 4,962,871 4,798,222
----------- -----------
Long-Term Debt 1,656,965 1,709,686
Deferred Income Taxes 382,000 368,000
----------- -----------
Total Liabilities 7,001,836 6,875,908
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Stockholders' Equity
Common stock $.20 par value: Authorized shares, 10,000,000;
Issued shares, 4,484,162 and 4,444,997 896,832 888,999
Paid-in Capital 1,439,660 1,441,655
Retained Earnings 17,845,641 17,777,461
----------- -----------
20,182,133 20,108,115
Less: Treasury stock, at cost: 1,648,361 and 1,653,437 shares 8,097,909 8,128,636
----------- -----------
Total Stockholders' Equity 12,084,224 11,979,479
----------- -----------
Total Liabilities and Stockholders' Equity $19,086,060 $18,855,387
=========== ===========
The accompanying notes are an integral part of the financial statements.
2
DECORATOR INDUSTRIES, INC.
STATEMENT OF EARNINGS
(UNAUDITED)
FOR THIRTEEN WEEKS ENDED:
---------------------------------------------------
June 30, 2001 July 1, 2000
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Net sales $ 9,475,661 100.00% $ 12,163,649 100.00%
Cost of products sold 7,380,201 77.89% 9,439,896 77.61%
------------ ------------
Gross profit 2,095,460 22.11% 2,723,753 22.39%
Selling and
Administrative expenses 1,592,061 16.80% 1,918,732 15.77%
------------ ------------
Operating income 503,399 5.31% 805,021 6.62%
Interest and
investment income 16,186 (0.17%) 24,623 (0.20%)
Interest expense (17,811) 0.19% (26,302) 0.22%
------------ ------------
Earnings before 501,774 5.29% 803,342 6.60%
income taxes
Provision for income taxes 196,000 2.07% 303,000 2.49%
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Continuing operations 305,774 3.22% $ 500,342 4.11%
Discontinued operations:
- ------------------------
Loss from operations, net of
income tax benefit $11,000 and
$33,000 (19,137) (.16%)
Loss on disposal, net of income
tax benefit of $259,000 (422,481) (3.47%)
------------
Net Income $ 305,774 3.22% $ 58,724 0.48%
============ ============
Earnings per share:
Continuing Operations $ 0.10 $ 0.16
============ ============
Discontinued Operations -- $ (0.14)
============ ============
Basic $ 0.10 $ 0.02
============ ============
Diluted $ 0.10 $ 0.02
============ ============
Weighted-average number of
shares outstanding:
Basic 2,809,155 3,165,186
Diluted 2,809,155 3,199,699
[RESTUBBED]
FOR TWENTY-SIX WEEKS ENDED:
-----------------------------------------------------
June 30, 2001 July 1, 2000
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Net sales $ 17,528,616 100.00% $ 24,606,663 100.00%
Cost of products sold 13,967,586 79.68% 19,207,954 78.06%
------------ ------------
Gross profit 3,561,030 20.32% 5,398,709 21.94%
Selling and
Administrative expenses 3,131,800 17.87% 3,606,437 14.66%
------------ ------------
Operating income 429,230 2.45% 1,792,272 7.28%
Interest and
investment income 20,103 (0.11%) 43,260 (0.18%)
Interest expense (41,294) 0.23% (46,482) 0.19%
------------ ------------
Earnings before 408,039 2.33% 1,789,050 7.27%
income taxes
Provision for income taxes 171,000 0.98% 673,000 2.73%
------------ ------------
Continuing operations 237,039 1.35% $ 1,116,050 4.54%
Discontinued operations:
- ------------------------
Loss from operations, net of
income tax benefit $11,000 and
$33,000 (53,900) (.22%)
Loss on disposal, net of income
tax benefit of $259,000 (422,481) (1.72%)
------------ ------------
Net Income $ 237,039 1.35% $ 639,669 2.60%
============ ============
Earnings per share:
Continuing Operations $ 0.08 $ 0.35
============ ============
Discontinued Operations -- $ (0.15)
============ ============
Basic $ 0.08 $ 0.20
============ ============
Diluted $ 0.08 $ 0.20
============ ============
Weighted-average number of
shares outstanding:
Basic 2,801,561 3,172,610
Diluted 2,817,351 3,211,131
The accompanying notes are an integral part of the financial statements.
3
DECORATOR INDUSTRIES, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR TWENTY-SIX WEEKS ENDED:
June 30, 2001 July 1, 2000
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Cash Flows From Operating Activities:
Net income $ 237,039 $ 639,669
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 378,308 374,327
Write-off of goodwill -- 565,481
Provision for losses on accounts receivable 74,000 63,433
Deferred taxes 74,000 (10,000)
(Gain) loss on disposal of assets 25,328 (114)
(Increase) decrease in accounts receivable (261,930) (1,458,872)
(Increase) decrease in inventories 1,127,181 (1,113,062)
(Increase) decrease in prepaid expenses 250,916 (256,556)
(Increase) decrease in other assets (24,539) 96,566
Increase (decrease) in accounts payable 516,032 1,586,514
Increase (decrease) in accrued expenses (352,243) 69,228
----------- -----------
Net Cash Provided by Operating Activities 2,044,092 556,614
----------- -----------
Cash Flows From Investing Activities:
Capital expenditures (312,092) (360,483)
Proceeds from property dispositions 7,625 675
Short-term investments -- 1,455,796
Net cash paid for acquisitions -- (9,498)
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Net Cash Provided by (Used in) Investing Activities (304,467) 1,086,490
----------- -----------
Cash Flows From Financing Activities:
Long-term debt payments (51,860) (55,185)
Dividend payments (168,858) (444,809)
Proceeds from exercise of stock options 22,324 21,460
Purchase of common stock for treasury (8,319) (384,770)
Issuance of stock for director's compensation 25,117 20,000
----------- -----------
Net Cash Used in Financing Activities (181,596) (843,304)
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,558,029 799,800
Cash and cash equivalents at beginning of year 307,819 484,328
----------- -----------
Cash and Cash Equivalents at End of Period $ 1,865,848 $ 1,284,128
=========== ===========
Supplemental disclosures of cash flow information: Cash paid for:
Interest $ 39,654 $ 40,092
Income taxes $ 35,942 $ 569,545
Cash flows from acquisitions:
Purchase price -- $ 9,498
The accompanying notes are an integral part of the financial statements.
4
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
TWENTY-SIX WEEKS ENDED JUNE 30, 2001 AND JULY 1, 2000
(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 June 30,
2001, the changes therein for the twenty-six week period then
ended and the results of operations for the twenty-six week
periods ended June 30, 2001 and July 1, 2000.
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 December 30, 2000. The results of
operations for the twenty-six week periods ended June 30, 2001
and July 1, 2000 are not necessarily indicative of operating
results for the full year. Certain numbers from prior periods
have been reclassified for comparative purposes.
NOTE 3. INVENTORIES
-----------
Inventories at June 30, 2001 and December 30, 2000 consisted
of the following:
June 30, 2001 December 30, 2000
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Raw Material
and Supplies $3,750,178 $4,876,287
In Process and
Finished Goods 325,881 326,953
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Total Inventory $4,076,059 $5,203,240
========== ==========
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:
--------------------- -----------------------
June 30, 2001 July 1, 2000 June 30, 2001 July 1, 2000
------------- ------------ ------------- ------------
Numerator:
Net income $ 305,774 $ 58,724 $ 237,039 $ 639,669
========== ========== ========== ==========
Denominator:
Weighted-average number
of common shares
outstanding 2,809,155 3,165,186 2,801,561 3,172,610
Dilutive effect of
stock options on net
income -- 34,513 15,790 38,521
---------- ---------- ---------- ----------
2,809,155 3,199,699 2,817,351 3,211,131
========== ========== ========== ==========
Diluted earnings per
share: $ 0.10 $ 0.02 $ 0.08 $ 0.20
========== ========== ========== ==========
5
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TWENTY-SIX WEEKS ENDED JUNE 30, 2001 AND JULY 1, 2000
(UNAUDITED)
NOTE 5. DISCONTINUED OPERATIONS
-----------------------
During the second quarter of 2000, the Company adopted a plan
to dispose of its contract sewing operations for the
hospitality industry through liquidation. At July 1, 2000, the
net assets of this operation consisted primarily of goodwill
($565,481), inventories, machinery and equipment, and trade
receivables. This decision resulted in an after-tax loss of
$422,000 for disposal of this operation. Included in the loss
on disposal was a pre-tax provision of $60,000 for estimated
operating losses during the phase-out period.
In the fourth quarter of 2000, the Company decided to
discontinue the manufacturing of furniture for sale to the
recreational vehicle and hospitality industries. At December
30, 2000, the assets of this operation consisted primarily of
inventories, equipment and trade receivables. This decision
resulted in an after-tax loss of $329,000 for disposal of this
operation. Included in the loss on disposal is a pre-tax
provision of $160,000 for estimated operating losses during
the phase-out period.
As of this date, management feels the reserves set up for
discontinued operations are adequate.
6
Item 2. Management's Discussion and Analysis of Financial Condition
- ------- ------------------------------------------------------------
and Results of Operations.
--------------------------
Cautionary Statement: This Quarterly Report on Form 10-Q may contain statements
relating to future events that are considered "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements represent the Company's expectations or belief as to
future events and, by their very nature, are subject to risks and uncertainties
which may result in actual events differing materially from those anticipated.
In particular, future operating results and future liquidity will be affected by
the level of demand for recreational vehicles, manufactured housing and
hotel/motel accommodations and may be affected by changes in economic
conditions, interest rate fluctuations, competitive products and pricing
pressures within the Company's markets, the Company's ability to contain its
manufacturing costs and expenses, and other factors. Forward-looking statements
by the Company speak only as of the date made, and the Company undertakes no
obligation to update or revise such statements to reflect events or
circumstances after such date or to reflect the occurrence of unanticipated
events.
FINANCIAL CONDITION
- -------------------
The Company's financial condition, as measured by the following ratios,
continues to be strong at the end of the Second Quarter 2001.
June 30, 2001 December 30, 2000
------------- -----------------
Current Ratio 2:07 2:07
Quick Ratio 1:25 0:99
LT Debt to Total Capital 12.06% 12.49%
Working Capital $5,303,445 $5,154,647
Days sales outstanding in accounts receivable were 34.6 days at June 30, 2001
compared to 35.8 days at July 1, 2000, and accounts receivable increased by more
than 5% while inventories decreased by 21.7% during the quarter.
Management does not foresee any events which will adversely affect its liquidity
during 2001. At the quarter end, the Company had no borrowings against its
$5,000,000 revolving line of credit. With the available borrowing capacity and
the Company's cash balances, the financial condition is more than adequate to
finance internal growth and the 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 Quarter YTD YTD
Earnings Ratios 2001 2000 2001 2000
--------------- ---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 77.89 77.61 79.68 78.06
Selling and administrative 16.80 15.77 17.87 14.66
Interest and investment income (0.17) (0.20) (0.11) (0.18)
Interest expense 0.19 0.22 0.23 0.19
Income taxes 2.07 2.49 0.98 2.73
Discontinued operations -- (3.63) -- (1.94)
Net income 3.22 0.48 1.35 2.60
7
Item 2. Management's Discussion and Analysis of Financial Condition
- ------- ------------------------------------------------------------
and Results of Operations. (Continued)
--------------------------
Thirteen Week Period Ended June 30, 2001 (Second Quarter 2001) compared to
Thirteen Week Period Ended July 1, 2000 (Second Quarter 2000)
- --------------------------------------------------------------
Net sales for the Second Quarter 2001 were $9,475,661, compared to $12,163,649
for the same period in the previous year, a 22.1% decrease. The Company
experienced sales declines in each of the markets it serves.
Cost of products sold increased slightly to 77.9% in the Second Quarter 2001
compared to 77.6% a year ago.
Selling and administrative expenses were $1,592,061 in the Second Quarter 2001
versus $1,918,732 in the Second Quarter 2000. This decrease is attributable to
lowered performance based compensation and commission costs.
Interest and investment income was $8,437 less in the Second Quarter 2001 than
the amount earned in the Second Quarter 2000 because of lower investable
balances.
Income from continuing operations decreased to $305,774 in the Second Quarter of
2001 compared to $500,342 in the Second Quarter of 2000. This decrease can be
attributed to the reduction in net sales.
Net income increased to $305,774 in the Second Quarter of 2001 compared to
$58,724 of net income in the Second Quarter of 2000. As discussed in Note 5 of
the financial statements, net income was reduced by $441,618 (net of tax) in the
Second Quarter 2000 due to the discontinued operations.
Twenty-six Week Period Ended June 30, 2001 (First Six Months of 2001) compared
to Twenty-six Week Period Ended July 1, 2000 (First Six Months of 2000)
- ------------------------------------------------------------------------
Net sales for the First Six Months 2001 were $17,528,616, down from $24,606,663
in the prior year, a 28.8% decrease. The Company experienced sales declines in
each of the markets it serves. The manufactured housing industry is reporting a
36% decrease in sales over last year. At the same time, the recreational vehicle
industry is reporting a 21% decline in factory shipment from a year earlier.
Cost of products sold increased to 79.7% in the First six months of 2001
compared to 78.1% a year ago. The increase is largely the result of allocating
the fixed expenses for manufactured housing over a smaller sales volume.
Selling and administrative expenses were $3,131,800 in the First Six Months of
2001 versus $3,606,437 in the First Six Months of 2000. This decrease is
attributable to lowered performance based compensation and commission costs.
Income from continuing operations decreased to $237,039 in the First Six Months
of 2001 compared to $1,116,050 in the First Six Months of 2000. This decrease
can largely be attributed to the reduction in net sales.
Net income for the six months decreased to $237,039 or 8 cents per share
(diluted) compared to $639,669 or 20 cents per share (diluted) in the same
period of 2000. As discussed in Note 5 of the financial statements, net income
was reduced by $476,381 (net of tax) in the First Six Months of 2000 due to the
discontinued operations.
8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
---------
None.
(b) No reports on Form 8-K were filed by the Company during the
quarterly period ended June 30, 2001.
9
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 10, 2001 By: /s/ William A. Bassett
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William A. Bassett, President
Date: August 10, 2001 By: /s/ Michael K. Solomon
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Michael K. Solomon, Treasurer
10