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 September 29, 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.
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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 2, 2001
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Common Stock, Par Value $.20 Per Share 2,815,677
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
DECORATOR INDUSTRIES, INC.
BALANCE SHEET
September 29, 2001 December 30, 2000
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ASSETS (UNAUDITED)
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Current Assets:
Cash and Cash Equivalents $ 1,900,159 $ 307,819
Accounts Receivable, less allowance for
doubtful accounts ($249,810 and $144,395) 4,014,739 3,494,676
Inventories 4,130,126 5,203,240
Other Current Assets 410,668 947,134
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Total Current Assets 10,455,692 9,952,869
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Property and Equipment:
Land, Buildings & Improvements 4,240,777 4,144,229
Machinery, Equipment, Furniture and Fixtures 5,276,354 5,326,181
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9,517,131 9,470,410
Total Property and Equipment
Less: Accumulated Depreciation and Amortization 3,944,808 3,659,764
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Net Property and Equipment 5,572,323 5,810,646
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Goodwill, less accumulated
amortization of $1,322,422 and $1,243,980 2,757,864 2,836,306
Other Assets 270,247 255,566
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Total Assets $19,056,126 $18,855,387
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LIABILITIES & STOCKHOLDERS' EQUITY
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Current Liabilities:
Accounts Payable $ 2,929,341 $ 2,393,004
Current Maturities of Long-term Debt 105,856 104,640
Accrued Expenses:
Income Taxes 18,948 --
Compensation 791,119 789,681
Other 910,969 1,510,897
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Total Current Liabilities 4,756,233 4,798,222
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Long-Term Debt 1,630,606 1,709,686
Deferred Income Taxes 369,000 368,000
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Total Liabilities 6,755,839 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 1,432,696 1,441,655
Retained Earnings 18,133,176 17,777,461
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20,462,704 20,108,115
Less: Treasury stock, at cost: 1,670,053 and 1,653,437 shares 8,162,417 8,128,636
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Total Stockholders' Equity 12,300,287 11,979,479
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Total Liabilities and Stockholders' Equity $19,056,126 $18,855,387
=========== ===========
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:
------------------------------------------------ -------------------------------------------------
September 29, 2001 September 30, 2000 September 29, 2001 September 30, 2000
------------------ ------------------ ------------------ ------------------
Net sales $ 9,205,017 100.00% $ 9,731,021 100.00% $ 26,733,634 100.00% $ 34,337,684 100.00%
Cost of products sold 7,147,010 77.64% 7,678,724 78.91% 21,114,597 78.98% 26,886,678 78.30%
------------ ------------ ------------ ------------
Gross profit 2,058,007 22.36% 2,052,297 21.09% 5,619,037 21.02% 7,451,006 21.70%
Selling and
Administrative expenses 1,441,145 15.66% 1,617,210 16.62% 4,572,944 17.11% 5,223,646 15.21%
------------ ------------ ------------ ------------
Operating income 616,862 6.70% 435,087 4.47% 1,046,093 3.91% 2,227,360 6.49%
Interest and
investment income 11,607 0.13% 10,686 0.11% 31,710 0.12% 53,946 0.16%
Interest expense (12,940) (0.14)% (35,571) (0.37)% (54,235) (0.20)% (82,053) (0.24)%
------------ ------------ ------------ ------------
Earnings before 615,529 6.69% 410,202 4.21% 1,023,568 3.83% 2,199,253 6.41%
income taxes
Provision for income taxes 243,000 2.64% 154,000 1.58% 414,000 1.55% 827,000 2.41%
------------ ------------ ------------ ------------
Continuing operations 372,529 4.05% $ 256,202 2.63% 609,568 2.28% $ 1,372,253 4.00%
Discontinued operations:
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Loss from operations, net of
income tax benefit of $27,000
and $60,000 (45,127) (0.46)% (99,027) (0.29)%
Loss on disposal, net of income
tax benefit of $259,000 (422,481) (1.23)%
------------ ------------ ------------ ------------
Net Income $ 372,529 4.05% $ 211,075 2.17% $ 609,568 2.28% $ 850,745 2.48%
============ ============ ============ ============
Earnings per share:
Continuing Operations $ 0.14 $ 0.08 $ 0.22 $ 0.43
============ ============ ============ ============
Discontinued Operations $ (0.01) $ (0.16)
============ ============
Basic $ 0.14 $ 0.07 $ 0.22 $ 0.27
============ ============ ============ ============
Diluted $ 0.14 $ 0.07 $ 0.22 $ 0.27
============ ============ ============ ============
Weighted-average number of
shares outstanding:
Basic 2,832,593 3,028,757 2,811,905 3,124,659
Diluted 2,832,593 3,063,037 2,822,432 3,161,766
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:
September 29, 2001 September 30, 2000
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Cash Flows From Operating Activities:
Net income $ 609,568 $ 850,745
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 570,287 565,035
Write-off of goodwill -- 565,481
Provision for losses on accounts receivable 111,000 101,433
Deferred taxes 121,000 (1,000)
(Gain) loss on disposal of assets 94,981 5,272
(Increase) decrease in accounts receivable (625,478) (894,014)
(Increase) decrease in inventories 1,073,114 (503,640)
(Increase) decrease in prepaid expenses 416,466 (264,092)
(Increase) decrease in other assets (14,681) 158,921
Increase (decrease) in accounts payable 536,337 (152,203)
Increase (decrease) in accrued expenses (579,542) 129,032
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Net Cash Provided by Operating Activities 2,313,052 560,970
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Cash Flows From Investing Activities:
Capital expenditures (430,726) (586,103)
Proceeds from property dispositions 76,638 1,362
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 (354,088) 861,557
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Cash Flows From Financing Activities:
Long-term debt payments (77,864) (79,328)
Dividend payments (253,852) (640,163)
Net borrowings under line-of-credit agreement -- 667,582
Proceeds from exercise of stock options 22,324 21,460
Purchase of common stock for treasury (89,791) (1,856,253)
Issuance of stock for director's compensation 32,559 30,000
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Net Cash Used in Financing Activities (366,624) (1,856,702)
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1,592,340 (434,175)
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year 307,819 484,328
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Cash and Cash Equivalents at End of Period $ 1,900,159 $ 50,153
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 52,617 $ 67,305
Income taxes $ 202,792 $ 628,595
Cash flows from acquisitions:
Purchase price -- $ 9,498
The accompanying notes are an integral part of the financial statements.
3
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 2001 AND SEPTEMBER 30, 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
September 29, 2001, the changes therein for the thirty-nine
week period then ended and the results of operations for the
thirty-nine week periods ended September 29, 2001 and
September 30, 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 thirty-nine week periods ended September
29, 2001 and September 30, 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
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Inventories at September 29, 2001 and December 30, 2000
consisted of the following:
September 29, 2001 December 30, 2000
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Raw Material
and Supplies $3,867,474 $4,876,287
In Process and
Finished Goods 262,652 326,953
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Total Inventory $4,130,126 $5,203,240
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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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September 29, 2001 September 30, 2000 September 29, 2001 September 30, 2000
------------------ ------------------ ------------------ ------------------
Numerator:
Net income $ 372,529 $ 211,075 $ 609,568 $ 850,745
========== ========== ========== ==========
Denominator:
Weighted-average
number of common
shares outstanding 2,832,593 3,028,757 2,811,905 3,124,659
Dilutive effect of
stock options on net
income -- 34,280 10,527 37,107
---------- ---------- ---------- ----------
2,832,593 3,063,037 2,822,432 3,161,766
========== ========== ========== ==========
Diluted earnings per
share: $ 0.14 $ 0.07 $ 0.22 $ 0.27
========== ========== ========== ==========
4
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 2001 AND SEPTEMBER 30, 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.
5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
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Cautionary Statement: This Quarterly Report on Form 10-Q may contain statements
relating to future events, including results of operations, 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 Third Quarter 2001.
September 29, 2001 September 30, 2000
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Current Ratio 2:20 2:07
Quick Ratio 1:33 0:99
LT Debt to Total Capital 11.70% 12.49%
Working Capital $5,699,459 $5,154,647
Days sales outstanding (DSO) in accounts receivable were 38.5 days at September
29, 2001 compared to 38.7 days at September 30, 2000. Accounts receivable
decreased by 11.1% and inventories decreased by 33.8% compared to the same
period a year ago.
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:
Third Third
Quarter Quarter YTD YTD
Earnings Ratios 2001 2000 2001 2000
--------------- ---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 77.64 78.91 78.98 78.30
Selling and administrative 15.66 16.62 17.11 15.21
Interest and investment income .13 .11 .12 .16
Interest expense (.14) (.37) (.20) (.24)
Income taxes 2.64 1.58 1.55 2.41
Discontinued operations --- (.46) --- (1.52)
Net income 4.05 2.17 2.28 2.48
6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (Continued)
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Thirteen Week Period Ended September 29, 2001 (Third Quarter 2001) compared to
Thirteen Week Period Ended September 30, 2000 ( Third Quarter 2000)
- --------------------------------------------------------------------------------
Net sales for the Third Quarter 2001 were $9,205,017, compared to $9,731,021 for
the same period in the previous year, a 5.4% decrease. The Company experienced
sales declines in the recreational vehicle and hospitality markets.
Cost of products sold decreased to 77.6% in the Third Quarter 2001 compared to
78.9% a year ago. This improvement was the result of better labor efficiency.
Selling and administrative expenses were $1,441,145 in the Third Quarter 2001
versus $1,617,210 in the Third Quarter 2000. This decrease is largely
attributable to a reduction in wages.
Interest expense decreased from $35,571 in the Third Quarter 2000 to $12,940 in
the Third Quarter 2001 because of reduced borrowings and lower interest rates.
Net income increased to $372,529 in the Third Quarter of 2001 compared to
$211,075 of net income in the Third Quarter of 2000. This increase is the result
of better labor utilization and reduced administrative expenses.
Thirty-nine Week Period Ended September 29, 2001 (First Nine Months of 2001)
compared to Thirty-nine Week Period Ended September 30, 2000 (First Nine Months
of 2000)
- --------------------------------------------------------------------------------
Net sales for the First Nine Months 2001 were $26,733,634, down from $34,337,684
in the prior year, a 22.1% decrease. The Company experienced similar sales
declines in each of the markets it serves.
Cost of products sold increased to 78.9% in the First Nine Months of 2001
compared to 78.3% a year ago. The increase is the result of allocating the fixed
expenses over a smaller sales volume.
Selling and administrative expenses were $4,572,944 in the First Nine Months of
2001 versus $5,223,646 in the First Nine Months of 2000. This decrease is
attributable to lowered performance based compensation and commission costs, and
a reduction in wages.
Income from continuing operations decreased to $609,568 in the First Nine Months
of 2001 compared to $1,372,253 in the First Nine Months of 2000. This decrease
can largely be attributed to the reduction in net sales.
Net income for the First Nine Months decreased to $609,568 or 22 cents per share
(diluted) compared to $850,745 or 27 cents per share (diluted) in the same
period of 2000. As discussed in Note 5 of the financial statements, net income
was reduced by $521,508 (net of tax) in the First Nine Months of 2000 due to the
discontinued operations.
7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits:
None.
(b) No reports on Form 8-K were filed by the Company during the quarterly
period ended September 29, 2001.
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 9, 2001 By: /s/ William A. Bassett
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William A. Bassett, President
Date: November 9, 2001 By: /s/ Michael K. Solomon
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Michael K. Solomon, Treasurer
8