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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
DECORATOR INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 1-7753 25-1001433
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(State or other jurisdiction of Commission (I.R.S. Employer
incorporation or organization) file number 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 by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
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 May 15, 2007
------------------- ---------------------------
Common Stock, Par Value $.20 Per Share 3,003,679 shares
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
DECORATOR INDUSTRIES, INC.
BALANCE SHEETS
ASSETS
MARCH 31, DECEMBER 30,
2007 2006
----------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and Cash Equivalents $ 19,491 $ 11,379
Accounts Receivable, less allowance for
doubtful accounts ($221,355 and $201,355) 4,474,108 3,725,167
Inventories 5,545,967 5,651,252
Income Taxes Receivable 679,217 633,130
Other Current Assets 411,369 351,015
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TOTAL CURRENT ASSETS 11,130,152 10,371,943
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Property and Equipment
Land, Buildings & Improvements 9,184,957 9,191,174
Machinery, Equipment, Furniture & Fixtures 7,670,404 7,630,186
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Total Property and Equipment 16,855,361 16,821,360
Less: Accumulated Depreciation and Amortization 7,313,403 7,118,193
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Net Property and Equipment 9,541,958 9,703,167
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Goodwill, less accumulated Amortization of $1,348,569 2,731,717 2,731,717
Identifiable intangible asset, less accumulated Amortization
of $2,069,713 and $1,907,713 1,825,278 1,987,278
Other Assets 253,593 204,466
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Total Assets $25,482,698 $24,998,571
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LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 3,265,561 $ 1,900,471
Current Maturities of Long-term Debt 200,750 206,815
Checks Issued But Not Yet Presented 318,931 588,245
Accrued Expenses:
Compensation 487,805 804,929
Other 1,383,785 1,489,125
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TOTAL CURRENT LIABILITIES 5,656,832 4,989,585
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Long-Term Debt 1,716,277 1,741,444
Deferred Income Taxes 834,000 839,000
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TOTAL LIABILITIES 8,207,109 7,570,029
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Stockholders' Equity
Common Stock $.20 par value: Authorized shares, 10,000,000;
Issued shares, 4,628,053 925,611 925,611
Paid-in Capital 1,812,002 1,797,810
Retained Earnings 22,516,618 22,698,567
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25,254,231 25,421,988
Less: Treasury stock, at cost: 1,624,374 and 1,627,388 shares 7,978,642 7,993,446
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TOTAL STOCKHOLDERS' EQUITY 17,275,589 17,428,542
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $25,482,698 $24,998,571
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The accompanying notes are an integral part of the financial statements.
1
DECORATOR INDUSTRIES, INC
STATEMENTS OF EARNINGS
(UNAUDITED)
FOR THE THIRTEEN WEEKS ENDED
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MARCH 31, APRIL 1,
2007 2006
----------------------- ------------------------
Net Sales $ 12,247,417 100.0% $ 14,662,315 100.0%
Cost of Products Sold 10,317,008 84.2% 11,704,497 79.8%
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Gross Profit 1,930,409 15.8% 2,957,818 20.2%
Selling and Administrative Expenses 2,072,278 17.0% 2,097,304 14.3%
------------ ------------
Operating (Loss)/Income (141,869) -1.2% 860,514 5.9%
Other Income (Expense)
Interest, Investment, and 23,201 0.2% 31,212 0.2%
Other Income
Interest Expense (23,261) -0.2% (18,766) -0.2%
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Earnings Before Income Taxes (141,929) -1.2% 872,960 5.9%
Provision for Income Taxes (50,000) -0.4% 325,000 2.2%
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NET (LOSS)/INCOME $ (91,929) -0.8% $ 547,960 3.7%
============ ============
EARNINGS PER SHARE
BASIC $ (0.03) $ 0.19
============ ============
DILUTED $ (0.03) $ 0.18
============ ============
Weighted Average Number of Shares Outstanding
Basic 3,001,228 2,950,508
Diluted 3,001,228 3,002,687
The accompanying notes are an integral part of the financial statements.
2
DECORATOR INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THIRTEEN WEEKS ENDED
----------------------------
MARCH 31, APRIL 1,
2007 2006
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss)/Income $ (91,929) $ 547,960
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation and Amortization 373,654 353,214
Provision for Losses on Accounts Receivable 20,600 --
Deferred Taxes (8,000) 20,000
Stock-Based Compensation 8,746 17,152
Gain on Disposal of Assets (13,127) (720)
Increase/(Decrease) from Changes in:
Accounts Receivable (769,541) (665,487)
Inventories 105,285 (127,559)
Prepaid Expenses (103,441) (124,850)
Other Assets (49,127) (189,904)
Accounts Payable 1,365,090 330,472
Accrued Expenses (422,767) 318,811
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NET CASH PROVIDED BY OPERATING ACTIVITIES 415,443 479,089
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (56,662) (138,553)
Proceeds from Property Dispositions 19,647 2,900
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NET CASH USED IN INVESTING ACTIVITIES (37,015) (135,653)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term Debt Payments (54,232) (44,867)
Dividend Payments (90,020) (88,774)
Change in Checks Issued but Not Yet Presented (269,314) --
Proceeds from Exercise of Stock Options -- 99,993
Net Borrowings under Line-of-Credit Agreement 23,000 --
Issuance of Stock for Directors Trust 20,250 20,250
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NET CASH USED IN FINANCING ACTIVITIES (370,316) (13,398)
Net Increase in Cash and Cash Equivalents 8,112 330,038
Cash and Cash Equivalents at Beginning of Year 11,379 490,377
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,491 $ 820,415
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 21,184 $ 16,083
Income Taxes $ 1,500 $ --
The accompanying notes are an integral part of the financial statements.
3
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED MARCH 31, 2007 AND APRIL 1, 2006
(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 March
31, 2007, the changes therein for the thirteen week period
then ended and the results of operations for the thirteen week
periods ended March 31, 2007 and April 1, 2006.
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 accounting
principles generally accepted in the United States of America.
For additional information, reference is made to the Company's
annual report on Form 10-K for the year ended December 30,
2006. The results of operations for the thirteen week periods
ended March 31, 2007 and April 1, 2006 are not necessarily
indicative of operating results for the full year.
NOTE 3. INVENTORIES
Inventories at March 31, 2007 and December 30, 2006 consisted of the
following:
MARCH 31, DECEMBER 30,
2007 2006
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Raw Material and Supplies $4,768,782 $4,737,878
In Process and Finished Goods 777,185 913,374
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Total Inventory $5,545,967 $5,651,252
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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. No dilution is
shown for the thirteen weeks ended March 31, 2007 since the effect of
the stock options on the net loss is antidilutive. In accordance with
SFAS No. 128, the following is a reconciliation of the numerators and
denominators of the basic and diluted EPS computations:
FOR THE THIRTEEN WEEKS ENDED
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MARCH 31, APRIL 1,
2007 2006
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Numerator:
Net (loss) income $ (91,929) $ 547,960
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Denominator:
Weighted-average number of
common shares outstanding 3,001,228 2,950,508
Dilutive effect of
stock options on net income 0 52,179
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3,001,228 3,002,687
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Diluted earnings per share: $ (0.03) $ 0.18
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4
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, 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 ratios changed as illustrated below. The financial
condition remains strong, and the long-term debt to total capitalization ratio
remained low at 9.04%
MARCH 31, DECEMBER 30,
2007 2006
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Current Ratio 1.97:1 2.08:1
Quick Ratio 0.99:1 0.95:1
LT Debt to Total Capital 9.04% 9.08%
Working Capital $5,473,320 $5,382,358
At March 31, 2007, the Company had outstanding borrowings of $430,000 on its
line of credit. The Company expects to use its line of credit in 2007. In April
and May 2007, the Company received over $630,000 in refunds for overpayments of
estimated 2006 federal and state income taxes. These refunds will help provide
greater liquidity for the remainder of fiscal 2007.
In January 2004, the Company began assigning certain account receivables under a
"Receivables Servicing and Credit Approved Receivables Purchasing Agreement"
with CIT Group/Commercial Services Inc. Only receivables from sales to the
hospitality industry may be assigned to CIT. Under the agreement CIT provides
credit checking, credit approval, and collection responsibilities for the
assigned receivables. If CIT approves an order from a hospitality customer and
the resulting receivables are not paid or disputed by the customer within ninety
days of sale, CIT will pay the receivable to the Company and assume ownership of
the receivable. CIT begins collection efforts for the assigned receivables (both
approved and not approved) when they are due (hospitality sales are made on Net
30 terms). Hospitality customers are instructed to make payments directly to CIT
and CIT then wires collected funds to the Company. The Company pays CIT
six-tenths of a percent of all assigned receivables. Management believes this
cost is mostly offset by reductions in Bad Debt expense and collection costs.
The Company entered into this arrangement to take advantage of CIT's extensive
credit checking and collection capabilities. Management believes this
arrangement has improved liquidity.
5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (continued)
Days Sales Outstanding (DSO) in accounts receivable were 32.5 days at March 31,
2007 compared to 31.0 and 31.6 days at December 30, 2006 and April 1, 2006,
respectively. The higher DSO for the current quarter is primarily due to having
a higher percentage of the Company's receivables due from hospitality customers,
as this market historically has higher DSO. Net accounts receivable was
$4,474,108 at March 31, 2007, compared to $3,725,167 and $5,238,902 at December
30, 2006 and April 1, 2006, respectively. The increase in accounts receivable
from fiscal year end is due to the seasonality of the Company's sales, while the
decrease in accounts receivable from a year ago is due to the reduced sales
volumes in the current year. Inventories were $5,545,967 at March 31, 2007, as
compared to $5,651,252 and $5,928,112 at December 30, 2006 and April 1, 2006,
respectively. This downward trend in inventory levels is due to decreased sales
as well as the Company's attempts to decrease its inventory levels.
Capital expenditures were $56,662 for the quarter ended March 31, 2007, compared
to $138,553 for the same period of the prior year. The major reason for this
decrease was lower expenditures in the current period for the implementation of
the Company's new enterprise-resource-planning system.
Management does not foresee any events which will adversely affect its liquidity
during 2007.
SALES BY MARKET
The following table represents net sales to each of the three different markets
that the Company serves for the thirteen week periods ended March 31, 2007 and
April 1, 2006:
(dollars in thousands)
FOR THE THIRTEEN WEEKS ENDED
--------------------------------------------
MARCH 31, APRIL 1,
2007 2006
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NET % OF NET % OF
SALES TOTAL SALES TOTAL
------- ------- ------- -------
Recreational Vehicle $ 7,384 60% $ 9,127 62%
Manufactured Housing 1,914 16% 2,808 19%
Hospitality 2,949 24% 2,727 19%
------- ------- ------- -------
Total Net Sales $12,247 100% $14,662 100%
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6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (continued)
RESULTS OF OPERATIONS
THIRTEEN WEEK PERIOD ENDED MARCH 31, 2007, (FIRST QUARTER 2007) COMPARED TO
THIRTEEN WEEK PERIOD ENDED APRIL 1, 2006, (FIRST QUARTER 2006)
The following table shows a comparison of the results of operations between
First Quarter 2007 and First Quarter 2006:
FIRST QUARTER % OF FIRST QUARTER % OF $ INCREASE %
2007 SALES 2006 SALES (DECREASE) CHANGE
------------- ----- ------------- ------- ------------ ------
Net Sales $ 12,247,417 100% $ 14,662,315 100% $ (2,414,898) -16.5%
Cost of Products Sold 10,317,008 84.2% 11,704,497 79.8% (1,387,489) -11.9%
------------ ----- ------------ ------- ------------
Gross Profit 1,930,409 15.8% 2,957,818 20.2% (1,027,409) -34.7%
Selling and Administrative Expenses 2,072,278 17.0% 2,097,304 14.3% (25,026) -1.2%
------------ ----- ------------ ------- ------------
Operating Income (141,869) -1.2% 860,514 5.9% (1,002,383) -116.5%
Other Income (Expense)
Interest, Investment and
Other Income 23,201 0.2% 31,212 0.2% (8,011) 25.7%
Interest Expense (23,261) -0.2% (18,766) -0.2% (4,495) 24.0%
------------ ----- ------------ ------- ------------
Earnings Before Income Taxes (141,929) -1.2% 872,960 5.9% (1,014,889) -116.3%
Provision for Income Taxes (50,000) -0.4% 325,000 2.2% (375,000) -115.4%
------------ ----- ------------ ------- ------------
NET INCOME $ (91,929) -0.8% $ 547,960 3.7% $ (639,889) -116.8%
============ ===== ============ ======= ============
Net sales for the First Quarter 2007 were $12,247,417, compared to $14,662,315
for the same period in the previous year, a 16.5% decrease. Sales to the
Company's recreational vehicle customers decreased 19.1% in First Quarter 2007
when compared to the same period of the prior year. Approximately 12% of the
Company's sales to its recreational vehicle customers in the First Quarter 2006
were for Emergency Living Units ("ELU's"). The recreational vehicle industry
reported a 15.6% decrease in shipments during the First Quarter 2007 compared to
the same period of the prior year (excluding ELU's). Sales to the Company's
manufactured housing customers decreased 31.8% in First Quarter 2007 when
compared to the same period of the prior year. The manufactured housing industry
decreased shipments by 36.5% over the same period. Much of the decrease is due
to increased sales in the First Quarter 2006 arising from the 2005 Gulf Coast
hurricanes. Sales to the Company's hospitality customers increased 8.1% in the
First Quarter 2007 when compared to the same period of the prior year, largely
due to increased sales and marketing efforts in the current year.
Cost of products sold increased to 84.2% in the First Quarter 2007 compared to
79.8% a year ago. The major reasons for the increase in this percentage was an
increase in the percentage of raw material costs due to changes in product mix,
increase in labor costs as a percent of sales due to lower production levels,
and a higher percentage for factory overhead due to fixed expenses being spread
over a lower sales volume.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (continued)
Selling and administrative expenses were $2,072,278 in the First Quarter 2007
versus $2,097,304 in the First Quarter 2006, mostly unchanged due to fixed
overhead expenses. The percentage of selling and administrative expenses to net
sales increased from 14.3% to 16.9% as fixed expenses were spread over a lower
sales volume.
Interest expense increased to $23,261 in the First Quarter 2007 from $18,766 in
the First Quarter 2006, due to increased borrowings on the Company's line of
credit during the First Quarter 2007.
Net loss was $91,929 in the First Quarter 2007 compared to net income of
$547,960 in the First Quarter 2006. This decrease is the result of lower sales.
Diluted earnings per share decreased from $0.18 per share earnings during the
First Quarter 2006 to $0.03 per share loss during the First Quarter 2007.
EBITDA
EBITDA represents income before income taxes, interest expense, depreciation and
amortization and is an approximation of cash flow from operations before tax.
The Company uses EBITDA as an internal measure of performance and believes it is
a useful and commonly used measure of financial performance in addition to
income before taxes and other profitability measures under U.S. Generally
Accepted Accounting Principles ("GAAP").
EBITDA is not a measure of performance under GAAP. EBITDA should not be
construed as an alternative to operating income and income before taxes as an
indicator of the Company's operations in accordance with GAAP. Nor is EBITDA an
alternative to cash flow from operating activities in accordance with GAAP. The
Company's definition of EBITDA can differ from that of other companies.
The following table reconciles Net Income, the most comparable measure under
GAAP, to EBITDA for the first quarters of fiscal 2007 and 2006:
FOR THE THIRTEEN WEEKS ENDED
----------------------------
MARCH 31, APRIL 1,
2007 2006
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Net (Loss)/Income $ (91,929) $ 547,960
Add:
Interest 23,261 18,766
Taxes (50,000) 325,000
Depreciation & Amortiztion 373,654 353,214
Gain on Disposal (13,127) (720)
----------- -----------
EBITDA $ 241,859 $ 1,244,220
=========== ===========
8
Item 4. Controls and Procedures.
(a) The Company's principal executive officer and principal financial officer
have reviewed the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2007 and have
concluded that they were adequate and effective.
(b) During the most recent fiscal quarter, there were no changes in the
Company's internal control over financial reporting identified in connection
with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or
15d-15 that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 6. Exhibits
31.1 - Certification of Principal Executive Officer
31.2 - Certification of Principal Financial Officer
32 - Certificate required by 18 U.S.C.ss.1350.
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: May 15, 2007 By: /s/ William A. Bassett
-------------------------------------
William A. Bassett
Chief Executive Officer and President
Date: May 15, 2007 By: /s/ Michael K. Solomon
-------------------------------------
Michael K. Solomon
Chief Financial Officer
10