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 4, 1998
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 7, 1998
------------------- -----------------------------
Common Stock, Par Value $.20 Per Share 3,663,026*
*Includes 3,756 shares issuable upon surrender of the outstanding $.10 par
Common Stock.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
- ------ --------------------
DECORATOR INDUSTRIES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
July 4, 1998 Jan. 3, 1998
------------ ------------
ASSETS (UNAUDITED)
------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $3,107,885 $3,157,861
Short-term investments 2,063,225 2,006,882
Accounts receivable, less allowance for
doubtful accounts ($252,680 and $218,018) 4,853,022 3,643,503
Inventories 5,653,595 4,578,381
Other current assets 371,773 256,425
-------------------- -----------------
Total Current Assets 16,049,500 13,643,052
-------------------- -----------------
Property and equipment:
Land, buildings & improvements 2,198,510 2,182,228
Machinery, equipment, furniture and fixtures 3,780,022 3,500,122
-------------------- -----------------
Total property and equipment 5,978,532 5,682,350
Less: accumulated depreciation and amortization 2,409,042 2,208,956
-------------------- -----------------
Net property and equipment 3,569,490 3,473,394
-------------------- -----------------
Goodwill, less accumulated
amortization of $1,015,654 and $963,466 3,344,015 3,010,422
Other assets 615,025 174,400
-------------------- -----------------
Total Assets $23,578,030 $20,301,268
==================== =================
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current Liabilities:
Accounts payable $5,199,650 $3,114,661
Current maturities of long-term debt 42,774 42,423
Accrued expenses:
Income taxes 109,124 ------
Compensation 1,037,550 1,323,276
Other 715,687 756,442
-------------------- -----------------
Total Current Liabilities 7,104,785 5,236,802
-------------------- -----------------
Long-term debt 482,966 506,169
Deferred income taxes 229,000 211,000
-------------------- -----------------
Total Liabilities 7,816,751 5,953,971
-------------------- -----------------
Stockholders' Equity:
Common stock $.20 par value: authorized shares, 10,000,000;
issued shares, 4,343,160 and 3,463,840 694,906 692,794
Paid-in capital 1,518,787 1,513,280
Retained earnings 15,983,592 14,588,269
-------------------- -----------------
18,197,285 16,794,343
Less: Treasury stock, at cost: 689,500 and 554,100 shares 2,436,006 2,447,046
-------------------- -----------------
Total Stockholders' Equity 15,761,279 14,347,297
-------------------- -----------------
Total Liabilities and Stockholders' Equity $23,578,030 $20,301,268
==================== =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
DECORATOR INDUSTRIES, INC.
STATEMENT OF EARNINGS
(UNAUDITED)
FOR THIRTEEN WEEKS ENDED: FOR TWENTY-SIX WEEKS ENDED:
------------------------------------------------ ----------------------------------------------------
July 4, 1998 June 28, 1997 July 4, 1998 June 28, 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $13,709,226 100.00% $11,777,358 100.00% $26,358,930 100.00% $21,163,901 100.00%
Cost of products sold 10,699,593 78.05% 8,809,129 74.80% 20,362,790 77.25% 15,731,283 74.33%
------------ --------------- ---------------- ---------------
Gross profit 3,009,633 21.95% 2,968,229 25.20% 5,996,140 22.75% 5,432,618 25.67%
Selling and
Administrative expenses 1,686,503 12.30% 1,619,971 13.75% 3,348,633 12.70% 3,050,310 14.41%
------------ --------------- ---------------- ---------------
Operating income 1,323,130 9.65% 1,348,258 11.45% 2,647,507 10.04% 2,382,308 11.26%
Interest and
investment income 78,651 -0.57% 83,894 -0.71% 149,486 -0.57% 176,042 -0.83%
Interest expense (2,878) 0.02% (7,090) 0.06% (6,203) 0.02% (17,682) 0.08%
------------ --------------- ---------------- ---------------
Earnings before 1,398,903 10.20% 1,425,062 12.10% 2,790,790 10.59% 2,540,668 12.00%
income taxes
Provision for income taxes 487,000 3.55% 517,000 4.39% 999,000 3.79% 930,000 4.39%
------------ --------------- ---------------- ---------------
Income from
continuing operations 911,903 6.65% 908,062 7.71% 1,791,790 6.80% 1,610,668 7.61%
Loss on discontinued
operations, less applicable
income tax of $17,000 ------ (28,518) 0.24% ------ (28,518) 0.13%
------------ --------------- ---------------- ---------------
Net income $911,903 6.65% $879,544 7.47% $1,791,790 6.80% $1,582,150 7.48%
============ =============== ================ ===============
Earnings per share:
Continuing operations $0.25 $0.25 * $0.49 $0.44 *
===== ===== ===== =====
Basic $0.25 $0.24 * $0.49 $0.43 *
===== ===== ===== =====
Diluted $0.23 $0.22 * $0.45 $0.40 *
===== ===== ===== =====
Weighted-average number of
shares outstanding:
Basic 3,662,245 3,724,564 * 3,659,120 3,716,355 *
Diluted 3,948,675 3,967,754 * 3,916,938 3,980,806 *
</TABLE>
* Restated to reflect the five-for-four stock split effective July 21, 1998.
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
DECORATOR INDUSTRIES, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR TWENTY-SIX WEEKS ENDED:
July 4, 1998 June 28, 1997
------------ -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $1,791,790 $1,582,150
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 272,236 242,831
Provision for losses on accounts receivable 26,000 (15,000)
Deferred taxes (21,000) ------
(Gain) loss on disposal of assets (2,644) ------
(Increase) decrease in accounts receivable (1,235,519) (1,066,220)
(Increase) decrease in inventories (1,075,214) (476,004)
(Increase) decrease in prepaid expenses (116,348) (126,661)
(Increase) decrease in other assets (440,625) (41,947)
Increase (decrease) in accounts payable 2,084,989 1,661,433
Increase (decrease) in accrued expenses (217,357) 14,447
------------------- -------------------
Net Cash Provided by Operating Activities 1,066,308 1,775,029
------------------- -------------------
Cash Flows From Investing Activities:
Capital expenditures (318,634) (226,057)
Proceeds from property dispositions 5,135 800
Short-term investments (56,343) (93,301)
Note receivable 40,000 40,000
Net cash paid for acquisitions (385,781) (3,263,720)
------------------- --------------------
Net Cash Used in Investing Activities (715,623) (3,542,278)
------------------- --------------------
Cash Flows From Financing Activities:
Long-term debt payments (22,852) (20,834)
Dividend payments (410,428) (375,974)
Cash in lieu of fractional shares ------ (1,064)
Proceeds from exercise of stock options 7,619 19,179
Issuance of stock for director's compensation 25,000 9,819
------------------- -------------------
Net Cash Used in Financing Activities (400,661) (368,874)
Net (decrease) in cash and cash equivalents (49,976) (2,136,123)
Cash and cash equivalents at beginning of year 3,157,861 4,714,356
------------------- -------------------
Cash and Cash Equivalents at End of Period $3,107,885 $2,578,233
=================== ===================
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $17,828 $18,093
Income taxes $900,820 $706,883
Cash flows from acquisitions:
Purchase price $385,781 $3,300,096
Less: deferred portion of purchase price ------ ($36,376)
Cash used for acquisitions $385,781 $3,263,720
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
DECORATOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWENTY-SIX WEEKS ENDED JULY 4, 1998 AND JUNE 28, 1997
(UNAUDITED)
NOTE 1. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
necessary to present fairly the Company's financial position
as of July 4, 1998, the changes therein for the twenty-six
week period then ended and the results of operations for the
twenty-six week periods ended July 4, 1998 and June 28, 1997.
NOTE 2. The consolidated 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 3, 1998. The results
of operations for the twenty-six week periods ended July 4,
1998 and June 28, 1997 are not necessarily indicative of
operating results for the full year.
NOTE 3. INVENTORIES
-----------
Inventories at July 4, 1998 and January 3, 1998 consisted of
the following:
<TABLE>
<CAPTION>
July 4, 1998 January 3, 1998
-------------------- ---------------------
<S> <C> <C>
Raw Material
and Supplies $ 5,409,229 $ 4,343,132
In Process and
Finished Goods 244,366 235,249
===================== =====================
Total Inventory $ 5,653,595 $ 4,578,381
===================== =====================
</TABLE>
NOTE 4. EARNINGS PER SHARE
------------------
The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share" in 1997. SFAS
No. 128 simplifies the computation of earnings per share
("EPS") previously required in Accounting Principles Board
(APB) Opinion No. 15, "Earnings Per Share," by replacing
primary and fully diluted EPS with basic and diluted EPS.
Under SFAS No. 128, basic EPS is calculated by dividing net
income by the weighted-average common shares outstanding
during the period. Diluted EPS reflects the potential dilution
to basic EPS that could occur upon conversion or exercise of
securities, options, or other such items, to common shares
using the treasury stock method based upon the
weighted-average fair value of the Company's common shares
during the period. SFAS No. 128 was required to be adopted by
the Company in its year-end 1997 Annual Report, and earnings
per share for prior periods have been restated in accordance
with SFAS No. 128.
4
<PAGE>
DECORATOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TWENTY-SIX WEEKS ENDED JULY 4, 1998 AND JUNE 28, 1997
(UNAUDITED)
NOTE 5. ACQUISITIONS
------------
The cash payments for acquisitions of $385,781 represents the
additional consideration due for the acquisitions of Specialty
Window Coverings and Southern Interiors, Inc., which were made
in March 1997 and May 1997, respectively. Additional
consideration may be due Specialty after April 3, 1999 and
Southern after July 1, 1999 and July 1, 2000.
5
<PAGE>
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 First Quarter.
<TABLE>
<CAPTION>
July 4, 1998 January 3, 1998
------------ ---------------
<S> <C> <C>
Current Ratio 2:26 2:60
Quick Ratio 1:46 1:73
LT Debt to Total Capital 3.01% 3.71%
Working Capital $8,944,715 $8,406,250
</TABLE>
The Company is preparing to construct a new facility in Goshen, Indiana to
replace a leased facility. This facility will be funded with long-term debt. The
expansion of the Bloomsburg, Pennsylvania facility will be finalized in the
third quarter. This expansion has been funded by working capital. Cash and
Short-term Investments totaled $5,171,110 at July 4, 1998. Inventories have
increased by $1,075,214 during 1998. The increase results in part from the
inventory required to support the higher revenues and also from seasonal
requirements. Management expects these inventories to be somewhat reduced by
year end. Management does not foresee any events which will adversely affect its
liquidity during 1998, 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 and net sales dollars by market:
<TABLE>
<CAPTION>
Second 26 Second 26
Quarter Weeks Quarter Weeks
1998 1998 1997 1997
---- ---- ---- ----
Earnings Ratios
---------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 78.0 77.3 74.8 74.3
Selling and administrative 12.3 12.7 13.7 14.4
Interest and investment income (0.6) (0.6) (0.7) (0.8)
Interest expense 0.0 0.0 0.1 0.1
Income taxes 3.6 3.8 4.4 4.4
Income from continuing operations 6.7 6.8 7.7 7.6
Loss on discontinued operations 0.2 0.1
Net income 6.7 6.8 7.5 7.5
Net Sales by Market (in thousands)
-------------------
Manufactured housing $ 5,091 $ 10,293 $ 4,965 $ 9,538
Recreational vehicles 5,519 10,507 4,003 6,671
Hospitality 3,099 5,559 2,809 4,955
============ ============ ============ ==========
Net sales - total $ 13,709 $ 26,359 $ 11,777 $ 21,164
============ ============ ============ ==========
</TABLE>
6
<PAGE>
Thirteen Week Period Ended July 4, 1998, (Second Quarter 1998) compared to
- --------------------------------------------------------------------------
Thirteen Week Period Ended June 28, 1997, (Second Quarter 1997)
- --------------------------------------------------------------
Net sales for the Second Quarter 1998 were $13,709,226, compared to $11,777,358
for the same period the previous year, a 16.4% increase. Net sales to all
markets reflected increases with the largest increase of 37.9% coming from sales
to the recreational vehicle market.
Cost of products sold increased to 78.0% in the Second Quarter 1998 compared to
74.8% a year ago. The increase is the result of higher costs associated with the
growth of existing businesses.
Selling and administrative expenses decreased to 12.3% in 1998 compared to 13.7%
in 1997. The favorable variance can be attributed to the increased sales from
existing and acquired businesses.
Net income increased 3.7% to $911,903 from $879,544 for the same period a year
ago. Basic earnings per share rose to 25 cents per share from 24 cents in the
second quarter of last year.
Twenty-six Week Period Ended July 4, 1998, (First Six Months of 1998) compared
- ------------------------------------------------------------------------------
to Twenty-six Week Period Ended June 28, 1997, (First Six Months of 1997)
- ------------------------------------------------------------------------
Net sales for the first six months 1998 were $26,358,930, compared to
$21,163,901 for the same period the previous year, a 24.5% increase. Net sales
to all markets reflected increases with the largest increase coming from sales
to the recreational vehicle market. Sales from comparable operations accounted
for $2,315,387, or almost 45%, of the increase; the remaining increase of
$2,879,642 is attributed to the acquisitions made in 1997.
Cost of products sold increased to 77.3% in the Second Quarter 1998 compared to
74.3% a year ago. The increase is the result of higher cost of products sold
percentages attributable to the acquired businesses and from the higher costs
associated with the growth of existing businesses.
Selling and administrative expenses were $3,348,633 in the first six months of
1998 versus $3,050,310 in the first six months of 1997. Most of the increase is
attributable to the selling and administrative expenses of the acquired
businesses. As a percentage of sales, selling and administrative expenses
decreased to 12.7% in 1998 compared to 14.4% in 1997. The favorable variance can
be attributed to the increased sales from existing and acquired businesses.
Income from continuing operations increased 13% to $1,791,790 from $1,610,668 in
the first six months of 1997. Basic earnings per share rose to 49 cents per
share from 43 cents in the first six months of last year.
7
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
At the annual meeting of stockholders held June 12, 1998, the
stockholders approved the proposed amendment of Article 5 of the Articles of
Incorporation of the Company, increasing the number of authorized shares of
Common Stock, par value $0.20 per share, from 5,000,000 to 10,000,000, by the
following vote: 2,169,816 votes for; 109,277 votes against; and 11,872 shares
abstaining.
Item 6. Exhibits and Reports on Form 8-K.
- ------ --------------------------------
(a) Exhibits:
--------
3A.1 Article 5 of Articles of Incorporation as
amended June 15, 1998, filed herewith.
27F Financial data schedule, filed herewith.
(b) No reports on Form 8-K were filed by the Company during the
quarterly period ended July 4, 1998.
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, 1998 By: /s/ William A. Bassett
--------------- --------------------------
William A. Bassett, President
Date: August 10, 1998 By: /s/ Michael K. Solomon
--------------- --------------------------
Michael K. Solomon, Treasurer
8
DECORATOR INDUSTRIES, INC.
Article 5 of Articles of Incorporation
as Amended June 15, 1998
--------------------------------------
5. The aggregate number of shares that the
corporation shall have authority to issue is
10,000,000 shares of Common Stock, with a
par value of $0.20 per share.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-03-1998
<PERIOD-END> JUL-04-1998
<CASH> 3,107,885
<SECURITIES> 2,063,225
<RECEIVABLES> 5,125,702
<ALLOWANCES> 252,680
<INVENTORY> 5,653,595
<CURRENT-ASSETS> 16,049,500
<PP&E> 5,978,532
<DEPRECIATION> 2,409,042
<TOTAL-ASSETS> 23,578,030
<CURRENT-LIABILITIES> 7,104,785
<BONDS> 0
0
0
<COMMON> 694,906
<OTHER-SE> 15,066,373
<TOTAL-LIABILITY-AND-EQUITY> 23,578,030
<SALES> 26,358,930
<TOTAL-REVENUES> 26,358,930
<CGS> 20,362,790
<TOTAL-COSTS> 23,542,140
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 26,000
<INTEREST-EXPENSE> 6,203
<INCOME-PRETAX> 2,790,790
<INCOME-TAX> 999,000
<INCOME-CONTINUING> 1,791,790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,791,790
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.45
</TABLE>
