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 April 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 May 12, 1998
------------------- ---------------------------
Common Stock, Par Value $.20 Per Share 2,929,171*
*Includes 3,005 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>
April 4, 1998 Jan. 3, 1998
------------- --------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $3,323,655 $3,157,861
Short-term Investments 1,617,630 2,006,882
Accounts Receivable, less allowance for
doubtful accounts ($237,160 and $218,018) 4,913,641 3,643,503
Inventories 4,855,988 4,578,381
Other Current Assets 467,933 256,425
-------------------- -----------------
Total Current Assets 15,178,847 13,643,052
-------------------- -----------------
Property and Equipment:
Land, Buildings & Improvements 2,182,228 2,182,228
Machinery, Equipment, Furniture and Fixtures 3,648,046 3,500,122
-------------------- -----------------
Total Property and Equipment 5,830,274 5,682,350
Less: Accumulated Depreciation and Amortization 2,299,461 2,208,956
-------------------- -----------------
Net Property and Equipment 3,530,813 3,473,394
-------------------- -----------------
Goodwill, less accumulated
amortization of $988,769 and $963,466 2,985,119 3,010,422
Other Assets 289,031 174,400
==================== =================
Total Assets $21,983,810 $20,301,268
==================== =================
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $4,240,254 $3,114,661
Current Maturities of Long-term Debt 42,600 42,423
Accrued Expenses:
Income Taxes 470,047 ------
Compensation 860,831 1,323,276
Other 621,782 756,442
-------------------- -----------------
Total Current Liabilities 6,235,514 5,236,802
-------------------- -----------------
Long-Term Debt 495,691 506,169
Deferred Income Taxes 211,000 211,000
-------------------- -----------------
Total Liabilities 6,942,205 5,953,971
-------------------- -----------------
Stockholders' Equity
Common stock $.20 par value: Authorized shares, 5,000,000;
Issued shares, 3,479,016 and 3,463,840 694,906 692,794
Paid-in Capital 1,518,787 1,513,280
Retained Earnings 15,269,438 14,588,269
-------------------- -----------------
17,483,131 16,794,343
Less: Treasury stock, at cost: 552,850 and 554,100 shares 2,441,526 2,447,046
-------------------- -----------------
Total Stockholders' Equity 15,041,605 14,347,297
--------------------
=================
Total Liabilities and Stockholders' Equity $21,983,810 $20,301,268
==================== =================
</TABLE>
The accompanying notes are an integral part of the financial
statements.
1
<PAGE>
DECORATOR INDUSTRIES, INC.
STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THIRTEEN WEEKS ENDED:
-------------------------------------------------------------
April 4, 1998 March 29, 1997
------------- --------------
<S> <C> <C> <C> <C>
Net Sales $12,649,704 100.00% $9,386,543 100.00%
Cost of Products Sold 9,663,191 76.39% 6,922,154 73.75%
------------- ------------------
Gross Profit 2,986,513 23.61% 2,464,389 26.25%
Selling and Administrative Expenses 1,662,130 13.14% 1,429,942 15.23%
------------- ------------------
Operating Income 1,324,383 10.47% 1,034,447 11.02%
Other Income (Expense):
Interest and Investment Income 70,836 0.56% 92,162 0.98%
Interest Expense (3,324) -0.03% (11,003) -0.12%
------------- ------------------
Earnings Before Income Taxes 1,391,895 11.00% 1,115,606 11.89%
Provision for Income Taxes 512,000 4.05% 413,000 4.40%
------------- ------------------
Net Income $879,895 6.96% $702,606 7.49%
============= ==================
Earnings Per Share:
Basic $0.30 $0.24 *
===== =====
Diluted $0.28 $0.22 *
===== =====
Weighted-Average Number of Shares Outstanding:
Basic 2,924,795 2,966,516 *
Diluted 3,108,160 3,195,086 *
</TABLE>
* Restated to reflect the five-for-four stock split effective June 13,
1997.
The accompanying notes are an integral part of the financial
statements.
2
<PAGE>
DECORATOR INDUSTRIES, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THIRTEEN WEEKS ENDED:
-------------------------------------------
April 4, 1998 March 29, 1997
------------- --------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $879,895 $702,606
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 134,270 112,576
Provision for Losses on Accounts Receivable 14,000 5,000
(Gain) Loss on Disposal of Assets 1,725 ------
Increase (Decrease) from Changes in:
Accounts Receivable (1,284,138) (492,373)
Inventory (277,607) 264,065
Short-term Investments 389,252 (45,333)
Prepaid Expenses (211,508) (145,370)
Other Assets (114,631) (3,313)
Accounts Payable 1,125,593 327,647
Accrued Expenses (147,058) (265,358)
------------------- --------------------
Net Cash Provided by Operating Activities 509,793 460,147
------------------- --------------------
Cash Flows From Investing Activities:
Capital Expenditures (168,111) (111,664)
Proceeds from Property Dispositions ------ 500
Note Receivable 20,000 20,000
Net Cash Paid for Acquisition ------ (280,000)
------------------- --------------------
Net Cash Used in Investing Activities (148,111) (371,164)
-------------------- --------------------
Cash Flows From Financing Activities:
Long-term Debt Payments (10,301) (10,234)
Dividend Payments (205,386) (166,302)
Proceeds from Exercise of Stock Options 7,619 16,012
Issuance of Stock for Director's Compensation 12,180 ------
-------------------- -------------------
Net Cash Used in Financing Activities (195,888) (160,524)
Net Increase (Decrease) in Cash and Cash Equivalents 165,794 (71,541)
Cash and Cash Equivalents at Beginning of Year 3,157,861 4,714,356
------------------- -------------------
Cash and Cash Equivalents at End of Period $3,323,655 $4,642,815
==================== ===================
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $6,541 $11,003
Income Taxes $31,897 $34,045
Cash flows from Acquisition:
Purchase Price ------ $2,455,783
Less: Deferred Portion of Purchase Price ------ $(2,175,783)
Cash Used for Acquisition ------ $280,000
</TABLE>
The accompanying notes are an integral part of the financial
statements.
3
<PAGE>
DECORATOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED APRIL 4, 1998 AND MARCH 29, 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 April 4, 1998, the changes therein for the thirteen week
period then ended and the results of operations for the
thirteen week periods ended April 4, 1998 and March 29, 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 thirteen week periods ended April 4,
1998 and March 29, 1997 are not necessarily indicative of
operating results for the full year.
NOTE 3. INVENTORIES
-----------
Inventories at April 4, 1998 and January 3, 1998 consisted of
the following:
<TABLE>
<CAPTION>
April 4, 1998 January 3, 1998
-------------------- ---------------------
<S> <C> <C> <C>
Raw Material
and Supplies $ 4,604,533 $ 4,343,132
In Process and
Finished Goods 251,455 235,249
===================== =====================
Total Inventory $ 4,855,988 $ 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)
THIRTEEN WEEKS ENDED APRIL 4, 1998 AND MARCH 29, 1997
(UNAUDITED)
NOTE 5. ACQUISITIONS
------------
The company acquired, effective March 15, 1997, the business
and certain assets of Specialty Window Coverings Corp., an
Elkhart, Indiana based manufacturer of pleated shades for the
recreational vehicle market. The purchase price was $2,455,783
and future consideration, not to exceed $2 million, based on
Specialty's earnings over the two years ending April 3, 1999.
The Company assumed no liabilities. Specialty continues to
operate from its existing facilities, which were expanded from
20,000 to 35,000 square feet and which are leased from the
former owners of Specialty. Specialty had net sales of
approximately $5 million in 1996.
As of May 12, 1997, the Company acquired the business and
certain assets of Southern Interiors, Inc. for $844,313 and
future consideration, not to exceed $500,000, based on
Southern's sales over the three years ending July 1, 2000.
Southern is located in Memphis, Tennessee and manufactures
draperies for the hospitality market from fabric supplied by
its customers, largely hotel design and supply firms.
These acquisitions have been included in the consolidated
financial statements from the dates of acquisition. They have
been accounted for as a purchase. In each case, the purchase
price has been allocated to the underlying assets based upon
their estimated fair values at the date of acquisition. The
excess of purchase price over the fair value of the net assets
acquired ("goodwill") is $1,260,328 and $436,517 respectively,
which is being amortized over 40 years.
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.
April 4, 1998 January 3, 1998
------------- ---------------
Current Ratio 2:43 2:60
Quick Ratio 1:66 1:73
LT Debt to Total Capital 3.46% 3.71%
Working Capital $8,943,333 $8,406,250
Days sales outstanding in accounts receivable were 35.3 days at April 4, 1998
compared to 37.7 days at March 29, 1997. The Company is contemplating
construction of a new facility to replace a leased facility. Such a facility
would be funded with long-term debt. Cash and Short-Term Investments totaled
$4,941,285 at April 4, 1998. 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:
First First
Quarter Quarter
1998 1997
---- ----
Earnings Ratios
---------------
Net sales 100.0% 100.0%
Cost of products sold 76.4 73.8
Selling and administrative 13.1 15.2
Interest and investment income (0.6) (1.0)
Interest expense 0.0 0.1
Income taxes 4.1 4.4
Net income 7.0 7.5
Net Sales by Market (in thousands)
-------------------
Manufactured housing $ 5,202 $ 4,573
Recreational vehicles 4,988 2,668
Hospitality 2,460 2,146
============= ============
Net sales - total $ 12,650 $ 9,387
============= ============
6
<PAGE>
Thirteen Week Period Ended April 4, 1998, (First Quarter 1998) compared to
Thirteen Week Period Ended March 29, 1997, (First Quarter 1997)
- --------------------------------------------------------------
Net sales for the First Quarter 1998 were $12,649,704, compared to $9,386,543
for the same period the previous year, a 34.8% 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
$1,266,500, or almost 40%, of the increase; the remaining increase of $1,996,661
is attributed to the acquisitions made in 1997.
Cost of products sold increased to 76.4% in the First Quarter 1998 compared to
73.8% 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 $1,662,130 in the First Quarter 1998
versus $1,429,942 in the First Quarter 1997. Most of the increase is
attributable to the selling and administrative expenses of the acquired
businesses.
Net income increased 25% to $879,895 from $702,606 for the same period a year
ago. Basic earnings per share rose to 30 cents per share from 24 cents in the
first quarter of last year. This increase in net income is mostly attributable
to the increase in net sales.
7
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
- ------ --------------------------------
(a) Exhibits:
--------
27 - Financial data schedule, filed herewith.
(b) No reports on Form 8-K were filed by the Company during the
quarterly period ended April 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: May 15, 1998 By: /s/ William A. Bassett
------------ ----------------------------
William A. Bassett, President
Date: May 15, 1998 By: /s/ Michael K. Solomon
------------ ----------------------------
Michael K. Solomon, Treasurer
8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-03-1998
<PERIOD-END> APR-04-1998
<CASH> 3,323,655
<SECURITIES> 1,617,630
<RECEIVABLES> 5,190,801
<ALLOWANCES> 237,160
<INVENTORY> 4,855,988
<CURRENT-ASSETS> 15,178,847
<PP&E> 5,830,274
<DEPRECIATION> 2,299,461
<TOTAL-ASSETS> 21,983,810
<CURRENT-LIABILITIES> 6,235,514
<BONDS> 0
0
0
<COMMON> 694,906
<OTHER-SE> 14,346,699
<TOTAL-LIABILITY-AND-EQUITY> 21,893,810
<SALES> 12,649,704
<TOTAL-REVENUES> 12,649,704
<CGS> 9,663,191
<TOTAL-COSTS> 11,243,809
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 14,000
<INTEREST-EXPENSE> 3,324
<INCOME-PRETAX> 1,391,895
<INCOME-TAX> 512,000
<INCOME-CONTINUING> 879,895
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 879,895
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.28
</TABLE>
