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 3, 1999
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 7, 1999
------------------- --------------------------
Common Stock, Par Value $.20 Per Share 3,445,396
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
- ------ --------------------
DECORATOR INDUSTRIES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
April 3, 1999 Jan. 2, 1999
ASSETS ------------- ------------
------ (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $1,503,963 $2,633,999
Short-term Investments 1,862,746 861,032
Accounts Receivable, less allowance for
doubtful accounts ($124,753 and $111,706) 4,966,576 3,847,435
Inventories 5,012,951 5,725,226
Other Current Assets 375,163 349,394
---------- ----------
Total Current Assets 13,721,399 13,417,086
---------- ----------
Property and Equipment:
Land, Buildings & Improvements 3,938,288 2,676,183
Machinery, Equipment, Furniture and Fixtures 4,235,432 4,124,579
---------- ----------
Total Property and Equipment 8,173,720 6,800,762
Less: Accumulated Depreciation and Amortization 2,750,885 2,635,683
---------- ----------
Net Property and Equipment 5,422,835 4,165,079
---------- ----------
Goodwill, less accumulated
amortization of $1,097,672 and $1,070,336 3,261,246 3,288,582
Other Assets 233,025 591,947
========== ==========
Total Assets $22,638,505 $21,462,694
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
Current Liabilities:
Accounts Payable $3,602,417 $2,869,889
Current Maturities of Long-term Debt 101,901 43,133
Accrued Expenses:
Income Taxes 255,657 ------
Compensation 894,557 1,373,572
Other 818,653 886,331
---------- -----------
Total Current Liabilities 5,673,185 5,172,925
---------- -----------
Long-Term Debt 1,892,213 463,037
Deferred Income Taxes 278,000 267,000
----------- -----------
Total Liabilities 7,843,398 5,902,962
----------- -----------
Stockholders' Equity
Common stock $.20 par value: Authorized
shares, 10,000,000;
Issued shares, 4,406,956 and 4,369,866 881,391 874,007
Paid-in Capital 1,413,575 1,396,914
Retained Earnings 17,213,621 16,756,377
----------- -----------
19,508,587 19,027,298
Less: Treasury stock, at cost: 977,572
and 812,500 shares 4,713,480 3,467,566
---------- -----------
Total Stockholders' Equity 14,795,107 15,559,732
---------- -----------
Total Liabilities and Stockholders' Equity $22,638,505 $21,462,694
=========== ===========
</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 3, 1999 April 4, 1998
------------- -------------
<S> <C> <C> <C> <C>
Net Sales $13,211,871 100.00% $12,649,704 100.00%
Cost of Products Sold 10,314,840 78.07% 9,663,191 76.39%
------------- -------------
Gross Profit 2,897,031 21.93% 2,986,513 23.61%
Selling and Administrative Expenses 1,781,393 13.48% 1,662,130 13.14%
------------- -------------
Operating Income 1,115,638 8.45% 1,324,383 10.47%
Other Income (Expense):
Interest and Investment Income 17,906 0.13% 70,836 0.56%
Interest Expense (4,528) -0.03% (3,324) -0.03%
------------- -------------
Earnings Before Income Taxes 1,129,016 8.55% 1,391,895 11.00%
Provision for Income Taxes 426,000 3.23% 512,000 4.05%
============= =============
Net Income $703,016 5.32% $879,895 6.96%
============= =============
Earnings Per Share:
Basic $0.20 $0.24
===== =====
Diluted $0.19 $0.22
===== =====
Weighted-Average Number of Shares Outstanding:
Basic 3,526,904 3,655,994
Diluted 3,694,190 3,885,200
</TABLE>
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 3, 1999 April 4, 1998
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $703,016 $879,895
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 156,833 134,270
Provision for Losses on Accounts Receivable 13,000 14,000
Loss on Disposal of Assets 3,833 1,725
Increase (Decrease) from Changes in:
Accounts Receivable (878,122) (1,284,138)
Inventory 712,275 (277,607)
Prepaid Expenses 8,245 (211,508)
Other Assets 358,922 (114,631)
Accounts Payable 732,528 1,125,593
Accrued Expenses (291,036) (147,058)
------------- ------------
Net Cash Provided by Operating Activities 1,519,494 120,541
------------- ------------
Cash Flows From Investing Activities:
Capital Expenditures (1,391,086) (168,111)
Short-term Investments (1,001,714) 389,252
Note Receivable --- 20,000
----------------- ------------
Net Cash Provided by (Used in) Investing Activities (2,392,800) 241,141
----------------- ------------
Cash Flows From Financing Activities:
Long-term Debt Payments (12,056) (10,301)
Proceeds from Debt on New Building 1,222,965 ---
Dividend Payments (245,772) (205,386)
Proceeds from Exercise of Stock Options 18,833 7,619
Issuance of Stock for Directors' Compensation 12,500 12,180
Purchase of Common Stock for Treasury (1,253,200) ---
----------------- -------------
Net Cash Used in Financing Activities (256,730) (195,888)
Net Increase (Decrease) in Cash and Cash Equivalents (1,130,036) 165,794
Cash and Cash Equivalents at Beginning of Year 2,633,999 3,157,861
================ -------------
Cash and Cash Equivalents at End of Period $1,503,963 $3,323,655
================ =============
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $6,334 $6,541
Income Taxes $26,147 $31,897
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED APRIL 3, 1999 AND APRIL 4, 1998
(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 April 3, 1999, the
changes therein for the thirteen week period then ended and the
results of operations for the thirteen week periods ended April
3, 1999 and April 4, 1998.
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 January 2, 1999. The results of operations for the thirteen
week periods ended April 3, 1999 and April 4, 1998 are not
necessarily indicative of operating results for the full year.
NOTE 3. INVENTORIES
-----------
Inventories at April 3, 1999 and January 2, 1999 consisted of the
following:
April 3, 1999 January 2, 1999
------------- ---------------
Raw Material
and Supplies $ 4,674,561 $ 5,462,938
In Process and
Finished Goods 338,390 262,288
============ ===========
Total Inventory $ 5,012,951 $ 5,725,226
============ ===========
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.
April 3, 1999 April 4, 1998
------------- -------------
Numerator:
Net income $ 703,016 $ 879,895
========= =========
Denominator:
Weighted-average number of
common shares outstanding 3,526,904 3,655,994
Dilutive effect of
stock options on net income 167,286 229,206
--------- --------------
3,694,190 3,885,200
========= ==============
Diluted earnings per share: $0.19 $0.22
4
<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 1999.
April 3, 1999 January 2, 1999
------------- ---------------
Current Ratio 2:42 2:59
Quick Ratio 1:54 1:49
LT Debt to Total Capital 13.79% 3.45%
Working Capital $8,048,214 $8,244,161
Days sales outstanding in accounts receivable were 34.2 days at April 3, 1999
compared to 35.3 days at April 4, 1998. Accounts receivable increased by more
than 29%. Inventories were reduced by 12% during the quarter. A significant use
of working capital was for the purchase of Common Stock for Treasury
($1,253,200) during the quarter.
In February 1999, the construction of a new building in Goshen, Indiana was
completed at a cost of approximately $1,240,000. This building replaced a leased
facility. During 1999, the Company was awarded an industrial revenue bond in the
amount of $1,500,000, the net proceeds of which will be used for the funding of
this building and the purchase of equipment at this location. Cash and
Short-Term Investments totaled $3,366,709 at April 3, 1999. Management does not
foresee any events which will adversely affect its liquidity during 1999, 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:
First First
Quarter Quarter
1999 1998
---- ----
Earnings Ratios
---------------
Net sales 100.0% 100.0%
Cost of products sold 78.1 76.4
Selling and administrative 13.5 13.1
Interest and investment income (0.1) (0.6)
Interest expense 0.0 0.0
Income taxes 3.2 4.1
Net income 5.3 7.0
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (Continued)
- --------------------------------------------------------------------------------
Thirteen Week Period Ended April 3, 1999, (First Quarter 1999) compared to
Thirteen Week Period Ended April 4, 1998, (First Quarter 1998)
- --------------------------------------------------------------
Net sales for the First Quarter 1999 were $13,211,871, compared to $12,649,704
for the same period in the previous year, a 4.4% increase. This increase was the
result of growth in sales to the recreational vehicle market.
Cost of products sold increased to 78.1% in the First Quarter 1999 compared to
76.4% a year ago. This increase is largely attributable to (1) a change in the
product mix including the increased sales to recreational vehicle manufacturers
and (2) productivity issues resulting in excessive labor costs and (3) market
conditions which have resulted in a lowering of operating margins.
Selling and administrative expenses were $1,781,393 in the First Quarter 1999
versus $1,662,130 in the First Quarter 1998. A portion of the increased
expenses, approximately $40,000, results from the relocation of the Goshen
facility during the quarter.
Interest and investment income was $53,000 less in the First Quarter 1999 than
the amount earned in the First Quarter 1998. The lower income in the current
period was due to a market loss on investments versus a market gain a year ago
and from smaller investable balances in the current quarter.
Net income decreased to $703,016 from $879,895 for the same period a year ago
but improved from $577,589 achieved in the prior quarter. Basic earnings per
share decreased to 20 cents per share from 24 cents in the first quarter of last
year.
Year 2000 Issues
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in system failure or
miscalculations causing disruptions in operations, including, among other
things, a temporary inability to process transactions, generate invoices, or
engage in similar normal business activities.
Based on management's assessment, the Company determined that it would be
required to modify or replace portions of its software and hardware so that its
computer systems will properly recognize dates beyond December 31, 1999. The
majority of the Company's manufacturing processes are not dependent on
computers. The Company presently believes that with modification or replacement
of software and hardware, the Year 2000 issue can be mitigated. If such
modifications and replacements are not made, or are not completed timely, the
Year 2000 issue would not have a material adverse effect on the Company. The
Company has created no formal contingency plans in the event that the Year 2000
readiness is not completed on schedule. However, the Company believes that this
would cause only minor problems and delays.
The Company plans to complete the Year 2000 project during the third quarter of
fiscal 1999. The total cost incurred to date related to the Year 2000 project,
which have been charged to expense, have not been material, and the Company does
not anticipate that the expected remaining costs will be material.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (Continued)
- -------------------------------------------------------------------------------
The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remedy their own Year 2000 issues.
Failure on the part of these entities to timely remediate their Year 2000 issues
could result in disruptions in the Company's supply of materials, disruptions in
its customers' ability to conduct business and interruptions to the Company's
daily operations. Management believes that its exposure to third party risk is
minimal because it does not rely significantly on any one supplier or customer.
There can be no guarantee, however, that the systems of other unrelated entities
on which the Company's systems and operations rely will be corrected on a timely
basis and will not have a material adverse effect on the Company.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27.I - Financial data schedule, filed herewith.
(b) No reports on Form 8-K were filed by the Company during the
quarterly period ended April 3, 1999.
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 17, 1999 By: /s/ William A. Bassett
. -------------------------
William A. Bassett, President
Date: May 17, 1999 By: /s/ Michael K. Solomon
-------------------------
Michael K. Solomon, Treasurer
7
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> APR-03-1999
<CASH> 1,503,963
<SECURITIES> 1,862,746
<RECEIVABLES> 5,091,329
<ALLOWANCES> 124,753
<INVENTORY> 5,012,951
<CURRENT-ASSETS> 13,721,399
<PP&E> 8,173,720
<DEPRECIATION> 2,750,885
<TOTAL-ASSETS> 22,638,505
<CURRENT-LIABILITIES> 5,673,185
<BONDS> 0
0
0
<COMMON> 881,391
<OTHER-SE> 13,913,716
<TOTAL-LIABILITY-AND-EQUITY> 22,638,505
<SALES> 13,211,871
<TOTAL-REVENUES> 13,211,871
<CGS> 10,314,840
<TOTAL-COSTS> 12,069,855
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 13,000
<INTEREST-EXPENSE> 4,528
<INCOME-PRETAX> 1,129,016
<INCOME-TAX> 426,000
<INCOME-CONTINUING> 703,016
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 703,016
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.19
</TABLE>
