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 30, 2000
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
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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 1, 2000
------------------- -------------------------------
Common Stock, Par Value $.20 Per Share 2,791,128
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
DECORATOR INDUSTRIES, INC.
BALANCE SHEET
Sept. 30, 2000 Jan. 1, 2000
-------------- ------------
ASSETS (UNAUDITED)
------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 50,153 $ 484,328
Short-term Investments -- 1,455,796
Accounts Receivable, less allowance for
doubtful accounts ($259,789 and $158,996) 4,518,137 3,725,556
Inventories 6,242,943 5,739,303
Other Current Assets 670,349 372,258
----------- -----------
Total Current Assets 11,481,582 11,777,241
----------- -----------
Property and Equipment:
Land, Buildings & Improvements 4,141,485 4,123,189
Machinery, Equipment, Furniture and Fixtures 5,349,115 4,808,280
----------- -----------
Total Property and Equipment 9,490,600 8,931,469
Less: Accumulated Depreciation and Amortization 3,560,664 3,104,989
----------- -----------
Net Property and Equipment 5,929,936 5,826,480
----------- -----------
Goodwill, less accumulated
amortization of $1,238,823 and $1,189,871 3,003,963 3,648,965
Other Assets 253,916 412,837
----------- -----------
Total Assets $20,669,397 $21,665,523
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 2,948,478 $ 3,100,681
Current Maturities of Long-term Debt 104,680 103,871
Accrued Expenses:
Compensation 1,104,210 1,278,660
Other 950,656 647,173
----------- -----------
Total Current Liabilities 5,108,024 5,130,385
----------- -----------
Long-Term Debt 2,401,614 1,814,169
Deferred Income Taxes 389,000 356,000
----------- -----------
Total Liabilities 7,898,638 7,300,554
----------- -----------
Stockholders' Equity
Common stock $.20 par value: Authorized shares, 10,000,000;
Issued shares, 4,444,997 and 4,408,831 888,999 881,766
Paid-in Capital 1,441,496 1,427,788
Retained Earnings 18,578,740 18,368,158
----------- -----------
20,909,235 20,677,712
Less: Treasury stock, at cost: 1,655,437 and 1,219,801 shares 8,138,476 6,312,743
----------- -----------
Total Stockholders' Equity 12,770,759 14,364,969
----------- -----------
Total Liabilities and Stockholders' Equity $20,669,397 $21,665,523
=========== ===========
</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 THIRTY-NINE WEEKS ENDED:
------------------------------------------------ -------------------------------------------
September 30, 2000 October 2, 1999 September 30, 2 000 October 2, 1999
--------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $10,068,742 100.00% $12,874,070 100.00% $35,852,430 100.00% $39,697,578 100.00%
Cost of products sold 8,043,178 79.88% 10,224,188 79.42% 28,331,872 79.02% 31,022,508 78.15%
----------- ----------- ----------- -----------
Gross profit 2,025,564 20.12% 2,649,882 20.58% 7,520,558 20.98% 8,675,070 21.85%
Selling and
Administrative expenses 1,662,604 16.52% 1,732,752 13.46% 5,363,910 14.96% 5,302,997 13.36%
----------- ----------- ----------- -----------
Operating income 362,960 3.60% 917,130 7.12% 2,156,648 6.02% 3,372,073 8.49%
Interest and
investment income 10,686 -0.11% 10,723 -0.08% 53,946 -0.15% 41,580 -0.11%
Interest expense (35,571) 0.35% (22,946) 0.18% (82,053) 0.23% (51,160) 0.13%
----------- ----------- ----------- -----------
Earnings before
income taxes 338,075 3.36% 904,907 7.02% 2,128,541 5.94 3,362,493 8.47%
Provision for income taxes 127,000 1.26% 342,000 2.65% 800,000 2.23% 1,271,000 3.20%
----------- ----------- ----------- -----------
Income from
Continuing operations 211,075 2.10% $ 562,907 4.37% 1,328,541 3.71% $ 2,091,493 5.27%
Discontinued operations:
------------------------
Income (loss) from
operations, net of income
tax provision (benefit) of
$(3,000), $(33,000) and
$8,000 -- (4,640) -.03% (55,315) -.15% 14,468 .04%
Loss on disposal, net of
income tax benefit of
$259,000 -- -- (422,481) -1.18% --
----------- ----------- ----------- -----------
Net Income $ 211,075 2.10% $ 558,267 4.34% $ 850,745 2.38% $ 2,105,961 5.31%
=========== =========== =========== ===========
Earnings per share:
Continuing Operations $0.07 $0.17 $0.42 $0.62
===== ===== ===== =====
Discontinued Operations $(0.00) $(0.00) $(0.15) $0.00
====== ====== ====== =====
Basic $0.07 $0.17 $0.27 $0.62
===== ===== ===== =====
Diluted $0.07 $0.16 $0.27 $0.59
===== ===== ===== =====
Weighted-average number
of shares outstanding:
Basic 3,028,757 3,335,317 3,124,659 3,426,845
Diluted 3,063,037 3,479,267 3,161,766 3,582,993
</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 THIRTY-NINE WEEKS ENDED:
September 30, 2000 October 2, 1999
------------------ ---------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 850,745 $ 2,105,961
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 565,035 501,997
Write-off of goodwill 565,481 --
Provision for losses on accounts receivable 101,433 50,000
Deferred taxes (1,000) 15,000
(Gain) loss on disposal of assets 5,272 (5,543)
(Increase) decrease in accounts receivable (894,014) (900,917)
(Increase) decrease in inventories (503,640) (674,614)
(Increase) decrease in prepaid expenses (264,092) (29,468)
(Increase) decrease in other assets 158,921 312,040
Increase (decrease) in accounts payable (152,203) 1,251,350
Increase (decrease) in accrued expenses 129,032 (174,481)
----------- -----------
Net Cash Provided by Operating Activities 560,970 2,451,325
----------- -----------
Cash Flows From Investing Activities:
Capital expenditures (586,103) (2,101,312)
Proceeds from property dispositions 1,362 11,900
Short-term investments 1,455,796 (95,457)
Net cash paid for acquisitions (9,498) (479,918)
----------- -----------
Net Cash Provided by (Used in) Investing Activities 861,557 (2,664,787)
----------- -----------
Cash Flows From Financing Activities:
Long-term debt payments (79,328) (65,386)
Dividend payments (640,163) (713,221)
Net borrowings under line-of-credit agreement 667,582 --
Proceeds on debt from new building -- 1,500,000
Proceeds from exercise of stock options 21,460 18,833
Purchase of common stock for treasury (1,856,253) (2,520,432)
Issuance of stock for director's compensation 30,000 38,238
----------- -----------
Net Cash Used in Financing Activities (1,856,702) (1,741,968)
----------- -----------
Net increase (decrease) in cash and cash equivalents (434,175) (1,955,430)
Cash and cash equivalents at beginning of year 484,328 2,633,999
----------- -----------
Cash and Cash Equivalents at End of Period $ 50,153 $ 678,569
=========== ===========
Supplemental disclosures of cash flow information: Cash paid for:
Interest $ 67,305 $ 48,734
Income taxes $ 628,595 $ 1,147,775
Cash flows from acquisitions:
Purchase price $ 9,498 $ 479,918
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
(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 30, 2000, the changes therein for the thirty-nine
week period then ended and the results of operations for the
thirty-nine week periods ended September 30, 2000 and October
2, 1999.
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 1, 2000. The results of operations
for the thirty-nine week periods ended September 30, 2000 and
October 2, 1999 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
Inventories at September 30, 2000 and January 1, 2000
consisted of the following:
<TABLE>
<CAPTION>
Sept. 30, 2000 January 1, 2000
-------------- ---------------
<S> <C> <C>
Raw Material
and Supplies $ 5,720,242 $ 5,363,747
In Process and
Finished Goods 522,701 375,556
---------- -----------
Total Inventory $ 6,242,943 $ 5,739,303
=========== ===========
</TABLE>
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.
<TABLE>
<CAPTION>
Thirteen weeks ended: Thirty-nine weeks ended:
--------------------- ------------------------
Sept. 30, 2000 Oct. 2, 1999 Sept. 30, 2000 Oct. 2, 1999
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 211,075 $ 558,267 $ 850,745 $2,105,961
========== ========== ========== ==========
Denominator:
Weighted-average
number of
common shares
outstanding 3,028,757 3,335,317 3,124,659 3,426,845
Dilutive effect of
stock options on net
income 34,280 143,950 37,107 156,148
---------- ---------- ---------- ----------
3,063,037 3,479,267 3,161,766 3,582,993
========== ========== ========== ==========
Diluted earnings per
share: $0.07 $0.16 $0.27 $0.59
===== ===== ===== =====
</TABLE>
4
<PAGE>
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
(UNAUDITED)
NOTE 5. DISCONTINUED OPERATIONS
During the second quarter of the current year, the Company
adopted a plan to dispose of its contract sewing operations
through liquidation. At July 1, the net assets of these
operations consisted primarily of goodwill ($565,481),
inventories, machinery and equipment, and trade receivables.
Included in the loss on disposal is a pretax provision of
$60,000 for estimated operating losses during the phase-out
period.
The contract sewing operation lost $25,712 for the thirteen
weeks ended September 30, 2000. This was reserved as part of
the phase-out period in the second quarter's disposal plan.
The operation stopped doing business on October 27, 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 Third Quarter 2000.
<TABLE>
<CAPTION>
September 30, 2000 January 1, 2000
------------------ ---------------
<S> <C> <C>
Current Ratio 2:25 2:30
Quick Ratio 1:03 1:18
LT Debt to Total Capital 15.83% 11.21%
Working Capital $6,373,558 $6,646,856
</TABLE>
Days sales outstanding (DSO) in accounts receivable were 39.9 days at September
30, 2000 compared to 32.5 days at October 2, 1999. The DSO has increased due to
increased activity in the hospitality market which traditionally has higher
DSO's than the other markets served by the Company. Inventories at September 30,
2000 were 3% lower than the year ago inventory level. Working capital decreased
by $273,298 and was used for the purchase of Common Stock for Treasury
($1,856,253) and capital expenditures ($586,103) during 2000.
Cash decreased to $50,153 at September 30, 2000 due largely from the purchase of
Common Stock for Treasury. Management does not foresee any events which will
adversely affect its liquidity during 2000. On April 19, 2000 the Company signed
an agreement for a $5,000,000 revolving line of credit. With this credit line in
place and the Company's cash balances the financial condition is more than
adequate to finance internal growth and the acquisitions of businesses. As of
September 30, 2000 the Company had drawn down $667,582 on this credit line.
These borrowings have been fully repaid as of November 7, 2000.
RESULTS OF OPERATIONS
The following tables show the percentage relationship to net sales of certain
items in the Company's Statement of Earnings:
<TABLE>
<CAPTION>
Third Third
Quarter Quarter YTD YTD
2000 1999 2000 1999
---- ---- ---- ----
Earnings Ratios
---------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 79.9 79.4 79.0 78.1
Selling and administrative 16.5 13.5 15.0 13.4
Interest and investment income (0.1) (0.1) (0.1) (0.1)
Interest expense 0.3 0.2 0.2 0.1
Income taxes 1.3 2.7 2.2 3.2
Discontinued operations -- (0.0) (1.3) 0.0
Net income 2.1 4.3 2.4 5.3
</TABLE>
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (Continued)
Thirteen Week Period Ended September 30, 2000 (Third Quarter 2000) compared to
Thirteen Week Period Ended October 2, 1999 (Third Quarter 1999)
Net sales for the Third Quarter 2000 were $10,068,742, compared to $12,874,070
for the same period the previous year, a 21.8% decrease. This decrease was
largely the result of the continued slowdown in the manufactured housing market
and a decrease in sales to the recreational vehicle industry which has reported
a softness in sales mainly affecting motor homes. The Company's sales to the
hospitality market increased during this period.
Cost of products sold increased to 79.9% in the Third Quarter 2000 compared to
79.4% a year ago. This increase is attributable to slightly higher labor costs
and fixed expenses being absorbed over a smaller sales volume.
Selling and administrative expenses were $1,662,604 in the Third Quarter 2000
versus $1,732,752 in the Third Quarter 1999. This decrease is attributable to a
reduction in compensation costs due to the Company's lower earnings.
Net income decreased to $211,075 from $558,267 for the same period a year ago.
Earnings per share from continuing operations decreased to 7 cents per share, or
$211,075, from 17 cents and $562,907, respectively, in the Third quarter of last
year. This decrease was caused by lower sales volumes and higher manufacturing
costs discussed above.
Thirty-nine Week Period Ended September 30, 2000 (First Nine Months of 2000)
compared to Thirty-nine Week Period Ended October 2, 1999 (First Nine Months of
1999)
Net sales for the first nine months 2000 were $35,852,430, down from $39,697,578
in the prior year, a 9.7% decrease. The decrease comes from the ongoing slowdown
in the manufactured housing market, caused by an excess dealer inventory and the
tightening of credit to homebuyers.
Cost of products sold increased to 79.0% in the first nine months of 2000
compared to 78.2% a year ago. The increase is the result of slightly higher
labor costs, allocating the fixed expenses for manufactured housing over a
smaller sales volume and increased fixed expenses for the manufacturing of
products in the recreational vehicle and hospitality markets.
Selling and administrative expenses were $5,363,910 in the first nine months of
2000 versus $5,302,997 in the first nine months of 1999. This increase is
attributable to the increased commission cost associated with higher sales to
the hospitality market.
Net income for the nine months decreased to $850,745 or 27 cents per diluted
share, compared to $2,105,961 or 59 cents per diluted share in the same period
of 1999. As discussed in Note 5 of the financial statements, net income was
reduced by $477,796 (net of tax) due to the discontinuance of contract sewing
operations.
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 September 30, 2000.
8
<PAGE>
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 10, 2000 By: /s/ William A. Bassett
----------------- --------------------------------
William A. Bassett, President
Date: November 10, 2000 By: /s/ Michael K. Solomon
----------------- --------------------------------
Michael K. Solomon, Treasurer
8
