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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
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Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1995
Commission File Number 0-16072
DECORA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 68-0003300
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE MILL STREET
FORT EDWARD, NY 12828
(address of principal executive office) (Zip code)
Registrant's telephone number (518) 747-6255
(including area code)
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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 30 days.
Yes X No
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At August 11, 1995 there were 32,053,435 shares of Common Stock of the
registrant outstanding. This document consists of 14 pages.
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DECORA INDUSTRIES, INC.
TABLE OF CONTENTS
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PAGE
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PART I FINANCIAL INFORMATION
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Item 1. Financial Statements.
Unaudited Consolidated Balance Sheets
as of June 30, 1995 and March 31, 1995 3 - 4
Unaudited Consolidated Statements of
Operations for the Quarters ended
June 30, 1995 and 1994 5
Unaudited Consolidated Statements of
Cash Flows for the Quarters Ended
June 30, 1995 and 1994 6
Notes to Unaudited Consolidated
Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 9 - 11
PART II OTHER INFORMATION 12
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SIGNATURES 14
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DECORA INDUSTRIES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
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June 30, 1995 March 31, 1995
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ASSETS
Current assets:
Cash and cash equivalents $ 196 $ 309
Accounts receivable, less allowances 5,384 2,941
Inventories (Note 2) 5,017 4,874
Net current assets of discontinued
Operations- ComTel (Note 3) 329 -
Prepaid expenses and other current assets 747 503
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Total current assets 11,673 8,627
Property and equipment, net 8,090 7,646
Notes receivable 1,560 1,560
Intangibles, net & other assets 11,683 11,788
Deferred income taxes 1,400 1,400
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Total Assets $34,406 $31,021
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See accompanying notes to unaudited consolidated financial statements.
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DECORA INDUSTRIES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
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JUNE 30, 1995 MARCH 31, 1995
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,587 $ 2,840
Accrued liabilities 1,332 1,791
Current portion of long-term debt 7,375 3,157
Net current liabilities of discontinued
operations - ComTel - 601
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Total current liabilities 12,294 8,389
Long-term debt 13,899 15,006
Net non-current liabilities of discontinued
operations - Yorkville 1,587 1,520
Other non-current liabilities 304 285
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Total liabilities 28,084 25,200
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Warrants in subsidiary 1,525 1,425
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Shareholders' equity:
Common stock, $.01 par value; 45,000,000 shares authorized;
30,717,737 shares issued and outstanding 307 307
Additional paid-in capital 28,288 28,288
Accumulated deficit (23,798) (24,199)
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Total shareholders' equity 4,797 4,396
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Total Liabilities and Shareholders' Equity $ 34,406 $ 31,021
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See accompanying notes to unaudited consolidated financial statements.
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DECORA INDUSTRIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
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QUARTER ENDED JUNE 30,
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1995 1994
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Revenues $9,702 $11,017
Cost of goods sold 7,054 8,160
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Gross profit 2,648 2,857
Marketing, general and
administrative expense 1,533 1,782
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Operating income 1,115 1,075
Interest expense 701 504
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Income from continuing
operations before taxes 414 571
Provision for taxes 13 28
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Income from continuing operations 401 543
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Income (loss) from discontinued
operations - ComTel - (90)
Net income $ 401 $ 453
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Income (loss) per common share (Note 4):
Continuing operations $0.01 $0.02
Discontinued operations - ComTel - -
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Net Income $ 0.01 $ 0.02
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Average shares of common stock used in
computation of income (loss) per
share: 30,718 29,905
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See accompanying notes to unaudited consolidated financial statements.
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DECORA INDUSTRIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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QUARTER ENDED JUNE 30,
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1995 1994
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Cash flows from operating activities:
Net income $ 401 $ 453
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 465 443
Amortization of debt discount 48 66
Accretion of put warrants 100 -
Net Changes in current assets and liabilities: (2,581) (2,459)
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Net cash (used) by operating activities (1,567) (1,497)
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Cash flows from investing activities:
Purchase of fixed assets (813) (61)
Increase (Decrease) in net assets and
liabilities of discontinued operations (863) 72
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Net cash (used) provided by investing activities (1,676) 11
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Cash flows from financing activities:
Long-term borrowings 3,255 1,892
Repayment of debt (125) (775)
Proceeds from issuance of common stock - 182
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Net cash provided by (used in) financing activities 3,130 1,299
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Net (decrease) in cash (113) (187)
Cash at beginning of period 309 320
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Cash at end of period $ 196 $ 133
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See accompanying notes to unaudited consolidated financial statements.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Integration of Financial Statements Reported on Form 10-K
The accompanying unaudited condensed consolidated financial statements should
be read in conjunction with the Company's audited consolidated financial
statements included in its Form 10-K for the fiscal year ended March 31, 1995,
filed with the Securities and Exchange Commission (File No. 0-16072) (the "Form
10-K"). In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the Company's financial position as of June 30,
1995 and March 31, 1995, and the results of its operations and cash flows for
the periods presented. Certain reclassifications of prior year amounts have
been made to conform to current year's presentation.
NOTE 2 - Inventories
Inventories at June 30, 1995 and March 31, 1995 consisted of the following:
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JUNE 30, 1995 MARCH 31, 1995
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(In thousands)
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Raw Materials $ 3,074 $ 2,593
Work-in-Process 1,843 1,250
Finished Goods 100 1,031
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$ 5,017 $ 4,874
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NOTE 3 - Sale of ComTel
As more fully described in the Form 10-K, on June 14, 1995, the Company
completed the sale of the fixed assets and inventory related to the last
remaining division of ComTel's business. The selling price was $1,370,000
(consisting of $1,100,000 cash and a note for $270,000) plus the assumption of
$75,000 of liabilities. The note receivable bears interest at 10% payable
semi-annually, and will be repaid quarterly until December 1995 based on usage
of purchased inventory. After certain adjustments, the remaining balance will be
payable three years thereafter. In addition, in conjunction with the sale,
claims on ComTel's assets with respect to a $300,000 note payable to a customer
were forgiven except for $50,000 which is to be paid from the proceeds of the
note receivable. The transactions resulted in a loss approximating $540,000 with
respect to the book value of the related assets at that date which was reserved
for on the Company's financial statements as of March 31, 1995.
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Certain liabilities of the ComTel businesses, which were not guaranteed by the
Company, were not assumed by the buyers of those business units. As a result,
the Company is in the process of settling these liabilities for less than face
value and expects to be able to do so. Certain remaining notes and accounts
receivable were not sold to the buyers. While the Company expects that losses
will be incurred on a portion of such receivables, which are provided for at
March 31, 1995, no assurances can be given that management's estimate of such
losses will be accurate or that any such losses will be offset by additional
negotiated discounts of liabilities.
While the Company remains obligated for certain trade liabilities of its former
ComTel business, no operations or employees remain and no further losses are
expected to be incurred with respect to the ComTel operations.
The results of operations of ComTel have been reported as discontinued
operations in the accompanying financial statements.
NOTE 4 - Earnings per Share
The number of shares of common stock and common stock equivalents used in the
computation of earnings per share for each period is the weighted average
number of shares outstanding during the periods and, if dilutive, common stock
options, warrants and convertible securities which are common stock
equivalents.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company's financial statements include the consolidated financial position
at June 30, 1995 and March 31, 1995 and the consolidated results of operations
for the three months ended June 30, 1995 and 1994 of Decora Industries, Inc.
(the "Company) and its subsidiaries. The Company operates through its
wholly-owned subsidiary, Decora Manufacturing, which is the Company's core
business and only operating subsidiary following the sale of the last operation
of its previously discontinued subsidiary, ComTel, on June 14, 1995. All
operating losses for any of the discontinued operations of the Company as well
as for the disposal of ComTel were accrued for and reported net of tax as of
March 31, 1995.
During the first quarter, the Company continued to execute its operating plan
which included the addition of new operations discussed below and preparing for
the introduction of refined product lines for the wallcovering and European
markets in the fall and winter of 1995. Such new products were introduced last
year and management has anticipated that any significant growth in revenues
from these programs would not begin until the fall of 1995.
As part of its overall expansion plan, on April 17, 1995 the Company's Decora
Manufacturing subsidiary signed an expanded exclusive manufacturing agreement
with its largest customer, Rubbermaid Incorporated. Under the new agreement ,
in addition to the ongoing exclusive manufacturing agreement, the Company will
perform consumer packaging operations in its Fort Edward, NY facility for its
decorative products line which had been performed by Rubbermaid. The Company
anticipates that the additional manufacturing operations, which will centralize
an integrated manufacturing process with resulting time and cost efficiencies,
will generate incremental annual revenues of approximately $7,000,000 to
$7,500,000 in the first full year of operations and is anticipated to
contribute to the overall profitability of the decorative coverings business.
The new agreement which expires on March 31, 1999 became effective in July
1995 at which time the Company had commenced initial production of the
additional consumer packaging steps acquired from Rubbermaid. The
consolidation of these operations in one facility will enable the Company and
its customer to accelerate the conversion process and reduce working capital
employed in the product line. As a result, management anticipated that overall
manufacturing volume and sales to Rubbermaid would be lower in the first year
as excess work-in-process inventory that was previously sold to Rubbermaid is
used during the consolidation of operations as Decora is now in total
production of products from raw materials to finished goods in its Fort Edward
facility. While a more gradual reduction in inventory levels was anticipated,
Rubbermaid used a significant portion of such inventory during the recent
quarter resulting in significantly lower revenues for the quarter ended June
30, 1995 versus the prior year.
RESULTS OF CONTINUING OPERATIONS AND FORWARD LOOKING INFORMATION
Revenue of the Company was $9,702,000 for the quarter ended June 30, 1995
compared to $11,017,000 for the same period in the prior year. As discussed
above, the lower revenue in the current period was primarily
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the result of the utilization of now-excess inventories previously sold by the
Company to Rubbermaid and resulting from the consolidation of manufacturing
operations pursuant to the expanded agreement with Rubbermaid. Decreased
revenues from previously discontinued industrial products were offset by
increases in the Company's new European, wallcovering and Wearlon(R) liquid
coating product lines. The new manufacturing operations are not yet producing
at anticipated volumes however management anticipates that any remaining
inventory consolidation will be gradually exhausted as production out-put is
increased and that new product sales will increase at the end of the second
quarter and into the third quarter when revised product offerings are
introduced in the fall of 1995 and winter of 1996.
While revenue was 12% lower, the Company's gross profit only declined by 7%
from $2,857,000 for the quarter ended June 30, 1994 to $2,648,000 in the
current quarter. The Company's gross profit margin of 27% was favorably
impacted by the capitalization of certain labor and overhead costs directly
related to the installation and start-up of the new manufacturing operations
and by positive manufacturing variances related to product mix.
Operating Income of the Company increased slightly from $1,075,000 in the prior
year's quarter to $1,115,000 for the quarter ended June 30, 1995. Decreased
gross profits were offset by lower research and development expenditures and
lower product development and sales and marketing expenditures in certain
product categories as well as reduced corporate administrative expense.
Interest expense greatly increased from $504,000 in fiscal 1994 to $701,000 in
fiscal 1995. This increase resulted primarily from the impact of the
Refinancing and Settlement transaction completed in the prior year which
reduced interest expense in the prior year's quarter, increased interest rates
on floating rate debt, increased borrowings under the Company's line of credit
and a charge of $100,000 to interest expense as a result of a non-cash
accretion of the put option of the Company's operating subsidiary's
subordinated lender. The Company anticipates making additional accruals of
this put option in future quarters.
While Rubbermaid continues to be the Company's largest customer and the
relationship is expanding, revenues from other new customers and products also
contributed to the Company's financial results. It is anticipated that such
products and marketing activities will add growth to the relatively flat
revenues experienced in the last few years from the mature domestic Con-Tact(R)
business.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased by $859,000 from March 31, 1995 to June
30, 1995. While seasonal increases in receivables, inventories and prepaid
expenses resulted in a $3,046,000 increase in current assets, such increase was
offset primarily by the change in the Company's current portion of long term
debt. The first payment due to the Company's operating subsidiary's
subordinated lender, CIGNA of $4,000,000 is due April 15, 1996 and accordingly
is classified as current in the June 30, 1995 balance sheet.
Cash balances as of June 30, 1994 were $196,000 which were primarily held by
the Company's Decora Manufacturing subsidiary and are limited by certain debt
covenants as to use. Decora Manufacturing continues to expend funds on
machinery and facility improvements related to the addition of new
manufacturing operations for Rubbermaid described above in addition to normal
capital expenditures. While
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the Company has been financing these expenditures on a short term basis through
operating cash flow and its bank line of credit, the Company is in the process
of executing a long-term financing plan for these expenditures to substitute
working capital use with long term borrowings which combines (a) borrowing
approximately $2,875,000 through the issuance of long term tax-exempt
industrial development bonds and through a low cost loan from the local
municipal development corporation, (b) receipt of interest subsidy and job
training grants through existing state programs and (c) sharing of certain
project costs with Rubbermaid. In addition to the above plan, management
believes that it will be able to favorably negotiate extended terms for the
current portion of its non-bank debt which totals $6,050,000 and consists of
maturities of $1,500,000, $550,000 and $4,000,000 in November 1995, December
1995 and April 1996, respectively. The Company also owes former directors and
officers of the Company with respect to a contingent obligation of
approximately $186,000 which resulted from a settlement and restricted stock
issuance in 1992 and which came due in September 1994.
Capital expenditures for the fiscal quarter ended June 30, 1995 were
approximately $813,000 the majority of which were spent on the installation of
the new manufacturing operations discussed above. Management anticipates
making capital expenditures at ordinary levels during the remainder of the year
in addition to remaining expenditures of approximately $875,000 required to
complete the installation of the new operations.
SUMMARY
Management believes that short term liquidity needs will be satisfied through
operations and through completion of the pending long term industrial
development bond financing which is in progress. The routine requirements of
the Company will be met in the future through operations and existing credit
facilities.
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DECORA INDUSTRIES, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A description of the Company's legal proceedings is included in the Company's
Annual Report on Form 10-K for the year ended March 31, 1995. Except as set
forth below, there have been no new material developments in the Company's
existing litigation.
In June 1992, a complaint was filed against the Company's ComTel Metals, Inc.
Subsidiary in the 210th Judicial District Court of Texas by a former employee
of the subsidiary. The claim sought damages stemming from the alleged wrongful
termination of the plaintiff. This matter was settled in July 1995.
Pursuant to a court mandated settlement in July 1994 of an action filed in the
Supreme Court of the State of New York, the Company was obligated to the Former
Owners of the Company's Yorkville subsidiary to file a registration statement
for the purpose of registering shares worth $1,587,000 and have it effective by
June 30, 1995. Such registration statement became effective in July 1995
within the permitted cure period for such default and the shares have been
issued.
In July 1995, a complaint was filed in the Supreme Court of the State of New
York against the Company and its Decora Manufacturing subsidiary by a former
consultant of such subsidiary. The complaint alleges various breaches of a
consulting agreement, including failure to pay sums due for services,
misrepresentations, deceptive trade practices and wrongful termination of
services. The Company believes these claims are without merit and intends to
defend the matter vigorously.
The Company and its subsidiaries are defendants in other pending actions,
which, in the opinion of management of the Company, are not material to the
Company's financial condition or results of operations. Although no assurances
can be given regarding the ultimate outcome of such matters, the Company has
accrued amounts for the defense and settlement costs which the Company
considers adequate.
ITEM 2. CHANGES IN SECURITIES.
Not Applicable.
ITEM 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES
Not Applicable.
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION
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Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Statement regarding computation of per share earnings.
11.1 Statement regarding computation of per share earnings. (See Note
4 of Notes to Unaudited Consolidated Financial Statements contained in
Part 1 hereof).
(b) Reports on Form 8-K
None
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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 hereunto duly authorized.
DECORA INDUSTRIES, INC.
(REGISTRANT)
BY /s/ Timothy N. Burditt
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TIMOTHY N. BURDITT
EVP ADMINISTRATION & FINANCE
DATED: August 11, 1995
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECORA'S
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-END> JUN-30-1995
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<BONDS> 21,274
<COMMON> 307
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