<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________
FORM 10-Q
___________
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1996
Commission File Number 0-16072
DECORA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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)
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___
At August 9, 1996 there were 35,469,390 shares of Common Stock of the registrant
outstanding. This document consists of 12 pages.
<PAGE> 2
FORM 10-Q
DECORA INDUSTRIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements.
Unaudited Consolidated Balance Sheets
as of June 30, 1996 and March 31, 1996 3 - 4
Unaudited Consolidated Statements of
Operations for the Quarters ended
June 30, 1996 and 1995 5
Unaudited Consolidated Statements of
Cash Flows for the Quarters Ended
June 30, 1996 and 1995 6
Notes to Unaudited Consolidated
Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 9 - 10
PART II OTHER INFORMATION 11
SIGNATURES 12
</TABLE>
- 2 -
<PAGE> 3
FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DECORA INDUSTRIES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, 1996 March 31, 1996
------------- --------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 197 $ 188
Accounts receivable, less allowances 6,499 4,151
Inventories (Note 2) 6,210 6,003
Prepaid expenses and other current assets 863 641
Net current assets of discontinued Operations- ComTel -- 1
------- -------
Total current assets 13,769 10,984
Property and equipment, net 8,532 8,944
Notes receivable 1,769 1,758
Intangibles, net & other assets 11,440 11,571
Deferred income taxes 2,900 2,900
------- -------
Total Assets $38,410 $36,157
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
- 1 -
<PAGE> 4
FORM 10-Q
DECORA INDUSTRIES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
JUNE 30, 1996 MARCH 31, 1996
------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
<S> <C> <C>
Accounts payable $ 3,426 $ 2,127
Accrued liabilities 1,179 1,587
Current portion of long-term debt 5,365 5,810
Net current liabilities of discontinued
operations - ComTel 40 --
-------- --------
Total current liabilities 10,010 9,524
Long-term debt 16,561 14,489
Other non-current liabilities 494 363
-------- --------
Total liabilities 27,065 24,376
-------- --------
Warrants in subsidiary, (Note 3), -- 1,642
-------- --------
Shareholders' equity:
Preferred stock, $.01 par value; 5,000 shares
authorized at June 30, 1996 and March 31, 1996 -- --
Common stock, $.01 par value; 45,000 shares authorized;
35,469 and 34,429 shares issued and outstanding at
June 30, 1996 and March 31, 1996, respectively 355 344
Additional paid-in capital 31,750 31,075
Accumulated deficit (20,760) (21,280)
-------- --------
Total shareholders' equity 11,345 10,139
-------- --------
Total Liabilities and Shareholders' Equity $ 38,410 $ 36,157
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
- 2 -
<PAGE> 5
FORM 10-Q
DECORA INDUSTRIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30,
----------------------
1996 1995
------- -------
<S> <C> <C>
Revenues $10,138 $ 9,702
Cost of goods sold 7,694 7,054
------- -------
Gross profit 2,444 2,648
Marketing, general and
administrative expense 1,262 1,533
------- -------
Operating income 1,182 1,115
Interest expense 633 701
------- -------
Income before taxes 549 414
Provision for taxes 29 13
------- -------
Net income $ 520 $ 401
======= =======
Net income per common share (Note 4) $ 0.02 $ 0.01
======= =======
Average shares of common stock used in
computation of income per share : 34,464 30,718
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
- 3 -
<PAGE> 6
FORM 10-Q
DECORA INDUSTRIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30,
----------------------
1996 1995
------- -------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 520 $ 401
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 552 465
Amortization of debt discount 17 48
Net changes in current assets and liabilities (1,878) (2,581)
------- -------
Net cash (used) by operating activities (789) (1,567)
------- -------
Cash flows from investing activities:
Purchase of fixed assets (8) (813)
Increase (decrease) in net assets and
liabilities of discontinued operations 41 (863)
------- -------
Net cash provided (used)by investing activities 33 (1,676)
------- -------
Cash flows from financing activities:
Long-term borrowings 2,037 3,255
Repayment of debt (427) (125)
Exchange of debt for put warrant (1,530) --
Conversion of long term debt 655 --
Proceeds from issuance of common stock 30 --
------- -------
Net cash provided by (used in) financing activities 765 3,130
------- -------
Net increase (decrease) in cash 9 (113)
Cash at beginning of period 188 309
------- -------
Cash at end of period $ 197 $ 196
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
- 4 -
<PAGE> 7
FORM 10-Q
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, 1996, 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, 1996 and March 31, 1996, 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, 1996 and March 31, 1996 consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, 1996 MARCH 31, 1996
------------- --------------
(In thousands)
<S> <C> <C>
Raw Materials $3,496 $3,838
Work-in-Process 1,201 687
Finished Goods 1,513 1,478
------ ------
$6,210 $6,003
====== ======
</TABLE>
NOTE 3 - Warrants in Subsidiary
In connection with the acquisition of the Decora division of United
Merchants and Manufacturers by the Company in April 1990, Decora issued
$7,000 principal amount of subordinated notes to a lender (CIGNA). These
notes were issued with warrants to purchase 20% of the common stock of the
Company's new Decora Incorporated subsidiary which included certain put
features which may have been payable in May 1997. The present value of such
put obligation was accrued for and carried as a liability on the Company's
balance sheet. The balance of such accrued liability was $1,642 as of March
31, 1996. Effective June 28, 1996, the Company and CIGNA exchanged such
warrants for a non-interest bearing two-year note in the amount of $1,000
and 1,000 shares of the Company's common stock. If the note is not repaid
prior to April 15, 1997, then the amount due will increase by 20% and if the
shares of common stock do not have a market value of at least $3.00 per
share as of April 15, 1998, then the Company will issue additional shares to
make up any deficiency. This transaction was closed on June 28, 1996 at
which time the note and stock were issued in exchange for the warrants. The
- 5 -
<PAGE> 8
FORM 10-Q
present value of such securities totaled $1,530 leaving a balance of the
accrued liability of $112. Such remaining balance continues to be carried as
a long term liability pending evaluation of the value of the stock price
guarantee which is anticipated to be completed during the second quarter.
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.
- 6 -
<PAGE> 9
FORM 10-Q
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, 1996 and March 31, 1996 and the consolidated results of
operations for the three months ended June 30, 1996 and 1995 of Decora
Industries, Inc. (the "Company) and its subsidiaries. The Company operates
through its wholly-owned subsidiary, Decora Incorporated, which is the
Company's core business and sole operating subsidiary.
RESULTS OF CONTINUING OPERATIONS AND FORWARD LOOKING INFORMATION
Revenue of the Company was $10,138 for the quarter ended June 30, 1996
compared to $9,702 for the same period in the prior year. Such increase
resulted primarily from a $941 increase in non-core products, primarily
international product sales, which was partially offset by a 2.3% reduction
in sales from the Company's principal customer, Rubbermaid. While Rubbermaid
continues to be the Company's largest customer and represented 87% of the
Company's revenues during the current quarter, 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 continue
to compliment the relatively flat revenues experienced in the last few years
from the mature domestic Con-Tact(R) business.
Gross profit for the quarter ended June 30, 1996 was $2,444 versus $2,648 in
the prior year period. Year-to-year straight comparison of gross profit
margins (24.1% in the current quarter versus 27.3% in the prior year) is
made difficult due to the addition of the new manufacturing operations
installed during fiscal 1996 and changes in product mix. The prior year's
gross profit margin was favorably impacted by the capitalization of certain
operating costs related to the installation cost of the new manufacturing
operations which was ongoing at the time. Conversely, in the current year
the additional overhead expenses associated with such new operations which
are now fully operational are reflected in costs of goods sold.
Additionally, unit volume sold to the Company's principal customer,
Rubbermaid was 18% lower in the recent period, however, such decline and the
impact on gross profit was partially offset by the increased value now added
to such products as a result of the new operations. Lower unit volume from
the Company's principal customer, changes in product mix and certain timing
differences in the recognition of changes in raw material prices also
impacted the comparison of the Company's gross margin in the current
quarter.
While gross profit was lower, operating income of the Company increased from
$1,115 in the prior year's quarter to $1,182 for the quarter ended June 30,
1996 primarily due a major cost reduction which the Company has undertaken
as it completed the cycle of intensive research and development which was
part of its original business strategy to expand its WearlonR technology and
diversify away from its core business. Decreased gross profit was offset by
such lower labor, product development and research and development
expenditures which were reduced primarily during the third and fourth
quarters of the year ended March 31, 1996.
Interest expense decreased from $701 during the first quarter of fiscal 1996
to $633 during the first quarter of fiscal 1997 primarily as a result of the
prior year's non-cash accrual for the put option of the Company's operating
subsidiary's subordinated lender which increased interest expense by $100
during the first quarter of fiscal 1996 and which no longer exists as a
result of the exchange of the warrants described in Note 3, above. Such
lower expenses resulted in net income for the quarter ended June 30, 1996 of
$520, or $0.02 per share as compared with $401, or $0.01 per share, for the
quarter ended June 30, 1995.
- 7 -
<PAGE> 10
FORM 10-Q
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased by $2,299 from March 31, 1996 to
June 30, 1996 reflecting a significant increase in accounts receivable
resulting from higher product shipments and billings during June and
increased inventories related to international operations. The first
payment due to the Company's operating subsidiary's subordinated lender
(CIGNA) of $3,500 is due April 15, 1997 and accordingly is classified as
current on the June 30, 1996 balance sheet.
Cash balances as of June 30, 1996 were $197 which were primarily held by the
Company's Decora Incorporated subsidiary and are limited by certain debt
covenants as to use. On August 13, 1996 Decora Incorporated renewed its
$6,000 revolving line of credit with its primary lender until August 31,
1998 which as a result is now classified as long term debt on the balance
sheet. The Company also received a commitment letter from such lender to
provide letter of credit enhancement for a proposed $2,500 industrial
development bond financing. Management anticipates completing such financing
during the third quarter of fiscal 1997 in order to refinance a portion of
the Company's renewed line of credit which was utilized to fund significant
capital expenditures in the prior year.
Capital expenditures for the fiscal quarter ended June 30, 1996 were
approximately $8 and were lower than typical levels. Management anticipates
making capital expenditures at more typical levels during the remainder of
the year
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. In addition to the completion of such
financing, Management is considering various debt and equity financing
alternatives in order to fund the $3,500 payment due to Decora
Incorporated's subordinated lender in April 1997 and Management believes
that the Company will be able to satisfy such obligations. The routine
requirements of the Company are anticipated by management to be met in the
future through operations and existing credit facilities.
- 8 -
<PAGE> 11
FORM 10-Q
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, 1996.
There have been no new material developments in the Company's existing
litigation.
The Company and its subsidiaries are defendants in 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 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
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION
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
- 9 -
<PAGE> 12
FORM 10-Q
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
------------------
TIMOTHY N. BURDITT
EVP ADMINISTRATION & FINANCE
DATED: August 9, 1996
- 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED
STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 197
<SECURITIES> 0
<RECEIVABLES> 6,739
<ALLOWANCES> 240
<INVENTORY> 6,210
<CURRENT-ASSETS> 13,769
<PP&E> 14,996
<DEPRECIATION> 6,464
<TOTAL-ASSETS> 38,410
<CURRENT-LIABILITIES> 10,010
<BONDS> 17,055
0
0
<COMMON> 355
<OTHER-SE> 10,990
<TOTAL-LIABILITY-AND-EQUITY> 38,410
<SALES> 0
<TOTAL-REVENUES> 10,138
<CGS> 0
<TOTAL-COSTS> 7,694
<OTHER-EXPENSES> 1,262
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 633
<INCOME-PRETAX> 549
<INCOME-TAX> 29
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 520
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
