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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q/A
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Amendment No. 1
Quarterly Report Under Section 13 or 15(d)
Of the Securities Exchange Act of 1934
For the Quarter Ended December 31, 1998
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
(including area code) (518) 747-6255
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
--- ---
At February 8, 1999 there were 7,340,385 shares of Common Stock of the
registrant outstanding. This document consists of 11 pages.
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PART I - FINANCIAL INFORMATION
This amendment is being filed solely to correct a typographical error
regarding certain income per share data for the nine months ended December 31,
1997 as set forth in the Condensed Consolidated Statements of Income, namely,
the diluted income before extraordinary item was $.04 per share (instead of
$.05), and the basic net income was $.05 per share (instead of $.04).
ITEM 1. FINANCIAL STATEMENTS
DECORA INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1998
----------------- --------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,884 $ 1,682
Restricted cash 63 125
Accounts receivable, less allowance 25,132 26,049
Inventories 41,479 26,964
Deferred income taxes 1,913 1,913
Prepaid expenses and other current assets 1,181 1,481
-------- --------
Total current assets 88,652 58,214
Property and equipment, net 54,629 44,152
Goodwill and other intangibles, net 79,505 22,478
Deferred income taxes 3,623 3,787
Other assets 6,317 2,585
-------- --------
$232,726 $131,216
-------- --------
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
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DECORA INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1998
----------------- --------------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,182 $ 9,577
Accrued liabilities 17,363 17,104
Current portion of long-term debt 19,649 10,472
Other current liabilities 5,985 4,928
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Total current liabilities 53,179 42,081
Long-term debt 134,677 50,644
Pension obligation 16,105 13,424
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Total liabilities 203,961 106,149
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Minority interest in subsidiary 7,534 6,978
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Shareholders' equity:
Preferred stock, $.01 par value;
5,000,000 shares authorized -- --
Common stock, $.01 par value;
20,000,000 shares authorized;
7,340,000 and 7,331,000 shares issued
and outstanding at December 31, 1998
and March 31, 1998, respectively 73 73
Additional paid-in capital 33,627 33,775
Accumulated deficit (13,903) (14,984)
Cumulative translation adjustment 1,434 (775)
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Total shareholders' equity 21,231 18,089
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Total liabilities and shareholders' equity $ 232,726 $ 131,216
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</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
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DECORA INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, NINE MONTHS ENDED DECEMBER 31,
1998 1997 1998 1997
---- ---- ----- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales $41,174 $36,909 $136,670 $56,364
Cost of goods sold (see Note 2) 26,641 27,194 88,009 41,648
------- ------- -------- -------
Gross profit 14,533 9,715 48,661 14,716
Selling, general and administrative
expenses 9,056 7,153 31,423 9,720
Non-recurring charges -- -- -- 1,461
------- ------- -------- -------
Operating income 5,477 2,562 17,238 3,535
Interest expense, net 3,774 1,601 10,446 2,439
------- ------- ------- -------
Income before income taxes,
minority interest in earnings of
subsidiary and extraordinary item 1,703 961 6,792 1,096
Income tax provision 811 519 2,926 560
------- ------- -------- -------
Income before minority interest
in earnings of subsidiary and
extraordinary item 892 442 3,866 536
Minority interest in earnings of
subsidiary 407 201 766 201
------- ------- -------- -------
Income before extraordinary item 485 241 3,100 335
Extraordinary item, net of income
taxes (see Note 2) -- -- (2,019) --
------- ------- -------- -------
Net income $ 485 $ 241 $ 1,081 $ 335
------- ------- -------- -------
Per share of common stock:
Income before extraordinary item
Basic $ 0.06 $ 0.03 $ 0.42 $ 0.05
Diluted 0.05 0.03 0.36 0.04
Extraordinary item
Basic -- -- (0.28) --
Diluted -- -- (0.24) --
Net income
Basic 0.06 0.03 0.14 0.05
Diluted 0.05 0.03 0.12 0.04
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
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DECORA INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,081 $ 335
Adjustments to reconcile net income
to net cash provided by operating activities:
Extraordinary item, net of income taxes 2,019 --
Depreciation and amortization 7,329 3,544
Amortization of debt discount and fees 720 84
Provision for notes receivable -- 789
Minority interest in earnings of subsidiary 766 201
Deferred income tax provision -- 306
Net changes in current assets and liabilities (1,779) 4,408
Other, net (1,027) 371
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Net cash provided by operating activities 9,109 10,038
--------- ---------
Cash flows from investing activities:
Rubbermaid Acquisition (65,491) --
Acquisition of Hornschuch shares (1,289) (37,511)
Reduction in notes receivable 305 --
Purchase of property and equipment (7,732) (1,828)
--------- ---------
Net cash used in investing activities (74,207) (39,339)
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Cash flows from financing activities:
Issuance of long-term debt 110,086 39,205
Repayment of long-term debt (29,166) (3,732)
Change in short-term borrowing 7,787 (4,612)
Proceeds from issuance of common stock -- 812
Payment of warrant exchange obligation (200) --
Net cash paid for debt penalties and fees (7,087) --
--------- ---------
Net cash provided by financing activities 81,420 31,673
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Effect of exchange rate fluctuations on cash
and cash equivalents 818 (212)
--------- ---------
Net increase in cash and cash equivalents 17,140 2,160
Cash and cash equivalents at beginning of period 1,807 243
--------- ---------
Cash and cash equivalents at end of period $ 18,947 $ 2,403
--------- ---------
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
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NOTES TO UNAUDITED CONDENSED 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 Decora Industries, Inc.'s ("DII" and, together with its
subsidiaries, the "Company") Audited Consolidated Financial Statements included
in its Form 10-K for the fiscal year ended March 31, 1998, filed with the
Securities and Exchange Commission (File No. 0-16072) (the "Form 10-K"). In the
opinion of the Company, the accompanying Unaudited Condensed Consolidated
Financial Statements contain all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the results for the
interim periods.
Effective April 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", which establishes standards
for reporting comprehensive income. Comprehensive income is the change in the
equity of a company, not including those changes that result from shareholder
transactions. The Company's components of other comprehensive income relate to
foreign currency translation adjustments. Total comprehensive income for the
three months ended December 31, 1998 and 1997 was $588,000 and $18,000,
respectively; and for the nine months ended December 31, 1998 and 1997 was
$3,290,000 and $112,000, respectively.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This standard requires companies to record derivatives
on the balance sheet as assets or liabilities, measured at fair value. Gains or
losses resulting from the changes in the values of the derivatives would be
accounted for depending on whether it qualifies for hedge accounting. The
Company will be required to adopt this standard by the fiscal year beginning
April 1, 2000, but may adopt it sooner. Management does not believe that the
adoption of this statement will have a material impact on the financial
statements.
Certain reclassifications of prior year amounts have been made to conform to the
current year presentation.
NOTE 2 - Acquisitions, Determination of Acquisition Cost, Extraordinary Item and
Acquisition Related One-time Charge to Cost of Goods Sold
Acquisitions
On April 29, 1998, the Company acquired certain assets which had constituted
Rubbermaid's Decorative Coverings Group (the "DCG"), for a purchase price
(subject to a purchase price contingency of $2.5 million based upon calendar
1998 DCG sales levels) of approximately $62.5 million (the "Rubbermaid
Acquisition"). Based upon final 1998 sales of the DCG, the purchase price was
adjusted downward by $2 million to $60.5 million.
The assets acquired included inventory, manufacturing equipment, tradenames
including the Con-Tact trademark and all other rights to three product lines:
(i) the Con-Tact self-adhesive coverings line that was manufactured exclusively
for Rubbermaid by Decora, (ii) Shelf Liner, a proprietary product line, which
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was manufactured by Rubbermaid, and (iii) the Grip Liner non-adhesive covering
line which is manufactured by a third party pursuant to the terms of an
exclusive manufacturing agreement.
Determination of Acquisition Cost
The acquisition cost for the DCG of approximately $62.6 million (final purchase
price of $60.5 million, adjusted for acquisition related closing costs of
approximately $3.6 million, less amounts related to transition services of $1.5
million paid to Rubbermaid) was allocated to the assets acquired as follows:
Inventory $7,500,000
Property and equipment 1,000,000
Intangible assets:
Con-Tact tradename 20,300,000
Customer relationships 27,400,000
Goodwill 6,400,000
In order to finance the Rubbermaid Acquisition and to improve its capital
structure, the Company issued $112,750,000 of 11.0% senior secured notes (the
"Notes"). The Notes were issued with an original issue discount of $2,664,000
with interest payable semi-annually and no principal payments required prior to
maturity on May 1, 2005. In addition, Konrad Hornschuch AG ("Hornschuch"), a 79%
owned subsidiary, borrowed under its secured credit facilities approximately
$10.0 million. Of the total amount raised, approximately $58,300,000 was used
for the Rubbermaid Acquisition at the closing, approximately $32,100,000 was
used to refinance existing debt and related fees (including an $18.0 million 13%
subordinated loan which had been used to finance the Hornschuch Acquisition (the
"Subordinated Loan")), approximately $8,000,000 will be used to finance a tender
offer (which commenced on February 3, 1999) for the remaining 21% equity
interest in Hornschuch, approximately $7,500,000 was used to pay acquisition and
financing related transaction fees and expenses and the remaining net proceeds
are being used for general corporate purposes including working capital
requirements and the relocation of manufacturing assets purchased as part of the
Rubbermaid Acquisition. At the same time Decora, Incorporated ("Decora"), a
wholly owned subsidiary of the Company, entered into a three year, $15.0 million
secured revolving line of credit (the "Credit Facility"). Its availability is
based on a factor of the amount of accounts receivable and inventory held by
Decora. As of December 31, 1998, the Credit Facility had not been utilized.
Direct financing transaction costs incurred of approximately $4.9 million were
deferred and are being amortized, using the effective interest rate method, over
the term of the respective financings.
The accompanying Condensed Consolidated Statements of Income include the results
of the Company (including Hornschuch since the acquisition of 73.2% of the
outstanding shares on October 1, 1997 (the "Hornschuch Acquisition")) and
reflect the effects of the Rubbermaid Acquisition since April 29, 1998, the date
of the acquisition. Pro forma unaudited consolidated operating results for the
nine months ended December 31, 1997, assuming the Hornschuch Acquisition had
been made as of April 1, 1997, are summarized below (in thousands, except per
share amounts). The Rubbermaid Acquisition was an acquisition of product lines
and comparative information is not available; therefore, the pro forma unaudited
consolidated
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operating results for the nine months ended December 31, 1997 reflect only the
effect of the Hornschuch Acquisition.
<TABLE>
<CAPTION>
Nine Months Ended
December 31, 1997
-----------------
(In thousands, except
per share data)
<S> <C>
Net sales $ 115,327
Net loss (856)
Basic net loss per common share (0.12)
Diluted net loss per common share (0.11)
</TABLE>
These pro forma results have been prepared for comparative purposes only and
include adjustments as a result of applying purchase accounting and conversion
to generally accepted accounting principles in the United States, such as
additional depreciation expense due to the step-up in the basis of property and
equipment, goodwill amortization and increased interest on the Hornschuch
Acquisition debt. The pro forma information is not necessarily indicative of the
operating results that would have occurred if the acquisition had taken place on
the aforementioned date or of future results of operations of the consolidated
entities.
Extraordinary Item
As noted above, in conjunction with the Rubbermaid Acquisition, the Company
raised sufficient funds through the issuance of the 11.0% Notes to refinance
$32.1 million of its existing debt and related fees, including the Subordinated
Loan bearing a coupon of 13%. As a result of the repayment of the Subordinated
Loan and other debt, the Company paid a one-time prepayment penalty of
approximately $2.2 million and wrote-off unamortized deferred loan costs of
approximately $1.1 million. Consequently, an extraordinary charge of
approximately $2.0 million (net of income taxes) was recorded in the nine months
ended December 31, 1998.
Acquisition Related One-time Charge to Cost of Goods Sold
The results for the nine months ended December 31, 1998 were also impacted by a
one-time non-cash charge of approximately $797,000 for the step-up in basis of
certain DCG inventory acquired in the Rubbermaid Acquisition. This charge
related primarily to inventory sold by Decora to Rubbermaid prior to the
Rubbermaid Acquisition. Pursuant to purchase accounting, the manufacturer's
profit related to such inventory must be reflected in the inventory basis upon
the sale of such inventory.
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NOTE 3 - Inventories
Inventories at December 31, 1998 and March 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1998
----------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Raw Materials $ 5,268 $ 7,335
Work-in-Process 6,132 4,634
Finished Goods 30,079 14,995
------- -------
$41,479 $26,964
------- -------
</TABLE>
NOTE 4 - Net Income Per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share", as required, in the quarter ended December 31, 1997, with
all prior periods being restated. The adoption did not have a significant impact
on net income per common share reported for the three and nine months ended
December 31, 1998 and 1997.
The number of shares of common stock and common stock equivalents used in the
computation of net income per common share, assuming dilution for each period,
is the weighted average number of common shares outstanding during the periods
and, if dilutive, common stock options, warrants and convertible securities
which are considered common stock equivalents. The following is a reconciliation
of the denominators for determining basic and diluted net income per common
share for the three and nine months ended December 31, 1998 and 1997. The
numerators were the same for both calculations for all periods (in thousands,
except per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------ ------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE SHARES:
Shares outstanding at beginning
of period 7,340 7,144 7,331 7,140
Shares issued -- 187 4 64
----- ----- ----- -----
Shares used in the calculation
of Basic EPS 7,340 7,331 7,335 7,204
Effect of dilutive securities:
Contingently issuable shares 339 519 339 519
Options/Warrants 1,091 155 1,058 170
----- ----- ----- -----
Adjusted weighted average shares 8,770 8,005 8,732 7,893
----- ----- ----- -----
</TABLE>
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The total number of shares of common stock and common stock equivalents that
were not included in the computation of diluted income per common share because
they were anti-dilutive was approximately 752,000 and 2,954,000 for the three
months ended December 31, 1998 and 1997, respectively, and approximately 752,000
and 2,954,000 for the nine months ended December 31, 1998 and 1997,
respectively.
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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 thereunto duly authorized.
DECORA INDUSTRIES, INC.
(REGISTRANT)
BY /s/ Timothy N. Burditt
- --------------------------------
Timothy N. Burditt
EVP Administration & Finance
DATED: February 16, 1999
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