10-Q 1 0001.txt QUARTERLY REPORT 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 ------------------------------------------------------ --------------- (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 PART I - FINANCIAL INFORMATION Item 1. Financial Statements.
DECORATOR INDUSTRIES, INC. BALANCE SHEET Sept. 30, 2000 Jan. 1, 2000 -------------- ------------ ASSETS (UNAUDITED) ------ 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 =========== ===========
The accompanying notes are an integral part of the financial statements. 1
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 --------------------- -------------------- --------------------- -------------------- 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
The accompanying notes are an integral part of the financial statements. 2 DECORATOR INDUSTRIES, INC. STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THIRTY-NINE WEEKS ENDED: September 30, 2000 October 2, 1999 ------------------ --------------- 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
The accompanying notes are an integral part of the financial statements. 3 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:
Sept. 30, 2000 January 1, 2000 -------------- --------------- 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 =========== ===========
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.
Thirteen weeks ended: Thirty-nine weeks ended: --------------------- ------------------------ Sept. 30, 2000 Oct. 2, 1999 Sept. 30, 2000 Oct. 2, 1999 -------------- ------------ -------------- ------------ 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 ===== ===== ===== =====
4 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 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.
September 30, 2000 January 1, 2000 ------------------ --------------- 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
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:
Third Third Quarter Quarter YTD YTD 2000 1999 2000 1999 ---- ---- ---- ---- Earnings Ratios --------------- 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
6 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 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 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