10-Q 1 dii-10q.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 29, 2001 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 2, 2001 ------------------- ------------------------------- Common Stock, Par Value $.20 Per Share 2,815,677 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. DECORATOR INDUSTRIES, INC. BALANCE SHEET
September 29, 2001 December 30, 2000 ------------------ ----------------- ASSETS (UNAUDITED) ------ Current Assets: Cash and Cash Equivalents $ 1,900,159 $ 307,819 Accounts Receivable, less allowance for doubtful accounts ($249,810 and $144,395) 4,014,739 3,494,676 Inventories 4,130,126 5,203,240 Other Current Assets 410,668 947,134 ----------- ----------- Total Current Assets 10,455,692 9,952,869 ----------- ----------- Property and Equipment: Land, Buildings & Improvements 4,240,777 4,144,229 Machinery, Equipment, Furniture and Fixtures 5,276,354 5,326,181 ----------- ----------- 9,517,131 9,470,410 Total Property and Equipment Less: Accumulated Depreciation and Amortization 3,944,808 3,659,764 ----------- ----------- Net Property and Equipment 5,572,323 5,810,646 ----------- ----------- Goodwill, less accumulated amortization of $1,322,422 and $1,243,980 2,757,864 2,836,306 Other Assets 270,247 255,566 ----------- ----------- Total Assets $19,056,126 $18,855,387 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY ---------------------------------- Current Liabilities: Accounts Payable $ 2,929,341 $ 2,393,004 Current Maturities of Long-term Debt 105,856 104,640 Accrued Expenses: Income Taxes 18,948 -- Compensation 791,119 789,681 Other 910,969 1,510,897 ----------- ----------- Total Current Liabilities 4,756,233 4,798,222 ----------- ----------- Long-Term Debt 1,630,606 1,709,686 Deferred Income Taxes 369,000 368,000 ----------- ----------- Total Liabilities 6,755,839 6,875,908 ----------- ----------- Stockholders' Equity Common stock $.20 par value: Authorized shares, 10,000,000; Issued shares, 4,484,162 and 4,444,997 896,832 888,999 Paid-in Capital 1,432,696 1,441,655 Retained Earnings 18,133,176 17,777,461 ----------- ----------- 20,462,704 20,108,115 Less: Treasury stock, at cost: 1,670,053 and 1,653,437 shares 8,162,417 8,128,636 ----------- ----------- Total Stockholders' Equity 12,300,287 11,979,479 ----------- ----------- Total Liabilities and Stockholders' Equity $19,056,126 $18,855,387 =========== ===========
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 29, 2001 September 30, 2000 September 29, 2001 September 30, 2000 ------------------ ------------------ ------------------ ------------------ Net sales $ 9,205,017 100.00% $ 9,731,021 100.00% $ 26,733,634 100.00% $ 34,337,684 100.00% Cost of products sold 7,147,010 77.64% 7,678,724 78.91% 21,114,597 78.98% 26,886,678 78.30% ------------ ------------ ------------ ------------ Gross profit 2,058,007 22.36% 2,052,297 21.09% 5,619,037 21.02% 7,451,006 21.70% Selling and Administrative expenses 1,441,145 15.66% 1,617,210 16.62% 4,572,944 17.11% 5,223,646 15.21% ------------ ------------ ------------ ------------ Operating income 616,862 6.70% 435,087 4.47% 1,046,093 3.91% 2,227,360 6.49% Interest and investment income 11,607 0.13% 10,686 0.11% 31,710 0.12% 53,946 0.16% Interest expense (12,940) (0.14)% (35,571) (0.37)% (54,235) (0.20)% (82,053) (0.24)% ------------ ------------ ------------ ------------ Earnings before 615,529 6.69% 410,202 4.21% 1,023,568 3.83% 2,199,253 6.41% income taxes Provision for income taxes 243,000 2.64% 154,000 1.58% 414,000 1.55% 827,000 2.41% ------------ ------------ ------------ ------------ Continuing operations 372,529 4.05% $ 256,202 2.63% 609,568 2.28% $ 1,372,253 4.00% Discontinued operations: ------------------------ Loss from operations, net of income tax benefit of $27,000 and $60,000 (45,127) (0.46)% (99,027) (0.29)% Loss on disposal, net of income tax benefit of $259,000 (422,481) (1.23)% ------------ ------------ ------------ ------------ Net Income $ 372,529 4.05% $ 211,075 2.17% $ 609,568 2.28% $ 850,745 2.48% ============ ============ ============ ============ Earnings per share: Continuing Operations $ 0.14 $ 0.08 $ 0.22 $ 0.43 ============ ============ ============ ============ Discontinued Operations $ (0.01) $ (0.16) ============ ============ Basic $ 0.14 $ 0.07 $ 0.22 $ 0.27 ============ ============ ============ ============ Diluted $ 0.14 $ 0.07 $ 0.22 $ 0.27 ============ ============ ============ ============ Weighted-average number of shares outstanding: Basic 2,832,593 3,028,757 2,811,905 3,124,659 Diluted 2,832,593 3,063,037 2,822,432 3,161,766
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 29, 2001 September 30, 2000 ------------------ ------------------ Cash Flows From Operating Activities: Net income $ 609,568 $ 850,745 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 570,287 565,035 Write-off of goodwill -- 565,481 Provision for losses on accounts receivable 111,000 101,433 Deferred taxes 121,000 (1,000) (Gain) loss on disposal of assets 94,981 5,272 (Increase) decrease in accounts receivable (625,478) (894,014) (Increase) decrease in inventories 1,073,114 (503,640) (Increase) decrease in prepaid expenses 416,466 (264,092) (Increase) decrease in other assets (14,681) 158,921 Increase (decrease) in accounts payable 536,337 (152,203) Increase (decrease) in accrued expenses (579,542) 129,032 ----------- ----------- Net Cash Provided by Operating Activities 2,313,052 560,970 ----------- ----------- Cash Flows From Investing Activities: Capital expenditures (430,726) (586,103) Proceeds from property dispositions 76,638 1,362 Short-term investments -- 1,455,796 Net cash paid for acquisitions -- (9,498) ----------- ----------- Net Cash Provided by (Used in) Investing Activities (354,088) 861,557 ----------- ----------- Cash Flows From Financing Activities: Long-term debt payments (77,864) (79,328) Dividend payments (253,852) (640,163) Net borrowings under line-of-credit agreement -- 667,582 Proceeds from exercise of stock options 22,324 21,460 Purchase of common stock for treasury (89,791) (1,856,253) Issuance of stock for director's compensation 32,559 30,000 ----------- ----------- Net Cash Used in Financing Activities (366,624) (1,856,702) ----------- ----------- 1,592,340 (434,175) Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year 307,819 484,328 ----------- ----------- Cash and Cash Equivalents at End of Period $ 1,900,159 $ 50,153 =========== =========== Supplemental disclosures of cash flow information: Cash paid for: Interest $ 52,617 $ 67,305 Income taxes $ 202,792 $ 628,595 Cash flows from acquisitions: Purchase price -- $ 9,498
The accompanying notes are an integral part of the financial statements. 3 DECORATOR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000 (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 29, 2001, the changes therein for the thirty-nine week period then ended and the results of operations for the thirty-nine week periods ended September 29, 2001 and September 30, 2000. 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 December 30, 2000. The results of operations for the thirty-nine week periods ended September 29, 2001 and September 30, 2000 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 29, 2001 and December 30, 2000 consisted of the following: September 29, 2001 December 30, 2000 ------------------ ----------------- Raw Material and Supplies $3,867,474 $4,876,287 In Process and Finished Goods 262,652 326,953 ---------- ---------- Total Inventory $4,130,126 $5,203,240 ========== ========== 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: --------------------- ------------------------ September 29, 2001 September 30, 2000 September 29, 2001 September 30, 2000 ------------------ ------------------ ------------------ ------------------ Numerator: Net income $ 372,529 $ 211,075 $ 609,568 $ 850,745 ========== ========== ========== ========== Denominator: Weighted-average number of common shares outstanding 2,832,593 3,028,757 2,811,905 3,124,659 Dilutive effect of stock options on net income -- 34,280 10,527 37,107 ---------- ---------- ---------- ---------- 2,832,593 3,063,037 2,822,432 3,161,766 ========== ========== ========== ========== Diluted earnings per share: $ 0.14 $ 0.07 $ 0.22 $ 0.27 ========== ========== ========== ==========
4 DECORATOR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000 (UNAUDITED) NOTE 5. DISCONTINUED OPERATIONS ----------------------- During the second quarter of 2000, the Company adopted a plan to dispose of its contract sewing operations for the hospitality industry through liquidation. At July 1, 2000, the net assets of this operation consisted primarily of goodwill ($565,481), inventories, machinery and equipment, and trade receivables. This decision resulted in an after-tax loss of $422,000 for disposal of this operation. Included in the loss on disposal was a pre-tax provision of $60,000 for estimated operating losses during the phase-out period. In the fourth quarter of 2000, the Company decided to discontinue the manufacturing of furniture for sale to the recreational vehicle and hospitality industries. At December 30, 2000, the assets of this operation consisted primarily of inventories, equipment and trade receivables. This decision resulted in an after-tax loss of $329,000 for disposal of this operation. Included in the loss on disposal is a pre-tax provision of $160,000 for estimated operating losses during the phase-out period. As of this date, management feels the reserves set up for discontinued operations are adequate. 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. -------------------------------------------------------------------------------- Cautionary Statement: This Quarterly Report on Form 10-Q may contain statements relating to future events, including results of operations, that are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements represent the Company's expectations or belief as to future events and, by their very nature, are subject to risks and uncertainties which may result in actual events differing materially from those anticipated. In particular, future operating results and future liquidity will be affected by the level of demand for recreational vehicles, manufactured housing and hotel/motel accommodations and may be affected by changes in economic conditions, interest rate fluctuations, competitive products and pricing pressures within the Company's markets, the Company's ability to contain its manufacturing costs and expenses, and other factors. Forward-looking statements by the Company speak only as of the date made, and the Company undertakes no obligation to update or revise such statements to reflect events or circumstances after such date or to reflect the occurrence of unanticipated events. FINANCIAL CONDITION ------------------- The Company's financial condition, as measured by the following ratios, continues to be strong at the end of the Third Quarter 2001. September 29, 2001 September 30, 2000 ------------------ ------------------ Current Ratio 2:20 2:07 Quick Ratio 1:33 0:99 LT Debt to Total Capital 11.70% 12.49% Working Capital $5,699,459 $5,154,647 Days sales outstanding (DSO) in accounts receivable were 38.5 days at September 29, 2001 compared to 38.7 days at September 30, 2000. Accounts receivable decreased by 11.1% and inventories decreased by 33.8% compared to the same period a year ago. Management does not foresee any events which will adversely affect its liquidity during 2001. At the quarter end, the Company had no borrowings against its $5,000,000 revolving line of credit. With the available borrowing capacity and the Company's cash balances, the financial condition is more than adequate to finance internal growth and the acquisitions of businesses. 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 Earnings Ratios 2001 2000 2001 2000 --------------- ---- ---- ---- ---- Net sales 100.0% 100.0% 100.0% 100.0% Cost of products sold 77.64 78.91 78.98 78.30 Selling and administrative 15.66 16.62 17.11 15.21 Interest and investment income .13 .11 .12 .16 Interest expense (.14) (.37) (.20) (.24) Income taxes 2.64 1.58 1.55 2.41 Discontinued operations --- (.46) --- (1.52) Net income 4.05 2.17 2.28 2.48 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Continued) -------------------------------------------------------------------------------- Thirteen Week Period Ended September 29, 2001 (Third Quarter 2001) compared to Thirteen Week Period Ended September 30, 2000 ( Third Quarter 2000) -------------------------------------------------------------------------------- Net sales for the Third Quarter 2001 were $9,205,017, compared to $9,731,021 for the same period in the previous year, a 5.4% decrease. The Company experienced sales declines in the recreational vehicle and hospitality markets. Cost of products sold decreased to 77.6% in the Third Quarter 2001 compared to 78.9% a year ago. This improvement was the result of better labor efficiency. Selling and administrative expenses were $1,441,145 in the Third Quarter 2001 versus $1,617,210 in the Third Quarter 2000. This decrease is largely attributable to a reduction in wages. Interest expense decreased from $35,571 in the Third Quarter 2000 to $12,940 in the Third Quarter 2001 because of reduced borrowings and lower interest rates. Net income increased to $372,529 in the Third Quarter of 2001 compared to $211,075 of net income in the Third Quarter of 2000. This increase is the result of better labor utilization and reduced administrative expenses. Thirty-nine Week Period Ended September 29, 2001 (First Nine Months of 2001) compared to Thirty-nine Week Period Ended September 30, 2000 (First Nine Months of 2000) -------------------------------------------------------------------------------- Net sales for the First Nine Months 2001 were $26,733,634, down from $34,337,684 in the prior year, a 22.1% decrease. The Company experienced similar sales declines in each of the markets it serves. Cost of products sold increased to 78.9% in the First Nine Months of 2001 compared to 78.3% a year ago. The increase is the result of allocating the fixed expenses over a smaller sales volume. Selling and administrative expenses were $4,572,944 in the First Nine Months of 2001 versus $5,223,646 in the First Nine Months of 2000. This decrease is attributable to lowered performance based compensation and commission costs, and a reduction in wages. Income from continuing operations decreased to $609,568 in the First Nine Months of 2001 compared to $1,372,253 in the First Nine Months of 2000. This decrease can largely be attributed to the reduction in net sales. Net income for the First Nine Months decreased to $609,568 or 22 cents per share (diluted) compared to $850,745 or 27 cents per share (diluted) in the same period of 2000. As discussed in Note 5 of the financial statements, net income was reduced by $521,508 (net of tax) in the First Nine Months of 2000 due to the discontinued operations. 7 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. -------------------------------------------------------------------------------- (a) Exhibits: None. (b) No reports on Form 8-K were filed by the Company during the quarterly period ended September 29, 2001. 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 9, 2001 By: /s/ William A. Bassett ---------------------------------- William A. Bassett, President Date: November 9, 2001 By: /s/ Michael K. Solomon ---------------------------------- Michael K. Solomon, Treasurer 8