10-Q 1 decortor-10q.txt QUARTERLY REPORT 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 June 28, 2003 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] 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 August 8, 2003 ------------------- ----------------------------- Common Stock, Par Value $.20 Per Share 2,794,880 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. ------- --------------------- DECORATOR INDUSTRIES, INC BALANCE SHEETS
ASSETS June 28, December 28, 2003 2002 ----------- ----------- (UNAUDITED) CURRENT ASSETS: Cash and Cash Equivalents $ 3,626,412 $ 2,117,762 Accounts Receivable, less allowance for doubtful accounts ($223,869 and $202,933) 4,341,699 3,414,629 Inventories 4,038,626 4,388,070 Other Current Assets 306,006 419,620 ----------- ----------- TOTAL CURRENT ASSETS 12,312,743 10,340,081 ----------- ----------- Property and Equipment Land, Buildings & Improvements 5,048,858 5,043,458 Machinery, Equipment, Furniture & Fixtures 5,855,754 5,585,401 ----------- ----------- Total Property and Equipment 10,904,612 10,628,859 Less: Accumulated Depreciation and Amortization 4,880,568 4,640,040 ----------- ----------- Net Property and Equipment 6,024,044 5,988,819 ----------- ----------- Goodwill, less accumulated Amortization of $1,348,569 2,731,717 2,731,717 Other Assets 500,514 419,517 ----------- ----------- TOTAL ASSETS $21,569,018 $19,480,134 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts Payable $ 3,077,945 $ 2,059,871 Current Maturities of Long-term Debt 170,109 126,750 Accrued Expenses: Income taxes 106,742 -- Compensation 757,038 856,786 Other 891,049 1,105,646 ----------- ----------- TOTAL CURRENT LIABILITIES 5,002,883 4,149,053 ----------- ----------- Long-Term Debt 2,011,736 1,477,973 Deferred Income Taxes 548,000 505,000 ----------- ----------- TOTAL LIABILITIES 7,562,619 6,132,026 ----------- ----------- Stockholders' Equity Common Stock $.20 par value: Authorized shares, 10,000,000; Issued shares, 4,485,728 897,146 897,127 Paid-in Capital 1,426,121 1,425,826 Retained Earnings 19,988,275 19,349,984 ----------- ----------- 22,311,542 21,672,937 Less: Treasury stock, at cost: 1,690,848 and 1,694,856 shares 8,305,143 8,324,829 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 14,006,399 13,348,108 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $21,569,018 $19,480,134 =========== ===========
The accompanying notes are an integral part of the financial statements. 1 DECORATOR INDUSTRIES, INC STATEMENTS OF EARNINGS (UNAUDITED)
For the Thirteen Weeks Ended For the Twenty-Six Weeks Ended ---------------------------- ------------------------------ June 28, 2003 June 29, 2002 June 28, 2003 June 29, 2002 ------------- ------------- -------------- ------------- Net Sales $ 10,767,015 100.00% $ 10,363,395 100.00% $ 20,546,768 100.00% $ 19,281,528 100.00% Cost of Products Sold 8,316,549 77.24% 7,917,272 76.40% 16,026,250 78.00% 14,930,671 77.44% ------------- ------------- -------------- ------------- Gross Profit 2,450,466 22.76% 2,446,123 23.60% 4,520,518 22.00% 4,350,857 22.56% Selling and Administrative Expenses 1,640,167 15.23% 1,607,431 15.51% 3,200,891 15.58% 3,011,949 15.62% ------------- ------------- -------------- ------------- Operating Income 810,299 7.53% 838,692 8.09% 1,319,627 6.42% 1,338,908 6.94% Other Income (Expense) Interest and Investment Income 14,254 0.13% 12,410 0.12% 23,735 0.12% 25,105 0.13% Interest Expense (1,625) -0.02% (7,080) -0.07% (5,559) -0.03% (14,850) -0.08% ------------- ------------- -------------- ------------- Earnings Before Income Taxes 822,928 7.64% 844,022 8.14% 1,337,803 6.51% 1,349,163 7.00% Provision for Income Taxes 325,000 3.02% 335,000 3.23% 532,000 2.59% 535,000 2.77% ------------- ------------- -------------- ------------- NET INCOME $ $ 497,928 4.62% $ 509,022 4.91% $ 805,803 3.92% $ 814,163 4.22% ============= ============= ============== ============= EARNINGS PER SHARE BASIC $ 0.18 $ 0.18 $ 0.29 $ 0.29 ============= ============= ============== ============= DILUTED $ 0.18 $ 0.18 $ 0.29 $ 0.29 ============= ============= ============== ============= Weighted Average Number of Shares Outstanding Basic 2,793,229 2,787,800 2,792,228 2,800,313 Diluted 2,796,524 2,845,348 2,802,086 2,832,971
The accompanying notes are an integral part of the financial statements. 2 DECORATOR INDUSTRIES, INC STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Twenty-six Weeks Ended ------------------------------ June 28, 2003 June 29, 2002 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 805,803 $ 814,163 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities Depreciation and Amortization 350,305 323,344 Provision for Losses on Accounts Receivable 20,000 33,131 Deferred Taxes 38,000 16,000 Loss on Disposal of Assets 10,767 19 Increase (Decrease) from Changes in: Accounts Receivable (947,070) (817,817) Inventories 349,444 (426,897) Prepaid Expenses (23,384) (39,190) Other Assets (80,997) (1,858) Accounts Payable 1,018,074 1,379,826 Accrued Expenses (65,605) 333,342 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,475,337 1,614,063 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital Expenditures (397,197) (384,302) Proceeds from Property Dispositions 900 150 ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (396,297) (384,152) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Long-term Debt Payments (62,878) (52,381) Dividend Payments (167,512) (167,885) Issuance of Stock for Directors Trust 20,000 20,000 Proceeds on Debt from Building 640,000 -- Purchase of Common Stock for Treasury -- (210,376) ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 429,610 (410,642) Net Increase in Cash and Cash Equivalents 1,508,650 819,269 Cash and Cash Equivalents at Beginning of Year 2,117,762 2,319,568 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,626,412 $ 3,138,837 =========== =========== Supplemental Disclosures of Cash Flow Information: Cash Paid for: Interest $ 12,898 $ 16,575 Income Taxes $ 245,259 $ 267,425
The accompanying notes are an integral part of the financial statements. 3 DECORATOR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS TWENTY-SIX WEEKS ENDED JUNE 28, 2003 AND JUNE 29, 2002 (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 June 28, 2003, the changes therein for the twenty-six week period then ended and the results of operations for the twenty-six week periods ended June 28, 2003 and June 29, 2002. 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 accounting principles generally accepted in the United States of America. For additional information, reference is made to the Company's annual report on Form 10-K for the year ended December 28, 2002. The results of operations for the twenty-six week periods ended June 28, 2003 and June 29, 2002 are not necessarily indicative of operating results for the full year. NOTE 3. INVENTORIES ----------- Inventories at June 28, 2003 and December 28, 2002 consisted of the following: June 28, 2003 December 28, 2002 ------------- ----------------- Raw Material and supplies $3,593,742 $3,944,768 In Process and Finished Goods 444,884 443,302 ---------- ---------- Total Inventory $4,038,626 $4,388,070 ========== ========== 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. 4 DECORATOR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS TWENTY-SIX WEEKS ENDED JUNE 28, 2003 AND JUNE 29, 2002 (UNAUDITED)
For the Thirteen Weeks Ended For the Twenty-Six Weeks Ended June 28, 2003 June 29, 2002 June 28, 2003 June 29, 2002 ------------- ------------- ------------- ------------- Numerator: Net income $ 497,928 $ 509,022 $ 805,803 $ 814,163 ========== ========== ========== ========== Denominator: Weighted-average number of common shares outstanding 2,793,229 2,787,800 2,792,228 2,800,313 Dilutive effect of stock options on net income 3,295 57,548 9,858 32,658 ---------- ---------- ---------- ---------- 2,796,524 2,845,348 2,802,086 2,832,971 ========== ========== ========== ========== Diluted earnings per share: $ 0.18 $ 0.18 $ 0.29 $ 0.29 ========== ========== ========== ==========
NOTE 5. COMMITMENTS ----------- On July 29, 2003, the Company extended the employment agreement with its President (the "Employee") through December 31, 2007. As of January 1, 2008, the Employee shall be employed as a consultant for a period of five years terminating on December 31, 2012. For further information see Exhibit 10T.1 to this Form 10-Q. 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 Second Quarter 2003. June 28, 2003 December 28, 2002 -------------- ----------------- Current Ratio 2.46 2.49 Quick Ratio 1.65 1.43 LT Debt to Total Capital 12.56% 9.97% Working Capital $7,309,860 $6,191,028 Days sales outstanding in accounts receivable were 35.8 days at June 28, 2003 compared to 37.1 days at June 29, 2002 At June 28, 2003, net accounts receivable increased by 0.7% and inventories decreased by 4.2% compared to the balance at June 29, 2002. Cash increased by $1,508,650 for the first half of fiscal 2003. Management does not foresee any events which will adversely affect its liquidity during 2003. At the quarter end, the Company had no borrowings against its $5,000,000 revolving line of credit. During the quarter ended June 28, 2003, the Company received proceeds of $640,000 from a borrowing secured by a mortgage on its Elkhart, Indiana facility. The borrowing is at a fixed annual rate of 4.39%, with a 5 year term and a 15 year amortization. The proceeds are intended to finance an addition to this building. 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. 6 Item 2. Management's Discussion and Analysis of Financial Condition and ------- --------------------------------------------------------------- Results of Operations. (continued) ---------------------------------- RESULTS OF OPERATIONS --------------------- The following tables show the percentage relationship to net sales of certain items in the Company's Statements of Earnings:
Second Second Quarter Quarter YTD YTD Earnings Ratios 2003 2002 2003 2002 --------------- ------------ ------------ ------------ ------------ Net sales 100.0% 100.0% 100.0% 100.0% Cost of products sold 77.24 76.40 78.00 77.44 Selling and administrative 15.23 15.51 15.58 15.62 Interest and investment income (0.13) (0.12) (0.12) (0.13) Interest expense 0.02 0.07 0.03 0.08 Income taxes 3.02 3.23 2.59 2.77 Net income 4.62 4.91 3.92 4.22
THIRTEEN WEEK PERIOD ENDED JUNE 28, 2003, (SECOND QUARTER 2003) COMPARED TO THIRTEEN WEEK PERIOD ENDED JUNE 29, 2002, (SECOND QUARTER 2002) --------------------------------------------------------------- Net sales for the Second Quarter 2003 were $10,767,015, compared to $10,363,395 for the same period in the previous year, a 3.9% increase. The Company experienced increased sales in the recreational vehicle market, while sales decreased in the manufactured housing market. Cost of products sold increased to 77.2% in the Second Quarter 2003 compared to 76.4% a year ago, due to a negative impact from product mix and higher labor costs. Selling and administrative expenses were $1,640,167 in the Second Quarter 2003 versus $1,607,431 in the Second Quarter 2002. This increase resulted primarily from charges related to the ongoing implementation of an Enterprise-Resource-Planning system. Interest expense decreased to $1,625 in the Second Quarter 2003 from $7,080 in the Second Quarter 2002 because of lower interest rates. Net income decreased slightly to $497,928 in the Second Quarter of 2003 compared to $509,022 in the Second Quarter of 2002. This decrease is largely the result of increased administrative expenses, partially offset by increased sales. Net income per diluted share remained unchanged at $0.18 for the quarter. TWENTY-SIX WEEK PERIOD ENDED JUNE 28, 2003, (FIRST SIX MONTHS 2003) COMPARED TO TWENTY-SIX WEEK PERIOD ENDED JUNE 29, 2002, (FIRST SIX MONTHS 2002) ------------------------------------------------------------------- Net sales for the First Six Months 2003 were $20,546,768, compared to $19,281,528 for the same period in the previous year, a 6.6% increase. The Company experienced increased sales in the recreational vehicle market, while sales decreased in the manufactured housing market. The Manufactured Housing (MH) Institute indicated that industry wide shipments declined about 26% in the first six months of this year. The 7 Company's sales to MH customers declined about 18%. The Recreational Vehicle (RV) Industry Association reported that for the first six months of this year travel trailer shipments increased about 12% while shipments of motor homes were almost flat compared to a year ago. Our sales to RV customers increased about 21%. Hospitality sales were comparable to last year's sales. Cost of products sold increased to 78.0% in the First Six Months 2003 compared to 77.4% a year ago, due to a negative impact from product mix and higher labor costs. Selling and administrative expenses were $3,200,891 in the First Six Months 2003 versus $3,011,949 in the First Six Months 2002. This increase resulted from higher accruals for performance bonuses and charges related to the ongoing implementation of an Enterprise-Resource-Planning system. Interest expense decreased to $5,559 in the First Six Months 2003 from $14,850 in the First Six Months 2002 because of reduced borrowings and lower interest rates. Net income decreased slightly to $805,803 in the First Six Months of 2003, compared to $814,163 in the First Six Months of 2002. This decrease is largely the result of increased administrative expenses, partially offset by increased sales. Net income per diluted share remained unchanged at $0.29 for the six months. Item 3. Controls and Procedures. ------- ------------------------ (a) The Company's Chief Executive Officer and Chief Financial Officer have reviewed the effectiveness of the Company's disclosure controls and procedures as defined in Exchange Act Rules 13a-14(c) and 15d-14(c) within 90 days of the date of this report. These officers have concluded that the Company's disclosure controls and procedures were adequate and effective to ensure that material information relating to the financial statements has been disclosed. (b) There were no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's internal controls and procedures subsequent to the review date, nor any significant deficiencies or material weaknesses in such internal controls and procedures requiring corrective actions. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. ------- --------------------------------- (a) Exhibits filed herewith: 10T.1 - Amendment dated July 29, 2003 to Employment Agreement between the registrant and William Bassett 31.1 - Certification of President 31.2 - Certification of Treasurer 32 - Certificate required by 18 U.S.C.ss.1350. (b) No reports on Form 8-K were filed by the Company during the quarterly period ended June 28, 2003. 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: August 8, 2003 By: /s/ William A. Bassett ------------------------------ William A. Bassett, President Date: August 8, 2003 By: /s/ Michael K. Solomon ------------------------------ Michael K. Solomon, Treasurer 9