United States Securities & Exchange Commission EDGAR Filing

10-Q 1 decor_10q.htm QUARTERLY REPORT United States Securities & Exchange Commission EDGAR Filing

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 April 4, 2009

[ ] 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 a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	[ ]	Accelerated filer	[ ]
Non-accelerated filer	[ ]	Smaller reporting company	[X]

Indicate by check mark whether the registrant is a shell company (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 May 18, 2009
Common Stock, Par Value $.20 Per Share		2,979,207 shares

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

DECORATOR INDUSTRIES, INC

BALANCE SHEETS


ASSETS	April 4, 2009		January 3, 2009
	(UNAUDITED)
Current Assets:
Cash and Cash Equivalents	$	43,370	$	16,499
Accounts Receivable, less allowance for doubtful accounts ($233,809 and $446,421)		2,138,103		2,214,256
Inventories		2,910,909		3,783,581
Other Current Assets		473,376		524,879
Total Current Assets		5,565,758		6,539,215

Property and Equipment
Land, Buildings & Improvements		4,770,019		4,805,667
Machinery, Equipment, Furniture & Fixtures and Software		7,353,977		7,750,046
Total Property and Equipment		12,123,996		12,555,713
Less: Accumulated Depreciation and Amortization		7,240,558		7,355,020
Active Assets, Net		4,883,438		5,200,693
Property Held for Sale, Net		3,357,565		3,369,374
Net Property and Equipment		8,241,003		8,570,067

Goodwill, less accumulated Amortization of $1,348,569		3,802,300		3,799,300
Deferred Income taxes		1,559,000		876,000
Other Assets		259,013		362,227

Total Assets	$	19,427,074	$	20,146,809


LIABILITIES & STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts Payable	$	995,185	$	830,153
Current Maturities of Long-term Debt		3,619,000		2,684,000
Checks Issued But Not Yet Presented		380,065		321,703
Accrued Expenses:
Compensation		314,024		420,583
Other		1,396,547		1,875,677
Total Current Liabilities		6,704,821		6,132,116

Long-Term Debt		585,000		615,000
Total Liabilities		7,289,821		6,747,116

Stockholders' Equity
Common Stock $.20 par value: Authorized shares, 10,000,000; Issued shares, 4,693,051 and 4,658,729		938,610		931,746
Paid-in Capital		2,033,011		2,011,386
Retained Earnings		17,478,555		18,769,484
		20,450,176		21,712,616
Less: Treasury stock, at cost: 1,713,844 shares		8,312,923		8,312,923
Total Stockholders' Equity		12,137,253		13,399,693
Total Liabilities and Stockholders' Equity	$	19,427,074	$	20,146,809

The accompanying notes are an integral part of the financial statements.

DECORATOR INDUSTRIES, INC

STATEMENTS OF EARNINGS

(UNAUDITED)


	For the Thirteen Weeks Ended
	April 4, 2009				March 29, 2008
Net Sales	$	5,105,638		100.0%	$	10,503,898		100.0%
Cost of Products Sold		4,386,843		85.9%		9,007,688		85.8%
Gross Profit		718,795		14.1%		1,496,210		14.2%

Selling and Administrative Expenses		2,488,990		48.8%		2,254,076		21.4%
Operating Loss		(1,770,195	)	-34.7%		(757,866	)	-7.2%

Other Income (Expense)
Interest, Investment, and Other Income		3,631		0.1%		19,449		0.2%
Interest Expense		(36,365	)	-0.7%		(30,101	)	-0.3%
Loss Before Income Taxes		(1,802,929	)	-35.3%		(768,518	)	-7.3%
Provision for Income Taxes		(512,000	)	-10.0%		(293,000	)	-2.8%

Net Loss	$	(1,290,929	)	-25.3%	$	(475,518	)	-4.5%


EARNINGS PER SHARE
Basic	$	(0.44	)		$	(0.16	)

Diluted	$	(0.44	)		$	(0.16	)

Weighted Average Number of Shares Outstanding
Basic		2,953,560				2,936,556
Diluted		2,953,560				2,936,556

DECORATOR INDUSTRIES, INC

STATEMENTS OF CASH FLOWS

(UNAUDITED)


	For the Thirteen Weeks Ended
	April 4, 2009			March 29, 2008
Cash Flows From Operating Activities:
Net Loss	$	(1,290,929	)	$	(475,518	)
Adjustments to Reconcile Net Loss to Net Cash
Used in Operating Activities
Depreciation and Amortization		146,963			358,335
Provision for Losses on Accounts Receivable		17,651			5,000
Deferred Taxes		(512,000	)		5,000
Stock-Based Compensation		8,239			11,450
Gain on Disposal of Assets		(7,017	)		(4,000	)
Noncash charges for asset impairment		335,500			—
Increase/(Decrease) from Changes in:
Accounts Receivable		58,502			(347,697	)
Inventories		872,672			(322,282	)
Prepaid Expenses		(119,497	)		(420,036	)
Other Assets		(42,286	)		85,611
Accounts Payable		165,032			495,014
Accrued Expenses		(588,689	)		28,411
Net Cash Used In Operating Activities		(955,859	)		(580,712	)

Cash Flows From Investing Activities:
Capital Expenditures		(11,232	)		(113,838	)
Proceeds from Property Dispositions		10,350			3,200
Net Cash Used in Investing Activities		(882	)		(110,638	)

Cash Flows From Financing Activities:
Long-term Debt Payments		(30,000	)		(48,166	)
Dividend Payments		—			(87,676	)
Change in Checks Issued but Not Yet Presented		58,362			106,904
Net Borrowings under Line-of-Credit Agreement		935,000			1,085,000
Issuance of Stock for Directors Trust		20,250			20,250
Purchase of Common Stock for Treasury		—			(386,002	)
Net Cash Provided by Financing Activities		983,612			690,310

Net Increase/(Decrease) in Cash and Cash Equivalents		26,871			(1,040	)
Cash and Cash Equivalents at Beginning of Year		16,499			17,544

Cash and Cash Equivalents at End of Period	$	43,370		$	16,504

Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest	$	33,582		$	28,120
Income Taxes	$	—		$	1,530

Increase in Acquisition Cost/Goodwill	$	3,000		$	55,220
Working Capital, other than Cash		(3,000	)		(55,220	)
Net Cash Paid for Acquisition/Goodwill	$	—		$	—

DECORATOR INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS

THIRTEEN WEEKS ENDED APRIL 4, 2009 AND MARCH 29, 2008

(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 April 4, 2009, the changes therein for the thirteen week period then ended and the results of operations for the thirteen week periods ended April 4, 2009 and March 29, 2008.

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 January 3, 2009. The results of operations for the thirteen week periods ended April 4, 2009 and March 29, 2008 are not necessarily indicative of operating results for the full year.

NOTE 3.

INVENTORIES

Inventories at April 4, 2009 and January 3, 2009 consisted of the following:


	April 4, 2009		January 3, 2009
Raw Material and Supplies	$	2,297,197	$	3,166,886
In Process and Finished Goods		613,712		616,695
Total Inventory	$	2,910,909	$	3,783,581

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. No dilution is shown for the thirteen week periods ended April 4, 2009 and March 29, 2008 since the effect of the stock options on the net loss is antidilutive. In accordance with SFAS No. 128, the following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations:


	For the Thirteen Weeks Ended
	April 4, 2009			March 29, 2008
Numerator:
Net loss	$	(1,290,929	)	$	(475,518	)
Denominator:
Weighted-average number of common shares outstanding		2,953,560			2,936,556

Dilutive effect of stock options on net income		0			0

		2,953,560			2,936,556

Diluted earnings per share:	$	(0.44	)	$	(0.16	)

NOTE 5.

SUBSEQUENT EVENT

On May 1, 2009 and May 7, 2009, respectively, the Company entered into Sale/Leaseback transactions for its Abbotsford, WI and Bossier City, LA facilities.

The net proceeds from these sales were $1,438,000 and were used to pay down the line-of-credit with Wachovia Bank. The Company will recognize a loss on the building sales of approximately $100,000 in the second quarter of 2009.

The leases that the Company entered into for these facilities were each for 15 year terms and will have a total annual rent in the first year of $158,000. Each lease has an annual increase of two percent and the Company is responsible for all maintenance and the payment of property taxes.

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 general economic conditions, interest rate fluctuations, the availability of consumer credit, the availability of floor-plan credit for recreational vehicle and manufactured housing retail dealers, the availability of financing for manufacturers, fuel prices, 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 ratios changed as illustrated below.


	April 4, 2009	January 3, 2009
Current Ratio	0.83:1	1.07:1
Quick Ratio	0.40:1	0.45:1
Funded Debt to Total Capital	25.7%	19.8%
Working Capital	$(1,139,063)	$407,099

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

In May 2006, the Company entered into a line-of-credit agreement with Wachovia Bank. The agreement with Wachovia provides for a revolving line of credit of up to $5,000,000, and expires on June 30, 2009. The interest rate is LIBOR plus 150 basis points and the Company is required to maintain certain financial covenants. The 2007 loss caused the Company to violate the financial covenant in the loan agreement that the ratio of Senior Funded Debt to EBITDA may not exceed 2.75 to 1.00. The Company believes it is in compliance with all other conditions of the loan agreement. Wachovia provided a waiver for this violation through the end of the third quarter of 2008. The waiver agreement changed the interest rate from LIBOR plus 150 basis points to LIBOR plus 275 basis points. The waiver has expired and the Company is in default of the loan covenant. At April 4, 2009, the Company had $3,499,000 in outstanding borrowings on the line-of-credit. The outstanding balance on the line-of-credit as of January 3, 2009 was $2,564,000.

Management has negotiated with Wachovia Bank, which is now a Wells Fargo Company, for Wachovia to continue to fund its line-of-credit beyond the June 30, 2009 expiration date of its current agreement. Wachovia has initially agreed to provide the Company with a forbearance agreement which will run for six months to December 31, 2009. Wachovia has suggested that, if need be, it could provide an additional six month agreement through June 30, 2010. Although the forbearance agreement has not been completed at this time, Wachovia has indicated that the interest rate under the forbearance agreement will be eight percent, and a fee for extending the line will be required.

On May 1, 2009 and May 7, 2009, respectively, the Company entered into Sale/Leaseback transactions for its Abbotsford, WI and Bossier City, LA facilities.

In January 2004, the Company began assigning certain account receivables under a "Receivables Servicing and Credit Approved Receivables Purchasing Agreement" with CIT Group/Commercial Services Inc. Only receivables from sales to the hospitality industry may be assigned to CIT. Under the agreement CIT provides credit checking, credit approval, and collection responsibilities for the assigned receivables. If CIT approves an order from a hospitality customer and the resulting receivables are not paid or disputed by the customer within ninety days of sale, CIT will pay the receivable to the Company and assume ownership of the receivable. CIT begins collection efforts for the assigned receivables (both approved and not approved) when they are due (hospitality sales are made on Net 30 terms). Hospitality customers are instructed to make payments directly to CIT and CIT then wires collected funds to the Company. The Company pays CIT a percentage of all assigned receivables. Management believes this cost is mostly offset by reductions in Bad Debt expense and collection costs. The Company entered into this arrangement to take advantage of CIT’s extensive credit checking and collection capabilities. Management believes this arrangement has improved liquidity.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

Days Sales Outstanding (DSO) in accounts receivable were 37.6 days at April 4, 2009 compared to 29.8 days and 31.8 days at January 3, 2009 and March 29, 2008, respectively. The increase is attributable to longer collection times in addition to a greater percentage of the Company’s sales to the hospitality market, which traditionally has had longer collection times. Net accounts receivable was $2,138,103 at April 4, 2009, compared to $2,214,256 and $3,767,569 at January 3, 2009 and March 29, 2008, respectively. The decrease in accounts receivable compared to March 29, 2008 is due to the reduced sales volumes in the current year. Inventories were $2,910,909 at April 4, 2009, as compared to $3,783,581 and $5,503,927 at January 3, 2009 and March 29, 2008, respectively. The inventory declines are due to inventory writedowns related to RV customer bankruptcies, the decision to discontinue the manufacturing of sewn products for the RV industry, and lower sales volume.

Capital expenditures were $11,232 for the quarter ended April 4, 2009, compared to $113,838 for the same period of the prior year.

SALES BY MARKET

The following table represents net sales to each of the three different markets that the Company serves for the thirteen week periods ended April 4, 2009 and March 29, 2008:


(dollars in thousands)
	For the Thirteen Weeks Ended
	April 4, 2009			March 29, 2008
		Net	% of		Net	% of
		Sales	total		Sales	total
Recreational Vehicle	$	853	17%	$	4,820	46%
Manufactured Housing		1,300	25%		2,391	23%
Hospitality		2,953	58%		3,293	31%

Total Net Sales	$	5,106	100%	$	10,504	100%

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

RESULTS OF OPERATIONS

Thirteen Week Period Ended April 4, 2009, (First Quarter 2009) compared to

Thirteen Week Period Ended March 29, 2008, (First Quarter 2008)

The following table shows a comparison of the results of operations between First Quarter 2009 and First Quarter 2008:


	First Quarter 2009			% of Sales	First Quarter 2008			% of Sales	$ Increase (Decrease)			% Change
	First Quarter 2009			% of Sales	First Quarter 2008			% of Sales	$ Increase (Decrease)			% Change

Net Sales	$	5,105,638		100%	$	10,503,898		100%	$	(5,398,260	)	-51.4%
Cost of Products Sold		4,386,843		85.9%		9,007,688		85.8%		(4,620,845	)	-51.3%
Gross Profit		718,795		14.1%		1,496,210		14.2%		(777,415	)	-52.0%

Selling and Administrative Expenses		2,488,990		48.8%		2,254,076		21.4%		234,914		10.4%
Operating Loss		(1,770,195	)	-34.7%		(757,866	)	-7.2%		(1,012,329	)	133.6%

Other Income (Expense)
Interest, Investment and
Other Income		3,631		0.1%		19,449		0.2%		(15,818	)	-81.3%
Interest Expense		(36,365	)	-0.7%		(30,101	)	-0.3%		(6,264	)	20.8%
Loss Before Income Taxes		(1,802,929	)	-35.3%		(768,518	)	-7.3%		(1,034,411	)	134.6%
Provision for Income Taxes		(512,000	)	-10.0%		(293,000	)	-2.8%		(219,000	)	74.7%

Net Loss	$	(1,290,929	)	-25.3%	$	(475,518	)	-4.5%	$	(815,411	)	171.5%

Net sales for the First Quarter 2009 were $5,105,638, compared to $10,503,898 for the same period in the previous year, a 51.4% decrease. Sales to the Company’s recreational vehicle customers decreased 82.3% in First Quarter 2009 when compared to the same period of the prior year. The recreational vehicle industry reported a 63.2% decrease in shipments during the First Quarter 2009 compared to the same period of the prior year. The Company’s sales to the RV industry decreased by more than the overall market because two of the Company’s major RV customers (Fleetwood Enterprises and Monaco Coach Corp.) filed bankruptcies during the first week of March 2009. Sales to these two customers were $127,000 in the First Quarter 2009 versus $2,009,000 in the First Quarter 2008. Sales to the Company’s manufactured housing customers decreased 45.6% in First Quarter 2009 when compared to the same period of the prior year. The manufactured housing industry showed a 45.5% decrease in shipments from the prior year. Sales to the Company’s hospitality customers decreased 10.3% in the First Quarter 2009 when compared to the same period of the prior year.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

Selling and administrative expenses were $2,488,990 in the First Quarter 2009 versus $2,254,076 in the First Quarter 2008. The percentage of selling and administrative expenses to net sales increased from 21.4% to 48.8%. The Company recorded a charge of $750,000 in the First Quarter 2009 in relation to its decision to discontinue the manufacture of sewn products for the RV industry. Without this charge, selling and administrative expenses would have been $1,738,990, or 34.1% of net sales, a decrease of $515,086 compared to First Quarter 2008. Management will continue to reduce these costs to better align with the current level of sales.

Interest expense increased to $36,365 in the First Quarter 2009 from $30,101 in the First Quarter 2008, due to increased borrowings on the Company’s line of credit during the First Quarter 2009.

Net loss was $1,290,929 in the First Quarter 2009 compared to net loss of $475,518 in the First Quarter 2008. The major reason for the increased loss was the lower sales volume and the charge of $750,000 in the First Quarter 2009 in relation to its decision to discontinue the manufacture of sewn products for the RV industry. Diluted earnings per share decreased from $0.16 per share loss during the First Quarter 2008 to $0.44 per share loss during the First Quarter 2009.

EBITDA

EBITDA represents income before income taxes, interest expense, depreciation and amortization and is an approximation of cash flow from operations before tax. The Company uses EBITDA as an internal measure of performance and believes it is a useful and commonly used measure of financial performance in addition to income before taxes and other profitability measures under U.S. Generally Accepted Accounting Principles (“GAAP”).

EBITDA is not a measure of performance under GAAP. EBITDA should not be construed as an alternative to operating income and income before taxes as an indicator of the Company’s operations in accordance with GAAP. Nor is EBITDA an alternative to cash flow from operating activities in accordance with GAAP. The Company’s definition of EBITDA can differ from that of other companies.

The following table reconciles Net Income, the most comparable measure under GAAP, to EBITDA for the first quarters of fiscal 2009 and 2008:

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)


	For the Thirteen Weeks Ended
	April 4, 2009			March 29, 2008

Net Loss	$	(1,290,929	)	$	(475,518	)

Add:
Interest		36,365			30,101
Taxes		(512,000	)		(293,000	)
Depreciation & Amortization		146,963			358,335
Gain on Disposal		(7,017	)		(4,000	)
Noncash charge for Asset Impairment		335,500			—

EBITDA	$	(1,291,118	)	$	(384,082	)

Item 4. Controls and Procedures.

(a) The Company’s principal executive officer and principal financial officer have reviewed the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of April 4, 2009 and have concluded that they were adequate and effective.

(b) During the most recent fiscal quarter, there were no changes in the Company’s internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II – OTHER INFORMATION

Item 6. Exhibits

10CC -

Lease dated May 1, 2009 between registrant, as lessee, and Sperber Investments I, L.L.C. covering property at 1400 Ash Street, Abbotsford, Wisconsin.

10DD -

Lease dated May 7, 2009 between registrant, as lessee, and Viking Properties, L.L.C. covering property at 4300 Viking Drive, Bossier City, Louisiana.

31.1 -

Certification of Principal Executive Officer

31.2 -

Certification of Principal Financial Officer

32 -

Certificate required by 18 U.S.C. §1350.

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:	May 18, 2009	By:	/s/ William A. Johnson
			William A. Johnson, Chief Executive Officer and President


Date:	May 18, 2009	By:	/s/ Michael K. Solomon
			Michael K. Solomon, Chief Financial Officer