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 June 29, 2002
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
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(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 August 2, 2002
------------------- -----------------------------
Common Stock, Par Value $.20 Per Share 2,785,785
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
DECORATOR INDUSTRIES, INC.
BALANCE SHEETS
June 29, 2002 December 29, 2001
------------- -----------------
ASSETS (UNAUDITED)
------
Current Assets:
Cash and Cash Equivalents $ 3,138,837 $ 2,319,568
Accounts Receivable, less allowance for
doubtful accounts ($253,287 and $221,462) 4,310,063 3,525,377
Inventories 4,216,562 3,789,665
Other Current Assets 372,974 327,784
----------- -----------
Total Current Assets 12,038,436 9,962,394
----------- -----------
Property and Equipment:
Land, Buildings & Improvements 4,241,458 4,240,777
Machinery, Equipment, Furniture and Fixtures 5,587,667 5,212,066
----------- -----------
Total Property and Equipment 9,829,125 9,452,843
Less: Accumulated Depreciation and Amortization 4,361,282 4,045,789
----------- -----------
Net Property and Equipment 5,467,843 5,407,054
----------- -----------
Goodwill 2,731,717 2,731,717
Other Assets 266,209 264,351
----------- -----------
Total Assets $20,504,205 $18,365,516
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 3,482,556 $ 2,102,730
Current Maturities of Long-term Debt 116,195 105,441
Accrued Expenses:
Income taxes 298,592 39,518
Compensation 826,235 764,305
Other 888,665 876,327
----------- -----------
Total Current Liabilities 5,612,243 3,888,321
----------- -----------
Long-Term Debt 1,541,110 1,604,245
Deferred Income Taxes 431,000 409,000
----------- -----------
Total Liabilities 7,584,353 5,901,566
----------- -----------
Stockholders' Equity
Common stock $.20 par value:
Authorized shares, 10,000,000; Issued shares, 4,485,635 897,127 897,127
Paid-in Capital 1,425,565 1,425,437
Retained Earnings 18,946,976 18,300,698
----------- -----------
21,269,668 20,623,262
Less: Treasury stock, at cost: 1,699,945 and 1,669,948 shares 8,349,816 8,159,312
----------- -----------
Total Stockholders' Equity 12,919,852 12,463,950
----------- -----------
Total Liabilities and Stockholders' Equity $20,504,205 $18,365,516
=========== ===========
The accompanying notes are an integral part of the financial statements.
1
DECORATOR INDUSTRIES, INC.
STATEMENTS OF EARNINGS
(UNAUDITED)
FOR THIRTEEN WEEKS ENDED: FOR TWENTY-SIX WEEKS ENDED:
---------------------------------------------- ----------------------------------------------
June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001
-------------------- ------------------- --------------------- -------------------
Net sales $10,363,395 100.00% $9,475,661 100.00% $19,281,528 100.00% $17,528,616 100.00%
Cost of products sold 7,917,272 76.40% 7,380,201 77.89% 14,930,671 77.44% 13,967,586 79.68%
----------- ---------- ----------- -----------
Gross profit 2,446,123 23.60% 2,095,460 22.11% 4,350,857 22.56% 3,561,030 20.32%
Selling and
Administrative expenses 1,607,431 15.51% 1,592,061 16.80% 3,011,949 15.62% 3,131,800 17.87%
----------- ---------- ----------- -----------
Operating income 838,692 8.09% 503,399 5.31% 1,338,908 6.94% 429,230 2.45%
Interest and
investment income 12,410 -0.12% 16,186 -0.17% 25,105 -0.13% 20,103 -0.11%
Interest expense (7,080) 0.07% (17,811) 0.19% (14,850) 0.08% (41,294) 0.23%
----------- ---------- ----------- -----------
Earnings before 844,022 8.14% 501,774 5.29% 1,349,163 6.99% 408,039 2.33%
income taxes
Provision for
income taxes 335,000 3.23% 196,000 2.07% 535,000 2.77% 171,000 0.98%
----------- ---------- ----------- -----------
Net Income $509,022 4.91% $305,774 3.22% $814,163 4.22% $237,039 1.35%
=========== ========== =========== ===========
Earnings per share:
Basic $0.18 $0.10 $0.29 $0.08
===== ===== ===== =====
Diluted $0.18 $0.10 $0.29 $0.08
===== ===== ===== =====
Weighted-average
number of shares
outstanding:
Basic 2,787,713 2,809,155 2,800,270 2,801,561
Diluted 2,845,261 2,809,155 2,832,928 2,817,351
The accompanying notes are an integral part of the financial statements.
2
DECORATOR INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR TWENTY-SIX WEEKS ENDED:
June 29, 2002 June 30, 2001
------------- -------------
Cash Flows From Operating Activities:
Net Income $ 814,163 $ 237,039
Adjustments To Reconcile Net Income To Net Cash
Provided By Operating Activities:
Depreciation And Amortization 323,344 378,308
Provision For Losses On Accounts Receivable 33,131 74,000
Deferred Taxes 16,000 74,000
Loss On Disposal Of Assets 19 25,328
(Increase) Decrease from Changes in Accounts Receivable (817,817) (261,930)
(Increase) Decrease from Changes in Inventories (426,897) 1,127,181
(Increase) Decrease from Changes in Prepaid Expenses (39,190) 250,916
(Increase) Decrease from Changes in Other Assets (1,858) (24,539)
Increase (Decrease) from Changes in Accounts Payable 1,379,826 516,032
Increase (Decrease) from Changes in Accrued Expenses 333,342 (352,243)
---------- ----------
Net Cash Provided by Operating Activities 1,614,063 2,044,092
---------- ----------
Cash Flows From Investing Activities:
Capital Expenditures (384,302) (312,092)
Proceeds from Property Dispositions 150 7,625
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Net Cash Used in Investing Activities (384,152) (304,467)
---------- ----------
Cash Flows From Financing Activities:
Long-Term Debt Payments (52,381) (51,860)
Dividend Payments (167,885) (168,858)
Proceeds from Exercise of Stock Options -- 22,324
Purchase of Common Stock for Treasury (210,376) (8,319)
Issuance of Stock for Director's Trust 20,000 25,117
---------- ----------
Net Cash Used in Financing Activities (410,642) (181,596)
---------- ----------
Net Increase in Cash and Cash Equivalents 819,269 1,558,029
Cash and Cash Equivalents at Beginning of Year 2,319,568 307,819
---------- ----------
Cash and Cash Equivalents at End of Period $3,138,837 $1,865,848
========== ==========
Supplemental disclosures of cash flow information: Cash paid for:
Interest $16,575 $39,654
Income taxes $267,425 $35,942
The accompanying notes are an integral part of the financial statements.
3
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
TWENTY-SIX WEEKS ENDED JUNE 29, 2002 AND JUNE 30, 2001
(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 29, 2002, the changes therein
for the twenty-six week period then ended and the results of operations
for the twenty-six week periods ended June 29, 2002 and June 30, 2001.
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 29, 2001. The results of operations for the twenty-six week
periods ended June 29, 2002 and June 30, 2001 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 June 29, 2002 and December 29, 2001 consisted of the
following:
June 29, 2002 December 29, 2001
------------- -----------------
Raw Material
and Supplies $3,905,938 $3,475,824
In Process and
Finished Goods 310,624 313,841
---------- ----------
Total Inventory $4,216,562 $3,789,665
========== ==========
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 include 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: Twenty-six weeks ended:
----------------------------------- -----------------------------------
June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001
------------- ------------- ------------- -------------
Numerator:
Net income $509,022 $305,774 $814,163 $237,039
========= ========= ========= =========
Denominator:
Weighted-average number
of common shares
outstanding 2,787,713 2,809,155 2,800,270 2,801,561
Dilutive effect of
stock options on net
income 57,548 -- 32,658 15,790
--------- --------- --------- ---------
2,845,261 2,809,155 2,832,928 2,817,351
========= ========= ========= =========
Diluted earnings per
share: $0.18 $0.10 $0.29 $0.08
===== ===== ===== =====
4
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TWENTY-SIX WEEKS ENDED JUNE 29, 2002 AND JUNE 30, 2001
(UNAUDITED)
NOTE 5. ADOPTION OF STATEMENT 142
-------------------------
In accordance with SFAS No. 142, "Goodwill and Other Intangible
Assets", in the period of initial application and thereafter, goodwill
amortization expense is to be excluded from net earnings, as
illustrated in the following reconciliation.
Thirteen weeks ended: Twenty-six weeks ended:
--------------------- -----------------------
June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001
Reported net earnings $509,022 $305,774 $814,163 $237,039
Add back: goodwill
amortization (after tax) -- 21,410 -- 42,821
--------------------------- --------------------------
Adjusted net earnings $509,022 $327,184 $814,163 $279,860
=========================== ==========================
Basic earnings per share
Reported net earnings $0.18 $0.10 $0.29 $0.08
Goodwill amortization
(after tax) -- .01 -- .02
--------------------------- --------------------------
Adjusted net earnings $0.18 $0.11 $0.29 $0.10
=========================== ==========================
Diluted earnings per share
Reported net earnings $0.18 $0.10 $0.29 $0.08
Goodwill amortization
(after tax) -- .01 -- .02
--------------------------- --------------------------
Adjusted net earnings $0.18 $0.11 $0.29 $0.10
=========================== ==========================
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 2002.
June 29, 2002 December 29, 2001
------------- -----------------
Current Ratio 2.15 2.56
Quick Ratio 1.39 1.59
LT Debt to Total Capital 10.66% 11.40%
Working Capital $6,426,193 $6,074,073
Days sales outstanding in accounts receivable were 37.1 days at June 29, 2002
compared to 34.6 days at June 30, 2001. Accounts receivable increased by 22.2%,
inventories increased by 11.3%, and cash increased by $819,269 over the six
month period ended June 29, 2002.
Management does not foresee any events which will adversely affect its liquidity
during 2002. 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:
Second Second
Quarter Quarter YTD YTD
Earnings Ratios 2002 2001 2002 2001
--------------- ------- ------- ----- -----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 76.40 77.89 77.44 79.68
Selling and administrative 15.51 16.80 15.62 17.87
Interest and investment income (0.12) (0.17) (0.13) (0.11)
Interest expense 0.07 0.19 0.08 0.23
Income taxes 3.23 2.07 2.77 0.98
Net income 4.91 3.22 4.22 1.35
6
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations. (Continued)
----------------------
Thirteen Week Period Ended June 29, 2002 (Second Quarter 2002) compared to
Thirteen Week Period Ended June 30, 2001 (Second Quarter 2001)
- --------------------------------------------------------------
Net sales for the Second Quarter 2002 were $10,363,395, compared to $9,475,661
for the same period in the previous year, a 9.4% increase. The Company
experienced increased sales in the recreational vehicle and hospitality markets,
while sales decreased in the manufactured housing market.
Cost of products sold decreased to 76.4% in the Second Quarter 2002 compared to
77.9% a year ago. This improvement was the result of improved labor
efficiencies, better material utilization, and allocating fixed expenses over a
larger sales volume.
Selling and administrative expenses were $1,607,431 in the Second Quarter 2002
versus $1,592,061 in the Second Quarter 2001. This increase resulted from
increased performance based compensation and commissions, reduced by the change
in accounting for goodwill (see Note 5) and a decrease in the administrative
workforce.
Interest expense decreased to $7,080 in the Second Quarter 2002 from $17,811 in
the Second Quarter 2001 because of reduced borrowings and lower interest rates.
Net income increased to $509,022 in the Second Quarter 2002 compared to $305,774
of net income in the Second Quarter 2001. This increase is largely the result of
increased sales, better material utilization, and improved labor efficiencies.
Twenty-six Week Period Ended June 29, 2002 (First Six Months 2002) compared to
Twenty-six Week Period Ended June 30, 2001 (First Six Months 2001)
- ------------------------------------------------------------------
Net sales for the First Six Months 2002 were $19,281,528, up from $17,528,616 in
the prior year, a 10.0% increase. The Company experienced a significant sales
increase in the recreational vehicle market. Hospitality sales increased
moderately while manufactured housing sales decreased.
Cost of products sold decreased to 77.4% in the First Six Months 2002 compared
to 79.7% a year ago. The improvement is largely the result of increased labor
and material efficiencies and allocating fixed expenses over a larger sales
volume.
Selling and administrative expenses were $3,011,949 in the First Six Months 2002
versus $3,131,800 in the First Six Months 2001. This decrease is attributable to
the change in accounting for goodwill (see Note 5), a reduction in bad debt
expense, a decrease in the administrative workforce, offset by an increase in
performance based compensation.
Net income for the First Six Months 2002 increased to $814,163 or 29 cents per
share (diluted) compared to $237,039 or 8 cents per share (diluted) in the same
period in 2001. This increase is largely the result of increased sales, better
material utilization, and improved labor efficiencies.
7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
---------
99.1 Certificate required by 18 U.S.C. ss1350
(b) No reports on Form 8-K were filed by the Company during the quarterly
period ended June 29, 2002.
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 12, 2002 By: /s/ William A. Bassett
--------------- -----------------------------
William A. Bassett, President
Date: August 12, 2002 By: /s/ Michael K. Solomon
--------------- -----------------------------
Michael K. Solomon, Treasurer
8