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.
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(Exact name of registrant as specified in its charter)
Pennsylvania 25-1001433
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(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 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
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Common Stock, Par Value $.20 Per Share 2,794,880
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
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DECORATOR INDUSTRIES, INC
BALANCE SHEETS
ASSETS June 28, December 28,
2003 2002
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(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
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TOTAL CURRENT ASSETS 12,312,743 10,340,081
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Property and Equipment
Land, Buildings & Improvements 5,048,858 5,043,458
Machinery, Equipment, Furniture & Fixtures 5,855,754 5,585,401
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Total Property and Equipment 10,904,612 10,628,859
Less: Accumulated Depreciation and Amortization 4,880,568 4,640,040
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Net Property and Equipment 6,024,044 5,988,819
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Goodwill, less accumulated Amortization of $1,348,569 2,731,717 2,731,717
Other Assets 500,514 419,517
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TOTAL ASSETS $21,569,018 $19,480,134
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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
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TOTAL CURRENT LIABILITIES 5,002,883 4,149,053
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Long-Term Debt 2,011,736 1,477,973
Deferred Income Taxes 548,000 505,000
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TOTAL LIABILITIES 7,562,619 6,132,026
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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
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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
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TOTAL STOCKHOLDERS' EQUITY 14,006,399 13,348,108
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $21,569,018 $19,480,134
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The accompanying notes are an integral part of the financial statements.
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DECORATOR INDUSTRIES, INC
STATEMENTS OF EARNINGS
(UNAUDITED)
For the Thirteen Weeks Ended For the Twenty-Six Weeks Ended
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June 28, 2003 June 29, 2002 June 28, 2003 June 29, 2002
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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%
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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
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June 28, 2003 June 29, 2002
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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
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NET CASH PROVIDED BY OPERATING ACTIVITIES 1,475,337 1,614,063
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (397,197) (384,302)
Proceeds from Property Dispositions 900 150
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NET CASH USED IN INVESTING ACTIVITIES (396,297) (384,152)
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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)
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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
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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
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Inventories at June 28, 2003 and December 28, 2002 consisted of the
following:
June 28, 2003 December 28, 2002
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Raw Material and supplies $3,593,742 $3,944,768
In Process and Finished Goods 444,884 443,302
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Total Inventory $4,038,626 $4,388,070
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NOTE 4. EARNINGS PER SHARE
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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
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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
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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
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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.
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Item 2. Management's Discussion and Analysis of Financial Condition and
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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
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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
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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.
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Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations. (continued)
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RESULTS OF OPERATIONS
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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)
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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.
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(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.
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(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.
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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
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Michael K. Solomon, Treasurer
9