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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 27, 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 November 12, 2003
------------------- --------------------------------
Common Stock, Par Value $.20 Per Share 2,796,884
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
DECORATOR INDUSTRIES, INC
BALANCE SHEETS
ASSETS September 27, December 28,
2003 2002
------------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and Cash Equivalents $ 3,384,006 $ 2,117,762
Accounts Receivable, less allowance for
doubtful accounts ($234,517 and $202,933) 4,610,655 3,414,629
Inventories 4,186,303 4,388,070
Other Current Assets 380,876 419,620
----------- -----------
TOTAL CURRENT ASSETS 12,561,840 10,340,081
----------- -----------
Property and Equipment
Land, Buildings & Improvements 5,114,341 5,043,458
Machinery, Equipment, Furniture & Fixtures 6,079,834 5,585,401
----------- -----------
Total Property and Equipment 11,194,175 10,628,859
Less: Accumulated Depreciation and Amortization 5,049,317 4,640,040
----------- -----------
Net Property and Equipment 6,144,858 5,988,819
----------- -----------
Goodwill, less accumulated Amortization of $1,348,569 2,731,717 2,731,717
Other Assets 319,347 419,517
----------- -----------
TOTAL ASSETS $21,757,762 $19,480,134
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 2,756,868 $ 2,059,871
Current Maturities of Long-term Debt 170,377 126,750
Accrued Expenses:
Income taxes 44,942 --
Compensation 943,061 856,786
Other 931,530 1,105,646
----------- -----------
TOTAL CURRENT LIABILITIES 4,846,778 4,149,053
----------- -----------
Long-Term Debt 1,969,284 1,477,973
Deferred Income Taxes 590,000 505,000
----------- -----------
TOTAL LIABILITIES 7,406,062 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 1,426,278 1,425,826
Retained Earnings 20,323,575 19,349,984
----------- -----------
22,646,999 21,672,937
Less: Treasury stock, at cost: 1,688,844 and 1,694,856 shares 8,295,299 8,324,829
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 14,351,700 13,348,108
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $21,757,762 $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
----------------------------
September 27, 2003 September 28, 2002
---------------------- ----------------------
Net Sales $ 10,984,598 100.00% $ 9,971,156 100.00%
Cost of Products Sold 8,632,287 78.59% 7,855,531 78.78%
------------ ------------
Gross Profit 2,352,311 21.41% 2,115,625 21.22%
Selling and Administrative
Expenses 1,677,318 15.27% 1,549,223 15.54%
------------ ------------
Operating Income 674,993 6.14% 566,402 5.68%
Other Income (Expense)
Interest, Investment and
Other Income 35,258 0.33% 18,135 0.18%
Interest Expense (16,104) -0.15% (11,900) -0.12%
------------ ------------
Earnings Before Income Taxes 694,147 6.32% 572,637 5.74%
Provision for Income Taxes 275,000 2.50% 229,000 2.30%
------------ ------------
NET INCOME $ 419,147 3.82% $ 343,637 3.44%
============ ============
EARNINGS PER SHARE
BASIC $ 0.15 $ 0.12
============ ============
DILUTED $ 0.15 $ 0.12
============ ============
Weighted Average Number of Shares Outstanding
Basic 2,795,166 2,786,142
Diluted 2,829,568 2,836,547
For the Thirty-Nine Weeks Ended
-------------------------------
September 27, 2003 September 28, 2002
---------------------- ----------------------
Net Sales $ 31,531,366 100.00% $ 29,252,684 100.00%
Cost of Products Sold 24,658,537 78.20% 22,786,202 77.89%
------------ ------------
Gross Profit 6,872,829 21.80% 6,466,482 22.11%
Selling and Administrative
Expenses 4,878,209 15.47% 4,561,172 15.60%
------------ ------------
Operating Income 1,994,620 6.33% 1,905,310 6.51%
Other Income (Expense)
Interest, Investment and
Other Income 77,220 0.24% 52,577 0.18%
Interest Expense (39,890) -0.13% (36,087) -0.12%
------------ ------------
Earnings Before Income Taxes 2,031,950 6.44% 1,921,800 6.57%
Provision for Income Taxes 807,000 2.56% 764,000 2.61%
------------ ------------
NET INCOME $ 1,224,950 3.88% $ 1,157,800 3.96%
============ ============
EARNINGS PER SHARE
BASIC $ 0.44 $ 0.41
============ ============
DILUTED $ 0.44 $ 0.41
============ ============
Weighted Average Number of Shares Outstanding
Basic 2,793,207 2,795,589
Diluted 2,811,246 2,834,163
The accompanying notes are an integral part of the financial statements.
2
DECORATOR INDUSTRIES, INC
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Thirty-Nine Weeks Ended
-------------------------------
September 27, 2003 September 28, 2002
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,224,950 $ 1,157,800
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation and Amortization 525,261 497,492
Provision for Losses on Accounts Receivable 30,000 53,131
Deferred Taxes 87,000 27,000
Loss on Disposal of Assets 11,864 19
Increase (Decrease) from Changes in:
Accounts Receivable (1,226,026) (712,127)
Inventories 201,767 (968,670)
Prepaid Expenses (105,254) (46,529)
Other Assets 100,170 (28,710)
Accounts Payable 696,997 1,268,381
Accrued Expenses 99,100 128,512
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,645,829 1,376,299
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (694,064) (441,156)
Proceeds from Property Dispositions 900 9,250
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (693,164) (431,906)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term Debt Payments (105,062) (78,643)
Dividend Payments (251,359) (251,459)
Issuance of Stock for Directors Trust 30,000 30,000
Proceeds on Debt from Building 640,000 --
Purchase of Common Stock for Treasury -- (210,376)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 313,579 (510,478)
Net Increase in Cash and Cash Equivalents 1,266,244 433,915
Cash and Cash Equivalents at Beginning of Year 2,117,762 2,319,568
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,384,006 $ 2,753,483
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 26,043 $ 24,005
Income Taxes $ 533,059 $ 754,325
The accompanying notes are an integral part of the financial statements.
3
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 2003 AND SEPTEMBER 28, 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 September 27, 2003, the changes
therein for the thirty-nine week period then ended and the results of
operations for the thirty-nine week periods ended September 27, 2003
and September 28, 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 thirty-nine week
periods ended September 27, 2003 and September 28, 2002 are not
necessarily indicative of operating results for the full year.
NOTE 3. INVENTORIES
Inventories at September 27, 2003 and December 28, 2002 consisted of
the following:
September 27, 2003 December 28, 2002
------------------ -----------------
Raw Material and supplies $3,726,223 $3,944,768
In Process and Finished Goods 460,080 443,302
---------- ----------
Total Inventory $4,186,303 $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
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 2003 AND SEPTEMBER 28, 2002
(UNAUDITED)
For the Thirteen Weeks Ended
September 27, 2003 September 28, 2002
------------------ ------------------
Numerator:
Net income $ 419,147 $ 343,637
========== ==========
Denominator:
Weighted-average number of
common shares outstanding 2,795,166 2,786,142
Dilutive effect of
stock options on net income 34,402 50,405
---------- ----------
2,829,568 2,836,547
========== ==========
Diluted earnings per share: $ 0.15 $ 0.12
========== ==========
For the Thirty-Nine Weeks Ended
September 27, 2003 September 28, 2002
------------------ ------------------
Numerator:
Net income $1,224,950 $1,157,800
========== ==========
Denominator:
Weighted-average number of
common shares outstanding 2,793,207 2,795,589
Dilutive effect of
stock options on net income 18,039 38,574
---------- ----------
2,811,246 2,834,163
========== ==========
Diluted earnings per share: $ 0.44 $ 0.41
========== ==========
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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 2003.
September 27, 2003 December 28, 2002
------------------ -----------------
Current Ratio 2.59 2.49
Quick Ratio 1.73 1.43
LT Debt to Total Capital 12.07% 9.97%
Working Capital $7,715,062 $6,191,028
Days sales outstanding in accounts receivable were 37.3 days at September 27,
2003, unchanged when compared to September 28, 2002. At September 27, 2003, net
accounts receivable increased by 10.2% and inventories decreased by 12% compared
to the balance at September 28, 2002. Cash increased by $1,266,244 for the first
nine months 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:
Third Third
Quarter Quarter YTD YTD
Earnings Ratios 2003 2002 2003 2002
------- ------- ----- -----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 78.59 78.78 78.20 77.89
Selling and administrative 15.27 15.54 15.47 15.60
Interest and investment income (0.33) (0.18) (0.24) (0.18)
Interest expense 0.15 0.12 0.13 0.12
Income taxes 2.50 2.30 2.56 2.61
Net income 3.82 3.44 3.88 3.96
THIRTEEN WEEK PERIOD ENDED SEPTEMBER 27, 2003, (THIRD QUARTER 2003) COMPARED TO
THIRTEEN WEEK PERIOD ENDED SEPTEMBER 28, 2002, (THIRD QUARTER 2002)
Net sales for the Third Quarter 2003 were $10,984,598, compared to $9,971,156
for the same period in the previous year, a 10.2% increase. The Company
experienced increased sales in the recreational vehicle market, while sales
decreased in the manufactured housing market.
Cost of products sold decreased to 78.6% in the Third Quarter 2003 compared to
78.8% a year ago, due to positive labor efficiencies, partially offset by a
negative impact from product mix.
Selling and administrative expenses were $1,677,318 in the Third Quarter 2003
versus $1,549,224 in the Third Quarter 2002. This increase resulted primarily
from higher accruals for performance bonuses.
Interest expense increased to $16,104 in the Third Quarter 2003 from $11,900 in
the Third Quarter 2002 due to an increase in borrowings related to the mortgage
on the Elkhart, Indiana facility.
Net income increased to $419,147 in the Third Quarter of 2003 compared to
$343,636 in the Third Quarter of 2002. This increase is largely the result of
increased sales, partially offset by increased administrative expenses. Net
income per diluted share increased to $0.15 per share, compared to $0.12 for the
same period of the previous year.
THIRTY-NINE WEEK PERIOD ENDED SEPTEMBER 27, 2003, (FIRST NINE MONTHS 2003)
COMPARED TO THIRTY-NINE WEEK PERIOD ENDED SEPTEMBER 28, 2002, (FIRST NINE MONTHS
2002)
Net sales for the First Nine Months 2003 were $31,531,366, compared to
$29,252,684 for the same period in the previous year, a 7.8% 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 20% in the
first nine months of this year. The
7
Company's sales to MH customers declined about 16%. The Recreational Vehicle
(RV) Industry Association reported flat sales for the first nine months of this
year compared to the same period of the prior year. Our sales to RV customers
increased about 25%. Hospitality sales were comparable to last year's sales.
Cost of products sold increased to 78.2% in the First Nine Months 2003 compared
to 77.9% a year ago, due to a negative impact from product mix and higher labor
costs.
Selling and administrative expenses were $4,878,209 in the First Nine Months
2003 versus $4,561,172 in the First Nine 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 increased to $39,890 in the First Nine Months 2003 from $36,087
in the First Nine Months 2002 because of increased borrowings related to the
mortgage on the Elkhart, Indiana facility.
Net income increased to $1,224,950 in the First Nine Months of 2003, compared to
$1,157,800 in the First Nine Months of 2002. This increase is the result of
increased sales, partially offset by increased administrative expenses. Net
income per diluted share increased to $0.44 for the First Nine Months of 2003,
compared to $0.41 for the same period of the prior year.
Item 4. 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:
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 September 27, 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: November 12, 2003 By: /s/ William A. Bassett
------------------ ----------------------------------
William A. Bassett, President
Date: November 12, 2003 By: /s/ Michael K. Solomon
------------------ ----------------------------------
Michael K. Solomon, Treasurer
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