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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 April 3, 2004
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 May 14, 2004
------------------- ---------------------------
Common Stock, Par Value $.20 Per Share 2,812,155
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
DECORATOR INDUSTRIES, INC
BALANCE SHEETS
April 3, January 3,
2004 2004
----------- -----------
(UNAUDITED)
ASSETS
------
CURRENT ASSETS:
Cash and Cash Equivalents $ 325,106 $ 3,991,631
Accounts Receivable, less allowance for
doubtful accounts ($201,094 and $200,598) 4,959,773 3,519,418
Inventories 5,402,973 4,123,397
Other Current Assets 387,284 274,285
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TOTAL CURRENT ASSETS 11,075,136 11,908,731
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Property and Equipment
Land, Buildings & Improvements 5,636,096 5,114,341
Machinery, Equipment, Furniture & Fixtures 6,312,433 6,064,877
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Total Property and Equipment 11,948,529 11,179,218
Less: Accumulated Depreciation and Amortization 5,330,680 5,157,452
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Net Property and Equipment 6,617,849 6,021,766
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Goodwill, less accumulated Amortization of $1,348,569 2,731,717 2,731,717
Identifiable intangible asset, less accumulated Amortization
of $144,000 4,356,000 --
Other Assets 214,384 426,108
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TOTAL ASSETS $24,995,086 $21,088,322
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 3,509,224 $ 1,878,683
Current Maturities of Long-term Debt 166,628 166,251
Accrued Expenses:
Income Taxes 237,274 --
Compensation 657,675 940,158
Acquisition Liability 1,586,371 --
Other 1,309,883 915,777
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TOTAL CURRENT LIABILITIES 7,467,055 3,900,869
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Long-Term Debt 1,884,155 1,926,832
Deferred Income Taxes 672,000 646,000
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TOTAL LIABILITIES 10,023,210 6,473,701
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Stockholders' Equity
Common Stock $.20 par value: Authorized shares, 10,000,000;
Issued shares, 4,485,728 897,146 897,146
Paid-in Capital 1,373,773 1,426,435
Retained Earnings 20,921,252 20,576,497
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23,192,171 22,900,078
Less: Treasury stock, at cost: 1,673,573 and 1,686,840 shares 8,220,295 8,285,457
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 14,971,876 14,614,621
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $24,995,086 $21,088,322
=========== ===========
The accompanying notes are an integral part of the financial statements.
1
DECORATOR INDUSTRIES, INC
STATEMENTS OF EARNINGS
(UNAUDITED)
For the Thirteen Weeks Ended
----------------------------
April 3, 2004 March 29, 2003
------------------------- -------------------------
Net Sales $ 12,792,048 100.00% $ 9,779,753 100.00%
Cost of Products Sold 10,206,213 79.79% 7,709,701 78.83%
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Gross Profit 2,585,835 20.21% 2,070,052 21.17%
Selling and Administrative Expenses 1,877,441 14.67% 1,560,724 15.96%
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Operating Income 708,394 5.54% 509,328 5.21%
Other Income (Expense)
Interest and Investment Income 27,441 0.21% 15,891 0.16%
Interest Expense (26,762) (0.21)% (10,344) (0.10)%
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Earnings Before Income Taxes 709,073 5.54% 514,875 5.27%
Provision for Income Taxes 280,000 2.19% 207,000 2.12%
------------ ------------
NET INCOME $ 429,073 3.35% $ 307,875 3.15%
============ ============
EARNINGS PER SHARE
BASIC $ 0.15 $ 0.11
DILUTED $ 0.15 $ 0.11
Weighted Average Number of Shares Outstanding
Basic 2,805,963 2,791,226
Diluted 2,928,728 2,807,647
The accompanying notes are an integral part of the financial statements.
2
DECORATOR INDUSTRIES, INC
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Thirteen Weeks Ended
-----------------------------
April 3, 2004 March 29, 2003
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 429,073 $ 307,875
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation and Amortization 333,918 176,311
Provision for Losses on Accounts Receivable -- 10,000
Deferred Taxes 14,000 (4,000)
(Gain)/Loss on Disposal of Assets (584) 9,119
Increase (Decrease) from Changes in:
Accounts Receivable (1,440,355) (591,116)
Inventories (22,462) 629,463
Prepaid Expenses (100,999) (13,811)
Other Assets 211,724 (128,016)
Accounts Payable 1,630,541 107,661
Accrued Expenses 348,897 (337,715)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 1,403,753 165,771
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisitions (4,502,153) --
Capital Expenditures (455,157) (53,231)
Proceeds from Property Dispositions 1,150 --
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (4,956,160) (53,231)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term Debt Payments (42,300) (31,413)
Dividend Payments (84,318) (83,726)
Issuance of Stock for Directors Trust 12,500 10,000
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NET CASH USED IN FINANCING ACTIVITIES (114,118) (105,139)
Net (Decrease) Increase in Cash and Cash Equivalents (3,666,525) 7,401
Cash and Cash Equivalents at Beginning of Year 3,991,631 2,117,762
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 325,106 $ 2,125,163
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 13,865 $ 6,289
Income Taxes $ 21,468 $ 25,091
The accompanying notes are an integral part of the financial statements.
3
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED APRIL 3, 2004 AND MARCH 29, 2003
(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 3, 2004, the changes therein
for the thirteen week period then ended and the results of operations
for the thirteen week periods ended April 3, 2004 and March 29, 2003.
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, 2004. The results of operations for the thirteen week
periods ended April 3, 2004 and March 29, 2003 are not necessarily
indicative of operating results for the full year.
NOTE 3. INVENTORIES
Inventories at April 3, 2004 and January 3, 2004 consisted of the
following:
April 3, 2004 January 3, 2004
------------- ---------------
Raw Material and supplies $4,659,603 $3,506,619
In Process and Finished Goods 743,370 616,778
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Total Inventory $5,402,973 $4,123,397
========== ==========
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.
For the Thirteen Weeks Ended
April 3, 2004 March 29, 2003
------------- --------------
Numerator:
Net income $ 429,073 $ 307,875
========== ==========
Denominator:
Weighted-average number of
common shares outstanding 2,805,963 2,791,226
Dilutive effect of
stock options on net income 122,765 16,421
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2,928,728 2,807,647
========== ==========
Diluted earnings per share: $ 0.15 $ 0.11
========== ==========
4
NOTE 5. BUSINESS ACQUISITION
On January 22, 2004, the Company entered into an agreement, effective
January 26, 2004, to purchase the land, building, machinery, equipment,
inventory and other assets of Fleetwood Enterprises Inc.'s
("Fleetwood") drapery operation in Douglas, Georgia for a purchase
price of $4 million in cash, plus an additional amount for inventory of
up to $1,257,114. Payment for the inventory is due to Fleetwood on
January 24, 2005 and will include interest at 4%.
In connection with the acquisition, the Company and Fleetwood entered
into an agreement for the Company to be the exclusive supplier of
Fleetwood's drapery, bedspread, and other decor requirements for a
period of six years. If, at the end of three years, Fleetwood is
satisfied with the Company's performance under this agreement, it will
extend the terms of this agreement an additional three years.
The acquired business was engaged in the manufacture of curtains,
valances, bedspreads and other decor items. Fleetwood used the acquired
business to supply most of its Manufactured Housing and some of its
Recreational Vehicle requirements for these items. Sales to other
customers were negligible.
The Company used internal funds for the purchase price paid at closing
and will likely generate sufficient funds internally to satisfy the
remaining obligation due in one year. At the date of closing, the
Company's $5,000,000 line of credit was unused. The Company does expect
to use its line of credit for working capital requirements during 2004.
Fleetwood was the Company's largest customer in 2003, representing
approximately 26% of total sales. The combined sales of the acquired
business and the Company's to Fleetwood's Manufactured Housing and
Recreational Vehicle businesses would have been approximately 36% of
the Company's total sales in 2003.
The total acquisition cost and liability is as follows:
Total Acquisition Cost $ 6,088,524
Cash Paid through April 3, 2004 4,502,153
-----------
Acquisition Liability at April 3, 2004 $ 1,586,371
===========
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 ratios changed significantly as illustrated below. The
financial condition remains strong, and the long-term debt to total
capitalization ratio remained low at 11.18%
April 3, 2004 January 3, 2004
------------- ---------------
Current Ratio 1.48 3.05
Quick Ratio 0.76 2.00
LT Debt to Total Capital 11.18% 11.65%
Working Capital $3,608,081 $8,007,862
The change in the Company's financial ratios reflects the acquisition in January
2004 of Fleetwood's drapery operation in Douglas, Georgia. The Company paid
$4,000,000 at closing and on January 24, 2005 will pay up to $1,257,114, plus
interest at 4%, for inventory purchased from Fleetwood. The Company used
internal funds for the purchase price paid at closing and will likely generate
sufficient funds to satisfy the remaining obligation due in one year.
Days sales outstanding in accounts receivable were 34.3 days at April 3, 2004,
compared to 36.3 days at March 29, 2003. Net accounts receivable increased by
$964,029 and inventories increased by $1,644,366 from March 29, 2003 to April 3,
2004. These increases are attributable to the acquisition of the Fleetwood
Drapery operation and to the overall increase in business.
Capital expenditures, excluding the assets acquired from Fleetwood, were
$455,157 for the quarter ended April 3, 2004. This was primarily due to a
building addition to the Company's Elkhart, Indiana facility of $256,982, which
increased the Company's pleated shade capacity by 50%.
Management does not foresee any events which will adversely affect its liquidity
during 2004. As of April 3, 2004, the Company had no outstanding obligation on
its line of credit. The Company does expect to use its line of credit for
working capital requirements during 2004. The line of credit is also available
to fund additional acquisitions.
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:
First First
Quarter Quarter
2004 2003
---- ----
Earnings Ratios
---------------
Net sales 100.0% 100.0%
Cost of products sold 79.8 78.8
Selling and administrative 14.7 16.0
Interest and investment income (0.2) (0.2)
Interest expense 0.2 0.1
Income taxes 2.2 2.1
Net earnings 3.4 3.2
THIRTEEN WEEK PERIOD ENDED APRIL 3, 2004, (FIRST QUARTER 2004) COMPARED TO
THIRTEEN WEEK PERIOD ENDED MARCH 29, 2003, (FIRST QUARTER 2003)
- ---------------------------------------------------------------
Net sales for the First Quarter 2004 were $12,792,048, compared to $9,779,753
for the same period in the previous year, a 30.8% increase. Excluding sales of
about $1.1 million arising from the acquisition of Fleetwood's drapery
operation, net sales of existing business increased more than 19%. Sales to the
Company's recreational vehicle customers increased about 35%, compared to the
same period of the prior year. This compares to an increase of 19% in factory
shipments by the recreational vehicle industry for the same quarter. Sales to
the Company's manufactured housing customers were essentially flat and sales to
the Company's hospitality customers declined about 5% for the quarter ended
April 3, 2004 compared to the same quarter of the prior year.
Cost of products sold increased to 79.8% in the First Quarter 2004 compared to
78.8% a year ago. A somewhat negative impact from product mix and higher
manufacturing expenses were partially offset by increased sales volumes.
Selling and administrative expenses were $1,877,441 in the First Quarter 2004
versus $1,560,724 in the First Quarter 2003. The increase is largely due to
amortization expense of the intangible asset resulting from the Fleetwood
acquisition, higher salaries and travel expenses related to the ongoing
implementation of the Company's Enterprise-Resource-Planning system, and a
greater accrual for performance bonuses. As a percentage of sales, selling and
administrative expenses decreased from 16.0% to 14.7% due to increased sales
volume.
Interest expense increased to $26,762 in the First Quarter 2004 from $10,334 in
the First Quarter 2003 because of periodic borrowings on the Company's line of
credit, interest on the inventory purchased from Fleetwood in January 2004, and
interest on the loan secured by the Company's Elkhart, Indiana facility which
was not outstanding during the First Quarter 2003.
Net income increased to $429,073 in the First Quarter of 2004 compared to
$307,875 in the First Quarter of 2003, an increase of 39%. This increase is
largely the result of increased sales, partially offset by increased
administrative expenses. The Company's EBITDA (Earnings Before Interest, Taxes,
Depreciation, and Amortization) increased by 52% to $1,069,753 from $701,530 in
the first quarter of 2003.
7
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:
--------
31.1 - Certification of President
31.2 - Certification of Treasurer
32 - Certificate required by 18 U.S.C.ss.1350.
(b) The Company filed a report on Form 8-K on February 5, 2004, to announce
the acquisition of Fleetwood Enterprises, Inc.'s drapery manufacturing
operation in Douglas, Georgia on January 23, 2004, as well as the
signing of an agreement where the Company will be the exclusive
supplier of Fleetwood's drapery, bedspread, and other decor
requirements for a period of six years.
The Company filed a report on Form 8-K on March 4, 2004 for the purpose
of furnishing the Company's March 2, 2004 press release announcing the
results for the fiscal quarter and fiscal year ended January 3, 2004
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: May 14, 2004 By: /s/ William A. Bassett
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William A. Bassett, President
Date: May 14, 2004 By: /s/ Michael K. Solomon
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Michael K. Solomon, Treasurer
9