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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 2, 2005
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 May 16, 2005
------------------- ---------------------------
Common Stock, Par Value $.20 Per Share 2,879,829
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
- ------- --------------------
DECORATOR INDUSTRIES, INC
BALANCE SHEETS
ASSETS April 2, January 1,
------ 2005 2005
---- ----
(UNAUDITED)
CURRENT ASSETS:
Cash and Cash Equivalents $ 327,644 $ 730,539
Accounts Receivable, less allowance for
doubtful accounts ($149,077 and $144,077) 4,459,312 3,464,674
Inventories 5,064,714 5,113,651
Other Current Assets 572,097 588,853
----------- -----------
TOTAL CURRENT ASSETS 10,423,767 9,897,717
----------- -----------
Property and Equipment
Land, Buildings & Improvements 7,248,967 7,250,064
Machinery, Equipment, Furniture & Fixtures 6,518,667 6,482,534
----------- -----------
Total Property and Equipment 13,767,634 13,732,598
Less: Accumulated Depreciation and Amortization 6,068,783 5,874,855
----------- -----------
Net Property and Equipment 7,698,851 7,857,743
----------- -----------
Goodwill, less accumulated Amortization of $1,348,569 2,731,717 2,731,717
Identifiable intangible asset, less accumulated
Amortization of $773,713 and $611,713 3,121,278 3,283,278
Other Assets 189,816 191,622
----------- -----------
TOTAL ASSETS $24,165,429 $23,962,077
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 2,929,149 $ 2,539,252
Current Maturities of Long-term Debt 177,317 170,709
Checks Issued but Not Yet Presented 562,217 --
Accrued Expenses:
Compensation 733,659 1,016,262
Acquisition Liability -- 1,067,472
Other 1,079,770 936,146
----------- -----------
TOTAL CURRENT LIABILITIES 5,482,112 5,729,841
----------- -----------
Long-Term Debt 1,776,730 1,752,568
Deferred Income Taxes 657,000 680,000
----------- -----------
TOTAL LIABILITIES 7,915,842 8,162,409
----------- -----------
Stockholders' Equity
Common Stock $.20 par value: Authorized shares, 10,000,000;
Issued shares, 4,524,202 and 4,489,728 904,840 897,946
Paid-in Capital 1,505,670 1,423,275
Retained Earnings 21,965,460 21,633,044
----------- -----------
24,375,970 23,954,265
Less: Treasury stock, at cost: 1,654,453 and 1,660,197 shares 8,126,383 8,154,597
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 16,249,587 15,799,668
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $24,165,429 $23,962,077
=========== ===========
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 2, 2005 April 3, 2004
------------- -------------
Net Sales $ 12,431,382 100.00% $ 12,792,048 100.00%
Cost of Products Sold 9,829,683 79.07% 10,508,820 82.15%
------------ ------------
Gross Profit 2,601,699 20.93% 2,283,228 17.85%
Selling and Administrative Expenses 1,943,457 15.63% 1,955,023 15.28%
------------ ------------
Operating Income 658,242 5.30% 328,205 2.57%
Other Income (Expense)
Interest and Investment Income 17,293 0.14% 27,441 0.21%
Interest Expense (22,199) -0.18% (26,762) -0.21%
------------ ------------
Earnings Before Income Taxes 653,336 5.26% 328,884 2.57%
Provision for Income Taxes 235,000 1.89% 128,000 1.00%
------------ ------------
NET INCOME $ 418,336 3.37% $ 200,884 1.57%
============ ============
EARNINGS PER SHARE
BASIC $ 0.15 $ 0.07
============ ============
DILUTED $ 0.14 $ 0.07
============ ============
Weighted Average Number of Shares Outstanding
Basic 2,852,270 2,805,963
Diluted 2,994,455 2,928,728
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 2, 2005 April 3, 2004
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 418,336 $ 200,884
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation and Amortization 365,332 314,758
Provision for Losses on Accounts Receivable 5,000 --
Deferred Taxes (32,000) 14,000
Loss/(Gain) on Disposal of Assets 5,707 (584)
Increase (Decrease) from Changes in:
Accounts Receivable (999,638) (1,440,355)
Inventories 48,937 (22,462)
Prepaid Expenses 25,756 (100,999)
Other Assets 1,806 211,724
Accounts Payable 389,897 1,630,541
Accrued Expenses (138,979) (17,065)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 90,154 790,442
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisitions (1,067,472) (3,888,842)
Capital Expenditures (50,847) (455,157)
Proceeds from Property Dispositions 700 1,150
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,117,619) (4,342,849)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term Debt Payments (42,554) (42,300)
Dividend Payments (85,920) (84,318)
Change in Checks Issued but Not Yet Presented 562,217 --
Proceeds from Exercise of Stock Options 100,003 --
Net Borrowings under Line-of-Credit Agreement 73,324 --
Issuance of Stock for Directors Trust 17,500 12,500
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 624,570 (114,118)
Net Decrease in Cash and Cash Equivalents (402,895) (3,666,525)
Cash and Cash Equivalents at Beginning of Year 730,539 3,991,631
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 327,644 $ 325,106
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 59,398 $ 13,865
Income Taxes $ 19,923 $ 21,468
The accompanying notes are an integral part of the financial statements.
3
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED APRIL 2, 2005 AND APRIL 3, 2004
(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 2,
2005, the changes therein for the thirteen week period then
ended and the results of operations for the thirteen week
periods ended April 2, 2005 and April 3, 2004.
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 1, 2005.
The results of operations for the thirteen week periods ended
April 2, 2005 and April 3, 2004 are not necessarily indicative
of operating results for the full year.
NOTE 3. INVENTORIES
-----------
Inventories at April 2, 2005 and January 1, 2005 consisted of the
following:
April 2, January 1,
2005 2005
---------- ----------
Raw Material and supplies $4,376,235 $4,438,916
In Process and Finished Goods 688,479 674,735
---------- ----------
Total Inventory $5,064,714 $5,113,651
========== ==========
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 2, April 3,
2005 2004
---------- ----------
Numerator:
Net income $ 418,336 $ 200,884
========== ==========
Denominator:
Weighted-average number of
common shares outstanding 2,852,270 2,805,963
Dilutive effect of
stock options on net income 142,185 122,765
---------- ----------
2,994,455 2,928,728
========== ==========
Diluted earnings per share: $ 0.14 $ 0.07
========== ==========
4
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 improved as illustrated below. The financial
condition remains strong, and the long-term debt to total capitalization ratio
remained low at 9.86%
April 2, 2005 January 1, 2005
------------- ---------------
Current Ratio 1.90:1 1.73:1
Quick Ratio 0.98:1 0.83:1
LT Debt to Total Capital 9.86% 9.98%
Working Capital $4,941,655 $4,167,876
The Company paid $1,067,472 (plus accrued interest) in January 2005 relating to
the January 2004 acquisition of Fleetwood Enterprises, Inc.'s drapery operation
in Douglas, Georgia. This payment represented the final payment of the purchase
price due to Fleetwood. The Company drew on its line of credit to make this
payment. At April 2, 2005, the Company had an outstanding borrowing on its line
of credit of $73,324, and this amount was paid off during April 2005. The
Company expects to use its line of credit periodically in 2005.
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
six-tenths of a percent 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.
5
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations. (continued)
----------------------------------
Days sales outstanding in accounts receivable were 31.8 days at April 2, 2005
compared to 34.3 days at April 3, 2004. The improvement was due to shorter terms
arising from the Company's exclusive supply agreement with Fleetwood, the CIT
receivables servicing agreement, and improvement in collection efforts. Net
accounts receivable decreased by $500,461 and inventories decreased by $338,259
from April 3, 2004 to April 2, 2005.
Capital expenditures were $50,847 for the quarter ended April 2, 2005, compared
to $455,157 for the same period of the prior year. The prior year expenditures
included a building addition to the Company's Elkhart, Indiana facility of
$256,982, which increased the Company's pleated shade capacity.
Management does not foresee any events which will adversely affect its liquidity
during 2005.
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 2, 2005 and
April 3, 2004:
(dollars in thousands)
For the Thirteen Weeks Ended
--------------------------------------------
April 2, 2005 April 3, 2004
------------------- -------------------
Net % of Net % of
Sales total Sales total
------- ------- ------- -------
Recreational Vehicle $ 7,291 59% $ 8,251 64%
Manufactured Housing 2,457 20% 2,242 18%
Hospitality 2,683 21% 2,299 18%
------- ----- ------- ----
Total Net Sales $12,431 100% $12,792 100%
======= =======
6
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations. (continued)
----------------------------------
RESULTS OF OPERATIONS
- ---------------------
THIRTEEN WEEK PERIOD ENDED APRIL 2, 2005, (FIRST QUARTER 2005) COMPARED TO
- --------------------------------------------------------------------------
THIRTEEN WEEK PERIOD ENDED APRIL 3, 2004, (FIRST QUARTER 2004)
- --------------------------------------------------------------
The following table shows a comparison of the results of operations between
First Quarter 2005 and First Quarter 2004:
First Quarter % First Quarter % $ Increase
2005 of Sales 2004 of Sales (Decrease) % Change
------------ -------- ------------ -------- ---------- --------
Net Sales $ 12,431,382 100% $ 12,792,048 100% $ (360,666) -2.8%
Cost of Products Sold 9,829,683 79.1% 10,508,820 82.2% (679,137) -6.5%
------------ ------ ------ ----- ------
Gross Profit 2,601,699 20.9% 2,283,228 17.8% 318,471 13.9%
Selling and Administrative Expenses 1,943,457 15.6% 1,955,023 15.3% (11,566) -0.6%
------------ ------ ------------ ------ ----------
Operating Income 658,242 5.3% 328,205 2.5% 330,037 100.6%
Other Income (Expense)
Interest, Investment and
Other Income 17,293 0.2% 27,441 0.3% (10,148) -37.0%
Interest Expense (22,199) -0.2% (26,762) -0.2% 4,563 -17.1%
------------ ------- ------------ ------ ----------
Earnings Before Income Taxes 653,336 5.3% 328,884 2.6% 324,452 98.7%
Provision for Income Taxes 235,000 1.9% 128,000 1.0% 107,000 83.6%
------------ ------ ------------ ------ ----------
NET INCOME $ 418,336 3.4% $ 200,884 1.6% $ 217,452 108.2%
============ ====== ============ ======= ==========
Net sales for the First Quarter 2005 were $12,431,382, compared to $12,792,048
for the same period in the previous year, a 2.8% decrease. This is due to an
11.6% drop in sales to the Company's recreational vehicle customers, partially
offset by increases of 9.6% and 16.7% to the Company's manufactured housing and
hospitality customers, respectively. The recreational vehicle industry reported
mixed results for the first quarter, with travel trailer shipments increasing by
10% and motor home shipments decreasing by 10% from a year earlier. Total
combined recreational vehicle industry shipments increased 6% for the quarter.
The manufactured housing industry reported that shipments for the first quarter
increased by 8% from a year ago.
Cost of products sold decreased to 79.1% in the First Quarter 2005 compared to
82.2% a year ago. The major reasons for the decrease in this percentage were the
higher costs of production during the prior year at the Douglas, Georgia
facility acquired from Fleetwood and the transition costs incurred by the
Company to re-distribute most of the acquired business to its other facilities
during the prior year. Without these expenses, the cost of goods sold percentage
would have been 79.8% for the First Quarter 2004.
Selling and administrative expenses were $1,943,457 in the First Quarter 2005
versus $1,955,023 in the First Quarter 2004. The percentage of selling and
administrative expenses to net sales increased from 15.3% to 15.6% as fixed
expenses were spread over a lower sales volume.
Interest expense decreased to $22,199 in the First Quarter 2005 from $26,762 in
the First Quarter 2004, mostly because of the interest on the Fleetwood
liability was outstanding for a shorter period of time during First Quarter 2005
than in the prior year.
7
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations. (continued)
----------------------------------
Net income increased to $418,336 in the First Quarter of 2005 compared to
$200,884 in the First Quarter of 2004. This increase is largely the result of
expenses related to the Fleetwood acquisition incurred in the same period of the
prior year, partially offset by slightly reduced sales in the current year. The
Company also received an income tax benefit of approximately $27,000 due to
exercises of employee stock options. Diluted earnings per share increased from
$0.07 per share during the First Quarter 2004 to $0.14 per share during the
First Quarter 2005.
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 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 2005 and 2004:
For the Thirteen Weeks Ended
-----------------------------
April 2, April 3,
2005 2004
---------- ----------
Net Income $ 418,336 $ 200,884
Add:
Interest 22,199 26,762
Taxes 235,000 128,000
Depreciation & Amortiztion 365,332 314,758
---------- ----------
EBITDA $1,040,867 $ 670,404
========== ==========
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 2, 2005 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 control 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 control over financial reporting.
8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
- ------- ---------------------------------
(a) Exhibits:
---------
31.1 - Certification of Chief Executive Officer and President
31.2 - Certification of Chief Financial Officer
32 - Certificate required by 18 U.S.C.ss.1350.
(b) The Company filed a report on Form 8-K on March 2, 2005 for
the purpose of furnishing the Company's March 1, 2005 press
release announcing the results for the fiscal quarter and
fiscal year ended January 1, 2005.
The Company filed a report on Form 8-K on March 30, 2005 for
the purpose of furnishing the Company's March 29, 2005 press
release regarding the restatement of its results of operations
for its fiscal year 2004.
9
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 16, 2005 By: /s/ William A. Bassett
------------ ----------------------
William A. Bassett,
Chief Executive Officer and President
Date: May 16, 2005 By: /s/ Michael K. Solomon
------------ ----------------------
Michael K. Solomon, Chief Financial Officer
10