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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 2000
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., Pembroke Pines, Florida 33024
------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 436-8909
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, Par Value $.20 Per Share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value at March 14, 2000 of outstanding shares of Common Stock
other than shares held by officers, directors and their respective associates:
$13,111,681
Number of shares outstanding at March 14, 2000: 3,180,699
DOCUMENTS INCORPORATED BY REFERENCE
None
NOTE: In this report, unless the context otherwise requires, Registrant or
Company means Decorator Industries, Inc. and its subsidiaries, herein sometimes
also called "Decorator Industries". Reference to a particular year or the
captions "For the Year" and "At Year End" refer to the fiscal periods as
follows:
1999 - 52 weeks ended January 1, 2000
1998 - 52 weeks ended January 2, 1999
1997 - 53 weeks ended January 3, 1998
1996 - 52 weeks ended December 28, 1996
1995 - 52 weeks ended December 30, 1995
1994 - 52 weeks ended December 31, 1994
PART I
Item 1. Business.
The Company is engaged in the design, manufacture and sale of window
coverings, bedspreads, furniture and complementary products. These products are
sold to original equipment manufacturers of recreational vehicles and
manufactured housing and to the hospitality industry (motels/hotels) either
through distributors or directly to the customers.
The Company has one industry segment and one class of products. The
business in which the Company is engaged is very competitive, and the Company
competes with manufacturers located throughout the country. However, no reliable
information is available to enable the Company to determine its relative
position among its competitors. The principal methods of competition are price,
design and service.
During 1999, two customers, Fleetwood Enterprises and Champion
Enterprises, accounted for approximately 20% and 13% respectively of the
Company's total sales. In the event of the loss of one or both of these
customers, there would be a material adverse effect on the Company. Fleetwood
operates in the manufactured housing and recreational vehicle industries,
whereas Champion operates solely in manufactured housing. Purchasing decisions
are made at each individual plant of these customers. The Company services many
of these plants and considers each of the plants it services to be an
independent customer.
The Company's backlog of orders at any given time is not material in
amount and is not significant in the business. No material portion of the
Company's sales or income is derived from customers in foreign countries.
The chief raw materials used by the Company are largely fabrics made
from both natural and man-made fibers. The raw materials are obtained primarily
from converters and mills. The Company is not dependent upon one or a very few
suppliers. Most of its suppliers are large firms with whom, in the opinion of
management, the Company enjoys good relationships. The Company has never
experienced any significant shortage in its supply of raw materials.
The Company has no significant patents, licenses, franchises,
concessions, trademarks or copyrights. Although the Company believes the
trademarks aid in identifying its products, it is unable to evaluate the
importance of the trademarks to its business. Expenditures for research and
development during 1999 and 1998 were not significant.
Compliance with federal, state and local environmental protection
provisions will have no material effect upon the capital expenditures, earnings
or competitive position of the Company.
The Company employs approximately 775 sales, production, warehouse and
administrative employees and also uses the services of independent sales
representatives.
Item 2. Properties.
The following table summarizes certain information concerning the
Company's properties:
Approx.
Location Principal Use Square Feet Owned/Leased
-------- ------------- ----------- ------------
Haleyville, Alabama Offices, manufacturing and warehouse 54,000 Owned
Lakeland, Florida Offices, manufacturing and warehouse 7,500 Leased
Pembroke Pines, Florida Offices 3,148 Leased
Eatonton, Georgia Offices, manufacturing and warehouse 5,000 Leased
Elkhart, Indiana Offices, manufacturing and warehouse 16,000 Leased
Elkhart, Indiana Offices, manufacturing and warehouse 35,000 Leased
Goshen, Indiana Offices, manufacturing and warehouse 55,700 Owned
Bossier, Louisiana Offices, manufacturing and warehouse 20,000 Owned
Salisbury, North Carolina Offices, manufacturing and warehouse 22,500 Leased
Berwick, Pennsylvania Offices, manufacturing and warehouse 12,500 Leased
Bloomsburg, Pennsylvania Offices, manufacturing and warehouse 56,500 Owned
Memphis, Tennessee Offices, manufacturing and warehouse 14,000 Leased
Abbotsford, Wisconsin Offices, manufacturing and warehouse 21,600 Leased
The Company considers that its offices, plants, machinery and equipment
are well maintained, adequately insured and suitable for their purposes and that
its plants are adequate for the presently anticipated needs of the business.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock is listed and traded on the American Stock
Exchange, AMEX symbol DII.
Common Stock price information is set forth in the table below. Sales
prices have been adjusted for stock splits.
1999 Sales Prices 1998 Sales Prices
----------------- -----------------
High Low High Low
---- --- ---- ---
First Quarter 8-1/4 6 8-7/8 7-3/16
Second Quarter 7-5/8 6-3/16 11-3/16 8-1/8
Third Quarter 7-5/16 5-5/16 11-3/4 7-3/8
Fourth Quarter 5-7/8 5 8-5/8 6-3/4
As of March 14, 2000, the Company had 385 shareholders of record of its
Common Stock.
Total cash dividend payments were $.28 per share in 1999 and 1998.
2
DECORATOR INDUSTRIES, INC.
Item 6. Selected Financial Data
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
FOR THE YEAR
Net Sales $ 52,546,556 $ 51,966,829 $ 43,395,923 $ 38,649,687 $ 34,207,259 $ 33,246,590
Income from Continuing Operations $ 2,552,278 $ 3,080,895 $ 3,035,257 $ 3,065,220 $ 2,414,678 $ 2,823,770
Net Income $ 2,552,278 $ 3,080,895 $ 2,898,339 $ 3,065,220 $ 2,414,678 $ 2,823,770
------------ ------------- ------------- ------------ ------------ -------------
AT YEAR-END
Total Assets $ 21,665,523 $ 21,462,694 $ 20,301,268 $ 18,394,357 $ 16,415,659 $ 16,406,670
Long-term Obligations $ 1,814,169 $ 463,037 $ 506,169 $ 549,433 $ 587,084 $ 629,450
Long-term Debt/Total Capitalization 11.21% 2.89% 3.41% 4.05% 5.00% 5.27%
Working Capital $ 6,646,856 $ 8,244,161 $ 8,406,250 $ 9,003,836 $ 6,925,352 $ 7,479,176
Working Capital Ratio 2.30:1 2.59:1 2.61:1 2.94:1 2.54:1 2.75:1
Stockholders' Equity $ 14,364,969 $ 15,559,732 $ 14,347,297 $ 13,010,945 $ 11,147,754 $ 11,322,046
------------ ------------- ------------- ------------ ------------ -------------
PER SHARE
Continuing Operations $0.76 $0.85 $0.82 $0.84 $0.60 $0.69
Basic $0.76 $0.85 $0.78 $0.84 $0.60 $0.69
Diluted $0.73 $0.79 $0.73 $0.78 $0.55 $0.62
Book Value $4.50 $4.37 $3.94 $3.52 $2.99 $2.71
Cash Dividends Declared $0.28 $0.28 $0.28 $0.28 $0.27 $0.23
Note: Per share amounts, except for cash dividends, have been adjusted for
five-for-four stock splits effective July 21, 1998 and June 13, 1997
and a four-for-three stock split in June 1996.
3
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Financial Resources:
The Company's financial condition continues to be strong, as evidenced
by the following statistical measures:
1) Working capital at January 1, 2000 was $6,646,856 compared to
$8,244,161 at January 2, 1999.
2) The current ratio was 2.30:1 at year-end 1999 compared to 2.59:1 at
year-end 1998.
3) The liquid ratio changed to 1.18:1 at year-end 1999 from 1.49:1 at
year-end 1998.
4) The long-term debt ratio was at 11.21% January 1, 2000 compared to
2.89% a year earlier, due to the debt incurred on the new Goshen,
Indiana facility in 1999.
A significant use of working capital was made for purchases of Common
Stock to be held for the treasury ($2,878,679).
Accounts receivable decreased $121,879 (3%) and inventories increased
$14,077 (.2%).
Capital expenditures for 1999 were $2,234,157 which included $1,500,000
for the construction of a new building in Goshen, Indiana. This building
replaced a leased facility. During 1999, the Company was awarded an industrial
revenue bond in the amount of $1,500,000, the net proceeds of which were used
for the funding of this building and the purchase of equipment at this location.
Management does not foresee any events which will adversely affect its
liquidity during 2000. The Company's financial condition and available borrowing
capacity is more than adequate to finance internal growth and any additional
acquisitions of businesses.
Results of Operations:
The following table shows the percentage relationship to net sales of
certain items in the Company's Statement of Earnings:
1999 1998 1997
---- ---- ----
Net sales....................................... 100.0% 100.0% 100.0%
Cost of products sold........................... 78.7 78.0 75.4
Selling and administrative expenses............. 13.5 13.1 14.5
Interest and investment income.................. (.1) (.4) (.8)
Interest expense................................ .1 - .1
Income from continuing operations............... 4.9 5.9 7.0
Net income...................................... 4.9 5.9 6.7
4
1999 vs. 1998
Net sales for the year 1999 were $52,546,556 compared to 1998 sales of
$51,966,829. Increased sales to the recreational vehicle market were offset by
reduced sales to the manufactured housing market. The Company's sales to the
manufactured housing market were adversely affected by a decline in manufactured
housing production, caused by an excess dealer inventory of manufactured homes.
Cost of goods sold as a percentage of sales increased to 78.7% in 1999 from
78.0% in 1998. This increase is largely attributable to (1) a change in the
product mix including the increased sales to recreational vehicle manufacturers
and (2) productivity issues resulting in excessive labor costs.
Selling and administrative expenses as a percentage of sales increased slightly
in 1999 to 13.5% from 13.1% in 1998. The increase results largely from
additional personnel and the relocation of the Goshen facility.
Interest and investment income decreased by $144,000 in 1999 because investable
balances were lower in 1999 than in 1998 and the market downturn caused the
Company to recognize a market loss of $94,000 in 1999 versus a loss of $32,000
in 1998.
The provision for income taxes as a percentage of pre-tax income increased to
37.8% compared to 35.8% in 1998. The 1998 rate was lower due to a stock option
tax benefit that did not occur in 1999.
1998 vs. 1997
Net sales for the year 1998 were $51,966,829, an increase of 20% compared to the
1997 sales of $43,395,923. The increase in sales dollars came from both the
businesses acquired in 1997 (46% of the increase) and the older businesses (54%
of the increase). Most of the increased sales were to recreational vehicle
manufacturers.
Cost of goods sold as a percentage of sales increased to 78.0% in 1998 from
75.4% in 1997. This increase is largely attributable to (1) a change in the
product mix including the increased sales to recreational vehicle manufacturers
and (2) productivity issues resulting in excessive labor costs and (3) market
conditions which have resulted in a lowering of operating margins.
Selling and administrative expenses as a percentage of sales decreased
significantly in 1998 to 13.1% from 14.5% in 1997. This decrease is a result of
fixed costs being spread over increased sales.
Interest and investment income decreased by $150,000 in 1998 because investable
balances were lower in 1998 than in 1997 and the market downturn caused the
Company to recognize a market loss of $32,000 in 1998 versus a market gain of
$71,000 in 1997.
The provision for income taxes as a percentage of pre-tax income increased
slightly to 35.8% compared to 35.1% in 1997.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The financial statements and reports of independent certified public
accountants listed in Item 14(a) of this report are filed under this Item 8.
5
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information concerning the directors and executive officers of the
Company is set forth below.
William A. Bassett, age 63, has been President and a director of the
Company since 1980, Chief Executive Officer since February 1993 and Chairman of
the Board since January 1994.
Michael S. Baxley, age 43, has been Executive Vice President of the
Company since January 1999 and was appointed a director on August 2, 1999. He
was employed as Executive Vice President for the Apparel Group of Scovill
Fasteners, Inc., a manufacturer of apparel and industrial fasteners, from
February 1997 to July 1998. Previously he was in various management positions
with ACD Tridon, a subsidiary of Devtek (Automotive products), Johnston &
Murphy, a division of Genesco (Footwear), Fruit of the Loom (Apparel), Procter &
Gamble (Consumer Products) and the U.S. Navy.
Michael K. Solomon, age 50, has been Vice President of the Company
since November 1994, Treasurer and Chief Financial Officer of the Company since
1985 and a director of the Company since 1987.
William A. Johnson, age 40, was appointed an officer of the Company on
June 12, 1998. He has been Controller since January 6, 1997. From 1993 until
1996, he held various financial positions with Security Management Corporation.
Jerome B. Lieber, age 79, has been Secretary and a director of the
Company since 1961. He is Senior Counsel to the law firm of Klett Rooney Lieber
& Schorling, a Professional Corporation, Pittsburgh, Pennsylvania, which serves
as general counsel to the Company. Mr. Lieber previously had been a senior
partner in that firm.
Joseph N. Ellis, age 71, has been a director of the Company since 1993.
He founded LaSalle-Deitch Co., Inc. a distributor of products for the
manufactured housing and recreational vehicle industry, in 1963 and served as
its President, Chief Executive Officer and Chairman from 1971 until his
retirement in 1992. Mr. Ellis is currently a management consultant.
Ellen Downey, age 47, has been a director of the Company since 1997.
She served as a director of FRD Acquisition Corporation from 1996 to 1998. Ms.
Downey was employed by Ryder System, Inc. in various financial positions from
1978 to 1991 and from 1991 to 1993 served as Vice President and Treasurer of
that company.
Thomas L. Dusthimer, age 65, has been a director of the Company since
1997. Since 1992 he has served as a consultant to and director of Key Bank
(Elkhart, Indiana District). From 1973 until his retirement in 1992, Mr.
Dusthimer served in various executive positions, including President, Chief
Executive Officer and Chairman, with Ameritrust Indiana Corporation and
Ameritrust National Bank.
6
Item 11. Executive Compensation.
The following table shows the compensation of the named executive
officers of the Company for each of the last three fiscal years.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
------------------------------------------ -------------
Name and Fiscal Optioned All Other Com-
Principal Position Year Salary($)(1) Bonus($) Other($)(2) Shares(#) pensation($)(3)
- ------------------ ---- ------------ -------- ----------- --------- ---------------
William A. Bassett(4) 1999 285,000 87,074 * 12,500 36,745
Chairman of the Board,
President and Chief
Executive Officer
1998 262,000 127,000 89,977 31,250 36,745
1997 249,712 123,000 87,723 ---- 34,745
Michael S. Baxley(5) 1999 161,925 39,183 * 20,000 ----
Executive Vice President
Michael K. Solomon 1999 118,820 20,000 * 5,000 1,553
Vice President, Treasurer and
Chief Financial Officer
1998 114,650 24,000 * 12,500 447
1997 112,370 25,550 * ---- ----
- ------------------------
(1) The fiscal year 1997 was a 53-week fiscal period.
(2) Medical/dental reimbursement plan payments, country club memberships,
relocation bonus, personal use of Company vehicles, and payments made
in accordance with Company policy for disqualifying sales of Common
Stock acquired upon the exercise of a qualified stock option. For 1998
and 1997, payments to Mr. Bassett for such sales were $86,106 and
$84,289, respectively. These payments provided net benefits to the
company of $16,359 for 1998 and $16,383 for 1997. An asterisk indicates
that the total of other annual compensation for that year was less than
10% of salary and bonus for that year.
(3) Premiums paid by the Company on life and long-term disability insurance
policies and Company contributions to the 401(k) Retirement Savings
Plan.
(4) The Company has an employment agreement with Mr. Bassett which provides
for an annual salary of not less than $214,200. The agreement expires
July 1, 2004.
(5) The Company has an employment agreement with Mr. Baxley which provides
a weekly salary of $3,175 and upon Mr. Baxley's termination, a
continuation of salary and benefits for 12 months.
The Company's medical and dental reimbursement plan provides
reimbursement to the corporate and certain divisional officers of the Company
and their dependents (as defined in Section 152 of the Internal Revenue Code)
for their medical and dental expenses. Benefits under the plan are limited to
10% of the participant's compensation during the plan year. The plan also
prohibits any participant from receiving "double reimbursement"; i.e., if a
participant receives reimbursement from another source, he or she must remit to
the Company benefits received under the plan.
On September 1, 1998 the Company began a 401(k) Retirement Savings Plan
available to all eligible employees. To be eligible for the plan, the employee
must be at least 21 years of age and have completed one year of employment.
Eligible employees may contribute up to 15% of their earnings with a maximum of
$10,000 for 1999 based on the Internal Revenue Service annual contribution
limit. The Company will match 25% of the first 4% of the employee's
contributions up to 1% of the employee's earnings. Contributions are invested at
the direction of the employee in one or more funds. Company contributions begin
to vest after three years.
7
The Company's 1984 Incentive Stock Option Plan, which expired February
22, 1994, authorized the granting to key employees of options to purchase up to
804,976 shares (as adjusted for stock splits) of the Company's Common Stock. The
purchase price of optioned shares was the fair market value of the Common Stock
on the date of grant, and the maximum term of the options is ten years; in the
case of options granted to employees who owned more than 10% of the outstanding
Common Stock, however, the purchase price was 110% of the fair market value of
the Common Stock on the date of grant and the term of the options is five years.
The number of optioned shares and the purchase price per share are subject to
adjustment for stock splits, stock dividends, reclassifications and the like.
On April 3, 1995 the board of directors adopted, and on June 5, 1995
the stockholders approved, the Company's 1995 Incentive Stock Option Plan (the
"1995 Plan") which has a term of ten years. The 1995 Plan authorizes the
issuance of up to 520,830 shares (as adjusted for stock splits) of Common Stock
pursuant to stock options granted to key employees of the Company. The purchase
price of optioned shares must be the fair market value of the Common Stock on
the date of grant, and the maximum term of the options is ten years; in the case
of options granted to employees who own more that 10% of the outstanding Common
Stock, however, the purchase price must be 110% of the fair market value of the
Common Stock on the date of grant and the term of the option cannot exceed five
years. The number of shares that may be issued under the 1995 Plan, the number
of optioned shares and the purchase price per share are subject to adjustment
for stock splits, stock dividends, reclassifications and the like.
The following table provides information on options granted to the
named executive officers in fiscal 1999 under the Company's 1995 Incentive Stock
Option Plan:
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term (2)
- --------------------------------------------------------------------------------------------------------------------
Percent of Total
Options
Options Granted to
Granted Employees in Exercise Price Expiration
Name (Shs) (1) 1999 Per Share (1) Date 5% 10%
- ---- --------- ---- ------------- ---- ----- -----
William A. Bassett 12,500 12.7% $7.00 6/10/2009 $55,028 $139,452
Michael S. Baxley 15,000 15.3% $7.875 1/04/2009 $74,288 $188,261
5,000 5.1% $7.00 6/10/2009 $22,011 $55,781
Michael K. Solomon 5,000 5.1% $7.00 6/10/2009 $22,011 $55,781
- --------------------------
(1) Options heretofore granted under the 1995 Incentive Stock Option Plan have
a ten year term and vest 20% each year beginning at the end of the first
year.
(2) Potential realizable value is based on the assumption that the market price
of the Common Stock appreciates at the annual rates shown (compounded
annually) from the date of grant until the end of the ten year option term.
Potential realizable value is shown net of exercise price. These numbers
are calculated based on the regulations promulgated by the Securities and
Exchange Commission and do not reflect the Company's estimate of future
stock price growth.
8
The following table sets forth information concerning the exercise of
stock options during fiscal 1999 by the named executive officers and the value
of their unexercised, in-the-money stock options at the end of that fiscal year
(January 1, 2000). All options outstanding at January 1, 2000, except for those
granted after fiscal 1995, were exercisable at any time prior to their
respective expiration dates.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Shares Optioned Value of
Acquired Value Shares at Options at
Name on Exercise Realized ($) 01/01/00 (#) 01/01/00($)(1)
- ---- ----------- ------------ ------------ --------------
William A. Bassett 20,000 108,600 144,579(2) 312,959
31,250(3) ----
Michael S. Baxley ---- ---- 3,000(2) ----
17,000(3) ----
Michael K. Solomon 8,000 59,940 49,494(2) 81,001
12,500(3) ----
- --------------------------
(1) Assumes a market value of $5.3125 per share, which was the last reported
sale price on the American Stock Exchange on December 31, 1999.
(2) Exercisable.
(3) Unexercisable.
Compensation of Directors
Directors who are not employees of the Company are paid a fee of
$10,000 per year for their services as directors. The fee is paid quarterly in
shares of the Company's Common Stock valued at their closing price on the
American Stock Exchange on the third business day following the release of sales
and earnings for the preceding fiscal year. Under the Company's Stock Plan for
Non-Employee Directors, such directors may elect to defer receipt of their
shares, until after they leave the Board, by having them delivered to the Trust
established under the Plan. Members of the audit committee are paid ($1,000 per
meeting for chairman and $500 per meeting for other members) for attending audit
committee meetings.
9
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information concerning the common stockholding at March 15, 2000 of the
directors and named executive officers of the Company, and the directors and
executive officers as a group, is set forth in the following table. Unless
otherwise indicated, each stockholder has sole voting and investment power with
respect to the shares listed.
Name or Group Shares Beneficially Owned Percent of Class (1)
- ------------- ------------------------- --------------------
William A. Bassett 382,572(2) 11.60%
Michael S. Baxley 4,000(3) ------
Michael K. Solomon 102,933(4) 3.20%
Jerome B. Lieber 13,705(5)(6) ------
Joseph N. Ellis 2,500(6) ------
Ellen Downey 1,562(6) ------
Thomas L. Dusthimer 1,250(6) ------
All directors and executive
officers as a group 511,024(7) 15.28%
- ----------------------------
(1) Shares which the named stockholder has the right to acquire within 60
days are deemed outstanding for the purpose of computing that
stockholder's percentage.
(2) Includes 124,579 optioned shares which may be acquired within 60 days
and 20,051 shares held as Trustee of the trust established under the
Company's Stock Plan for Non-Employee Directors (the "Trust"). Mr.
Bassett disclaims beneficial ownership of the shares he holds as
Trustee.
(3) Includes 3,000 optioned shares, which may be acquired within 60 days.
(4) Includes 35,204 optioned shares, which may be acquired within 60 days.
(5) Includes 5,040 shares held in a charitable trust as to which Mr. Lieber
disclaims beneficial ownership.
(6) Excludes shares held in the Trust for his or her account.
(7) Includes 165,283 optioned shares, which may be acquired within 60 days.
FMR Corp. of Boston, Massachusetts, has furnished the Company a copy of
its Schedule 13G dated February 14, 2000 in which it reported that as of
December 31, 1999 Fidelity Management & Research Company, a wholly-owned
subsidiary of FMR Corp. and a registered investment adviser, had sole investment
power with respect to 200,015 shares (6.29%) of the Company's Common Stock.
First Manhattan Co. of New York, New York has furnished the Company a
copy of its Schedule 13G dated February 9, 2000 in which it reported beneficial
ownership of a total of 261,868 shares (8.23%) of the Company's Common Stock
including sole power to vote and dispose of 17,112 shares, shared power to vote
236,401 shares and shared power to dispose of 244,756 shares. First Manhattan is
a registered broker-dealer and investment adviser.
Heartland Advisors, Inc. of Milwaukee, Wisconsin, a registered
investment adviser, has furnished the Company a copy of its Schedule 13G dated
January 12, 2000 in which it reported that it had sole dispositive power with
respect to 349,600 shares (10.99%) of the Company's Common Stock.
Item 13. Certain Relationships and Related Transactions.
None.
10
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
----------------------------------------------------------
Financial Statements and Schedules
----------------------------------
(1) Independent Auditors' Report
(2) Balance Sheets - January 1, 2000 and January 2,1999
(3) Statements of Earnings for the three fiscal years ended January 1,
2000
(4) Statements of Stockholders' Equity for the three fiscal years ended
January 1, 2000
(5) Statements of Cash Flows for the three fiscal years ended January
1, 2000
(6) Notes to the Financial Statements
(7) Independent Auditors' Report on Financial Statement Schedule
Schedule VIII - Valuation and Qualifying Accounts
All other schedules are omitted because they are not required or are
inapplicable or the information is included in the financial statements
or notes thereto.
Exhibits
--------
3A Articles of Incorporation as amended to date, filed as Exhibit
3A to Form 10-K for the fiscal year ended December 28, 1985
and incorporated herein by reference.
3B.1 By-laws as amended to date, filed as Exhibit 3B.1 to Form 10-Q
for the Quarter ended July 2, 1988 and incorporated herein by
reference.
10E Lease dated February 9, 1984 between registrant, as lessee,
and Leon and Eleanor Bradshaw covering property at 500 North
Long Street, Salisbury, North Carolina, filed as Exhibit
10(b)(4)(iv) to Registration Statement No. 2-92853 and
incorporated herein by reference.
10H Lease Agreement dated December 13, 1983 covering property at
101 West Linden Street, Abbotsford, Wisconsin, and assignment
thereof to the registrant, as lessee, dated October 2, 1985,
filed as Exhibit 10H to Form 10-K for the fiscal year ended
December 28, 1985 and incorporated herein by reference.
10H.1 Lease Modification Agreement dated May 20, 1988 regarding
Exhibit 10H, filed as Exhibit 10H.1 to Form 10-K for the
fiscal year ended December 31, 1988 and incorporated herein by
reference.
11
10H.2 Lease Modification Agreement dated September 30, 1996
regarding Exhibit 10H, filed as Exhibit 10H.2 to Form 10-K for
the fiscal year ended December 28, 1996 and incorporated
herein by reference.
10K.1 1984 Incentive Stock Option Plan, as amended to date, filed as
Exhibit 10K.1 to Form 10-Q for the quarter ended October 3,
1987 and incorporated herein by reference.*
10M.1 Medical and Dental Reimbursement Plan, as amended to date,
filed as Exhibit 10M.1 to Form 10-K for the fiscal year ended
January 3, 1987 and incorporated herein by reference.*
10T Employment Agreement dated August 2, 1994 between the
registrant and William Bassett, filed as Exhibit 10T to Form
10-Q for the quarter ended July 2, 1994 and incorporated
herein by reference.*
10U 1995 Incentive Stock Option Plan, filed as Exhibit 10U to Form
10-K for the fiscal year ended December 30, 1995 and
incorporated herein by reference.*
10V Purchase and Sale Agreement dated March 14, 1997 between the
registrant and Specialty Window Coverings Corp. filed as
Exhibit 10V to Form 10-K for the fiscal year ended December
28, 1996, and incorporated herein by reference.
10W Stock Plan for Non-employee Directors and related Grantor
Trust Agreement, filed as Exhibit 10W to Form 10-Q for the
quarter ended June 28, 1997 and incorporated herein by
reference.*
10X Employment Agreement dated January 5, 1999 between the
registrant and Michael S. Baxley, filed herewith.*
11O Computation of diluted income per share, filed herewith.
23A Consent of Independent Auditors, filed herewith.
27L Financial Data Schedule, filed herewith.
-----------------------
*Management contract or compensatory plan.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the last quarter of 1999.
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ Michael K. Solomon
-----------------------
Michael K. Solomon
Vice President
Dated: March 24, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Name Title Signature Date
- ---- ----- --------- ----
William A. Bassett Chairman, President, /s/ William A. Bassett March 24, 2000
Chief Executive Officer --------------------------
and Director
Michael S. Baxley Executive Vice President /s/ Michael S. Baxley March 24, 2000
and Director --------------------------
Michael K. Solomon Vice President, Treasurer, /s/ Michael K. Solomon March 24, 2000
Principal Financial and --------------------------
Accounting Officer,
And Director
Jerome B. Lieber Director /s/ Jerome B. Lieber March 24, 2000
--------------------------
Joseph N. Ellis Director /s/ Joseph N. Ellis March 24, 2000
--------------------------
Ellen Downey Director /s/ Ellen Downey March 24, 2000
--------------------------
Thomas Dusthimer Director /s/ Thomas Dusthimer March 24, 2000
--------------------------
13
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Stockholders of
Decorator Industries, Inc.
We have audited the accompanying balance sheets of Decorator
Industries, Inc. as of January 1, 2000 and January 2, 1999 and the related
statements of earnings, stockholders' equity and cash flows for each of the
three fiscal years in the period ended January 1, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Decorator
Industries, Inc. as of January 1, 2000 and January 2, 1999, and the results of
its operations and its cash flows for each of the three fiscal years in the
period ended January 1, 2000 in conformity with generally accepted accounting
principles.
LOUIS PLUNG & COMPANY, LLP
Certified Public Accountants
Pittsburgh, Pennsylvania
February 14, 2000
F-1
DECORATOR INDUSTRIES, INC.
BALANCE SHEETS
Fiscal Year End
ASSETS 1999 1998
------ ---- ----
Current Assets:
Cash and Cash Equivalents $484,328 $2,633,999
Short-term Investments 1,455,796 861,032
Accounts Receivable, less allowance for
doubtful accounts ($158,996 and $111,706) 3,725,556 3,847,435
Inventories 5,739,303 5,725,226
Other Current Assets 372,258 349,394
----------- -----------
Total Current Assets 11,777,241 13,417,086
----------- -----------
Property and Equipment:
Land, Buildings & Improvements 4,123,189 2,676,183
Machinery, Equipment, Furniture and Fixtures 4,808,280 4,124,579
----------- -----------
Total Property and Equipment 8,931,469 6,800,762
Less: Accumulated Depreciation and Amortization 3,104,989 2,635,683
----------- -----------
Net Property and Equipment 5,826,480 4,165,079
----------- -----------
Goodwill, less accumulated
Amortization of $1,189,871 and $1,070,336 3,648,965 3,288,582
Other Assets 412,837 591,947
----------- -----------
Total Assets $21,665,523 $21,462,694
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current Liabilities:
Accounts Payable $3,100,681 $2,869,889
Current Maturities of Long-term Debt 103,871 43,133
Accrued Expenses:
Compensation 1,278,660 1,373,572
Other 647,173 886,331
----------- -----------
Total Current Liabilities 5,130,385 5,172,925
----------- -----------
Long-Term Debt 1,814,169 463,037
Deferred Income Taxes 356,000 267,000
----------- -----------
Total Liabilities 7,300,554 5,902,962
----------- -----------
Stockholders' Equity
Common stock $.20 par value: Authorized shares, 10,000,000;
Issued shares, 4,408,831 and 4,373,916 881,766 874,784
Paid-in Capital 1,427,788 1,396,137
Retained Earnings 18,368,158 16,756,377
----------- -----------
Less: Treasury stock, at cost: 1,219,801 and 812,500 shares 6,312,743 3,467,566
----------- -----------
Total Stockholders' Equity 14,364,969 15,559,732
----------- -----------
Total Liabilities and Stockholders' Equity $21,665,523 $21,462,694
=========== ===========
The accompanying notes are an integral part of the
financial statements.
F-2
DECORATOR INDUSTRIES, INC.
STATEMENTS OF EARNINGS
For the Fiscal Year
-------------------
1999 1998 1997
---- ---- ----
Net Sales $52,546,556 $51,966,829 $43,395,923
Cost of Products Sold 41,329,724 40,546,325 32,736,117
------------ ----------- -----------
Gross Profit 11,216,832 11,420,504 10,659,806
Selling and Administrative Expenses 7,095,639 6,806,968 6,303,975
------------ ----------- -----------
Operating Income 4,121,193 4,613,536 4,355,831
Other Income (Expense):
Interest and Investment Income 50,183 194,456 344,559
Interest Expense (70,098) (9,097) (24,133)
------------ ----------- -----------
Earnings Before Income Taxes 4,101,278 4,798,895 4,676,257
Provision for Income Taxes 1,549,000 1,718,000 1,641,000
------------ ----------- -----------
Income from Continuing Operations 2,552,278 3,080,895 3,035,257
Loss on Discontinued Operations, less
applicable income tax of $83,000 ----- ----- (136,918)
------------ ----------- -----------
Net Income $2,552,278 $3,080,895 $2,898,339
============ =========== ===========
Earnings Per Share:
Continuing Operations $0.76 $0.85 $0.82 *
===== ===== =====
Basic $0.76 $0.85 $0.78 *
===== ===== =====
Diluted $0.73 $0.79 $0.73 *
===== ===== =====
Average Number of Shares Outstanding:
Basic 3,378,721 3,631,457 3,714,838 *
Diluted 3,517,681 3,880,619 3,968,380 *
* Restated to reflect the five-for-four stock splits effective July 21, 1998 and
June 13, 1997.
The accompanying notes are an integral part of the
financial statements.
F-3
DECORATOR INDUSTRIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
----- ------- -------- ----- -----
Balance at
December 28, 1996 $545,095 $1,546,152 $12,478,624 $(1,558,926) $13,010,945
Transactions for 1997
Net profit 2,898,339 2,898,339
Issuance of stock for
exercise of options 9,273 61,356 70,629
Issuance of stock for
directors compensation 19,330 15,539 34,869
Stock option tax
benefit 26,000 26,000
Purchase of common
stock for treasury (903,659) (903,659)
Dividends paid (788,694) (788,694)
Record stock split 138,426 (139,558) (1,132)
-------- ---------- ----------- ---------- -----------
Balance at
January 3, 1998 $692,794 $1,513,280 $14,588,269 $(2,447,046) $14,347,297
Transactions for 1998
Net profit 3,080,895 3,080,895
Issuance of stock for
exercise of options 7,138 14,731 21,869
Issuance of stock for
directors compensation 28,377 23,720 52,097
Stock option tax
benefit 16,350 16,350
Purchase of common
stock for treasury (1,044,240) (1,044,240)
Dividends paid (912,787) (912,787)
Record stock split 174,852 (176,601) (1,749)
-------- ---------- ----------- ---------- -----------
Balance at
January 2, 1999 $874,784 $1,396,137 $16,756,377 $(3,467,566) $15,559,732
Transactions for 1999
Net profit 2,552,278 2,552,278
Issuance of stock for
exercise of options 6,982 11,850 18,832
Issuance of stock for
directors compensation 19,801 33,503 53,304
Purchase of common
stock for treasury (2,878,680) (2,878,680)
Dividends paid (940,497) (940,497)
-------- ---------- ----------- ---------- -----------
Balance at
January 1, 2000 $881,766 $1,427,788 $18,368,158 $(6,312,743) $14,364,969
======== ========== =========== ========== ===========
The accompanying notes are an integral part of the
financial statements.
F-4
DECORATOR INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
For the Fiscal Year
-------------------
1999 1998 1997
---- ---- ----
Cash Flows From Operating Activities:
Net Income $2,552,278 $3,080,895 $2,898,339
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 682,821 569,681 517,258
Provision for Losses on Accounts Receivable 93,000 68,471 (4,000)
Deferred Taxes 64,000 41,000 72,000
(Gain) Loss on Disposal of Assets (10,579) (5,206) 6,849
Increase (Decrease) from Changes in:
Accounts Receivable 28,879 (272,403) 25,210
Inventory (14,077) (1,146,845) (951,927)
Prepaid Expenses 2,136 (137,969) 20,844
Other Assets 179,110 (417,547) (33,808)
Accounts Payable 230,792 (244,772) 490,109
Accrued Expenses (334,070) 180,185 106,977
---------- ----------- ----------
Net Cash Provided by Operating Activities 3,474,290 1,715,490 3,147,851
---------- ----------- ----------
Cash Flows From Investing Activities:
Capital Expenditures (2,234,157) (1,166,032) (537,555)
Proceeds from Property Dispositions 20,049 16,742 125,827
Short-term Investments (594,764) 1,145,850 532,731
Note Receivable ------ 60,000 80,000
Net Cash Paid for Acquisitions ------ ------ (3,300,096)
Deferred Purchase Price Payments (479,918) (385,030) ------
---------- ----------- ----------
Net Cash Used in Investing Activities (3,288,790) (328,470) (3,099,093)
---------- ----------- ----------
Cash Flows From Financing Activities:
Long-term Debt Payments (88,130) (42,422) (43,264)
Proceeds on debt from new building 1,500,000
Dividend Payments (940,497) (912,787) (788,694)
Proceeds from Exercise of Stock Options 18,832 21,869 70,627
Cash in Lieu of Fractional Shares ------ (1,749) (1,132)
Issuance of Stock for Director's Compensation 53,304 52,097 34,869
Stock Option Tax Benefit ------ 16,350 26,000
Purchase of Common Stock for Treasury (2,878,680) (1,044,240) (903,659)
---------- ----------- ----------
Net Cash Used in Financing Activities (2,335,171) (1,910,882) (1,605,253)
Net Increase (Decrease) in Cash and Cash Equivalents (2,149,671) (523,862) (1,556,495)
Cash and Cash Equivalents at Beginning of Year 2,633,999 3,157,861 4,714,356
---------- ----------- ----------
Cash and Cash Equivalents at End of Period $484,328 $2,633,999 $3,157,861
========== =========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $71,639 $25,630 $26,893
Income Taxes $1,423,178 $1,794,790 $1,534,242
The accompanying notes are an integral part of the
financial statements.
F-5
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company is engaged in the design, manufacture and sale of window
coverings, bedspreads, furniture and complementary products. These
products are sold to original equipment manufacturers of recreational
vehicles and manufactured housing and to the hospitality industry
(motels/hotels) either through distributors or directly to the
customers.
The Company has one industry segment and one class of products. The
business in which the Company is engaged is very competitive, and the
Company competes with manufacturers located throughout the country.
However, no reliable information is available to enable the Company to
determine its relative position among its competitors. The principal
methods of competition are price, design and service.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and all subsidiary companies. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Fiscal Year
The Company's fiscal year is a 52-53 week period ending the Saturday
nearest to December 31, which results in every sixth year containing 53
weeks. Fiscal year 1999 was a 52-week period ending January 1, 2000;
1998 was a 52-week period ending January 2, 1999 and 1997 was a 53-week
period ending January 3, 1998.
Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Property and Depreciation
Buildings and equipment are stated at cost, and depreciated on both
straight-line and accelerated methods over estimated useful lives.
Leasehold improvements are capitalized and amortized over the assets'
estimated useful lives or remaining terms of leases, if shorter.
Equipment is depreciated over 3-10 years, buildings over 20-30 years
and leasehold improvements over 5-10 years.
Excess of Cost over Net Assets Acquired
The excess of investment costs over the fair value of net assets
related to the acquisitions of Haleyville Manufacturing (1973), Liberia
Manufacturing (1985), Paragon Interiors (1995), Specialty Windows
(1997) and Southern Interiors (1997) are being amortized over a period
of 40 years. Amortization of $119,535 was charged to income during
fiscal year ended January 1, 2000, $106,870 in fiscal year ended
January 2, 1999, and $89,242 in fiscal year ended January 3, 1998.
F-6
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company evaluates the impairment of goodwill on the basis of
whether goodwill is recoverable from the projected undiscounted net
income before goodwill amortization of the related assets.
Reclassification
Certain prior year amounts have been reclassified to conform to the
current year presentation.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with a maturity of three months
or less at the time of purchase to be cash equivalents.
Cash and cash equivalents consist of the following:
1999 1998
---- ----
General Funds $(152,789) $33,363
Demand Notes ------ 1,700,000
Repurchase agreements 637,117 900,636
---------- ----------
$484,328 $2,633,999
========== ==========
The demand notes are guaranteed by letters-of-credit.
Short-term Investments
Short-term investments are categorized as trading securities. The
estimated fair values of the company's trading securities, which are
the amounts reflected in the balance sheet, are based on quoted market
prices. A loss of $94,013 is included in income for the year ended
January 1, 2000 compared to a loss of $32,020 for the year ended
January 2, 1999.
Deferred Income Taxes
The Company accounts for income taxes in accordance with the Statement
of Financial Accounting Standards No. 109 "Accounting for Income
Taxes," which requires the recognition of deferred tax liabilities and
assets at currently enacted tax rates for the expected future tax
consequences of events that have been included in the financial
statements or tax returns.
Credit Risk
The Company sells primarily on thirty day terms. The Company's
customers are spread over a wide geographic area. As such the Company
believes, that it does not have an abnormal concentration of credit
risk within any one geographic area.
F-7
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Fair Value of Financial Instruments
Marketable securities are carried at fair value. All other financial
instruments are carried at amounts believed to approximate fair value.
Stock Split
The Company declared a five-for-four stock split effective July 21,
1998. Per share and share data have been adjusted to reflect this stock
split.
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. See note 11
"Earnings Per Share" for computation of EPS.
Stock Based Compensation
In accordance with the provisions of SFAS No. 123, the Company follows
the intrinsic value based method of accounting as prescribed by APB 25,
"Accounting for Stock Issued to Employees," for its stock-based
compensation. Accordingly, no compensation cost is recognized.
Segment Information
The Company has one business segment, the interior furnishings
business, and follows the requirements of SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information."
Recent Accounting Developments
The following Statements of Financial Accounting Standards (SFAS) were
issued by the Financial Accounting Standards Board. These statements
will have no effect on the Company.
SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after
the Securitization of mortgage Loans Held for Sale by a Mortgage
Banking Enterprise" issued October 1998.
SFAS No. 135, "Recission of FASB No. 75 and Technical Corrections"
issued February 1999.
SFAS No. 136, "Transfers of Assets to a Not-for-Profit Organization or
Charitable Trust That Raises or Holds Contributions for Others" issued
June 1999.
SFAS No. 137, "Accounting for Derivatives Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No.
133--an amendment of FASB Statement No. 133" issued June 1999.
F-8
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(2) ACQUISITIONS AND DIVESTITURES
As of March 15, 1997, the Company acquired the business and certain
assets of Specialty Window Coverings Corp. for $2,455,783. Additional
consideration of $639,417 was paid based on Specialty's earnings over
the two years ending April 3, 1999. Specialty is an Elkhart, Indiana
based manufacturer of pleated shades for the recreational vehicle
market.
As of May 12, 1997, the Company acquired the business and certain
assets of Southern Interiors, Inc. for $844,313 and future
consideration, not to exceed $500,000, based on Southern's sales over
the three years ending July 1, 2000. Southern is located in Memphis,
Tennessee and manufactures draperies for the hospitality market from
fabric supplied by its customers, largely hotel design and supply
firms.
These acquisitions have been included in the consolidated financial
statements from the dates of acquisition. They have been accounted for
as a purchase. In each case, the purchase price has been allocated to
the underlying assets based upon their estimated fair values at the
date of acquisition. The excess of purchase price over the fair value
of the net assets acquired ("goodwill") is $1,965,743 and $596,050
respectively, which is being amortized over 40 years.
In December 1997 the Company decided to discontinue the manufacturing
and sale of products for the retail market. This resulted in an
after-tax loss of $136,918 on net sales of $412,492.
The cash payments for deferred purchase price of $479,918 and $385,030
represents the additional consideration paid for the acquisitions of
Specialty Window Coverings and Southern Interiors. Additional
consideration may be due Southern after July 1, 2000.
(3) INVENTORIES
Inventories consisted of the following classifications:
1999 1998
---- ----
Raw materials & supplies $5,363,747 $5,462,938
In process & finished goods 375,556 262,288
---------- ----------
$5,739,303 $5,725,226
========== ==========
(4) LEASES
The Company leases certain buildings and equipment used in its
operations. Building leases generally provide that the Company bears
the cost of maintenance and repairs and other operating expenses. Rent
expense was $519,971 in 1999, $478,635 in 1998 and $361,558 in 1997.
Commitments under these leases extend through November 2006 and are as
follows:
2000 $440,649
2001 $280,020
2002 $158,155
2003 $85,244
2004 $62,379
Thereafter $119,560
F-9
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(5) COMMITMENTS
The Company has commitments under certain employment and non-compete
agreements entered into with individuals in management positions. The
commitments under these agreements are payable $396,550, $214,200 and
$214,200, respectively, from 2000 through 2002 and $321,300 thereafter.
(6) SIGNIFICANT CUSTOMERS
Sales to Fleetwood Enterprises accounted for 20.3%, 20.1% and 22.6% of
Company sales in 1999, 1998 and 1997, respectively. Fleetwood operates
in the manufactured housing and recreational vehicle industries. Sales
to Champion Enterprises accounted for 12.7%, 13.5% and 14.2% of Company
sales in 1999, 1998 and 1997 respectively. Champion operates solely in
the manufactured housing industry. Purchasing decisions are made at
each individual plant of these customers. The Company services many of
these plants and considers each of the plants it services to be an
independent customer.
(7) LONG TERM-DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
1999 1998
---- ----
Note payable in monthly payments of $2,088 at 4% interest. Term is 15
years. This note is secured by the first mortgage on the Bloomsburg, PA
building. $163,040 $181,170
Bond payable in monthly installments through November 2008. The
interest rate is variable and is currently less than 4%. This bond is
secured by the Company's Bloomsburg, PA property. 300,000 325,000
Bond payable in quarterly installments through March 2014. The interest
rate is variable and is currently less than 4%. This bond is secured by
the Company's Goshen, IN property. 1,455,000 ------
---------- --------
1,918,040 506,170
Less amount due within one year 103,871 43,133
---------- --------
$1,814,169 $463,037
========== ========
The principal payments on long-term debt for the five years subsequent
to January 1, 2000 are as follows:
2000 $103,871
2001 $104,640
2002 $105,440
2003 $126,273
2004 $127,140
F-10
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(8) EMPLOYEE BENEFIT PLANS
On September 1, 1998 the Company began a 401(k) Retirement Savings Plan
available to all eligible employees. To be eligible for the plan, the
employee must be at least 21 years of age and have completed 1 year of
employment. Eligible employees may contribute up to 15% of their
earnings with a maximum of $10,000 for 1999 based on the Internal
Revenue Service annual contribution limit. The Company will match 25%
of the first 4% of the employee's contributions up to 1% of each
employee's earnings. Contributions are invested at the direction of the
employee to one or more funds. Company contributions begin to vest
after three years. Company contributions to the plan were $59,745 in
1999 and $19,000 in 1998.
(9) STOCK OPTIONS
At January 1, 2000, the Company had options outstanding under two fixed
stock option plans, which are described below. The Company applies APB
Opinion 25 and related Interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its fixed
stock option plans. Had compensation cost for the Company's two fixed
stock option plans been determined based on the fair value at the grant
dates for awards under these plans consistent with the method of SFAS
No. 123, the Company's net income and earning[s] per share would have
been reduced to the pro forma amounts indicated below:
1999 1998 1997
---- ---- ----
Pro forma net income $2,426,020 $3,026,032 $2,844,631
Pro forma earnings per share:
Basic $0.72 $0.83 $0.77
Diluted $0.69 $0.78 $0.72
During the initial phase-in period of SFAS No. 123 the pro forma
disclosure may not be representative of the impact on the net income in
future years.
Under the 1984 Incentive Stock Option Plan, which expired in 1994, the
Company granted options to its employees for 804,976 shares (as
adjusted for stock splits). Under the 1995 Incentive Stock Option Plan,
the company may grant options to its key employees for up to 520,830
(as adjusted for stock splits) shares of common stock. Under both
plans, the exercise price of the option equals the fair market price of
the Company's stock on the date of the grant and an option's maximum
term is 10 years. Under the 1995 Incentive Stock Option Plan 260,410
(as adjusted for stock splits) shares were granted in 1996, 7,813 (as
adjusted for stock splits) shares were granted in 1997, 168,750 (as
adjusted for stock splits) shares were granted in 1998 and 98,250
shares were granted in 1999. The options granted in 1997 and 1996 vest
20% each year starting with the date of the grant. The options granted
in 1999 and 1998 vest 20% each year beginning at the end of the first
year.
F-11
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(9) STOCK OPTIONS (Continued)
The fair value of 1996 and 1997 option grants are estimated on the date
of grant using the Flexible Binomial options-pricing method with the
following weighted-average assumptions used for the grants in 1997 and
1996: dividend yield of 3.6 percent for all years; expected volatility
of 40.6 percent for all years; risk-free interest rate of 6.4 percent
for all years; and expected life of 3.7 years for all grants. The 1998
grant used the Black-Sholes options-pricing method with the following
weighted-average assumptions: dividend yield of 2.6 percent; expected
volatility of 47.7 percent; risk-free interest rate of 5.6 percent; and
expected life of 5 years. The 1999 grant used the Black-Sholes
options-pricing method with the following weighted-average assumptions:
dividend yield of 2.5 percent; expected volatility of 42.8 percent;
risk-free interest rate of 5.8 percent; and expected life of 5 years.
A summary of the status of the Company's outstanding stock options as
of January 1, 2000, January 2, 1999 and January 3, 1998, and changes
during the years ending on those dates is presented below:
1999 1998 1997
---- ---- ----
Exercise Exercise Exercise
Shares(1) Price(2) Shares(1) Price(2) Shares(1) Price(2)
--------- -------- --------- -------- --------- --------
Outstanding at beginning of year 554,507 $5.03 424,124 $3.40 508,212 $3.09
Granted 98,250 $7.13 168,750 $8.10 7,813 $7.28
Exercised (33,040) $0.57 (38,367) $0.57 (68,980) $1.02
Forfeited ---- ---- ---- ---- (22,921) $4.82
------- ------- -------
Outstanding at year-end 619,717 $5.60 554,507 $5.03 424,124 $3.40
Options exercisable at year-end 335,428 285,242 274,129
Weighted-average fair value of
options granted during the year $2.59 $3.21 $1.68
The following information applies to fixed stock options outstanding at
January 1, 2000:
Number outstanding (1) 619,717
Range of exercise prices $0.57 to $8.10
Weighted-average exercise price $5.60
Weighted-average remaining contractual life 6.7 years
-----------------------
(1) As adjusted for the five-for-four stock splits in June 1997 and
July 1998.
(2) Based on the weighted-average exercise price.
(10) INCOME TAXES
A summary of income taxes from continuing operations is as follows:
1999 1998 1997
---- ---- ----
Current:
Federal $1,222,000 $1,410,000 $1,322,000
State 263,000 275,000 247,000
Deferred 64,000 33,000 72,000
---------- ---------- ----------
Total $1,549,000 $1,718,000 $1,641,000
========== ========== ==========
F-12
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(10) INCOME TAXES (Continued)
Temporary differences between the financial statement carrying amounts
and tax bases of assets and liabilities that give rise to net deferred
income tax liability relate to the following:
1999 1998
---- ----
Property and equipment, due to differences in depreciation $307,000 $241,000
Inventories, due to additional cost
recorded for income tax purposes (24,000) (17,000)
Accounts receivable, due to allowance
for doubtful accounts (60,000) (42,000)
Accrued liabilities, due to expenses not yet
deductible for income tax purposes 13,000 (18,000)
-------- -------
Net deferred income tax liability $236,000 $164,000
======== ========
The net deferred income tax liability is presented in the balance
sheets as follows:
1999 1998
---- ----
Current Asset $120,000 $103,000
Long-term Liability 356,000 267,000
The effective income tax rate varied from the statutory Federal tax
rate as follows:
1999 1998 1997
---- ---- ----
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes, net of
federal income tax benefit 4.4 4.0 3.8
Other (0.6) (2.2) (2.7)
----- ----- ----
Effective income tax rate 37.8% 35.8% 35.1%
===== ===== =====
(11) EARNINGS PER SHARE
In accordance with SFAS No. 128, the following is a reconciliation of
the numerators and denominators of the basic and diluted EPS
computations.
1999 1998 1997
---- ---- ----
Numerator:
Net income $2,552,278 $3,080,895 $2,898,339
========== ========== ==========
Denominator:
Weighted-average number of
common shares outstanding 3,378,721 3,631,457 3,714,838
Dilutive effect of
stock options on net income 138,960 249,162 253,542
--------- ---------- ----------
3,517,681 3,880,619 3,968,380
========== ========== ==========
Diluted earnings per share: $0.73 $0.79 $0.73
===== ===== =====
F-13
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(12) QUARTERLY FINANCIAL INFORMATION
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter Year
---- ------- ------- ------- ------- ----
Net Sales $13,211,871 $14,382,345 $13,171,213 $11,781,127 $52,546,556
Gross Profit $2,896,838 $3,228,929 $2,676,641 $2,414,424 $11,216,832
Net Income $703,016 $844,679 $558,267 $446,316 $2,552,278
Earnings Per
Common Share:
Basic $0.20 $0.25 $0.17 $0.14 $0.76
Diluted $0.19 $0.24 $0.16 $0.14 $0.73
Average Common
Shares Outstanding:
Basic 3,526,904 3,418,314 3,335,317 3,234,350 3,378,721
Diluted 3,694,190 3,575,523 3,479,267 3,321,742 3,517,681
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter Year
---- ------- ------- ------- ------- ----
Net Sales $12,649,704 $13,709,226 $13,210,272 $12,397,627 $51,966,829
Gross Profit $2,986,507 $3,009,633 $2,795,094 $2,629,270 $11,420,504
Net Income $879,888 $911,903 $711,515 $577,589 $3,080,895
Earnings Per
Common Share:
Basic $0.24 $0.25 $0.20 $0.16 $0.85
Diluted $0.22 $0.23 $0.19 $0.15 $0.79
Average Common
Shares Outstanding:
Basic 3,655,994 3,662,245 3,639,427 3,573,056 3,631,457
Diluted 3,885,200 3,948,675 3,918,211 3,775,283 3,880,619
F-14
REPORT OF INDEPENDENT AUDITORS' REPORT
ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors
and Stockholders of
Decorator Industries, Inc.
The audit referred to in our opinion dated February 14, 2000 of the
financial statements as of January 1, 2000 and for each of the three fiscal
years then ended includes the related supplemental financial schedule as listed
in item 14 (a), which, when considered in relation to the basic financial
statements, presents fairly in all material respects the information shown
therein.
LOUIS PLUNG & COMPANY, LLP
Certified Public Accountants
Pittsburgh, Pennsylvania
February 14, 2000
F-15
DECORATOR INDUSTRIES, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
(1) (2)
Charged to Charged to
Balance at Costs Other Balance at
Beginning And Accounts Deductions End
Description of Period Expenses Described Described of Period
- ----------- --------- -------- --------- --------- ---------
DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
ALLOWANCE FOR
DOUBTFUL ACCOUNTS
1999 $111,706 $93,963 -0- $46,673(A) $158,996
1998 218,018 68,471 -0- 174,783(A) 111,706
1997 232,302 (4,000) -0- 10,284(A) 218,018
(A) Write-off bad debts
F-16