Back to GetFilings.com
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 3, 1998
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 13, 1998 of outstanding shares of Common Stock
other than shares held by officers, directors and their respective associates:
$26,324,864*
Number of shares outstanding at March 13, 1998: 2,925,545*
DOCUMENTS INCORPORATED BY REFERENCE
None
* Includes 3,005 shares issuable upon surrender of the outstanding $.10 par
Common Stock.
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:
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
1993 - 52 weeks ended January 1, 1994
PART I
------
Item 1. Business.
The company is engaged in the production and sale of window coverings,
bedspreads, furniture and complementary products. The manufactured housing and
recreational vehicle products division manufactures window coverings,
bedspreads, furniture and complementary products for sale to original equipment
manufactured home builders and recreational vehicle manufacturers. The
hospitality products division manufactures draperies, bedspreads, furniture and
complementary products for sale to hotels, motels and other customers
nationwide.
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.
As of March 15, 1997, the Company acquired the business and certain
assets of Specialty Window Coverings Corp. for $2,455,783 and future
consideration, not to exceed $2 million, 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.
During 1997, two customers, Fleetwood Enterprises and Champion
Enterprises, accounted for approximately 23% and 14% 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 or
concessions. It owns certain trademarks and 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 1997 and 1996 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 700 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
Elkhart, Indiana Offices, manufacturing and warehouse 16,000 Leased
Elkhart, Indiana Offices, manufacturing and warehouse 35,000 Leased
Goshen, Indiana Offices, manufacturing and warehouse 35,000 Leased
Bossier, Louisiana Offices, manufacturing and warehouse 20,000 Owned
Salisbury, North Carolina Offices, manufacturing and warehouse 22,500 Leased
Bloomsburg, Pennsylvania Offices, manufacturing and warehouse 42,000 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.
2
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.
1997 Sales Prices 1996 Sales Prices
----------------- -----------------
High Low High Low
---- --- ---- ---
First Quarter 9-7/8 8-1/2 5-5/8 4-3/4
Second Quarter 9-5/8 8-15/16 6-7/8 5-1/2
Third Quarter 11 8-7/8 9-1/2 6-1/2
Fourth Quarter 10-1/8 8-7/8 10-7/8 8-1/8
As of March 13, 1998, the Company had 440 shareholders of record of its
Common Stock. Of this total, 432 were holders of the $.20 par value stock and 8
were holders of the $.10 par value stock who had not yet exchanged their stock
for the $.20 par value stock in connection with the one-for-two reverse stock
split in July 1982. The $.20 par value stock to which the holders of the old
$.10 par value stock are entitled, together with the accrued cash dividends
thereon, are in the process of being escheated to the proper states as unclaimed
property.
Total cash dividend payments were $.28 per share in 1997 and 1996.
3
DECORATOR INDUSTRIES, INC.
Item 6. Selected Financial Data
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
FOR THE YEAR
Net Sales $ 43,395,923 $ 38,649,687 $ 34,207,259 $ 33,246,590 $ 28,964,223 $ 23,605,290
Income from Continuing Operations $ 3,035,257 $ 3,065,220 $ 2,414,678 $ 2,823,770 $ 2,370,232 $ 1,528,787
Net Income $ 2,898,339 $ 3,065,220 $ 2,414,678 $ 2,823,770 $ 2,370,232 $ 1,528,787
----------------------------------------------------------------------------------------------
AT YEAR-END
Total Assets $ 20,301,268 $ 18,394,357 $ 16,415,659 $ 16,406,670 $ 13,188,452 $ 11,236,785
Long-term Obligations $ 506,169 $ 549,433 $ 587,084 $ 629,450 $ 431,260 $ 68,475
Long-term Debt Ratio 3.71% 4.03% 5.14% 5.30% 4.70% 1.10%
Working Capital $ 8,406,250 $ 9,003,836 $ 6,925,352 $ 7,479,176 $ 5,322,279 $ 3,214,756
Working Capital Ratio 2.61 2.94 2.54 2.75 2.39 1.68
Stockholders' Equity $ 14,347,297 $ 13,010,945 $ 11,147,754 $ 11,322,046 $ 8,741,511 $ 6,417,134
----------------------------------------------------------------------------------------------
PER SHARE
Continuing Operations $1.03 $1.05 $0.75 $0.86 $0.75 $0.50
Basic $0.98 $1.05 $0.75 $0.86 $0.75 $0.50
Diluted $0.92 $0.98 $0.70 $0.78 $0.66 $0.45
Book Value $4.92 $4.40 $3.74 $3.39 $2.75 $2.07
Cash Dividends Declared $0.28 $0.28 $0.27 $0.23 $0.15 ----
Note: Per share amounts, except for cash dividends, have been adjusted for a
five-for-four stock split effective June 13, 1997, a four-for-three
stock split in June 1996 and a two-for-one stock split in April 1993.
4
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 3, 1998 was $8,406,250 compared to
$9,003,836 at December 28, 1996.
2) The current ratio was 2.61:1 at year-end 1997 compared to 2.94:1
at year-end 1996.
3) The liquid ratio changed from 2.3:1 at year-end 1996 to 1.7:1 at
year-end 1997.
4) The long-term debt ratio continued to be minimal, at 3.7% January 3,
1998 compared to 4.0% a year earlier.
Significant uses of working capital were made for acquisitions
($3,300,096) and purchases of Common Stock for the treasury ($868,034). Without
this activity, working capital would have increased by approximately $3,500,000.
This activity also caused the current and liquid ratios to decrease.
Accounts receivable and inventories increased by $2,166,308, largely
due to the acquisitions. These assets continue to be well managed.
Capital expenditures for 1997 were $537,555. Management believes that
capital expenditures in 1998, not including construction of new facilities, will
approximate the amount spent in 1997. The Company is contemplating construction
of a new facility to replace a leased facility. Such a facility most likely
would be funded with long-term debt and would cause capital expenditures to be
greater.
Management does not foresee any events which will adversely affect its
liquidity during 1998, and, further, the Company's financial condition 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:
1997 1996 1995
---- ---- ----
Net sales....................................... 100.0% 100.0% 100.0%
Cost of products sold........................ 75.4 74.1 75.3
Selling and administrative expenses....... 14.5 14.5 14.5
Interest and investment income............ (.8) (.8) (1.2)
Interest expense.............................. .1 .1 .1
Income from continuing operations........ 7.0 7.9 7.1
Net income.................................... 6.7 7.9 7.1
1997 vs. 1996
For the fiscal year 1997, net sales were $43,395,923 compared with
$38,649,687 in fiscal 1996. This represents an increase of 12% and is
attributable to the acquisitions made in 1997. Net sales to the manufactured
housing market were $18,732,000 in 1997 compared with $21,533,000 in 1996. This
5
decrease is largely due to the reduction in the number of manufactured homes
produced by the original equipment manufacturers. Net sales to the recreational
vehicle market were $15,306,000 in 1997 compared with $8,696,000 the prior year.
This increase results from the acquisitions made in 1997 and from the continued
growth of the existing businesses. Net sales to the hospitality market were
$9,375,000 in 1997 compared to $8,417,000 in 1996. This increase is due largely
to the acquisitions made in 1997.
Cost of products sold as a percentage of sales increased to 75.4% in
1997 as compared to 74.1% in 1996. The increase is attributable to the higher
cost of products sold for acquired businesses, higher expenses associated with
the growth of existing businesses and market conditions which have resulted in a
lowering of operating margins.
Selling and administrative expenses were $6,303,975 (14.5% of sales) in
1997 versus $5,611,222 (14.5% of sales) in 1996. This increase is from selling
and administrative expenses of the acquired businesses.
For the fiscal year 1997, income from continuing operations was
$3,035,257, almost equal to the record earnings of $3,065,220 reported in the
prior year. The decline in net income ($166,881) was primarily due to the
decision to discontinue the manufacturing and sale of products for the retail
market, which resulted in a net loss of $136,918 for discontinued operations.
1996 vs. 1995
Fiscal 1996's net sales increased to $38,649,687, an increase of 13%
over fiscal 1995's net sales of $34,207,259. Sales to the manufactured housing
market increased 8% to $21,533,000; sales to the recreational market increased
by 32% to $8,696,000; and hospitality sales increased by 10% to $8,421,000. The
increase in sales to the recreational market is largely attributable to the
acquisition made in August 1995 of a supplier to the recreational vehicle
industry. Without this acquisition, sales to the recreational vehicle industry
would have shown a 7% increase.
Cost of products sold as a percentage of sales decreased in 1996 to
74.1% from 75.3% in 1995. This improvement was accomplished by increasing
efficiencies in labor and materials.
Selling and administrative expenses remained constant at 14.5% of sales
in both 1996 and 1995.
The increase in net income to $3,065,220, 7.9% of net sales in 1996,
from $2,414,678, 7.1% of net sales in 1995, is the result of the increased sales
volumes and the improved efficiencies in labor and materials.
Primary earnings per share were $1.31 in 1996 compared to $.93 in 1995,
a 41% increase. This percentage was the result of the higher net income and
fewer average shares outstanding. The Company repurchased 346,863 shares of its
outstanding Common Stock during 1995 and 1996.
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.
6
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 61, 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 K. Solomon, age 48, 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.
Jerome B. Lieber, age 77, has been Secretary and a director of the
Company since 1961. He is Senior Counsel to the law firm of Klett Lieber Rooney
& 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 69, 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.
William H. Allen, Jr., age 62, has been a director of the Company since
1995. He has been Vice Chairman of the Board of NationsBank N.A. (South) since
December 1995 and previously served as Chairman of the Board and Chief Executive
Officer of Intercontinental Bank. Mr. Allen is also a director of American
Bankers Life Insurance Company and Winsloew Furniture, Inc.
Ellen Downey, age 45, was elected to the Board of Directors at the
annual meeting in May 1997. She 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 63, was appointed to the Board of Directors in
July 1997. Since 1992 he has served as a consultant to and director of Society
National 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.
7
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) 1997 249,712 123,000 87,723 ---- 34,745
Chairman of the Board, 1996 236,156 156,000 * 41,666(5) 34,745
President and Chief Executive 1995 224,910 58,234 * ---- 34,745
Officer
Michael K. Solomon 1997 112,370 25,550 * ---- ----
Vice President, Treasurer and 1996 107,000 28,940 27,106 16,666(5) ----
Chief Financial Officer 1995 104,500 14,558 * ---- ----
- ------------------------
(1) The fiscal year 1997 was a 53-week fiscal period.
(2) Medical/dental reimbursement plan payments, country club memberships,
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 1997, payment to Mr.
Bassett for such sales was $84,289, which provided a net benefit to the
Company of $26,333. For 1996, payment to Mr. Solomon for such sales was
$18,059, which provided a net benefit to the Company of $11,919. 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.
(4) The Company has an employment agreement with Mr. Bassett which
provides for an annual salary of not less than $214,200. The agreement
expires July 1, 2004.
(5) As adjusted for the four-for-three stock split in June 1996 and the
five-for-four stock split in June 1997.
The following table sets forth information concerning the exercise of
stock options during fiscal 1997 by the named executive officers and the value
of their unexercised, in-the-money stock options at the end of that fiscal year
(January 3, 1998). All options outstanding at January 3, 1998, except for those
granted after fiscal 1995, were exercisable at any time prior to their
respective expiration dates.
8
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Shares Optioned Value of
Acquired Value Shares at Options at
Name on Exercise Realized ($) 01/03/98 (#) 01/03/98($)(1)
- ---- ---------------- ------------ ------------ --------------
William A. Bassett 24,998(2) 194,380 116,664(3) 843,900
25,000(4) 87,500
Michael K. Solomon 7,500(2) 63,222 39,996(3) 274,311
10,000(4) 35,000
- ------------------------
(1) Assumes a market value of $9.50 per share, which was the last reported
sale price on the American Stock Exchange on January 2, 1998.
(2) As adjusted for the five-for-four stock split in June 1997.
(3) Exercisable.
(4) Unexercisable.
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.
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.
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
643,981 shares (as adjusted for stock splits) of the Company's Common Stock. The
purchase price of optioned shares is 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 416,665 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.
9
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information concerning the common stockholding at March 13, 1998 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 289,709(2) 9.50%
Michael K. Solomon 76,961(3) 2.60%
Jerome B. Lieber 10,965(4)(5) ------
Joseph N. Ellis 2,000(5) ------
William H. Allen, Jr. 4,000(5) ------
Ellen Downey 1,250(5) ------
Thomas L. Dusthimer 1,000(5) ------
All directors and executive officers
as a group 385,885(6) 12.50%
- ----------------------------
(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 124,997 optioned shares which may be acquired within 60 days
and 5,016 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 35,329 optioned shares, which may be acquired within 60 days.
(4) Includes 4,033 shares held in a charitable trust as to which
Mr. Lieber disclaims beneficial ownership.
(5) Excludes shares held in the Trust for his or her account.
(6) Includes 160,326 optioned shares, which may be acquired within 60 days.
Coury Investments, Ltd., a real estate and securities investment
limited partnership organized in Florida, informed the Company in mid-1993 that
it then beneficially owned 180,000 shares of the Company's Common Stock. The
Company has no further information regarding Coury's ownership of Common Stock.
FMR Corp. of Boston, Massachusetts, has furnished the Company a copy of
its Schedule 13G dated February 14, 1998 in which it reported that as of
December 31, 1997 Fidelity Management & Research Company, a wholly-owned
subsidiary of FMR Corp. and a registered investment adviser, had sole investment
power with respect to 302,332 shares (10.31%) 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, 1998 in which it reported beneficial
ownership of a total of 189,675 shares (6.47%) of the Company's Common Stock
including sole power to vote and dispose of 6,250 shares, shared power to vote
175,386 shares and shared power to dispose of 183,425 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 23, 1998 in which it reported that it had sole voting and dispositive
power with respect to 250,000 shares (8.53%) of the Company's common stock.
10
Item 13. Certain Relationships and Related Transactions.
In September 1997, the Company bought 21,702 shares of the Company's
Common Stock from the President, William A. Bassett, for $211,595 to aid Mr.
Bassett in the payment of taxes resulting from the exercise of stock options.
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) Report of Independent Certified Public Accountants
(2) Consolidated Balance Sheet - January 3, 1998 and
December 28, 1996
(3) Consolidated Statement of Earnings for the three fiscal
years ended January 3, 1998
(4) Consolidated Statement of Stockholder's Equity for the
three fiscal years ended January 3, 1998
(5) Consolidated Statement of Cash Flows for the three
fiscal years ended January 3, 1998
(6) Notes to the Consolidated Financial Statements
(7) Report of Independent Certified Public Accountants 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.
11
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.
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.*
11M Statement re computation of diluted income per share, filed
herewith.
24E Consent of Accountants, filed herewith.
27D 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
1997.
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 20, 1998
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 20, 1998
Chief Executive Officer and ---------------------------------------
Director
Michael K. Solomon Vice President, Treasurer, /s/ Michael K. Solomon March 20, 1998
Principal Financial and ---------------------------------------
Accounting Officer,
And Director
/s/ Jerome B. Lieber
Jerome B. Lieber Director March 20, 1998
---------------------------------------
/s/ Joseph N. Ellis
Joseph N. Ellis Director March 20, 1998
---------------------------------------
/s/ William H. Allen, Jr.
William H. Allen, Jr. Director March 20, 1998
---------------------------------------
/s/ Ellen Downey
Ellen Downey Director March 20, 1998
---------------------------------------
/s/ Thomas Dusthimer
Thomas Dusthimer Director March 20, 1998
---------------------------------------
13
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Stockholders
Decorator Industries, Inc.
We have audited the accompanying balance sheet of Decorator Industries,
Inc. as of January 3, 1998 and December 28, 1996 and the related statements of
earnings, stockholders' equity and cash flows for each of the three fiscal years
in the period ended January 3, 1998. 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 financial statements referred to above present
fairly, in all material respects, the financial position of Decorator
Industries, Inc. as of January 3, 1998 and December 28, 1996, and the results of
its operations and its cash flows for each of the three fiscal years in the
period ended January 3, 1998 in conformity with generally accepted accounting
principles.
LOUIS PLUNG & COMPANY, LLP
Certified Public Accountants
Pittsburgh, Pennsylvania
February 20, 1998
F-1
DECORATOR INDUSTRIES, INC.
BALANCE SHEET
Fiscal Year End
ASSETS 1997 1996
------ ---- ----
Current Assets:
Cash and Cash Equivalents $3,157,861 $4,714,356
Short-term Investments 2,006,882 2,539,613
Accounts Receivable, less allowance for
doubtful accounts ($218,018 and $232,302) 3,643,503 2,972,572
Inventories 4,578,381 3,083,004
Other Current Assets 256,425 333,269
--------------- ---------------
Total Current Assets 13,643,052 13,642,814
--------------- ---------------
Property and Equipment:
Land, Buildings & Improvements 2,182,228 2,355,013
Machinery, Equipment, Furniture and Fixtures 3,500,122 3,042,968
--------------- ---------------
Total Property and Equipment 5,682,350 5,397,981
Less: Accumulated Depreciation and Amortization 2,208,956 2,249,848
--------------- ---------------
Net Property and Equipment 3,473,394 3,148,133
--------------- ---------------
Goodwill, less accumulated
amortization of $963,466 and $874,224 3,010,422 1,402,818
Other Assets 174,400 200,592
--------------- ---------------
Total Assets $20,301,268 $18,394,357
=============== ===============
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current Liabilities:
Accounts Payable $3,114,661 $2,624,553
Current Maturities of Long-term Debt 42,423 41,685
Accrued Expenses:
Income Taxes ------ 63,397
Compensation 1,323,276 1,443,921
Other 756,442 465,423
--------------- ---------------
Total Current Liabilities 5,236,802 4,638,979
--------------- ---------------
Long-Term Debt 506,169 549,433
Deferred Income Taxes 211,000 195,000
--------------- ---------------
Total Liabilities 5,953,971 5,383,412
--------------- ---------------
Stockholders' Equity
Common stock $.20 par value: Authorized shares, 5,000,000;
Issued shares, 3,463,840 and 2,725,462 692,794 545,095
Paid-in Capital 1,513,280 1,546,152
Retained Earnings 14,588,269 12,478,624
--------------- ---------------
16,794,343 14,569,871
Less: Treasury stock, at cost: 554,100 and 369,087 shares 2,447,046 1,558,926
--------------- ---------------
Total Stockholders' Equity 14,347,297 13,010,945
--------------- ---------------
Total Liabilities and Stockholders' Equity $20,301,268 $18,394,357
=============== ===============
The accompanying notes are an integral part of the financial statements.
F-2
DECORATOR INDUSTRIES, INC.
STATEMENT OF EARNINGS
For the Fiscal Year Ended
-------------------------
1997 1996 1995
---- ---- ----
Net Sales $43,395,923 $38,649,687 $34,207,259
Cost of Products Sold 32,736,117 28,626,094 25,760,666
------------------ ------------------ -------------------
Gross Profit 10,659,806 10,023,593 8,446,593
Selling and Administrative Expenses 6,303,975 5,611,222 4,961,007
------------------ ------------------ -------------------
Operating Income 4,355,831 4,412,371 3,485,586
Other Income (Expense):
Interest and Investment Income 344,559 305,370 420,329
Interest Expense (24,133) (38,521) (47,237)
------------------ ------------------ -------------------
Earnings Before Income Taxes 4,676,257 4,679,220 3,858,678
Provision for Income Taxes 1,641,000 1,614,000 1,444,000
------------------ ------------------ -------------------
Income from Continuing Operations 3,035,257 3,065,220 2,414,678
Loss on Discontinued Operations, less
applicable income tax of $83,000 (136,918) ------ ------
------------------ ------------------ -------------------
Net Income $2,898,339 $3,065,220 $2,414,678
================== ================== ===================
Earnings Per Share:
Continuing Operations $1.03 $1.05 * $0.75 *
===== ===== =====
Basic $0.98 $1.05 * $0.75 *
===== ===== =====
Diluted $0.92 $0.98 * $0.70 *
===== ===== =====
Average Number of Shares Outstanding:
Basic 2,971,870 2,917,464 * 3,231,960 *
Diluted 3,174,704 3,139,512 * 3,487,721 *
* Restated to reflect the five-for-four stock split effective June 13, 1997 and
the four-for-three stock split effective June 17, 1996.
The accompanying notes are an integral part of the financial statements.
F-3
DECORATOR INDUSTRIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
------ ------- -------- -------- -----
Balance at
December 31, 1994 $522,717 $1,619,828 $10,332,610 $(1,153,109) $11,322,046
Transactions for 1995
Net Profit 2,414,678 2,414,678
Issuance of stock for
exercise of options 6,256 60,903 (11,019) 56,140
Stock option tax
benefit 11,454 11,454
Purchase of common
stock for treasury (2,138,141) (2,138,141)
Dividends paid (518,423) (518,423)
---------------- ----------------- ------------------ ------------------ ------------------
Balance at
December 30, 1995 $528,973 $1,692,185 $12,228,865 $(3,302,269) $11,147,754
Transactions for 1996
Net Profit 3,065,220 3,065,220
Issuance of stock for
exercise of options 16,122 148,890 165,012
Stock option tax
benefit 18,000 18,000
Purchase of common
stock for treasury (769,829) (769,829)
Dividends paid (613,922) (613,922)
Record stock split (312,923) (2,201,539) 2,513,172 (1,290)
---------------- ----------------- ------------------ ------------------ ------------------
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
================ ================= ================== ================== ==================
The accompanying notes are an integral part of the financial statements.
F-4
DECORATOR INDUSTRIES, INC.
STATEMENT OF CASH FLOWS
For the Fiscal Year Ended
-------------------------
1997 1996 1995
---- ---- ----
Cash Flows From Operating Activities:
Net Income $2,898,339 $3,065,220 $2,414,678
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 517,258 412,172 380,100
Provision for Losses on Accounts Receivable (4,000) 40,000 72,374
Deferred Taxes 72,000 43,000 40,000
(Gain) Loss on Disposal of Assets 6,849 (264) (623)
Increase (Decrease) from Changes in:
Accounts Receivable 25,210 (236,533) (148,611)
Inventory (951,927) (77,621) (248,624)
Short-term Investments 532,731 (2,525,006) 2,131,725
Prepaid Expenses 20,844 9,104 (28,103)
Other Assets (33,808) 153,981 (18,914)
Accounts Payable 490,109 (126,777) 366,474
Accrued Expenses 106,977 259,280 (252,875)
----------------- --------------- ---------------
Net Cash Provided by Operating Activities 3,680,582 1,016,556 4,707,601
----------------- --------------- ---------------
Cash Flows From Investing Activities:
Capital Expenditures (537,555) (418,557) (462,704)
Proceeds from Property Dispositions 125,827 5,609 33,477
Note Receivable 80,000 80,000 80,000
Net Cash Paid for Acquisition (3,300,096) ------ (471,926)
----------------- --------------- ---------------
Net Cash Used in Investing Activities (3,631,824) (332,948) (821,153)
----------------- --------------- ---------------
Cash Flows From Financing Activities:
Long-term Debt Payments (43,264) (36,997) (53,740)
Dividend Payments (788,694) (613,922) (518,423)
Proceeds from Exercise of Stock Options 35,002 165,012 56,139
Cash in Lieu of Fractional Shares (1,132) (1,288) ------
Issuance of Stock for Director's Compensation 34,869 ------ ------
Stock Option Tax Benefit 26,000 18,000 11,454
Purchase of Common Stock for Treasury (868,034) (769,829) (2,138,141)
----------------- --------------- ---------------
Net Cash Used in Financing Activities (1,605,253) (1,239,024) (2,642,711)
Net Increase (Decrease) in Cash and Cash Equivalents (1,556,495) (555,416) 1,243,737
Cash and Cash Equivalents at Beginning of Year 4,714,356 5,269,772 4,026,035
----------------- --------------- ---------------
Cash and Cash Equivalents at End of Period $3,157,861 $4,714,356 $5,269,772
================= =============== ===============
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $26,893 $29,393 $43,899
Income Taxes $1,534,242 $1,568,476 $1,460,794
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
------------------------------------------
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 1997 was a 53-week year ending January 3, 1998; 1996
and 1995 were 52-week periods ending December 28, 1996, and December
30, 1995.
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 $89,242 was charged to income during
fiscal year ended January 3, 1998, $58,786 in fiscal year ended
December 28, 1996, and $56,417 in fiscal year ended December 30, 1995.
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.
F-6
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
-----------------------------------------------------
Cash and cash equivalents consist of the following:
1997 1996
---- ----
General Funds $ 246,400 $1,166,347
Demand Notes 2,845,000 2,805,000
Repurchase agreements 66,461 743,009
--------------- ---------------
$3,157,861 $4,714,356
=============== ===============
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. An unrealized gain of $70,969 is included in income for the
year ended January 3, 1998 compared to an unrealized gain of $25,204
for the year ended December 28, 1996.
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 into two different markets, each primarily, on
thirty-day terms. Within each market, 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 market or any one geographic area.
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 June 13,
1997. Per share and share data have been adjusted to reflect this
stock split.
F-7
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
-----------------------------------------------------
Earnings Per Share
------------------
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share" in 1997. SFAS No. 128 simplifies the
computation of earnings per share ("EPS") previously required in
Accounting Principles Board (APB) Opinion No. 15, "Earnings Per Share,"
by replacing primary and fully diluted EPS with basic and diluted EPS.
Under SFAS No. 128, basic EPS is calculated by dividing net income by
the weighted-average common shares outstanding during the period.
Diluted EPS reflects the potential dilution to basic EPS that could
occur upon conversion or exercise of securities, options, or other such
items, to common shares using the treasury stock method based upon the
weighted-average fair value of the Company's common shares during the
period. SFAS No. 128 was required to be adopted by the Company in its
year-end 1997 Annual Report, and earnings per share for prior periods
have been restated in accordance with SFAS No. 128. See note 10
"Earnings Per Share" for computation of EPS.
Recent Accounting Developments
------------------------------
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting the
components of comprehensive income and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which replaces
existing segment disclosure requirements and requires reporting certain
financial information regarding operating segments on the basis used
internally by management to evaluate segment performance. The Company
is not currently affected by SFAS No. 130 but will adopt SFAS No. 131
at the year-end 1998. These statements will affect disclosure and
presentation in the financial statements but will have no impact on the
Company's financial position, liquidity, cash flows or results of
operations.
(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 and future
consideration, not to exceed $2 million, 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 $1,260,328 and $436,517
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.
F-8
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(3) INVENTORIES
-----------
Inventories consisted of the following classifications:
1997 1996
---- ----
Raw materials & supplies $4,343,132 $2,854,066
In process & finished goods 235,249 228,938
--------------- ---------------
$4,578,381 $3,083,004
=============== ===============
(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 $361,558 in 1997, $248,286 in 1996 and $209,958 in 1995.
Commitments under these leases extend through November 2006 and are as
follows:
1998 $399,070
1999 $281,114
2000 $195,352
2001 $139,034
2002 $ 65,804
Thereafter $198,582
(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 $339,000, $253,800 and
$214,200, respectively, from 1998 through 2000 and $749,700 thereafter.
(6) SIGNIFICANT CUSTOMERS
---------------------
Sales to Fleetwood Enterprises accounted for 22.6%, 22.5% and 25.1% of
Company sales in 1997, 1996 and 1995, respectively. Fleetwood operates
in the manufactured housing and recreational vehicle industries. Sales
to Champion Enterprises accounted for 14.2% of Company sales in 1997.
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.
F-9
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(7) LONG TERM-DEBT AND CREDIT ARRANGEMENTS
--------------------------------------
Long-term debt consists of the following:
1997 1996
---- ----
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. $198,592 $215,372
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. 350,000 375,746
------------ -------------
548,592 591,118
Less amount due within one year 42,423 41,685
------------ -------------
$506,169 $549,433
============ =============
Principal payments on long-term debt for the five years subsequent to
January 3, 1998 are as follows:
1998 $42,423
1999 $43,133
2000 $43,871
2001 $44,640
2002 $45,440
(8) STOCK OPTIONS
-------------
At January 3, 1998, 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 FASB
123, the Company's net income and earning per share would have been
reduced to the pro forma amounts indicated below:
1997 1996 1995
---- ---- ----
Pro forma net income $2,844,631 $3,007,470 $2,414,678
Pro forma earnings per share:
Basic $0.96 $1.03 $0.75
Diluted $0.90 $0.96 $0.70
During the initial phase-in period of FASB 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 643,981 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 416,665
(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. During 1996, options to purchase 208,328 (as
F-10
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(8) STOCK OPTIONS (Continued)
-------------------------
adjusted for stock splits) shares under the 1995 Incentive stock Option
Plan were granted. During 1997, an additional 6,250 shares were
optioned under the 1995 Plan. The options granted in 1997 and 1996 vest
20% each year starting with the date of the grant.
The fair value of each option grant is 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, 1996 and
1995, respectively: 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.
A summary of the status of the Company's outstanding stock options as
of January 3, 1998, December 28, 1996 and December 30, 1995, and
changes during the years ending on those dates is presented below:
1997 1996 1995
---- ---- ----
Exercise Exercise Exercise
Shares(1) Price(2) Shares(1) Price(2) Shares(1) Price(2)
-------- -------- ----------- -------- --------- --------
Outstanding at beginning of year 406,570 $3.86 323,692 $1.49 394,150 $1.45
Granted 6,250 $9.10 208,328 $6.00 ---- ----
Exercised (55,184) $1.28 (125,450) $1.31 (70,458) $1.25
Forfeited (18,337) $6.03 ----- ---- ----- ----
------------ ----------- ----------
Outstanding at year-end 339,299 $4.25 406,570 $3.86 323,692 $1.49
Options exercisable at year-end 219,303 239,907 323,692
Weighted-average fair value of
options granted during the year $2.10 $2.10
The following information applies to fixed stock options outstanding at
January 3, 1998:
Number outstanding (1) 339,299
Range of exercise prices $.71 to $9.10
Weighted-average exercise price $4.25
Weighted-average remaining contractual life 6.7 years
-----------------------
(1) As adjusted for the four-for-three stock split in June 1996 and the
five-for-four stock split in June 1997.
(2) Based on the weighted-average exercise price.
F-11
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(9) INCOME TAXES
------------
A summary of income taxes from continuing operations is as follows:
1997 1996 1995
---- ---- ----
Current:
Federal $1,322,000 $1,350,000 $1,169,000
State 247,000 221,000 235,000
Deferred 72,000 43,000 40,000
------------- ---------------- ----------------
Total $1,641,000 $1,614,000 $1,444,000
============= ================ ================
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:
1997 1996
---- ----
Property and equipment, due to differences in depreciation $187,000 $166,000
Installment sale of land & building 12,500 29,000
Inventories, due to additional cost
recorded for income tax purposes (13,000) (11,000)
Accounts receivable, due to allowance
for doubtful accounts (83,000) (88,000)
Accrued liabilities, due to expenses not yet
deductible for income tax purposes 27,500 (37,000)
---------- ----------
Net deferred income tax liability $131,000 $59,000
========== ==========
The net deferred income tax liability is presented in the balance
sheets as follows:
1997 1996
---- ----
Current Asset $ 80,000 $136,000
Long-term Liability 211,000 195,000
The effective income tax rate varied from the statutory Federal tax
rate as follows:
1997 1996 1995
---- ---- ----
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes, net of
federal income tax benefit 3.8 3.3 4.2
Other (2.7) (2.8) (0.8)
----- ----- -----
Effective income tax rate 35.1% 34.5% 37.4%
===== ===== =====
F-12
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(10) 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.
1997 1996 1995
---- ---- ----
Numerator:
Net income $2,898,339 $3,065,220 $2,414,678
================== ================== =================
Denominator:
Weighted-average number of 2,971,870 2,917,464 3,231,960
common shares outstanding
Dilutive effect of 202,834 222,048 255,761
stock options on net income
------------------ ------------------ -----------------
3,174,704 3,139,512 3,487,721
================== ================== =================
Diluted earnings per share: $0.92 $0.98 $0.70
===== ===== =====
(11) QUARTERLY FINANCIAL INFORMATION
-------------------------------
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter Year
---- ------- ------- ------- ------- ----
Net Sales $9,386,543 $11,777,358 $11,051,332 $11,180,690 $43,395,923
Gross Profit $2,464,389 $2,968,229 $2,545,621 $2,681,567 $10,659,806
Net Income $702,606 $879,544 $636,223 $679,966 $2,898,339
Earnings Per
Common Share:
Continuing Operations $0.24 $0.30 $0.25 $0.24 $1.03
Basic $0.24 $0.29 $0.21 $0.24 $0.98
Diluted $0.22 $0.28 $0.20 $0.22 $0.92
Average Common
Shares Outstanding:
Basic 2,966,516 2,979,651 2,987,613 2,952,662 2,971,870
Diluted 3,195,086 3,174,203 3,191,696 3,137,832 3,174,704
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter Year
---- ------- ------- ------- ------- ----
Net Sales $9,439,498 $10,540,139 $9,601,465 $9,068,585 $38,649,687
Gross Profit $2,336,564 $2,833,395 $2,539,800 $2,313,834 $10,023,593
Net Income $622,726 $910,548 $813,487 $718,459 $3,065,220
Earnings Per
Common Share:
Basic $0.22 $0.31 $0.28 $0.24 $1.05
Diluted $0.20 $0.30 $0.25 $0.23 $0.98
Average Common
Shares Outstanding:
Basic 2,884,856 2,908,738 2,932,451 2,943,663 2,917,464
Diluted 3,102,789 3,098,126 3,179,924 3,177,210 3,139,512
F-13
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
-------------------------------
The Board of Directors
and Stockholders
Decorator Industries, Inc.
The audit referred to in our opinion dated February 20, 1998 of the
financial statements as of January 3, 1998 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 20, 1998
F-14
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
1997 $232,302 $(4,000) -0- $10,284(A) $218,018
1996 229,722 40,000 -0- 37,420(A) 232,302
1995 199,659 72,374 -0- 42,311(A) 229,722
(A) Write-off bad debts
F-15