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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 December 30, 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 15, 2001 of outstanding shares of Common Stock
other than shares held by officers, directors and their respective associates:
$6,828,385
Number of shares outstanding at March 15, 2001: 2,796,576
DOCUMENTS INCORPORATED BY REFERENCE
None
Cautionary Statement: The Company's Reports on Form 10-K and Form 10-Q, any
Current Reports on Form 8-K, and any other written or oral statements made by or
on behalf of the Company contain or may contain statements relating to future
events, including results of operations, that are considered "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements represent the Company's expectations or
belief as to future events and, by their very nature, are subject to risks and
uncertainties which may result in actual events differing materially from those
anticipated. In particular, future operating results will be affected by the
level of demand for recreational vehicles, manufactured housing and hotel/motel
accommodations and may be affected by changes in economic conditions, interest
rate fluctuations, competitive products and pricing pressures within the
Company's markets, the Company's ability to contain its manufacturing costs and
expenses, and other factors. Any forward-looking statements by the Company speak
only as of the date made, and the Company undertakes no obligation to update or
revise such statements to reflect events or circumstances after such date or to
reflect the occurrence of unanticipated events.
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:
2000 - 52 weeks ended December 30, 2000
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
PART I
------
Item 1. Business.
The Company is engaged in the design, manufacture and sale of window
coverings, bedspreads 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 2000, two customers, Fleetwood Enterprises and Champion
Enterprises, accounted for approximately 21.5% and 10.3% 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.
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. Expenditures for research and development
during 2000 and 1999 were not significant.
Compliance with federal, state and local environmental protection
provisions is not expected to have a material effect upon the capital
expenditures, earnings or competitive position of the Company.
The Company employs approximately 520 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
Red Bay, Alabama Offices, manufacturing and warehouse 35,000 Leased
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
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. The
Goshen, IN and Bloomsburg, PA facilities are subject to mortgages financed as
mentioned in Note 7 of the financial statements.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
2
PART II
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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.
2000 Sales Prices 1999 Sales Prices
----------------- -----------------
High Low High Low
---- --- ---- ---
First Quarter 5.375 4.4375 8.250 6.000
Second Quarter 5.125 4.563 7.625 6.1875
Third Quarter 4.750 3.375 7.3125 5.3125
Fourth Quarter 4.250 2.500 5.875 5.000
As of March 15, 2001, the Company had 338 shareholders of record of its
Common Stock.
Total cash dividend payments were $.24 and $.28 per share in 2000 and
1999, respectively.
3
DECORATOR INDUSTRIES, INC.
Item 6. Selected Financial Data
2000 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
FOR THE YEAR
- ------------
Net Sales $42,609,584 $49,206,018 $48,788,610 $41,877,163 $38,649,687 $34,207,259
Income from Continuing Operations $ 1,037,112 $ 2,717,418 $ 3,090,230 $ 3,094,084 $ 3,065,220 $ 2,414,678
Net Income $ 133,198 $ 2,552,278 $ 3,080,895 $ 2,898,339 $ 3,065,220 $ 2,414,678
----------- ----------- ----------- ----------- ----------- -----------
AT YEAR-END
- -----------
Total Assets $18,855,387 $21,665,523 $21,462,694 $20,301,268 $18,394,357 $16,415,659
Long-term Obligations $ 1,709,686 $ 1,814,169 $ 463,037 $ 506,169 $ 549,433 $ 587,084
Long-term Debt/Total Capitalization 12.49% 11.21% 2.89% 3.41% 4.05% 5.00
Working Capital $ 5,154,647 $ 6,646,856 $ 8,244,161 $ 8,406,250 $ 9,003,836 $ 6,925,352
Current Ratio 2.07:1 2.30:1 2.59:1 2.61:1 2.94:1 2.54:1
Stockholders' Equity $11,979,479 $14,364,969 $15,559,732 $14,347,297 $13,010,945 $11,147,754
----------- ----------- ----------- ----------- ----------- -----------
PER SHARE
- ---------
Continuing Operations $ 0.34 $ 0.80 $ 0.85 $ 0.83 $ 0.84 $ 0.60
Basic $ 0.04 $ 0.76 $ 0.85 $ 0.78 $ 0.84 $ 0.60
Diluted $ 0.04 $ 0.73 $ 0.79 $ 0.73 $ 0.78 $ 0.55
Book Value $ 4.29 $ 4.50 $ 4.37 $ 3.94 $ 3.52 $ 2.99
Cash Dividends Declared $ 0.24 $ 0.28 $ 0.28 $ 0.28 $ 0.28 $ 0.27
Note: This schedule has been adjusted for the affect of discontinued
operations. 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.
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 December 30, 2000 was $5,154,647 compared to
$6,646,856 at January 1, 2000.
2) The current ratio was 2.07:1 at year-end 2000 compared to 2.30:1 at
year-end 1999.
3) The liquid ratio changed to .99:1 at year-end 2000 from 1.18:1 at
year-end 1999.
4) The long-term debt ratio was 12.49% at December 30, 2000 compared to
11.21% a year earlier. The increase is due to a reduction in
stockholders' equity caused largely by the purchase of treasury
shares.
A significant use of working capital was made for purchases of Common
Stock to be held for the treasury, $1,856,253.
Net accounts receivable decreased $230,880 (6%) and net inventories
decreased $536,063 (9%).
Capital expenditures for 2000 were $631,064 compared to $2,234,157 in
1999 which included $1,500,000 for the construction of a new building in Goshen,
Indiana.
The Company had no borrowings at year-end under its $5,000,000
revolving line-of-credit. The loss sustained in the fourth quarter caused the
Company to violate one of the financial covenants contained in the loan
agreement. The lender has waived this violation through May 15, 2001 and amended
the covenants to allow the Company to operate at the current levels without the
probability of additional violations. The lender has extended the term of the
loan agreement through June 30, 2003. Management believes that its liquidity and
available borrowing capacity are 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:
200 1999 1998
---- ---- ----
Net sales............................... 100.0% 100.0% 100.0%
Cost of products sold................... 79.6 77.3 77.2
Selling and administrative expenses..... 16.4 13.7 13.3
Interest and investment income......... (.1) (.1) (.4)
Interest expense........................ .3 .1 --
Income from continuing operations....... 2.4 5.5 6.3
Net income............................. .3 5.2 6.3
5
2000 vs. 1999
Net sales for the year 2000 were $42,609,584 compared to 1999 sales of
$49,206,018. Increased sales to the hospitality market were offset by reduced
sales to the manufactured housing and recreational vehicle markets. The
Company's sales to the manufactured housing market continue to be adversely
affected by a decline in manufactured housing production, caused by an excess
dealer inventory of manufactured homes. Sales to the recreational vehicle market
are down due to a softness in the market.
Cost of goods sold as a percentage of sales increased to 79.6% in 2000 from
77.3% in 1999. This increase is attributable to fixed expenses being absorbed
over a smaller sales volume, higher labor costs due to the inefficiencies of
operating at lower volumes and higher material costs resulting from competitive
conditions. Also, the Company established reserves against certain non-moving
and excess inventories.
Selling and administrative expenses as a percentage of sales increased in 2000
to 16.4% from 13.7% in 1999. The increase results largely from fixed expenses
being absorbed over reduced sales volume, higher commission expense due to the
increased hospitality sales, and a charge for impairment of goodwill.
Net income was $133,198 in 2000 compared to $2,552,278 in 1999. This decrease is
attributable to the reduced sales volume and after tax losses from discontinued
operations of $903,914. Without the losses from discontinued operations, net
income would have been $1,037,112.
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.
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 64, 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 44, 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 51, 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 41, 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 80, 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 72, 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 48, 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 66, 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.
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($) Bonus($) Other($)(1) Shares(#) pensation($)(2)
- ------------------ ---- --------- -------- ----------- --------- ---------------
William A. Bassett(3) 2000 300,000 ---- * ---- 36,832
Chairman of the Board, 1999 285,000 87,074 * 12,500 36,745
President and Chief 1998 262,000 127,000 89,977 31,250 36,745
Executive Officer
Michael S. Baxley(4) 2000 165,100 ---- * ---- 854
Executive Vice President 1999 161,925 39,183 * 20,000 ----
Michael K. Solomon 2000 118,820 ---- * ---- 1,464
Vice President, Treasurer 1999 118,820 20,000 * 5,000 1,553
and Chief Financial Officer 1998 114,650 24,000 * 12,500 447
- ------------------------
(1) 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,
payment to Mr. Bassett for such sales was $86,106. This payment
provided a net benefit to the company of $16,359 for 1998. An asterisk
indicates that the total of other annual compensation for that year was
less than 10% of salary and bonus for that year.
(2) Premiums paid by the Company on life and long-term disability insurance
policies and Company contributions to the 401(k) Retirement Savings
Plan.
(3) 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.
(4) 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
$10,500 for 2000 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.
8
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 than 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 sets forth information concerning the exercise of
stock options during fiscal 2000 by the named executive officers and the value
of their unexercised, in-the-money stock options at the end of that fiscal year
December 30, 2000. All options outstanding at December 30, 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 ($) 12/30/00 (#) 12/30/00($)(1)
- ---- ----------- ------------ ------------ --------------
William A. Bassett 20,000 89,850 133,329(2) 80,484
22,500(3) ----
Michael S. Baxley ---- ---- 7,000(2) ----
13,000(3) ----
Michael K. Solomon 14,290 66,877 38,704(2) ----
9,000(3) ----
- --------------------------
(1) Assumes a market value of $2.625 per share, which was the last reported
sale price on the American Stock Exchange on December 29, 2000.
(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 scheduled 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. Directors are paid $1,000 per day for
additional meetings if needed. 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, 2001 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 397,448(2) 13.61%
Michael S. Baxley 14,000(3) ------
Michael K. Solomon 106,433(4) 3.75%
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 536,898(7) 18.04%
- ----------------------------
(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 133,329 optioned shares which may be acquired within 60 days
and 26,182 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 7,000 optioned shares, which may be acquired within 60 days.
(4) Includes 38,704 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 179,033 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 (7.15%) of the Company's Common Stock. No
further reports have been received from FMR Corp.
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 (9.36%) 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. No further reports have been
received from First Manhattan Co.
Robert Robotti of New York, New York has furnished the Company a copy
of his Schedule 13G dated February 2001 in which he reported beneficial
ownership of 235,656 shares (8.43%), of which Mr. Robotti has shared voting
power and shared dispositive power. Mr. Robotti is the owner of Robotti &
Company (134,995 shares), and a general partner in Ravenswood Investment
Company, L.P. (22,593 shares) and also in Wilmac Partners, Ltd. (78,068 shares).
Item 13. Certain Relationships and Related Transactions.
None.
10
PART IV
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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 - December 30, 2000 and January 1,2000
(3) Statements of Earnings for the three fiscal years
ended December 30, 2000
(4) Statements of Stockholders' Equity for the three
fiscal years ended December 30, 2000
(5) Statements of Cash Flows for the three fiscal years
ended December 30, 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.*
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 as Exhibit 10X to Form
10-K for the fiscal year ended January 1, 2000 and
incorporated herein by reference.*
10Y Revolving line of credit agreement with Comerica Bank dated
April 19, 2000, filed as Exhibit 10Y to Form 10-Q for the
quarter ended April 1, 2000 and incorporated herein by
reference.
10Y.1 Amendment effective March 30, 2001 to Exhibit 10Y, filed
herewith.
10Y.2 Promissory Note dated April 19, 2000, and Amendment thereto
effective March 30, 2001, relating to Exhibit 10Y, filed
herewith.
11.P Computation of diluted income per share, filed herewith.
23.B Consent of Independent Auditors, 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
2000.
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 27, 2001
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 27, 2001
Chief Executive Officer and ---------------------------
Director
Michael S. Baxley Executive Vice President and /s/ Michael S. Baxley March 27, 2001
Director ---------------------------
Michael K. Solomon Vice President, Treasurer, /s/ Michael K. Solomon March 27, 2001
Principal Financial and ---------------------------
Accounting Officer,
And Director
Jerome B. Lieber Director /s/ Jerome B. Lieber March 27, 2001
---------------------------
Joseph N. Ellis Director /s/ Joseph N. Ellis March 27, 2001
---------------------------
Ellen Downey Director /s/ Ellen Downey March 27, 2001
---------------------------
Thomas Dusthimer Director /s/ Thomas Dusthimer March 27, 2001
---------------------------
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 December 30, 2000 and January 1, 2000 and the related
statements of earnings, stockholders' equity and cash flows for each of the
three fiscal years in the period ended December 30, 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 December 30, 2000 and January 1, 2000, and the results of
its operations and its cash flows for each of the three fiscal years in the
period ended December 30, 2000 in conformity with generally accepted accounting
principles.
LOUIS PLUNG & COMPANY, LLP
Certified Public Accountants
Pittsburgh, Pennsylvania
February 28, 2001 (March 20, 2001 as to Note 7)
F-1
DECORATOR INDUSTRIES, INC.
BALANCE SHEETS
Fiscal Year End
ASSETS 2000 1999
------ ------------ ------------
Current Assets:
Cash and Cash Equivalents $ 307,819 $ 484,328
Short-term Investments -- 1,455,796
Accounts Receivable, less allowance for
doubtful accounts ($144,395 and $158,996) 3,494,676 3,725,556
Inventories 5,203,240 5,739,303
Other Current Assets 947,134 372,258
------------ ------------
Total Current Assets 9,952,869 11,777,241
------------ ------------
Property and Equipment:
Land, Buildings & Improvements 4,144,229 4,123,189
Machinery, Equipment, Furniture and Fixtures 5,326,181 4,808,280
------------ ------------
Total Property and Equipment 9,470,410 8,931,469
Less: Accumulated Depreciation and Amortization 3,659,764 3,104,989
------------ ------------
Net Property and Equipment 5,810,646 5,826,480
------------ ------------
Goodwill, less accumulated
Amortization of $1,243,980 and $1,189,871 2,836,306 3,648,965
Other Assets 255,566 412,837
------------ ------------
Total Assets $ 18,855,387 $ 21,665,523
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current Liabilities:
Accounts Payable $ 2,393,004 $ 3,100,681
Current Maturities of Long-term Debt 104,640 103,871
Accrued Expenses:
Compensation 789,681 1,278,660
Other 1,510,897 647,173
------------ ------------
Total Current Liabilities 4,798,222 5,130,385
------------ ------------
Long-Term Debt 1,709,686 1,814,169
Deferred Income Taxes 368,000 356,000
------------ ------------
Total Liabilities 6,875,908 7,300,554
------------ ------------
Stockholders' Equity
Common stock $.20 par value: Authorized shares, 10,000,000;
Issued shares, 4,444,997 and 4,408,831 888,999 881,766
Paid-in Capital 1,441,655 1,427,788
Retained Earnings 17,777,461 18,368,158
------------ ------------
20,108,115 20,677,712
Less: Treasury stock, at cost: 1,653,437 and 1,219,801 shares 8,128,636 6,312,743
------------ ------------
Total Stockholders' Equity 11,979,479 14,364,969
------------ ------------
Total Liabilities and Stockholders' Equity $ 18,855,387 $ 21,665,523
============ ============
The accompanying notes are an integral part of the financial statements.
F-2
DECORATOR INDUSTRIES, INC.
STATEMENTS OF EARNINGS
For the Fiscal Year
-------------------
2000 1999 1998
------------ ------------ ------------
Net Sales $ 42,609,584 $ 49,206,018 $ 48,788,610
Cost of Products Sold 33,906,006 38,055,987 37,659,324
------------ ------------ ------------
Gross Profit 8,703,578 11,150,031 11,129,286
Selling and Administrative Expenses 6,987,203 6,762,698 6,500,415
------------ ------------ ------------
Operating Income 1,716,375 4,387,333 4,628,871
Other Income (Expense):
Interest and Investment Income 55,899 50,183 194,456
Interest Expense (114,162) (70,098) (9,097)
------------ ------------ ------------
Earnings Before Income Taxes 1,658,112 4,367,418 4,814,230
Provision for Income Taxes 621,000 1,650,000 1,724,000
------------ ------------ ------------
Income from Continuing Operations 1,037,112 2,717,418 3,090,230
Loss from Discontinued Operations, net of income tax
benefit of $93,000, $101,000, and $6,000 (152,433) (165,140) (9,335)
Loss on Disposal of Discontinued Operations, net of
income tax benefit of $460,000 (751,481) -- --
------------ ------------ ------------
Net Income $ 133,198 $ 2,552,278 $ 3,080,895
============ ============ ============
Earnings Per Share:
Continuing Operations $ 0.34 $ 0.80 $ 0.85
============ ============ ============
Basic $ 0.04 $ 0.76 $ 0.85
============ ============ ============
Diluted $ 0.04 $ 0.73 $ 0.79
============ ============ ============
Average Number of Shares Outstanding:
Basic 3,041,364 3,378,721 3,631,457
Diluted 3,077,260 3,517,681 3,880,619
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
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
Transactions for 2000
Net profit 133,198 133,198
Issuance of stock for
exercise of options 7,233 14,227 21,460
Issuance of stock for
directors compensation (360) 40,360 40,000
Purchase of common
stock for treasury (1,856,253) (1,856,253)
Dividends paid (723,895) (723,895)
--------- ------------ ------------ ------------ ------------
Balance at
December 30, 2000 $ 888,999 $ 1,441,655 $ 17,777,461 $ (8,128,636) $ 11,979,479
========= ============ ============ ============ ============
The accompanying notes are an integral part of the financial statements.
F-4
DECORATOR INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
For the Fiscal Year
-------------------
2000 1999 1998
----------- ----------- -----------
Cash Flows From Operating Activities:
Net Income $ 133,198 $ 2,552,278 $ 3,080,895
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 752,672 682,821 569,681
Write-off of goodwill 705,976
Provision for Losses on Accounts Receivable 168,709 93,000 68,471
Deferred Taxes (151,000) 64,000 41,000
(Gain) Loss on Disposal of Assets 7,868 (10,579) (5,206)
Increase (Decrease) from Changes in:
Accounts Receivable 62,171 28,879 (272,403)
Short-term Investments 1,455,796 (594,764) 1,145,850
Inventory 536,063 (14,077) (1,146,845)
Prepaid Expenses (411,876) 2,136 (137,969)
Other Assets 157,271 179,110 (417,547)
Accounts Payable (707,677) 230,792 (244,772)
Accrued Expenses 374,745 (334,070) 180,185
----------- ----------- -----------
Net Cash Provided by Operating Activities 3,083,916 2,879,526 2,861,340
----------- ----------- -----------
Cash Flows From Investing Activities:
Capital Expenditures (631,064) (2,234,157) (1,166,032)
Proceeds from Property Dispositions 2,539 20,049 16,742
Note Receivable -- -- 60,000
Deferred Purchase Price Payments (9,498) (479,918) (385,030)
----------- ----------- -----------
Net Cash Used in Investing Activities (638,023) (2,694,026) (1,474,320)
----------- ----------- -----------
Cash Flows From Financing Activities:
Long-term Debt Payments (103,714) (88,130) (42,422)
Proceeds on debt from new building -- 1,500,000 --
Dividend Payments (723,895) (940,497) (912,787)
Proceeds from Exercise of Stock Options 21,460 18,832 21,869
Cash in Lieu of Fractional Shares -- -- (1,749)
Issuance of Stock for Director's Compensation 40,000 53,304 52,097
Stock Option Tax Benefit -- -- 16,350
Purchase of Common Stock for Treasury (1,856,253) (2,878,680) (1,044,240)
----------- ----------- -----------
Net Cash Used in Financing Activities (2,622,402) (2,335,171) (1,910,882)
Net Increase (Decrease) in Cash and Cash Equivalents (176,509) (2,149,671) (523,862)
Cash and Cash Equivalents at Beginning of Year 484,328 2,633,999 3,157,861
----------- ----------- -----------
Cash and Cash Equivalents at End of Period $ 307,819 $ 484,328 $ 2,633,999
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 92,340 $ 71,639 $ 25,630
Income Taxes $ 685,345 $ 1,423,178 $ 1,794,790
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 2000 was a 52-week period ending December 30, 2000;
1999 was a 52-week period ending January 1, 2000 and 1998 was a 52-week
period ending January 2, 1999.
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) and Specialty Windows (1997) are being amortized
over a period of 40 years. Amortization of $116,182 was charged to
income during fiscal year ended December 30, 2000, $119,535 in fiscal
year ended January 1, 2000, and $106,870 in fiscal year ended January
2, 1999. For the year ended December 30, 2000 management wrote off
$140,495 of excess cost related to Paragon Interiors (1995) and
$565,481 related to Southern Interiors (1997). (See Note 13)
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:
2000 1999
---- ----
General Funds $ 36,989 $ (152,789)
Overnight repurchase
agreements 270,830 637,117
---------- -----------
$ 307,819 $ $484,328
========== ===========
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 $7,907 is included in income for the year ended
December 30, 2000 compared to a loss of $94,013 for the year ended
January 1, 2000.
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.
Actual results may differ from these estimates and assumptions.
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. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities--an amendment of FASB Statement No. 133"
issued June 2000.
SFAS No. 139, "Recission of FASB Statement No. 53 and amendments to
FASB Statements No. 63, 89 and 121" issued June 2000.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities--a replacement of FASB
Statement 125" issued September 2000.
F-8
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(2) ACQUISITIONS
-------------
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 $705,415 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. During the second quarter of 2000, the Company disposed of this
operation. (See note 13.)
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 $605,548
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 $9,498, $479,918 and
$385,030 represents the additional consideration paid for the
acquisitions of Specialty Window Coverings and Southern Interiors.
(3) INVENTORIES
-----------
Inventories consisted of the following classifications:
2000 1999
---- ----
Raw materials & supplies $4,876,287 $5,363,747
In process & finished goods 326,953 375,556
---------- ----------
$5,203,240 $5,739,303
========== ==========
(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 $536,987 in 2000, $519,971 in 1999 and $478,635 in 1998.
Commitments under these leases extend through November 2006 and are as
follows:
2001 $455,286
2002 $256,075
2003 $110,086
2004 $65,005
2005 $62,379
Thereafter $57,181
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 $379,300, $214,200 and
$214,200, respectively, from 2001 through 2003 and $107,100 thereafter.
(6) SIGNIFICANT CUSTOMERS
---------------------
Sales to Fleetwood Enterprises accounted for 21.5%, 20.3% and 20.1% of
Company sales in 2000, 1999 and 1998, respectively. Fleetwood operates
in the manufactured housing and recreational vehicle industries. Sales
to Champion Enterprises accounted for 10.3%, 12.7% and 13.5% of Company
sales in 2000, 1999 and 1998, respectively. Champion operates solely in
the manufactured housing industry.
(7) LONG TERM-DEBT AND CREDIT ARRANGEMENTS
--------------------------------------
Long-term debt consists of the following:
2000 1999
---- ----
Note payable in monthly payments of $2,088 through August 2007 at 4%
interest. This note is secured by the first mortgage on the Bloomsburg,
PA building. $ $144,326 $ 163,040
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. 275,000 300,000
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. 1,395,000 1,455,000
---------- ----------
1,814,326 1,918,040
Less amount due within one year 104,640 103,871
---------- ----------
$1,709,686 $1,814,169
========== ==========
The principal payments on long-term debt for the five years subsequent
to December 30, 2000 are as follows:
2001 $104,640
2002 $105,440
2003 $126,273
2004 $127,140
2005 $128,042
On April 19, 2000 the Company signed an agreement for a $5,000,000
revolving line of credit. The maximum borrowed under this agreement was
$1,413,000 and there were no outstanding borrowings at December 30,
2000. This agreement contains certain financial covenants, including a
minimum net income requirement. The Company was in violation of that
covenant as of December 30, 2000. The lender has waived this violation
through May 15, 2001 and amended the covenants. This amended agreement
will expire on June 30, 2003.
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 $10,500 for 2000 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 $53,261 in
2000 and $59,745 in 1999.
(9) STOCK OPTIONS
-------------
At December 30, 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 earnings per share would
have been reduced to the pro forma amounts indicated below:
2000 1999 1998
---- ---- ----
Pro forma net income (loss) $(21,147) $2,426,020 $3,026,032
Pro forma earnings (loss) per share:
Basic ($0.01) $0.72 $0.83
Diluted ($0.01) $0.69 $0.78
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 December 30, 2000, January 1, 2000 and January 2, 1999, and changes
during the years ending on those dates is presented below:
2000 1999 1998
---- ---- ----
Exercise Exercise Exercise
Shares(1) Price(2) Shares(1) Price(2) Shares(1) Price(2)
--------- -------- --------- -------- --------- --------
Outstanding at beginning of year 619,717 $5.60 554,507 $5.03 424,124 $3.40
Granted ---- ---- 98,250 $7.13 168,750 $8.10
Exercised (36,166) $0.59 (33,040) $0.57 (38,367) $0.57
Forfeited (14,750) (7.43) ---- ---- ---- ----
--------- ---------- ---------
Outstanding at year-end 568,801 $5.87 619,717 $5.60 554,507 $5.03
Options exercisable at year-end 397,939 335,428 285,242
Weighted-average fair value of
options granted during the year ---- $2.59 $3.21
The following information applies to fixed stock options outstanding at
December 30, 2000:
Number outstanding (1) 568,801
Range of exercise prices $0.57 to $8.10
Weighted-average exercise price $5.87
Weighted-average remaining contractual life 5.9 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 is as follows:
2000 1999 1998
---- ---- ----
Current:
Federal $ 207,000 $1,222,000 $1,410,000
State 12,000 263,000 275,000
Deferred (151,000) 64,000 33,000
---------- ---------- ----------
Total $ 68,000 $1,549,000 $1,718,000
========== ========== ==========
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:
2000 1999
---- ----
Property and equipment, due to differences in depreciation $367,000 $307,000
Inventories, due to additional cost
recorded for income tax purposes (23,000) (24,000)
Accounts receivable, due to allowance
for doubtful accounts (55,000) (60,000)
Accrued liabilities, due to expenses not yet
deductible for income tax purposes (204,000) 13,000
--------- ---------
Net deferred income tax liability $ 85,000 $236,000
======== =========
The net deferred income tax liability is presented in the balance
sheets as follows:
2000 1999
---- ----
Current Asset $283,000 $120,000
Long-term Liability 368,000 356,000
The effective income tax rate varied from the statutory Federal tax
rate as follows:
2000 1999 1998
---- ---- ----
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes, net of
federal income tax benefit 4.3 4.4 4.0
Other (4.5) (0.6) (2.2)
------ ------ ------
Effective income tax rate 33.8% 37.8% 35.8%
====== ====== ======
(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.
2000 1999 1998
---- ---- ----
Numerator:
Net income $ 133,198 $2,552,278 $3,080,895
========== ========== ==========
Denominator:
Weighted-average number of
common shares outstanding 3,041,364 3,378,721 3,631,457
Dilutive effect of
stock options on net income 35,896 138,960 249,162
---------- ---------- ----------
3,077,260 3,517,681 3,880,619
========== ========== ==========
Diluted earnings per share: $ 0.04 $ 0.73 $ 0.79
========== ========== ==========
F-13
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(12) QUARTERLY FINANCIAL INFORMATION
-------------------------------
First Second Third Fourth
2000 Quarter Quarter Quarter Quarter Year
---- ------- ------- ------- ------- ----
Net Sales $ 12,443,014 $ 12,163,649 $ 9,731,021 $ 8,271,900 $ 42,609,584
Gross Profit $ 2,674,956 $ 2,723,753 $ 2,052,297 $ 1,252,572 $ 8,703,578
Net Earnings $ 580,945 $ 58,724 $ 211,076 $ (717,547) $ 133,198
Earnings Per
Common Share:
Continuing Operations $ 0.19 $ 0.16 $ 0.08 ($ 0.09) $ 0.34
Basic $ 0.18 $ 0.02 $ 0.07 ($ 0.23) $ 0.04
Diluted $ 0.18 $ 0.02 $ 0.07 ($ 0.23) $ 0.04
Average Common
Shares Outstanding:
Basic 3,180,033 3,165,186 3,028,757 2,791,480 3,041,364
Diluted 3,222,562 3,199,699 3,063,037 2,823,740 3,077,260
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter Year
---- ------- ------- ------- ------- ----
Net Sales $ 12,332,923 $ 13,464,381 $ 12,384,308 $ 11,024,406 $ 49,206,018
Gross Profit $ 2,850,183 $ 3,159,843 $ 2,716,869 $ 2,423,136 $ 11,150,031
Net Income $ 703,016 $ 844,679 $ 558,267 $ 446,316 $ 2,552,278
Earnings Per
Common Share:
Continuing Operations $ 0.20 $ 0.25 $ 0.19 $ 0.16 $ 0.80
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
The quarterly information shown above has been adjusted to reflect the
discontinued operations.
(13) DISCONTINUED OPERATIONS
-----------------------
During the second quarter of the current year, the Company adopted a
plan to dispose of its contract sewing operations for the hospitality
industry through liquidation. At July 1, 2000, the net assets of this
operation consisted primarily of goodwill ($565,481), inventories,
machinery and equipment, and trade receivables. This decision resulted
in an after-tax loss of $422,000 for disposal of this operation.
Included in the loss on disposal was a pre-tax provision of $60,000 for
estimated operating losses during the phase-out period.
In the fourth quarter of 2000, the Company decided to discontinue the
manufacturing of furniture for sale to the recreational vehicle and
hospitality industries. At December 30, 2000, the assets of this
operation consisted primarily of inventories, equipment and trade
receivables. This decision resulted in an after-tax loss of $329,000
for disposal of this operation. Included in the loss on disposal is a
pre-tax provision of $160,000 for estimated operating losses during the
phase-out period.
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 28, 2001 (March 20,
2001 as to Note 7) of the financial statements as of December 30, 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 28, 2001 (March 20, 2001 as to Note 7)
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
2000 $158,996 $168,709 -0- $183,310(A) $144,395
1999 $111,706 $93,963 -0- $ 46,673(A) $158,996
1998 218,018 68,471 -0- 174,783(A) 111,706
(A) Write-off bad debts
F-16