UNITED STATES
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 28, 2002
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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act)
Yes [ ] No [X]
Aggregate market value at March 17, 2003 of outstanding shares of Common Stock
other than shares held by officers, directors and their respective associates:
$11,636,278
Number of shares outstanding at March 17, 2003: 2,792,878
DOCUMENTS INCORPORATED BY REFERENCE
Part III- Definitive Proxy Statement for the 2003 Annual Meeting of Shareholders
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:
2002 - 52 weeks ended December 28, 2002
2001 - 52 weeks ended December 29, 2001
2000 - 52 weeks ended December 30, 2000
1999 - 52 weeks ended January 1, 2000
1998 - 52 weeks ended January 2, 1999
PART I
------
ITEM 1. BUSINESS.
The Company designs, manufactures and sells a broad range of interior
furnishings, principally draperies, curtains, shades, blinds, bedspreads,
valance boards, comforters, pillows and cushions. 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 2002, one customer, Fleetwood Enterprises, accounted for
approximately 23.8% of the Company's total sales. In the event of the loss of
this customer, there would be a material adverse effect on the Company.
Fleetwood operates in the manufactured housing and recreational vehicle
industries.
1
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 2002 and 2001 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 580 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 principal 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 29,000 Leased
Lakeland, Florida Offices, manufacturing and warehouse 7,500 Leased
Pembroke Pines, Florida Offices 3,148 Leased
Elkhart, Indiana Offices, manufacturing and warehouse 35,000 Owned
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 22,800 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 23,900 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 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
-------
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.
2002 Sales Prices 2001 Sales Prices
----------------- -----------------
High Low High Low
---- --- ---- ---
First Quarter 6.20 3.86 3.31 2.15
Second Quarter 6.80 5.27 3.00 2.30
Third Quarter 6.45 5.40 3.67 2.90
Fourth Quarter 6.23 4.80 4.60 2.96
As of March 17, 2003, the Company had 321 shareholders of record of its Common
Stock.
Total cash dividend payments were $.12 per share in 2002 and 2001.
ITEM 6. SELECTED FINANCIAL DATA.
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
FOR THE YEAR
Net Sales $38,641,605 $34,782,121 $42,609,584 $49,206,018 $48,788,610
Income from Continuing Operations $ 1,384,379 $ 861,561 $ 1,037,112 $ 2,717,418 $ 3,090,230
Net Income $ 1,384,379 $ 861,561 $ 133,198 $ 2,552,278 $ 3,080,895
----------- ----------- ----------- ----------- -----------
AT YEAR END
Total Assets $19,480,134 $18,365,516 $18,855,387 $21,665,523 $21,462,694
Long Term Obligations $ 1,477,973 $ 1,604,245 $ 1,709,686 $ 1,814,169 $ 463,037
Long-term Debt/Total Capitalization 9.97% 11.40% 12.49% 11.21% 2.89%
Working Capital $ 6,191,028 $ 6,074,073 $ 5,154,647 $ 6,646,856 $ 8,244,161
Current Ratio 2.49:1 2.56:1 2.07:1 2.30:1 2.59:1
Stockholders' Equity $13,348,108 $12,463,950 $11,979,479 $14,364,969 $15,559,732
----------- ----------- ----------- ----------- -----------
PER SHARE
Continuing Operations $ 0.49 $ 0.31 $ 0.34 $ 0.80 $ 0.85
Basic $ 0.49 $ 0.31 $ 0.04 $ 0.76 $ 0.85
Diluted $ 0.49 $ 0.31 $ 0.04 $ 0.73 $ 0.79
Book Value $ 4.78 $ 4.43 $ 4.29 $ 4.50 $ 4.37
Cash Dividends Declared $ 0.12 $ 0.12 $ 0.24 $ 0.28 $ 0.28
3
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Liquidity and Financial Resources:
The Company's financial condition continues to be strong, as evidenced
by the following statistical measures:
1) Working capital at December 28, 2002 was $6,191,028 compared
to $6,074,073 at December 29, 2001.
2) The current ratio was 2.49:1 at year-end 2002 compared to
2.56:1 at year-end 2001.
3) The liquid ratio was 1.43:1 at year-end 2002 compared to
1.59:1 at year-end 2001.
4) The long-term debt ratio was 9.97% at December 28, 2002
compared to 11.40% a year earlier.
The Company used $210,376 of working capital for purchases of Common
Stock to be held for the treasury.
Net accounts receivable decreased $110,748 (3.1%) and net inventories
increased $598,405 (15.8%). The increase in inventories is compared to an 11.1%
increase in sales for the year. Most of the increased inventories were required
for increased sales to the RV market. Also, late in fiscal 2002 the Company
began production of tent and awning products for the RV market, which required
additional inventories.
Capital expenditures for 2002 were $1,290,149 compared to $442,772 in
2001. Included in the capital expenditures for 2002 was $802,000 for the
purchase of the building which houses the Company's pleated shade business. This
building was previously leased. The Company expects to close on a $640,000
mortgage on this building during 2003.
The Company had no borrowings at year-end under its $5,000,000
revolving line-of-credit. 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:
2002 2001 2000
---- ---- ----
Net sales ......................... 100.0% 100.0% 100.0%
Cost of products sold ............. 78.4 78.3 79.6
Selling and administrative expenses 15.7 17.5 16.4
Interest and investment income .... (.1) (.1) (.1)
Interest expense .................. .1 .2 .3
Income from continuing operations . 3.6 2.5 2.4
Net income ........................ 3.6 2.5 .3
4
2002 vs. 2001
Net sales for fiscal 2002 were $38,641,605 compared to $34,782,121 in fiscal
2001. The net sales increase was 11%. An increase in sales to the recreational
vehicle market more than offset the sales decreases experienced in the
manufactured housing market. The Recreational Vehicle Institute reported
increased vehicle shipments of 21% over 2001, one of the industries' best
performances in 25 years. The Manufactured Housing Institute reported a 13%
decline in unit production for 2002, the fourth consecutive year of declining
production. The industry manufactured 168,500 units in 2002 versus 373,100 units
in 1998 (a decline of 55%). Company sales to the hospitality industry were
virtually flat compared to the previous year.
Cost of goods sold as a percentage of sales was 78.4% in 2002 versus 78.3% in
2001. The unfavorable impact of product mix on the cost of goods sold was offset
by improvements in manufacturing efficiencies.
Selling and administrative expenses decreased to $6,082,129 in 2002 from
$6,092,740 in 2001. The 2001 selling and administrative expenses included
goodwill amortization of $104,589. Goodwill was not amortized in 2002 (per
compliance with Statements of Financial Accounting Standards No. 142). This
benefit was offset by increased wages and the initial charges relating to the
ongoing implementation of a Enterprise-Resource-Planning (ERP) system.
Net income was $1,384,379 in 2002 compared to $861,561 in 2001. Net income as a
percent of sales increased to 3.6% in 2002 compared to 2.5% in 2001. This was
due to a higher sales volume.
2001 vs. 2000
Net sales for the year 2001 were $34,782,121 compared to 2000 sales of
$42,609,584. Sales decreased in all markets the Company serves. The Manufactured
Housing Institute reported a 23% decline in nationwide shipments for the year
2001, while the Recreational Vehicle Institute reported a decrease of over 14%.
Cost of goods sold as a percentage of sales decreased to 78.3% in 2001 from
79.6% in 2000. This improvement was largely attributable to better material
utilization and, to a lesser extent, better labor efficiency. At the same time,
fixed expenses continued to be absorbed over a smaller sales volume.
Selling and administrative expenses decreased to $6,092,740 in 2001 from
$6,987,203 in 2000. This decrease came from a reduction in the administrative
workforce, and the charge for impairment of goodwill in 2000.
Income from continuing operations as a percent of sales increased to 2.5% in
2001 compared to 2.4% in 2000. This was achieved while 2001 sales decreased by
18.4% compared to 2000 sales.
Net income was $861,561 in 2001 compared to $133,198 in 2000. The year 2000 was
adversely affected by charges from discontinued operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements, financial statements schedule, and reports of
independent certified public accountants listed in Item 15(a) of this
report are filed under this Item 8.
5
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after December 28, 2002. Such information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after December 28, 2002. Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information required by this item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after December 28, 2002. Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after December 28, 2002. Such information is incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES.
(a) The Company's principal executive officer and principal financial officer
evaluated the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14(c) and 15d-14(c)) within 90 days of the filing date of
this report and concluded that such disclosure controls and procedures were
adequate and effective to ensure that material information relating to the
financial statements has been disclosed.
(b) There were no significant changes in the Company's internal controls or in
other factors that could significantly affect the Company's internal controls
and procedures subsequent to the date that evaluation was made, nor were there
any significant deficiencies or material weaknesses in such internal controls
and procedures requiring corrective actions.
6
PART IV
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ITEM 15. 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 28, 2002 and December 29,
2001
(3) Statements of Earnings for the three fiscal years
ended December 28, 2002
(4) Statements of Stockholders' Equity for the three
fiscal years ended December 28, 2002
(5) Statements of Cash Flows for the three fiscal years
ended December 28, 2002
(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.
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.
7
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.*
10U.1 Tender Offer Statement on Schedule TO, as amended, filed with
the Commission on March 13, 2002 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 as
Exhibit 10Y.1 to Form 10-K for the fiscal year ended December
30, 2000 and incorporated herein by reference.
10Y.2 Promissory Note dated April 19, 2000, and Amendment thereto
effective March 30, 2001, relating to Exhibit 10Y, filed as
Exhibit 10Y.2 to Form 10-K for the fiscal year ended December
30, 2000 and incorporated herein by reference.
11R Computation of diluted income per share, filed herewith.
23D Consent of Independent Auditors, filed herewith.
99.3 Certificate required by 18 U.S.C.ss.1350, 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
2002.
8
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 23, 2003
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 23, 2003
Chief Executive Officer and -------------------------
Director
Michael K. Solomon Vice President, Treasurer, /s/ Michael K. Solomon March 23, 2003
Principal Financial and -------------------------
Accounting Officer
Jerome B. Lieber Director /s/ Jerome B. Lieber March 23, 2003
-------------------------
Joseph N. Ellis Director /s/ Joseph N. Ellis March 23, 2003
-------------------------
Ellen Downey Director /s/ Ellen Downey March 23, 2003
-------------------------
Thomas Dusthimer Director /s/ Thomas Dusthimer March 23, 2003
-------------------------
William Dixon Director /s/ William Dixon March 23, 2003
-------------------------
9
CERTIFICATIONS
I, William A. Bassett, President, certify that:
1. I have reviewed this annual report on Form 10-K of Decorator
Industries, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; nd
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 23, 2003 By: /s/ William A. Bassett
-------------- ----------------------------------------
William A. Bassett, President
and Principal Executive Officer
10
I, Michael K. Solomon, Treasurer, certify that:
1. I have reviewed this annual report on Form 10-K of Decorator
Industries, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal cont ls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 23, 2003 By: /s/ Michael K. Solomon
-------------------- -------------------------------------
Michael K. Solomon, Treasurer and
Principal Financial Officer
11
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. (a Pennsylvania corporation) as of December 28, 2002
and December 29, 2001 and the related statements of earnings,
stockholders' equity and cash flows for each of the three fiscal years
in the period ended December 28, 2002. 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 auditing standards generally
accepted in the United States of America. 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 28, 2002 and December 29,
2001, and the results of its operations and its cash flows for each of
the three fiscal years in the period ended December 28, 2002 in
conformity with accounting principles generally accepted in the United
States of America.
LOUIS PLUNG & COMPANY, LLP
Certified Public Accountants
Pittsburgh, Pennsylvania
February 26, 2003 (March 20, 2003 as to Note 9)
F-1
DECORATOR INDUSTRIES, INC.
BALANCE SHEETS
ASSETS December 28, December 29,
2002 2001
---- ----
Current Assets:
Cash and Cash Equivalents $ 2,117,762 $ 2,319,568
Accounts Receivable, less allowance for
doubtful accounts ($202,933 and $221,462) 3,414,629 3,525,377
Inventories 4,388,070 3,789,665
Other Current Assets 419,620 327,784
----------- -----------
Total Current Assets 10,340,081 9,962,394
----------- -----------
Property and Equipment
Land, Buildings & Improvements 5,043,458 4,240,777
Machinery, Equipment, Furniture & Fixtures 5,585,401 5,212,066
----------- -----------
Total Property and Equipment 10,628,859 9,452,843
Less: Accumulated Depreciation and Amortization 4,640,040 4,045,789
----------- -----------
Net Property and Equipment 5,988,819 5,407,054
----------- -----------
Goodwill, less accumulated Amortization of $1,348,569 2,731,717 2,731,717
Other Assets 419,517 264,351
----------- -----------
Total Assets $19,480,134 $18,365,516
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 2,059,871 $ 2,102,730
Current Maturities of Long-term Debt 126,750 105,441
Accrued Expenses:
Income taxes -- 39,518
Compensation 856,786 764,305
Other 1,105,646 876,327
----------- -----------
Total Current Liabilities 4,149,053 3,888,321
----------- -----------
Long-Term Debt 1,477,973 1,604,245
Deferred Income Taxes 505,000 409,000
----------- -----------
Total Liabilities 6,132,026 5,901,566
----------- -----------
Stockholders' Equity
Common Stock $.20 par value: Authorized shares, 10,000,000;
Issued shares, 4,485,635 897,127 897,127
Paid-in Capital 1,425,826 1,425,437
Retained Earnings 19,349,984 18,300,698
----------- -----------
21,672,937 20,623,262
Less: Treasury stock, at cost: 1,694,856 and 1,669,948 shares 8,324,829 8,159,312
----------- -----------
Total Stockholders' Equity 13,348,108 12,463,950
----------- -----------
Total Liabilities and Stockholders' Equity $19,480,134 $18,365,516
=========== ===========
F-2
DECORATOR INDUSTRIES, INC.
STATEMENTS OF EARNINGS
For the Fiscal Year
-------------------
2002 2001 2000
---- ---- ----
Net Sales $ 38,641,605 $ 34,782,121 $ 42,609,584
Cost of Products Sold 30,281,017 27,231,533 33,906,006
------------ ------------ ------------
Gross Profit 8,360,588 7,550,588 8,703,578
Selling and Administrative Expenses 6,082,189 6,092,740 6,987,203
------------ ------------ ------------
Operating Income 2,278,399 1,457,848 1,716,375
Other Income (Expense)
Interest and Investment Income 56,394 49,104 55,899
Interest Expense (31,414) (64,391) (114,162)
------------ ------------ ------------
Earnings Before Income Taxes 2,303,379 1,442,561 1,658,112
Provision for Income Taxes 919,000 581,000 621,000
------------ ------------ ------------
Income from Continuing Operations 1,384,379 861,561 1,037,112
Loss from Discontinued Operations, net of income tax
benefit of $93,000 -- -- (152,433)
Loss on Disposal of Discontinued Operations, net of
income tax benefit of $460,000 -- -- (751,481)
------------ ------------ ------------
Net Income $ 1,384,379 $ 861,561 $ 133,198
============ ============ ============
EARNINGS PER SHARE
Continuing Operations $ 0.49 $ 0.31 $ 0.34
============ ============ ============
Basic $ 0.49 $ 0.31 $ 0.04
============ ============ ============
Diluted $ 0.49 $ 0.31 $ 0.04
============ ============ ============
Weighted Average Number of Shares Outstanding
Basic 2,793,781 2,812,882 3,041,364
Diluted 2,830,307 2,820,777 3,077,260
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 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
Transactions for 2001
Net profit -- -- 861,561 -- 861,561
Issuance of stock for
Exercise of options 7,833 14,491 -- -- 22,324
Issuance of stock for
Directors compensation -- (30,414) -- 72,973 42,559
Purchase of Common
Stock for treasury -- -- -- (103,649) (103,649)
Dividends paid -- -- (338,324) -- (338,324)
Conversion of $.10 par
value shares to $.20
par value shares 295 (295) -- -- 0
------------ ------------ ------------ ------------ ------------
Balance at
December 29, 2001 $ 897,127 $ 1,425,437 $ 18,300,698 $ (8,159,312) $ 12,463,950
Transactions for 2002
Net profit -- -- 1,384,379 -- 1,384,379
Issuance of stock for
Directors compensation -- 389 -- 44,859 45,248
Purchase of Common
Stock for treasury -- -- -- (210,376) (210,376)
Dividends paid -- -- (335,093) -- (335,093)
------------ ------------ ------------ ------------ ------------
Balance at
December 28, 2002 $ 897,127 $ 1,425,826 $ 19,349,984 $ (8,324,829) $ 13,348,108
============ ============ ============ ============ ============
The accompanying notes are an integral part of the financial statements.
F-4
DECORATOR INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
For the Fiscal Year
-------------------
2002 2001 2000
---- ---- ----
Cash Flows From Operating Activities:
Net Income $ 1,384,379 $ 861,561 $ 133,198
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation and Amortization 680,908 761,563 752,672
Write-off of goodwill -- -- 705,976
Provision for Losses on Accounts Receivable 52,500 155,864 168,709
Deferred Taxes 126,000 154,000 (151,000)
Loss on Disposal of Assets 18,226 103,428 7,868
Increase (Decrease) from Changes in:
Accounts Receivable 58,248 (186,566) 62,171
Short-term Investments -- -- 1,455,796
Inventories (598,405) 1,413,575 536,063
Prepaid Expenses 20,162 506,350 (411,876)
Other Assets (155,166) (8,786) 157,271
Accounts Payable (42,859) (290,274) (707,677)
Accrued Expenses 140,284 (620,427) 374,745
----------- ----------- -----------
Net Cash Provided by Operating Activities 1,684,277 2,850,288 3,083,916
----------- ----------- -----------
Cash Flows From Investing Activities:
Capital Expenditures (1,290,149) (442,772) (631,064)
Proceeds from Property Dispositions 9,250 85,963 2,539
Deferred Purchase Price Payments -- -- (9,498)
----------- ----------- -----------
Net Cash Used in Investing Activities (1,280,899) (356,809) (638,023)
----------- ----------- -----------
Cash Flows From Financing Activities:
Long-term Debt Payments (104,963) (104,640) (103,714)
Dividend Payments (335,093) (338,324) (723,895)
Proceeds from Exercise of Stock Options -- 22,324 21,460
Issuance of Stock for Directors Trust 45,248 42,559 40,000
Purchase of Common Stock for Treasury (210,376) (103,649) (1,856,253)
----------- ----------- -----------
Net Cash Used in Financing Activities (605,184) (481,730) (2,622,402)
Net (Decrease) Increase in Cash and Cash Equivalents (201,806) 2,011,749 (176,509)
Cash and Cash Equivalents at Beginning of Year 2,319,568 307,819 484,328
----------- ----------- -----------
Cash and Cash Equivalents at End of Period $ 2,117,762 $ 2,319,568 $ 307,819
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 32,150 $ 63,362 $ 92,340
Income Taxes $ 987,323 $ 347,180 $ 685,345
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 designs, manufactures and sells a broad range of interior
furnishings, principally draperies, curtains, shades, blinds,
bedspreads, valance boards, comforters, pillows and cushions. 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 2002 was a 52-week period ending December 28, 2002;
2001 was a 52-week period ending December 29, 2001; and 2000 was a
52-week period ending December 30, 2000.
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) was being amortized
over a period of 40 years. Amortization of $104,589 was charged to
income during fiscal year ended December 29, 2001, and $116,182 in
fiscal year ended December 30, 2000. 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 (a)).
F-6
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 142, "Goodwill and Other Intangible Assets" the Company no longer
amortizes goodwill. Accordingly, no goodwill was amortized in 2002.
Starting in 2002 the Company was required to evaluate the remaining
goodwill of $2,731,717 for possible impairment. Management has
evaluated the goodwill as of December 28, 2002 and determined that no
impairment exists.
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:
2002 2001
---- ----
General Funds $ (111,262) $ (224,743)
Overnight repurchase agreements 2,229,024 2,544,311
----------- -----------
$ 2,117,762 $ 2,319,568
=========== ===========
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 to three distinct markets, Original Equipment
Manufacturers ("OEM's") of manufactured housing, OEM's of recreational
vehicles, and to the hospitality industry. To the extent that economic
conditions might severely impact these markets, the Company could
suffer an abnormal credit loss.
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.
Estimates
---------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain
reported amounts and disclosures. Actual results may differ from these
estimates and assumptions.
F-7
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
Fair Value of Financial Instruments
-----------------------------------
Marketable securities are carried at fair value. A gain of $434 is
included in income for the year ended December 28, 2002 compared to a
gain of $6,178 for the year ended December 29, 2001. All other
financial instruments are carried at amounts believed to approximate
fair value.
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.
SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections", issued
April 2002, will have no effect on the Company.
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities", issued June 2002, requires that a liability for costs
associated with an exit or disposal activity be recognized and measured
initially at fair value only when the liability is incurred. SFAS No.
146 is effective for exit or disposal activities that are initiated
after December 31, 2002 and will not have a material effect on the
Company.
SFAS No. 147, "Acquisitions of Certain Financial Institutions, an
amendment of FASB Statements No. 72 and 144 and FASB Interpretation No.
9", issued October 2002, will have no effect on the Company.
F-8
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" issued in December 2002, amends SFAS No. 123, "Accounting
for Stock Based Compensation", to provide alternate methods of
transition for a voluntary change to the fair value based method of
accounting for stock based compensation. In addition, the Statement
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosure on both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the
effect of the methods used on reported results. The Company will
continue to apply stock-based compensation in the method prescribed by
APB opinion 25, and does not expect SFAS No. 148 to have a material
effect on the Company.
(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 was located in Memphis,
Tennessee and manufactured 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 and wrote off the remaining goodwill of $565,481 from this
acquisition. (See note 13(a))
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 for the Specialty
acquisition, which was being amortized over 40 years. In accordance
with SFAS 142, effective December 30, 2001 the Company no longer
amortizes goodwill, but will test it for impairment annually.
The cash payment for deferred purchase price of $9,498 in 2000
represents the additional consideration paid for the acquisition of
Southern Interiors.
F-9
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(3) INVENTORIES
-----------
Inventories consisted of the following classifications:
2002 2001
---- ----
Raw materials & supplies $3,944,768 $3,475,824
In process & finished goods 443,302 313,841
---------- ----------
$4,388,070 $3,789,665
========== ==========
(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 $470,697 in 2002, $516,748 in 2001 and $536,987 in 2000.
Commitments under these leases extend through October 2007 and are as
follows:
2003 $316,374
2004 $165,912
2005 $ 98,272
2006 $ 83,449
2007 $ 20,874
(5) COMMITMENTS
-----------
The Company has a commitment under an employment and non-compete
agreement entered into with an individual in a current management
position. The commitment under this agreement is payable $214,200 in
2003 and $107,100 in 2004.
(6) SIGNIFICANT CUSTOMERS
---------------------
Sales to Fleetwood Enterprises accounted for 23.8%, 18.9% and 22.7% of
Company sales in 2002, 2001 and 2000, respectively. Fleetwood operates
in the manufactured housing and recreational vehicle industries. Sales
to Champion Enterprises accounted for 8.4%, 12.0% and 11.4% of Company
sales in 2002, 2001 and 2000, respectively. Champion operates solely in
the manufactured housing industry.
F-10
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(7) LONG TERM-DEBT AND CREDIT ARRANGEMENTS
--------------------------------------
Long-term debt consists of the following:
2002 2001
---- ----
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 $ 104,336 $ 124,686
Bond payable in monthly installments through November 2008. The
interest rate is variable and is currently less than 2%. This bond is
secured by the Company's Bloomsburg, PA property 225,387 250,000
Bond payable in quarterly installments through March 2014. The
interest rate is variable and is currently less than 2%. This bond is
secured by the Company's Goshen, IN property
1,275,000 1,335,000
---------- ----------
1,604,723 1,709,686
Less amount due within one year 126,750 105,441
---------- ----------
$1,477,973 $1,604,245
========== ==========
The principal payments on long-term debt for the five years subsequent
to December 28, 2002 are as follows:
2003 $ 126,750
2004 $ 127,140
2005 $ 128,042
2006 $ 168,981
2007 $ 163,810
Thereafter $ 890,000
On April 19, 2000 the Company signed an agreement for a $5,000,000
revolving line of credit. The maximum borrowed under this agreement
during 2002 was $80,000 and there were no outstanding borrowings at
December 28, 2002. This agreement contains certain financial covenants.
The Company was in compliance with these covenants at December 28,
2002.
(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 $11,000 for 2002 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 two years, with 100% vesting after five years. Company
contributions to the plan were $44,276 in 2002, $ 47,068 in 2001, and
$53,261 in 2000.
F-11
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(9) STOCK OPTIONS
-------------
At December 28, 2002, 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:
2002 2001 2000
---- ---- ----
Pro forma net income (loss) $1,291,210 $782,660 $(21,147)
Pro forma earnings (loss) per share:
Basic $0.46 $0.28 $(0.01)
Diluted $0.46 $0.28 $(0.01)
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 options
for 260,410 (as adjusted for stock splits) shares were granted in 1996,
options for 7,813 (as adjusted for stock splits) shares were granted in
1997, options for 168,750 (as adjusted for stock splits) shares were
granted in 1998 and options for 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, and the 15,000
new options granted in 2002, vest 20% each year beginning at the end of
the first year. The 166,250 exchanged options granted in 2002 vest 60%
at the date of grant, and 20% each at the end of the first and second
year.
The option grants for each year were calculated using the following
assumptions:
Year of Valuation Dividend Expected Risk-free Expected
Grant Method Yield Volatility Interest rate Life
- -------------- ----------------------- ------------- ------------- --------------- ------------
1996 Flexible Binomial 3.6% 40.6% 6.4% 3.7 years
1997 Flexible Binomial 3.6% 40.6% 6.4% 3.7 years
1998 Black-Scholes 2.6% 47.7% 5.6% 5.0 years
1999 Black-Scholes 2.5% 42.8% 5.8% 5.0 years
2002 Black-Scholes 2.3% 41.2% 3.6% 10.0 years
F-12
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(9) STOCK OPTIONS (CONTINUED)
-------------------------
A summary of the status of the Company's outstanding stock options as
of December 28, 2002, December 29, 2001 and December 30, 2000, and
changes during the years ending on those dates is presented below:
2002 2001 2000
---- ---- ----
Exercise Exercise Exercise
Shares (1) Price (2) Shares (1) Price (2) Shares (1) Price (2)
------------- ------------ ------------- ------------ ---------------- ------------
Outstanding at beginning of year 502,386 $6.18 568,801 $5.87 619,717 $5.03
Granted 181,250 $5.86 -- -- -- --
Excercised -- -- (39,165) $0.57 (36,166) $0.59
Forfeited/Cancelled (207,500) $7.76 (27,250) $7.73 (14,750) $7.43
------------ ------------ ---------------
Outstanding at year-end 476,136 $5.37 502,386 $6.18 568,801 $5.87
Options excercisable at year-end 390,136 398,636 397,939
Weighted average fair value of
options granted during the year $2.45 -- --
The following information applies to fixed stock options outstanding at
December 28, 2002:
Number outstanding (1) 476,136
Range of exercise prices $4.80 to $8.10
Weighted-average exercise price $5.37
Weighted-average remaining contractual life 5.75 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.
On February 22, 2002 the Company made an offer to exchange outstanding
options to purchase shares of the Company's Common Stock with an
exercise price greater than or equal to $7.00 per share for new options
which will be granted under the 1995 Plan. The offer expired on March
22, 2002 and the Company received tenders of options for 207,500
shares. The tendered options were cancelled on March 23, 2002. In
keeping with the Company's normal compensation practices, the actual
number of shares for which each new option will be granted has been
determined with respect to each employee individually. Subject to the
terms and conditions of the offer, the Company granted the new options
on October 9, 2002. The Company granted options for an aggregate of
166,250 shares in exchange for the tendered options that were cancelled
on March 23, 2002. The new options have an exercise price equal to the
fair market value of the Common Stock on the date of grant.
F-13
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(10) INCOME TAXES
------------
A summary of income taxes is as follows:
2002 2001 2000
---- ---- ----
Current:
Federal $ 649,000 $ 344,000 $ 207,000
State 144,000 83,000 12,000
Deferred 126,000 154,000 (151,000)
--------- --------- ---------
Total $ 919,000 $ 581,000 $ 68,000
========= ========= =========
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:
2002 2001
---- ----
Depreciation $ 402,000 $ 357,000
Amortization 192,000 135,000
Inventories, due to additonal cost
recorded for income tax purposes (14,000) (16,000)
Accounts receivable, due to allowance
for doubtful accounts (79,000) (84,000)
Directors' Trust (89,000) (82,000)
Accrued liabilities, due to expenses not yet
deuctible for income tax purposes (46,000) (71,000)
--------- ---------
$ 366,000 $ 239,000
========= =========
The net deferred income tax liability is presented in the balance
sheets as follows:
2002 2001
---- ----
Current Asset $140,000 $170,000
Long-term Liability 505,000 409,000
The effective income tax rate varied from the statutory Federal tax
rate as follows:
2002 2001 2000
---- ---- ----
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes, net of
federal income tax benefit 4.3 4.7 4.3
Other 1.6 1.6 (4.5)
---- ---- ----
Effective income tax rate 39.9% 40.3% 33.8%
==== ==== ====
F-14
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(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.
2002 2001 2000
---- ---- ----
Numerator:
Net income $1,384,379 $ 861,561 $ 133,198
========== ========== ==========
Denominator
Weighted-average number of
Common Shares outstanding 2,793,781 2,812,882 3,041,364
Dilutive effect of stock
options on net income 36,526 7,895 35,896
---------- ---------- ----------
2,830,307 2,820,777 3,077,260
========== ========== ==========
Diluted earnings per share $ 0.49 $ 0.31 $ 0.04
========== ========== ==========
F-15
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(12) QUARTERLY FINANCIAL INFORMATION
-------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
2002
- ----
Net Sales $ 8,918,133 $10,363,395 $ 9,971,156 $ 9,388,921 $38,641,605
Gross Profit $ 1,904,734 $ 2,446,123 $ 2,115,625 $ 1,894,106 $ 8,360,588
Net Earnings $ 305,141 $ 509,022 $ 343,637 $ 226,579 $ 1,384,379
Earnings Per
Common Share:
Basic $ 0.11 $ 0.18 $ 0.12 $ 0.08 $ 0.49
Diluted $ 0.11 $ 0.18 $ 0.12 $ 0.08 $ 0.49
Average Common
Shares Outstanding:
Basic 2,812,826 2,787,800 2,786,142 2,788,355 2,793,781
Diluted 2,820,594 2,845,348 2,836,547 2,818,737 2,830,307
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
2001
- ----
Net Sales $ 8,052,955 $ 9,475,661 $ 9,205,017 $ 8,048,488 $34,782,121
Gross Profit $ 1,465,571 $ 2,095,460 $ 2,058,007 $ 1,931,550 $ 7,550,588
Net Earnings $ (68,734) $ 305,774 $ 372,529 $ 251,992 $ 861,561
Earnings Per
Common Share:
Basic $ (0.02) $ 0.10 $ 0.14 $ 0.09 $ 0.31
Diluted $ (0.02) $ 0.10 $ 0.14 $ 0.09 $ 0.31
Average Common
Shares Outstanding:
Basic 2,793,772 2,809,155 2,832,593 2,815,785 2,812,882
Diluted 2,825,352 2,809,155 2,832,593 2,815,785 2,820,777
F-16
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(13) DISCONTINUED OPERATIONS
-----------------------
(a) During the second quarter of 2000, 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.
(b) 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-17
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 26, 2003, (March
20, 2003 as to Note 9), on the financial statements as of December 28, 2002 and
for each of the three fiscal years then ended includes the related supplemental
financial schedule as listed in Item 15 (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 26, 2003 (March 20, 2003 as to Note 9)
F-18
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
2002 $221,462 $52,500 $0 $71,029 (A) $ 202,933
2001 $144,395 $155,864 $0 $78,797 (A) $ 221,462
2000 $158,996 $168,709 $0 $183,310 (A) $ 144,395
(A) Write-off bad debts
F-19