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 January 3, 2004
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:
Name of each exchange
Title of each class 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 19, 2004 of outstanding shares of Common Stock
other than shares held by officers, directors and their respective associates:
$17,609,070
Number of shares outstanding at March 19, 2004: 2,379,604
DOCUMENTS INCORPORATED BY REFERENCE
Part III- Portions of the Proxy Statement for the
2004 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:
2003 - 53 weeks ended January 3, 2004
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
PART I
------
ITEM 1. BUSINESS.
The Company designs, manufactures and sells a broad range of interior
furnishings, principally draperies, curtains, valance boards, shades, blinds,
bedspreads, 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 2003, one customer, Fleetwood Enterprises, accounted for
approximately 26% 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. In January
2004, the Company executed an agreement to be the exclusive supplier of
Fleetwood's drapery, bedspread and other decor requirements in the manufactured
housing and recreational vehicle industries for a period of six years. If, at
the end of three years, Fleetwood is satisfied with the performance of the
Company under this agreement, it will extend the terms of this agreement an
additional three years. The combined sales of the acquired business and the
Company's existing sales to Fleetwood's manufactured housing and recreational
vehicle businesses would have represented approximately 36% of the Company's
total sales in 2003.
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 2003 and 2002 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 714 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 33,800 Leased
Lakeland, Florida Offices, manufacturing and warehouse 7,500 Leased
Pembroke Pines, Florida Offices 3,148 Leased
Douglas, Georgia Offices, manufacturing and warehouse 28,000 Owned
Douglas, Georgia (1) Manufacturing and warehouse 19,000 Leased
Elkhart, Indiana Offices, manufacturing and warehouse 51,000 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
- ----------
(1) The 19,000 square feet represents portions of two buildings being leased for
the six months ending July 22, 2004 for $1.00. These leases can be renewed for
an additional six months for $1.00 if necessary.
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, Elkhart, IN, and Bloomsburg, PA facilities are subject to mortgages
as mentioned in Note 6 to the financial statements.
ITEM 3. LEGAL PROCEEDINGS.
None.
2
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is listed and traded on the American Stock
Exchange, AMEX symbol DII.
Common Stock price information is set forth in the table below.
2003 Sales Prices 2002 Sales Prices
-------------------- -------------------
High Low High Low
---- ---- ---- ----
First Quarter 6.10 4.61 6.20 3.86
Second Quarter 5.50 4.00 6.80 5.27
Third Quarter 5.80 5.15 6.45 5.40
Fourth Quarter 6.80 5.25 6.23 4.80
As of March 19, 2004, the Company had 314 shareholders of record of its Common
Stock.
Total cash dividend payments were $.12 per share in 2003 and 2002.
ITEM 6. SELECTED FINANCIAL DATA.
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
FOR THE YEAR
Net Sales $41,803,224 $38,641,605 $34,782,121 $42,609,584 $49,206,018
Income from
Continuing Operations $ 1,561,778 $ 1,384,379 $ 861,561 $ 1,037,112 $ 2,717,418
Net Income $ 1,561,778 $ 1,384,379 $ 861,561 $ 133,198 $ 2,552,278
----------- ----------- ----------- ----------- -----------
AT YEAR END
Total Assets $21,088,322 $19,480,134 $18,365,516 $18,855,387 $21,665,523
Long Term Obligations $ 1,926,832 $ 1,477,973 $ 1,604,245 $ 1,709,686 $ 1,814,169
Long-term Debt/
Total Capitalization 11.65% 9.97% 11.40% 12.49% 11.21%
Working Capital $ 8,007,862 $ 6,191,028 $ 6,074,073 $ 5,154,647 $ 6,646,856
Current Ratio 3.05:1 2.49:1 2.56:1 2.07:1 2.30:1
Stockholders' Equity $14,614,621 $13,348,108 $12,463,950 $11,979,479 $14,364,969
----------- ----------- ----------- ----------- -----------
PER SHARE
Continuing Operations $ 0.56 $ 0.49 $ 0.31 $ 0.34 $ 0.80
Basic $ 0.56 $ 0.49 $ 0.31 $ 0.04 $ 0.76
Diluted $ 0.55 $ 0.49 $ 0.31 $ 0.04 $ 0.73
Book Value $ 5.22 $ 4.78 $ 4.43 $ 4.29 $ 4.50
Cash Dividends Declared $ 0.12 $ 0.12 $ 0.12 $ 0.24 $ 0.28
3
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Company provides interior furnishings to original equipment
manufacturers of manufactured housing and recreational vehicles and to the
hospitality market. This interior furnishing market is highly competitive. The
Company faces risk due to the nature of its customers. Any significant decline
in the demand for manufactured housing, recreational vehicles, or hospitality
accommodations can adversely affect the Company's results of operations or
financial condition.
Liquidity and Financial Resources:
The Company's financial condition continues to be strong, as evidenced
by the following statistical measures:
1) Working capital at January 3, 2004 was $8,007,862 compared to
$6,191,028 at December 28, 2002.
2) The current ratio was 3.05:1 at year-end 2003 compared to 2.49:1 at
year-end 2002.
3) The liquid ratio was 2.00:1 at year-end 2003 compared to 1.43:1 at
year-end 2002.
4) The long-term debt ratio was 11.65% at January 3, 2004 compared to
9.97% a year earlier.
The Company borrowed $640,000 in fiscal 2003 secured by a mortgage on
its Elkhart, Indiana facility. The borrowing is at a fixed annual rate of 4.39%,
with a 5 year term and a 15 year amortization. The proceeds were used to finance
an addition to this building and for working capital.
Net accounts receivable increased $104,789 (3.1%) and net inventories
decreased $264,673 (6.0%). The increase in accounts receivable is compared to an
8.2% increase in sales for the year. The decrease in inventories is due to more
efficient inventory management.
Capital expenditures for 2003 were $758,115 compared to $1,290,149 in
2002. 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. Excluding this transaction, capital expenditures
increased $269,966 in fiscal 2003 when compared to fiscal 2002. The primary
reason for this was a leasehold improvement and equipment additions in the
Company's Red Bay, Alabama facility.
The Company had no borrowings at year-end under its $5,000,000 revolving
line-of-credit. In January 2004, the Company closed on the purchase of a drapery
manufacturing facility in Douglas, Georgia from Fleetwood Enterprises Inc. The
purchase price was $4,000,000 in cash, plus an additional amount due on January
23, 2005 for inventory not to exceed $1,650,000. The Company delivered
$4,000,000 at closing on January 23, 2004. The Company expects to use its line
of credit for working capital requirements during 2004.
4
Results of Operations:
The following table shows the percentage relationship to net sales of
certain items in the Company's Statement of Earnings:
2003 2002 2001
---- ---- ----
Net sales ........................................ 100.0% 100.0% 100.0%
Cost of products sold ............................ 78.2 78.4 78.3
Selling and administrative expenses .............. 15.8 15.7 17.5
Interest and investment income ................... (.3) (.2) (.2)
Interest expense ................................. .1 .1 .2
Net income ....................................... 3.7 3.6 2.5
2003 vs. 2002
Net sales for fiscal 2003 were $41,803,224 compared to $38,641,605 in fiscal
2002. The net sales increase was 8.2%. 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 to 320,800 in 2003 as compared to 311,000 for 2002,
an increase of 3.2%. The Manufactured Housing Institute reported a 22.3% decline
in unit production for 2003, the fifth consecutive year of declining production.
The industry manufactured 131,000 units in 2003 versus 373,100 units in 1998 (a
decline of 64.9%). Sales to the hospitality market were virtually equal to the
previous year.
Cost of goods sold as a percentage of sales was 78.2% in 2002 versus 78.4% in
2002, mostly due to fixed factory expenses being allocated over a higher sales
volume.
Selling and administrative expenses increased to $6,590,362 in 2003 from
$6,082,129 in 2002. This was primarily due to larger performance bonuses,
one-time increases in the cost of officer's life insurance, and charges relating
to the ongoing implementation of a Enterprise-Resource-Planning (ERP) system.
The one-time cost of officer's life insurance was caused by Sarbanes-Oxley's
elimination of split-dollar life policies for executives and from the cost of
converting a key-man policy to a higher rated carrier. Also, fiscal 2003 was a
53 week year which caused certain expenses, such as salaries and wages, to be
somewhat higher in 2003.
Interest and investment income rose 54% to $112,669 in 2003. This was due to
higher average cash and investment balances when compared to the prior year.
Net income was $1,561,778 in 2003 compared to $1,384,379 in 2002. Net income as
a percent of sales increased to 3.7% in 2003 compared to 3.6% in 2002. This was
due to a higher sales volume.
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.
5
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.
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) The Company's principal executive officer and principal financial officer
have reviewed the effectiveness of 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. These officers have concluded that the
Company's 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 review date, nor any significant deficiencies
or material weaknesses in such internal controls and procedures requiring
corrective actions.
6
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
January 3, 2004. 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
January 3, 2004. 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
January 3, 2004. 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
January 3, 2004. Such information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
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
January 3, 2004. Such information is incorporated herein by reference.
7
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 - January 3, 2004 and December 28, 2002
(3) Statements of Earnings for the three fiscal years ended January
3, 2004
(4) Statements of Stockholders' Equity for the three fiscal years
ended January 3, 2004
(5) Statements of Cash Flows for the three fiscal years ended
January 3, 2004
(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.
8
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.*
10T.1 Amendment dated July 29, 2003 to Employment Agreement between
the registrant and William Bassett, filed as Exhibit 10T.1 to
Form 10-Q for the quarter ended June 28, 2003 and incorporated
herein by reference.*
10U.2 1995 Incentive Stock Option Plan, as amended to date, filed
herewith.*
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.
10Z Asset Purchase Agreement dated as of January 23, 2004, between
registrant and Fleetwood Homes of Georgia, Inc. relating to
drapery manufacturing plant in Douglas, Georgia, filed as
Exhibit 10Z to Form 8-K dated February 4, 2004 and incorporated
herein by reference.
9
11R Computation of diluted income per share, filed herewith.
14 Code of Conduct and Ethics, filed herewith.
23D Consent of Independent Auditors, filed herewith.
31.1 Certification of President, filed herewith.
31.2 Certification of Treasurer, filed herewith.
32 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
2003.
10
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 26, 2004
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 26, 2004
Chief Executive Officer and ----------------------
Director
Michael K. Solomon Vice President, Treasurer, /s/ Michael K. Solomon March 26, 2004
Principal Financial and ----------------------
Accounting Officer
Jerome B. Lieber Director /s/ Jerome B. Lieber March 26, 2004
---------------------
Joseph N. Ellis Director /s/ Joseph N. Ellis March 26, 2004
---------------------
Ellen Downey Director /s/ Ellen Downey March 26, 2004
---------------------
Thomas Dusthimer Director /s/ Thomas Dusthimer March 26 2004
---------------------
William Dixon Director /s/ William Dixon March 26, 2004
---------------------
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 January 3, 2004 and December 28, 2002
and the related statements of earnings, stockholders' equity and cash flows for
each of the three fiscal years in the period ended January 3, 2004. 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 January 3, 2004 and December 28, 2002, and the results of
its operations and its cash flows for each of the three fiscal years in the
period ended January 3, 2004 in conformity with accounting principles generally
accepted in the United States of America.
LOUIS PLUNG & COMPANY, LLP
Certified Public Accountants
Pittsburgh, Pennsylvania
February 13, 2004
F-1
DECORATOR INDUSTRIES, INC
BALANCE SHEETS
ASSETS January 3, December 28,
------ 2004 2002
----------- -----------
CURRENT ASSETS:
Cash and Cash Equivalents $ 3,991,631 $ 2,117,762
Accounts Receivable, less allowance for
doubtful accounts ($200,598 and $202,933) 3,519,418 3,414,629
Inventories 4,123,397 4,388,070
Other Current Assets 274,285 419,620
----------- -----------
TOTAL CURRENT ASSETS 11,908,731 10,340,081
----------- -----------
Property and Equipment
Land, Buildings & Improvements 5,114,341 5,043,458
Machinery, Equipment, Furniture & Fixtures 6,064,877 5,585,401
----------- -----------
Total Property and Equipment 11,179,218 10,628,859
Less: Accumulated Depreciation and Amortization 5,157,452 4,640,040
----------- -----------
Net Property and Equipment 6,021,766 5,988,819
----------- -----------
Goodwill, less accumulated Amortization of $1,348,569 2,731,717 2,731,717
Other Assets 426,108 419,517
----------- -----------
TOTAL ASSETS $21,088,322 $19,480,134
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 1,878,683 $ 2,059,871
Current Maturities of Long-term Debt 166,251 126,750
Accrued Expenses:
Compensation 940,158 856,786
Other 915,777 1,105,646
----------- -----------
TOTAL CURRENT LIABILITIES 3,900,869 4,149,053
----------- -----------
Long-Term Debt 1,926,832 1,477,973
Deferred Income Taxes 646,000 505,000
----------- -----------
TOTAL LIABILITIES 6,473,701 6,132,026
----------- -----------
Stockholders' Equity
Common Stock $.20 par value: Authorized shares, 10,000,000;
Issued shares, 4,485,728 and 4,485,635 897,146 897,127
Paid-in Capital 1,426,435 1,425,826
Retained Earnings 20,576,497 19,349,984
----------- -----------
22,900,078 21,672,937
Less: Treasury stock, at cost: 1,686,840 and 1,694,856 shares 8,285,457 8,324,829
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 14,614,621 13,348,108
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $21,088,322 $19,480,134
=========== ===========
The accompanying notes are an integral part of the financial statements.
F-2
DECORATOR INDUSTRIES, INC
STATEMENTS OF EARNINGS
For the Fiscal Year
--------------------------------------------
2003 2002 2001
------------ ------------ ------------
Net Sales $ 41,803,224 $ 38,641,605 $ 34,782,121
Cost of Products Sold 32,679,542 30,281,017 27,231,533
------------ ------------ ------------
Gross Profit 9,123,682 8,360,588 7,550,588
Selling and Administrative Expenses 6,590,362 6,082,189 6,092,740
------------ ------------ ------------
Operating Income 2,533,320 2,278,399 1,457,848
Other Income (Expense)
Interest and Investment Income 112,669 73,155 60,857
Interest Expense (56,211) (48,175) (76,144)
------------ ------------ ------------
Earnings Before Income Taxes 2,589,778 2,303,379 1,442,561
Provision for Income Taxes 1,028,000 919,000 581,000
------------ ------------ ------------
NET INCOME $ 1,561,778 $ 1,384,379 $ 861,561
============ ============ ============
EARNINGS PER SHARE
BASIC $ 0.56 $ 0.49 $ 0.31
============ ============ ============
DILUTED $ 0.55 $ 0.49 $ 0.31
============ ============ ============
Weighted Average Number of Shares Outstanding
Basic 2,794,286 2,793,781 2,812,882
Diluted 2,827,602 2,830,307 2,820,777
The accompanying notes are an integral part of the financial statements.
F-3
DECORATOR INDUSTRIES, INC
STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
--------- ----------- ------------ ----------- ------------
BALANCE AT
DECEMBER 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
Transactions for 2003
Net profit 1,561,778 1,561,778
Issuance of stock for
Directors compensation 628 39,372 40,000
Dividends paid (335,265) (335,265)
Conversion of $.10 par
value shares to $.20
par value shares 19 (19) 0
--------- ----------- ------------ ----------- ------------
BALANCE AT
JANUARY 3, 2004 $ 897,146 $ 1,426,435 $ 20,576,497 $(8,285,457) $ 14,614,621
========= =========== ============ =========== ============
The accompanying notes are an integral part of the financial statements.
F-4
DECORATOR INDUSTRIES, INC
STATEMENTS OF CASH FLOWS
For the Fiscal Year
----------------------------------------------
2003 2002 2001
----------- ----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,561,778 $ 1,384,379 $ 861,561
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation and Amortization 711,443 680,908 761,563
Provision for Losses on Accounts Receivable 40,000 52,500 155,864
Deferred Taxes 148,000 126,000 154,000
Loss on Disposal of Assets 11,575 18,226 103,428
Increase (Decrease) from Changes in:
Accounts Receivable (144,789) 58,248 (186,566)
Inventories 264,673 (598,405) 1,413,575
Prepaid Expenses 138,335 20,162 506,350
Other Assets (6,591) (155,166) (8,786)
Accounts Payable (181,188) (42,859) (290,274)
Accrued Expenses (106,497) 140,284 (620,427)
----------- ----------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,436,739 1,684,277 2,850,288
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (758,115) (1,290,149) (442,772)
Proceeds from Property Dispositions 2,150 9,250 85,963
----------- ----------- ---------
NET CASH USED IN INVESTING ACTIVITIES (755,965) (1,280,899) (356,809)
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term Debt Payments (151,640) (104,963) (104,640)
Dividend Payments (335,265) (335,093) (338,324)
Proceeds from Exercise of Stock Options -- -- 22,324
Issuance of Stock for Directors' Trust 40,000 45,248 42,559
Proceeds on Debt from Building 640,000 -- --
Purchase of Common Stock for Treasury -- (210,376) (103,649)
----------- ----------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 193,095 (605,184) (481,730)
Net Increase (Decrease) in Cash and Cash Equivalents 1,873,869 (201,806) 2,011,749
Cash and Cash Equivalents at Beginning of Year 2,117,762 2,319,568 307,819
----------- ----------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,991,631 $ 2,117,762 $ 2,319,568
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 42,522 $ 32,150 $ 63,362
Income Taxes $ 745,259 $ 987,323 $ 347,180
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 2003 was a 53-week period ending January 3, 2004;
2002 was a 52-week period ending December 28, 2002; and 2001 was a
52-week period ending December 29, 2001.
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.
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 and
thereafter. 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 January 3, 2004 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:
2003 2002
----------- -----------
General Funds $ (502,354) $ (111,262)
Overnight repurchase agreements 4,493,985 2,229,024
----------- -----------
$ 3,991,631 $ 2,117,762
=========== ===========
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.
On January 5, 2004 the Company began factoring certain receivables
related to the hospitality market. The agreement provides for credit
investigation, collection activity and payment for approved receivables
90 days after shipment. The agreement does not provide for advances
against shipments.
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 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.
Fair Value of Financial Instruments
-----------------------------------
Marketable securities are carried at fair value. A gain of $6,439 is
included in income for the year ended January 3, 2004 compared to a
loss of $434 for the year ended December 28, 2002. 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 10
"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 (FASB).
In April 2003, the FASB issued SFAS No.149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." SFAS No. 149 will
have no effect on the Company's financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity," which requires certain financial instruments to be classified
as a liability (or an asset in some circumstances). SFAS No. 150 will
have no effect on the Company's financial statements.
In December 2003, the FASB issued SFAS No. 132 (Revised) "Employer's
Disclosure about Pensions and Other Postretirement Benefits." SFAS 132
retains disclosure requirements in the original SFAS 132 and requires
additional disclosures relating to assets, obligations, cash flows and
net periodic benefit cost. SFAS No. 132 (Revised) will have no effect
on the Company's financial statements.
F-8
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." This
interpretation specifies the disclosures to be made by a guarantor in
its interim and annual financial statements concerning its obligations
under certain guarantees that it has issued. FIN 45 will have no effect
on the Company's financial statements.
In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities", which requires a
variable interest entity, as defined in FIN 46, to be consolidated by a
company if that company is subject to a majority of the risk of loss
from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. FIN 45 will have no
effect on the Company's financial statements.
(2) INVENTORIES
-----------
Inventories consisted of the following classifications:
2003 2002
---------- ----------
Raw materials & supplies $3,506,619 $3,944,768
In process & finished goods 616,778 443,302
---------- ----------
$4,123,397 $4,388,070
========== ==========
(3) 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 $397,722 in 2003, $470,697 in 2002 and $516,748 in 2001.
Commitments under these leases extend through October 2007 and are as
follows:
2004 $304,844
2005 $164,472
2006 $115,081
2007 $ 23,187
(4) COMMITMENTS
-----------
The Company has a commitment under an employment and non-compete
agreement entered into with an individual in a current management
position. The minimum commitment under this agreement is payable as
follows
2004 $370,228
2005 $370,228
2006 $370,228
2007 $345,228
2008 $210,828
Thereafter $843,312
F-9
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(5) SIGNIFICANT CUSTOMERS
---------------------
Sales to Fleetwood Enterprises accounted for 26.5%, 23.8% and 18.9% of
Company sales in 2003, 2002 and 2001, respectively. Fleetwood operates
in the manufactured housing and recreational vehicle industries. Sales
to Champion Enterprises accounted for 5.7%, 8.4% and 12.0% of Company
sales in 2003, 2002 and 2001, respectively. Champion operates solely in
the manufactured housing industry.
(6) LONG TERM-DEBT AND CREDIT ARRANGEMENTS
--------------------------------------
Long-term debt consists of the following:
2003 2002
---------- ----------
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 $ 82,972 $ 104,336
Note payable in monthly payments of $3,556 principal
plus accrued interest at 4.39% monthly through June
2008. This note is secured by the Company's Elkhart,
IN building 615,111 --
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 200,000 225,387
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 1,195,000 1,275,000
---------- ----------
2,093,083 1,604,723
Less amount due within one year 166,251 126,750
---------- ----------
$1,926,832 $1,477,973
========== ==========
F-10
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(6) LONG TERM-DEBT AND CREDIT ARRANGEMENTS (CONTINUED)
--------------------------------------------------
The principal payments on long-term debt for the five years subsequent
to January 3, 2004 are as follows:
2004 $ 166,251
2005 $ 170,709
2006 $ 211,647
2007 $ 206,476
2008 $ 603,000
Thereafter $ 735,000
On April 19, 2000 the Company signed an agreement for a $5,000,000
revolving line of credit. There were no borrowings under this agreement
during 2003 and there were no outstanding borrowings at January 3,
2004. This agreement contains certain financial covenants. The Company
was in compliance with these covenants at January 3, 2004.
(7) 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 75% of their
earnings with a maximum of $12,000 for 2003 ($14,000 for employees over
50 years of age) 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
$38,052 in 2003, $ 44,276 in 2002, and $47,068 in 2001.
F-11
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(8) STOCK OPTIONS
At January 3, 2004, 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:
2003 2002 2001
---------- ---------- --------
Pro forma net income $1,496,132 $1,291,210 $782,660
Pro forma earnings per share:
Basic $ 0.54 $ 0.46 $ 0.28
Diluted $ 0.53 $ 0.46 $ 0.28
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
(8) STOCK OPTIONS (CONTINUED)
-------------------------
A summary of the status of the Company's outstanding stock options as
of January 3, 2004, December 28, 2002 and December 29, 2001, and
changes during the years ending on those dates is presented below:
2003 2002 2001
----------------------- ----------------------- -------------------------
Exercise Exercise Exercise
Shares (1) Price (2) Shares (1) Price (2) Shares (1) Price (2)
---------- --------- ---------- --------- ---------- ---------
Outstanding at beginning of year 476,136 $5.37 502,386 $6.18 568,801 $5.87
Granted -- -- 181,250 $5.86 -- --
Excercised -- -- -- -- (39,165) $0.57
Forfeited/Cancelled -- -- (207,500) $7.76 (27,250) $7.73
------- -------- -------
Outstanding at year-end 476,136 $5.37 476,136 $5.37 502,386 $6.18
Options excercisable at year-end 429,886 390,136 398,636
Weighted average fair value of
options granted during the year -- $2.45 --
The following information applies to fixed stock options outstanding at
January 3, 2004:
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 4.74 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
(9) INCOME TAXES
------------
A summary of income taxes is as follows:
2003 2002 2001
---------- -------- --------
Current:
Federal $ 719,000 $649,000 $344,000
State 161,000 144,000 83,000
Deferred 148,000 126,000 154,000
---------- -------- --------
Total $1,028,000 $919,000 $581,000
========== ======== ========
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:
2003 2002
--------- ---------
Depreciation $ 505,000 $ 402,000
Amortization 245,000 192,000
Inventories, due to additonal cost
recorded for income tax purposes (18,000) (14,000)
Accounts receivable, due to allowance
for doubtful accounts (78,000) (79,000)
Directors' Trust (104,000) (89,000)
Accrued liabilities, due to expenses not yet
deductible for income tax purposes (37,000) (47,000)
--------- ---------
$ 513,000 $ 365,000
========= =========
The net deferred income tax liability is presented in the balance
sheets as follows:
2003 2002
-------- --------
Current Asset $133,000 $140,000
Long-term Liability 646,000 505,000
The effective income tax rate varied from the statutory Federal tax
rate as follows:
2003 2002 2001
---- ---- ----
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes, net of
federal income tax benefit 4.4 4.3 4.7
Other 1.3 1.6 1.6
---- ---- ----
Effective income tax rate 39.7% 39.9% 40.3%
==== ==== ====
F-14
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(10) EARNINGS PER SHARE
------------------
In accordance with SFAS No. 128, the following is a reconciliation of
the numerators and denominators of the basic and diluted EPS
computations.
2003 2002 2001
---------- ---------- ----------
Numerator:
Net income $1,561,778 $1,384,379 $ 861,561
========== ========== ==========
Denominator
Weighted-average number of
Common Shares outstanding 2,794,286 2,793,781 2,812,882
Dilutive effect of stock
options on net income 33,316 36,526 7,895
---------- ---------- ----------
2,827,602 2,830,307 2,820,777
========== ========== ==========
Diluted earnings per share $ 0.55 $ 0.49 $ 0.31
========== ========== ==========
F-15
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(11) QUARTERLY FINANCIAL INFORMATION
-------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
---------- ----------- ----------- ----------- -----------
2003
- ----
Net Sales $9,779,753 $10,767,015 $10,984,598 $10,271,858 $41,803,224
Gross Profit $2,070,052 $ 2,450,466 $ 2,352,311 $ 2,250,853 $ 9,123,682
Net Earnings $ 307,875 $ 497,928 $ 419,147 $ 336,828 $ 1,561,778
Earnings Per
Common Share:
Basic $ 0.11 $ 0.18 $ 0.15 $ 0.12 $ 0.56
Diluted $ 0.11 $ 0.18 $ 0.15 $ 0.11 $ 0.55
Average Common
Shares Outstanding:
Basic 2,791,226 2,793,229 2,795,166 2,797,293 2,794,286
Diluted 2,807,647 2,796,524 2,829,568 2,873,164 2,827,602
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
F-16
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(12) SUBSEQUENT EVENT
----------------
On January 23, 2004, the Company entered into an agreement to purchase
the land, building, machinery, equipment and other assets of Fleetwood
Enterprises Inc.'s drapery manufacturing operation in Douglas, Georgia
for a purchase price of $4 million in cash, plus an additional amount
due on January 23, 2005 for inventory not to exceed $1,650,000. The
purchase closed on January 23, 2004. A copy of the agreement was filed
as an exhibit to Form 8-K filed on February 5, 2004.
In connection with the acquisition described above, the Company entered
into an agreement with Fleetwood for the Company to be the exclusive
supplier of Fleetwood's drapery, bedspread and other decor requirements
for a period of six years. If, at the end of three years, Fleetwood is
satisfied with the performance of Decorator under this agreement, it
will extend the terms of this agreement an additional three years.
The acquisition was accounted for as a purchase. The purchase price of
$4 million was allocated as follows: $1,000,000 to the land, building,
machinery and equipment, and $3,000,000 to the supply agreement. The
Company has recognized the supply agreement as an identifiable
intangible asset and is amortizing it over the six year minimum life of
the supply agreement.
The acquired business is engaged in the manufacture of curtains,
valances, bedspreads and other decor items. Fleetwood used the acquired
business to supply most of its manufactured housing and some of its
recreational vehicle requirements for these items. Sales to other
customers are negligible. The Company intends to operate this facility
for up to six months during which time it will assign production from
the acquired business to various of its other facilities. The equipment
and inventory acquired in the transaction will be transferred to other
facilities and the real estate will be placed for sale.
The Company used internal funds for the purchase price paid at closing
and will likely generate sufficient funds internally to satisfy the
remaining obligation due in one year. At the date of closing, the
Company's $5,000,000 line of credit was unused. The Company does expect
to use its line of credit for working capital requirements during 2004.
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 13, 2004 on the
financial statements as of January 3, 2004 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 13, 2004
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
2003 $202,933 $40,000 $0 $42,335 (A) $ 200,598
2002 $221,462 $52,500 $0 $71,029 (A) $ 202,933
2001 $144,395 $155,864 $0 $78,797 (A) $ 221,462
- ----------
(A) Write-off bad debts
F-19