<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 March 31, 1999.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to ______ .
Commission File Number: 333-58989-01
--------------
DECORA, INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 93-1028300
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
1 MILL STREET
FORT EDWARD, NEW YORK 12828
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (518) 747-6255
</TABLE>
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of Each Class on which registered
- ------------------- ---------------------
<S> <C>
NONE NONE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
<PAGE> 2
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
None of the voting stock of Decora, Incorporated is held by non-affiliates.
As of June 30, 1999, there were 16,000,000 shares of Common Stock of the
registrant outstanding.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (I) (1)
(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH A
REDUCED DISCLOSURE FORMAT.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
================================================================================
2
<PAGE> 3
PART I
ITEM 1. BUSINESS.
Decora, Incorporated (the "Company"), which was incorporated in Delaware in
1990, is a wholly-owned subsidiary of Decora Industries, Inc. ( the "Parent"),
also incorporated in Delaware. The Company is a leading manufacturer and
marketer of self-adhesive, branded, consumer decorative products and of
specialty industrial and commercial products, utilizing proprietary adhesive
systems and coating technologies.
Con-Tact(R) is a registered trademark of Decora. Rubbermaid(R) is a registered
trademark of Rubbermaid, Incorporated ("Rubbermaid").
The Company's primary lines of business, self-adhesive consumer decorative
products, are best known under the brand Con-Tact. Con-Tact self-adhesive
consumer products were first introduced in the United States in the 1950's by
the Company which was formerly known as the Decora Division of United Merchants
and Manufacturers, Inc. ("UM&M"). This operation developed and introduced the
line and has always been its manufacturer; however, from 1981 through April
1998, Con-Tact products were distributed by Rubbermaid pursuant to an exclusive
distribution and manufacturing agreement between Rubbermaid and UM&M. UM&M had
sold the Con-Tact brand name to Rubbermaid in 1983. The Company acquired the
Decora Division assets from UM&M in 1990 and maintained the established
relationship with Rubbermaid until April 1998, when the Company acquired the
Con-Tact brand name back from Rubbermaid along with all the assets, product
lines and market position of Rubbermaid's entire Decorative Coverings Group (the
"Rubbermaid Acquisition"). The Rubbermaid Acquisition was completed on April 29,
1998 and included all the assets and brand names associated with three product
lines: (i) the Con-Tact self-adhesive product line, which is manufactured by the
Company, (ii) the Shelf Liner light-adhesive line, which was previously
manufactured by Rubbermaid, and (iii) the Grip Liner non-adhesive covering line,
which is manufactured by a third party pursuant to the terms of an exclusive
manufacturing agreement.
Prior to the Rubbermaid Acquisition, the Company, as primarily a contract
manufacturer, did not incur traditional sales and marketing expenses. In the
past, Rubbermaid had sold and distributed the Company's Con-Tact products and
the Company conducted its international sales primarily through a limited number
of distributors. As a result of the Rubbermaid Acquisition, the Company now
performs full sales and marketing activities to support its integrated
manufacturing operations and sells directly to retailers. During a nine month
transition period following the Rubbermaid Acquisition, the Company established
its own marketing and sales team and its own distribution system and since
January 1999 has been operating without any further services from Rubbermaid.
The Company's consumer products are warehoused and delivered to customers by a
third party logistics services provider. The Company sells its Con-Tact and
consumer products primarily to large retailers such as K-mart, Target, The Home
Depot and Wal-Mart as well as to wholesalers who sell to smaller retailers and
food, drug and hardware stores. Sales of decorative coverings products are
concentrated. During fiscal 1999, sales to the Company's top five customers
represented 60% of the Company's net sales. The loss of any one or more of these
customers could have a material adverse effect on the Company's business and
financial condition. During fiscal 1998, prior to the Rubbermaid Acquisition,
84% of the Company's net sales were to Rubbermaid. The Company also sells
consumer products internationally and has industrial product customers in the
U.S. which purchase its tape and coating products.
3
<PAGE> 4
ITEM 2. PROPERTIES
The Company owns a 220,000 square foot manufacturing and office facility located
on approximately 12 acres in Fort Edward, New York. The Company also leases a
10,000 square foot manufacturing and office facility in Longwood, Florida and a
10,000 square foot office facility in North Ridgeville, Ohio.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently subject to any material legal proceedings. Although
the Company is subject to certain legal proceedings, the ultimate outcome of
each proceeding will not, in the opinion of management, have a material adverse
effect on the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No response to this item is required under General Instruction I (2) (c) of Form
10-K as Registrant meets the conditions set forth in General Instruction (I) (1)
(a) and (b) of Form 10-K.
4
<PAGE> 5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public trading market for the Common Stock of the
Company, all of which is owned by the Parent. The Company has never paid a cash
dividend and intends to retain earnings, if any, for use in its business. In
addition, the Company's agreements with its lenders restrict the ability of the
Company to pay dividends.
ITEM 6. SELECTED FINANCIAL INFORMATION.
No response to this item is required under General Instruction I (2) (a) of Form
10-K, as Registrant meets the conditions set forth in General Instruction I (1)
(a) and (b) of Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
As permitted by General Instruction I (2) (a) of Form 10-K, the response to this
item has been limited to an analysis of the results of operations for fiscal
1999 as compared with fiscal 1998 as Registrant meets the conditions set forth
in General Instruction (I) (1) (a) and (b) of Form 10-K.
GENERAL
On April 29, 1998, the Company completed the Rubbermaid Acquisition for an
aggregate cost, including transaction costs, of approximately $66 million. The
assets acquired included: (i) the Con-Tact self-adhesive line, which is
manufactured by the Company, (ii) the Shelf Liner light-adhesive line, which was
manufactured by Rubbermaid, and (iii) the Grip Liner non-adhesive covering line,
which is manufactured by a third party pursuant to the terms of an exclusive
manufacturing agreement. The Rubbermaid Acquisition has enabled the Company,
which previously had been primarily only a manufacturer of Con-Tact, to
integrate the marketing, sales and distribution of the Con-Tact product
offering, as well as the other two product lines, with its manufacturing
capabilities. In conjunction with the financing of the Rubbermaid Acquisition,
the Company refinanced a substantial portion of its outstanding debt and made
significant investments which were required to integrate the acquired assets
into the Company's business during a nine month transition period following the
acquisition. During this nine month period, the Company established a totally
new sales, marketing, customer service and distribution management team and
operation in its new North American headquarters in North Ridgeville, Ohio,
installed new financial and enterprise resource planning software and hardware
systems, established a third party warehousing and distribution service to
handle consumer product shipments in North America and relocated acquired
manufacturing operations to its Fort Edward, New York manufacturing facility.
While executing this transformation, the Company strove to maintain and
strengthen customer relationships and interest in the Con-Tact product line.
5
<PAGE> 6
The results of operations of the Company reflect the results associated with the
Rubbermaid Acquisition since April 29, 1998 thus affecting the comparability of
results between the two years.
RESULTS OF OPERATIONS
Year Ended March 31, 1999 vs. Year Ended March 31, 1998
As noted above, the comparability of results between fiscal 1999 and fiscal 1998
is significantly affected by the inclusion of results following the Rubbermaid
Acquisition in April 1998. As a result, sales, cost of goods sold, gross margin
and selling, general and administrative expense levels in fiscal 1999 may not be
meaningfully compared with the prior year as the Company transitioned from being
a contract manufacturer for Rubbermaid to an integrated branded consumer
products company. Management's focus during the year included the establishment
of new management and infrastructure for the product lines acquired from
Rubbermaid. The Company's results were impacted by these factors and also by the
nine month transition period during which Rubbermaid continued to distribute the
acquired product lines and the Company operated primarily under product
promotion and merchandising programs which were established by Rubbermaid prior
to the Rubbermaid Acquisition.
Net sales for the year ended March 31, 1999 were $66,650,000 (reflecting the
impact of the Rubbermaid Acquisition since April 29, 1998) as compared with
$36,305,000 for the year ended March 31, 1998. The increase of $30,345,000
resulted principally from the Rubbermaid Acquisition.
Gross profit was $24,390,000, or 36.6% of net sales, for the year ended March
31, 1999 as compared with 9,290,000, or 25.6% of net sales, for the year ended
March 31, 1998. The increase of $15,100,000 and the increase in gross profit
margin reflect the impact of the Rubbermaid Acquisition and the fact that the
Company now sells directly to retailers. The gross margin for the year ended
March 31, 1999 reflects only eleven months of the Decorative Coverings Group
("DCG") operations which were acquired from Rubbermaid on April 29, 1998.
Additionally, gross profit for the year ended March 31, 1999 was partially
offset by a one-time non-cash charge of approximately $800,000 for the step-up
in basis of DCG inventory acquired in the Rubbermaid Acquisition. Excluding the
impact of this one-time charge, gross profit would have been approximately
$25,190,000, or 37.8% of net sales.
Selling, general and administrative expenses were $13,180,000, or 19.8% of net
sales, for the year ended March 31, 1999 as compared with $4,963,000, or 13.7%,
of net sales in the year ended March 31, 1998. The increase of $8,217,000 was
primarily due to the incremental sales and marketing costs incurred relative to
the change from being primarily a contract manufacturer to being a vertically
integrated manufacturer and marketer of Con-Tact products following the
Rubbermaid Acquisition.
Interest expense, net was $138,000 for the year ended March 31, 1999 as compared
with $2,388,000 in the prior year. The decrease of $2,250,000 is principally due
to lower average borrowings in the current year as a result of debt repayments
made in conjunction with the Rubbermaid Acquisition and higher interest income
earned on cash deposits in the current year.
6
<PAGE> 7
Net income of $4,624,000 for the year ended March 31, 1999 was $3,869,000 higher
than the year ended March 31, 1998 primarily as a result of the above noted
changes and a non-recurring charge of $672,000 incurred in the prior year,
partially offset by the extraordinary charge (net of income taxes) of $2,019,000
incurred in connection with the Rubbermaid Acquisition.
YEAR 2000 RISKS
Many existing computer systems, communication systems, machines and other items,
whether large or small, which utilize microprocessors and/or software use only
two digits rather than four digits to process date-related transactions. As a
result, many of these items will not be able to correctly process a transaction
with the year 2000 date, as the "00" could cause the program or system to fail
or create erroneous results before, on or after January 1, 2000 (the "Year 2000
Issue"). The Company has employees who have the task of identifying potential
Year 2000 Issues and overseeing the implementation of solutions with respect to
these issues where possible.
The Company recently completed Phases I & II of a program to replace its primary
management information and communication systems with full Year 2000 compliance.
This included hardware and software required to operate its telephone systems,
its accounting systems (including general ledger, accounts receivable, accounts
payable) and its manufacturing control systems at a cost of approximately
$600,000.
In addition to its primary management information system, the Company utilizes
personal computers, which function either on a stand-alone basis or as
workstations on an integrated network. These computers utilize a variety of
operating systems and software packages ranging from Windows NT to DOS
platforms. The Company is completing its survey to detect non-compliant systems
and believes that the majority of these systems can and will be made Year 2000
compliant prior to January 1, 2000 at little or no cost to the Company through
software updates provided by the respective software vendors. Any full system
replacements which may be required are not anticipated to have a material impact
on the cash flow of the Company and can be funded from operating cash flow. The
Company has completed the process of reviewing other equipment and systems in
order to determine and remedy any potential Year 2000 Issues. Certain
manufacturing equipment has date-sensitive controllers which are not Year 2000
compliant and will have to be upgraded, replaced or decommissioned. The Company
is on target to resolve these issues by September 1999 at a cost which is
anticipated to be within ordinary maintenance expenditure levels. The Company
does not separately track the incremental costs incurred for the investigation,
analysis and remedy of Year 2000 Issues. Such costs consist principally of
related payroll costs of certain members of its systems and operations groups.
The Company sells its products primarily to retailers, distributors and original
equipment manufacturers with a significant number of such transactions occurring
electronically. The Company also purchases raw materials from many vendors;
however, the majority of such purchasing transactions are not handled
electronically. If the Company, or any third party with whom the Company does
business, were to have a Year 2000 problem, the Company's business could be
seriously disrupted which could negatively affect the financial condition and
results of operations of the Company. This is particularly true in the case of
retail customers where high volume transactions would have to be converted to a
manual system until any Year 2000 Issue was resolved. The Company has completed
the process of reviewing the Year 2000 compliance status with its vendors and
customers and to date is not aware of a situation which would have a material
adverse impact on the Company's operations and/or financial condition, although
no assurances can be given that such a problem does not exist, or will not exist
7
<PAGE> 8
in the future. As the Company continues to evaluate the Year 2000 compliance
status of its suppliers and vendors, it will also develop contingency plans to
deal with any potential problems that may arise in this analysis.
FORWARD LOOKING STATEMENTS
From time to time, including in this Annual Report on Form 10-K, the Company may
publish forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments, changes
in the industry, new products, research and development activities and similar
matters. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward looking statements. In order to comply with the terms of the
safe harbor, the Company notes that a variety of factors could cause the
Company's actual results to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking statements. The
risks and uncertainties that may affect the operations, performance, development
and results of the Company's business include, without limitation, the
following: customer concentration, exposure to raw material price fluctuations,
competitors with significantly greater financial resources, debt covenants
restricting the Company's ability to borrow money, a highly competitive
environment, seasonality, fluctuations in quarterly operating results and
ability to maintain adequate levels of working capital. Refer to Item 1,
"Narrative Description of the Business" and Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations", for additional
information regarding certain of these risks.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The intended use of the derivative and its
designation as either (1) a hedge of exposure to changes in the fair value of a
recognized asset or liability or a firm commitment (a fair value hedge), (2) a
hedge of exposure to variable cash flows of a forecasted transaction (a cash
flow hedge) or (3) a hedge of the foreign currency exposure of a net investment
in a foreign operation (a foreign currency hedge) will determine when the gains
or losses on the derivatives are to be reported as a component of other
comprehensive income. The new standard must be adopted for fiscal year 2000
financial reporting. The Company does not believe that the adoption of SFAS No.
133 will have a material impact on the financial position of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk represents the risk of loss that may impact the consolidated
financial position, results of operations or cash flows of the Company. The
Company is exposed to market risk in the areas of interest rates and foreign
currency exchange rates.
8
<PAGE> 9
INTEREST RATES
The Company's exposure to market risk from interest rate changes relates
primarily to variable rate bank lines of credit. As of March 31, 1999, the
Company had cash flow exposure on its Tax-Exempt Industrial Revenue Bonds
($2,210,000) which bear interest at a variable rate. Accordingly, as of March
31, 1999, a 33 basis point increase in the bond's floating rate (10% increase)
would have an immaterial effect on the Company's pre-tax earnings.
FOREIGN EXCHANGE RISK
The Company has limited exposure to foreign exchange risk as the majority of
transactions are denominated in U.S. dollars. A 10% change in the value of all
foreign currencies would have an immaterial effect on the Company's pre-tax
earnings.
INTEREST RATE SWAPS AND CAPS
The Company had one interest rate swap agreement as of March 31, 1999 with its
primary lender which expired in May 1999. The agreement effectively converted
$8,523,000 of its variable rate borrowings into fixed rate obligations.
At March 31, 1999, the fair value of the Company's interest rate swap
approximated carrying value.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is submitted in response to Part IV
hereof. See the Index to Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
9
<PAGE> 10
PART III
DIRECTORS AND EXECUTIVE OFFICERS
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
No response to this item is required under General Instruction I (2) (c) of Form
10-K, as Registrant meets the conditions set forth in General Instruction I (1)
(a) and (b) of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
No response to this item is required under General Instruction I (2) (c) of Form
10-K, as Registrant meets the conditions set forth in General Instruction I (1)
(a) and (b) of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No response to this item is required under General Instruction I (2) (c) of Form
10-K, as Registrant meets the conditions set forth in General Instruction I (1)
(a) and (b) of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No response to this item is required under General Instruction I (2) (c) of Form
10-K, as Registrant meets the conditions set forth in General Instruction I (1)
(a) and (b) of Form 10-K.
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. See Index to Financial Statements.
2. Financial Statement Schedules. See Index to Financial Statements.
3. Exhibits.
The following exhibits are filed or incorporated by reference as part of this
Report.
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
2.1 Asset Purchase Agreement dated as of March 30, 1998, by and between
Rubbermaid Incorporated and Rubbermaid Specialty Products, Inc., on the
one hand, and the Parent and the Company on the other hand.(6)
(3) Articles of Incorporation and By-Laws
3.1 Certificate of Incorporation of the Company filed on March 5, 1990.(9)
3.2 By-Laws of the Company.(9)
10
<PAGE> 11
(4) Instruments Defining the Rights of Security Holders
4.1 Certificate of Incorporation and By-laws (see Exhibits 3.1 and 3.2).
4.2 Form of Indenture dated as of April 29, 1998 among the Parent as Issuer,
the Company as Subsidiary Guarantor, future Subsidiary Guarantors, and
the United States Trust Company of New York as Trustee (the
"Indenture").(8)
4.3 Form of 11% Senior Secured Notes due 2005 ("Old Notes") issued under the
Indenture (included as Exhibit A to the Indenture).(8)
4.4 Form of Series B 11% Senior Secured Notes due 2005 issued under the
Indenture in exchange for the Old Notes (included as Exhibit B to the
Indenture).(8)
4.5 Form of Guarantee of the Company dated as of April 29, 1998 (included as
Exhibit G to the Indenture).(8)
4.6 Form of Registration Rights Agreement dated as of April 29, 1998 among
Lazard Freres & Co. LLC, the Parent and the Company.(8)
(10) Material Contracts
10.1 Management Agreement dated as of April 18, 1990 by and between Utilitech
and the Parent.(1)
10.2 Promissory Note in the amount of $6,000,000 dated as of July 20, 1994 by
and between the Parent as borrower and the Company as lender.(2)
10.3 Form of Exchange Agreement dated March 31, 1996 by and among the
Company, CIGNA Mezzanine Partners, Inc., CIGNA Property and Casualty and
Insurance Company of North America.(3)
10.4 Form of Employment Agreement dated as of June 1, 1997 by and between the
Company and Richard DeCoste.(4)
10.5 Note and Warrant Purchase Agreement dated as of September 26, 1997 among
the Company, the Parent, Dorrance Street Capital Advisors, LLC and
Textron Master Trust.(5)
10.6 Credit and Reimbursement Agreement Modification Agreement No. 2 dated
September 26, 1997 by and between the Company and Fleet Bank in
connection with a letter of credit issued by Fleet Bank in favor of
Mellon Bank, FSB, as Trustee, concerning the issuance of $2,460,000
industrial revenue development bond.(5)
10.7 Promissory Note in the amount of $15,207,000 dated September 30, 1997 by
the Parent to the Company.(5)
10.8 Form of Loan Agreement dated as of April 28, 1998 between the Company
and Konrad Hornschuch AG.(8)
10.9 Form of Security Agreement dated as of April 29, 1998 between the
Company and Konrad Hornschuch AG.(8)
10.10 Form of Restated Revolving Promissory Note dated as of April 29, 1998 by
the Company in favor of Fleet National Bank in the principal amount of
$15,000,000.(8)
11
<PAGE> 12
10.11 Form of Restated Secured Revolving Line of Credit Agreement dated as of
April 29, 1998 between the Company and Fleet National Bank.(8)
10.12 Form of Credit and Reimbursement Agreement Modification Agreement No. 3
dated as of April 29, 1998 between the Company and Fleet National
Bank.(8)
10.13 Form of Mortgage Modification and Consolidation Agreement dated as of
April 29, 1998 between the Company and Fleet National Bank.(8)
10.14 Form of Mortgage dated as of April 29, 1998 between the Company and
Fleet National Bank securing principal indebtedness in the amount of
$2,497,000.(8)
10.15 Form of Mortgage dated as of April 29, 1998 between the Company and
Fleet National Bank securing principal indebtedness in the amount of
$499,000.(8)
10.16 Form of Restated Security Agreement dated as of April 29, 1998 between
the Company and Fleet National Bank.(8)
10.17 Form of Environmental Compliance and Indemnification Agreement dated as
of April 29, 1998 between the Company and Fleet National Bank.(8)
10.18 Form of Official Statement of Counties of Warren and Washington, New
York, Industrial Development Agency $2,460,000 Tax-exempt Industrial
Development Revenue Bonds (Decora Incorporated Project), Series 1996.(7)
10.19 Form of Payment and Deferral Agreement dated as of July 9, 1998 by and
among the Company, the Parent and each of the Holders identified and
listed on Schedule A attached thereto.(10)
12
<PAGE> 13
(27) Financial Data Schedule
27.1 Financial Data Schedule.
- --------------
Notes:
(1) Previously filed as Exhibits to the Company's Report on Form 8-K dated
April 18, 1990.
(2) Previously filed as Exhibit to the Company's Report on Form 10-K for the
fiscal year ended March 31, 1994.
(3) Previously filed as Exhibit to the Company's Report on Form 10-K for the
fiscal year ended March 31, 1996.
(4) Previously filed as Exhibit to the Company's Report on Form 10-Q for the
fiscal quarter ended June 30, 1997.
(5) Previously filed as Exhibit to the Company's Report on Form 8-K dated
October 1, 1997.
(6) Previously filed as Exhibit to the Company's Report on Form 8-K dated
March 31, 1998.
(7) Previously filed as Exhibit to the Company's Report on Form 10-Q for the
fiscal quarter ended December 31, 1996.
(8) Previously filed as Exhibit to the Company's report on Form 10-K for the
fiscal year ended March 31, 1998.
(9) Previously filed as Exhibit to the Company's Registration Statement No.
333-58989 on Form S-4 as originally filed on July 13, 1998.
(10) Previously filed as Exhibit to Amendment No. 1 of the Company's
Registration Statement No. 333-58989 on Form S-4 as filed on September
4, 1998.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the three months
ended March 31, 1999.
13
<PAGE> 14
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OF 15(d) 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.
DECORA, INCORPORATED
Date: July 14, 1999 By: /s/ NATHAN HEVRONY
-------------------------
Nathan Hevrony
Chief Executive Officer
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 DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ NATHAN HEVRONY Chief Executive Officer July 14, 1999
- -------------------------- and Director (Principal
Nathan Hevrony Executive Officer)
/s/ TIMOTHY N. BURDITT Vice President, July 14, 1999
- -------------------------- Administration and Director
Timothy N. Burditt (Principal Financial and
Accounting Officer)
</TABLE>
14
<PAGE> 15
DECORA, INCORPORATED
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Financial Statements Page
- -------------------- ----
<S> <C>
The following Financial Statements of Decora Incorporated and
Report of Independent Accountants are filed as part of this report:
Report of Independent Accountants F-2
Balance Sheets as of March 31, 1999 and 1998 F-3
Statements of Income for the Years Ended
March 31, 1999, 1998 and 1997 F-5
Statements of Cash Flows for the Years Ended
March 31, 1999, 1998 and 1997 F-6
Statements of Changes in Shareholder's Equity
for the Years Ended March 31, 1999, 1998 and 1997 F-7
Notes to Financial Statements F-8
Financial Statement Schedule for the Three Years Ended March 31, 1999
Schedule II - Valuation and Qualifying Accounts F-19
</TABLE>
F - 1
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholder of
Decora, Incorporated
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Decora,
Incorporated (a wholly-owned subsidiary of Decora Industries, Inc.) at March 31,
1999 and 1998 and the results of its operations and its cash flows for each of
the three years in the period ended March 31, 1999 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related financial statements. These financial statements and the
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
the financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform an 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, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
June 2, 1999
F - 2
<PAGE> 17
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
BALANCE SHEETS
Amounts in 000's (except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31,
1999 1998
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 43 $ 356
Restricted cash 504 125
Accounts receivable, less allowance for
doubtful accounts of $1,363 and $171 at
March 31, 1999 and 1998, respectively 8,228 5,937
Inventories 20,208 6,154
Deferred income taxes 556 320
Prepaid expenses and other current assets 421 332
-------- --------
Total current assets 29,960 13,224
Property and equipment, net 11,215 6,990
Due from affiliates -- 18,515
Goodwill and other intangibles, net 64,836 10,522
Other assets 1,343 967
-------- --------
Total assets $107,354 $ 50,218
======== ========
</TABLE>
See accompanying notes to financial statements.
F - 3
<PAGE> 18
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
BALANCE SHEETS
Amounts in 000's (except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31,
1999 1998
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 5,292 $ 3,233
Accrued liabilities 2,794 2,007
Accrued interest 5 1,111
Current portion of long-term debt 331 327
-------- --------
Total current liabilities 8,422 6,678
Long-term debt 2,001 28,774
Deferred income taxes 549 546
Due to affiliates 77,538 --
-------- --------
Total liabilities 88,510 35,998
-------- --------
Shareholder's equity:
Common stock, $.01 par value, 20,000 shares
authorized, 16,000 shares issued and outstanding 160 160
Additional paid-in capital 3,658 3,658
Retained earnings 15,026 10,402
-------- --------
Total shareholder's equity 18,844 14,220
-------- --------
Commitment and contingencies -- --
-------- --------
Total liabilities and shareholder's equity $107,354 $ 50,218
======== ========
</TABLE>
See accompanying notes to financial statements.
F - 4
<PAGE> 19
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
STATEMENTS OF INCOME
Amounts in 000's
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1999 1998 1997
<S> <C> <C> <C>
Net sales $ 66,650 $ 36,305 $ 41,082
Cost of goods sold 42,260 27,015 30,503
-------- -------- --------
Gross profit 24,390 9,290 10,579
Selling, general and administrative expenses 13,180 4,963 6,170
Non-recurring charges -- 672 --
-------- -------- --------
Operating income 11,210 3,655 4,409
Interest expense, net 138 2,388 2,010
-------- -------- --------
Income before income taxes and extraordinary item 11,072 1,267 2,399
Income tax provision 4,429 512 1,022
-------- -------- --------
Income before extraordinary item 6,643 755 1,377
Extraordinary item, net of income taxes (2,019) -- --
-------- -------- --------
Net income $ 4,624 $ 755 $ 1,377
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F - 5
<PAGE> 20
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
STATEMENTS OF CASH FLOWS
Amounts in 000's
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,624 $ 755 $ 1,377
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary item, net of income taxes 2,019 -- --
Depreciation and amortization 3,937 2,101 2,253
Amortization of debt discounts and fees 84 -- --
Loss on disposal of property and equipment -- 98 --
Net changes in current assets and liabilities (8,443) 1,883 (1,612)
Deferred income tax provision (benefit) 522 (233) (71)
Other, net (141) (1,047) --
-------- -------- --------
Net cash provided by operating activities 2,602 3,557 1,947
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Rubbermaid Acquisition (66,038) -- --
Purchase of property and equipment (2,340) (785) (489)
Intercompany loan payable 9,988 -- --
-------- -------- --------
Net cash used in investing activities (58,390) (785) (489)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt -- 18,000 5,814
Repayment of long-term debt (27,538) (5,193) (8,033)
Debt penalties and fees (2,387) (347) (310)
Intercompany payable (receivable) 85,779 (14,879) 1,034
-------- -------- --------
Net cash provided by (used in) financing activities 55,854 (2,419) (1,495)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 66 353 (37)
Cash and cash equivalents at beginning of year 481 128 165
-------- -------- --------
Cash and cash equivalents at end of year $ 547 $ 481 $ 128
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F - 6
<PAGE> 21
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
Amounts in 000's
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL
PAR PAID-IN RETAINED
SHARES VALUE CAPITAL EARNINGS
<S> <C> <C> <C> <C>
Balance at March 31, 1996 16,000 $ 160 $ 2,840 $ 8,270
Net income -- -- -- 1,377
------- ------- ------- -------
Balance at March 31, 1997 16,000 160 2,840 9,647
Capital contribution from Parent -- -- 818 --
Net income -- -- -- 755
------- ------- ------- -------
Balance at March 31, 1998 16,000 160 3,658 10,402
Net income -- -- -- 4,624
------- ------- ------- -------
Balance at March 31, 1999 16,000 $ 160 $ 3,658 $15,026
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F - 7
<PAGE> 22
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Decora, Incorporated (the "Company"), a wholly-owned subsidiary of
Decora Industries, Inc. (the "Parent"), is a leading manufacturer and
marketer of self-adhesive consumer decorative and surface coverings and
other specialty industrial products. The Company's principal products
are sold under the Con-Tact brand name and are primarily manufactured at
its production facility in Fort Edward, New York. The Company considers
its operations to constitute a single business segment.
The accompanying financial statements reflect the "push-down" basis of
accounting in that the original acquisition debt incurred by the Parent
in 1990 and the resulting goodwill have been allocated to the Company.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of cash, accounts receivable, accounts payable and
accrued expenses approximate their carrying values. All financial
instruments are held for purposes other than trading.
The Company's debt bears current market rates of interest and,
therefore, the carrying amount is considered a reasonable approximation
of fair value.
CASH AND CASH EQUIVALENTS
The Company invests surplus cash in highly liquid debt instruments which
have original maturities of less than three months and are considered to
be cash equivalents. Certain debt agreements require the payment of
monthly sinking fund deposits in order to retire the debt. Cash balances
transferred for this purpose are considered restricted and are
separately stated in the accompanying financial statements.
REVENUES AND RECEIVABLES
Sales are recognized when products are shipped. Returns are accounted
for on the accrual basis.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method)
or market.
PROPERTY AND EQUIPMENT
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, generally five to thirty years.
GOODWILL AND OTHER INTANGIBLES
The excess of the aggregate purchase price over the fair value of the
net assets of businesses acquired has been recorded as goodwill and is
being amortized on the straight-line method over forty years. Other
intangibles are amortized over periods ranging from twenty to forty
years.
LONG-LIVED ASSETS
The Company assesses impairment losses to be recorded on long-lived
assets when indications of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amounts. No impairment charges were required for fiscal
1999, 1998 or 1997.
F - 8
<PAGE> 23
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INCOME TAXES
The Company files a consolidated federal tax return with the Parent. The
Parent and the Company have an informal tax sharing agreement which
calls for the Company to record its current and deferred tax exposure as
if it were a separate taxpayer. The provision for income taxes is
provided based on the liability method of accounting pursuant to SFAS
No. 109, Accounting for Income Taxes. Deferred income taxes are recorded
to reflect expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns, but not
both. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement
carrying amounts and tax bases of assets and liabilities using enacted
tax rates in the years in which the differences are expected to reverse.
RESEARCH AND DEVELOPMENT
Research and development costs related to both present and future
products are expensed as incurred and amounted to $271,000, $239,000 and
$216,000 in fiscal 1999, 1998 and 1997, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and revenues, costs and expenses during the reporting period. Actual
results may differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' amounts in
order to conform to the current year presentation.
2. RUBBERMAID DECORATIVE COVERINGS GROUP ACQUISITION
On April 29, 1998, the Company acquired certain assets, which had
constituted Rubbermaid, Inc.'s ("Rubbermaid") Decorative Coverings Group
(the "DCG"), for an initial purchase price (subject to a purchase price
contingency of $2.5 million based upon calendar 1998 DCG sales levels)
of approximately $62.5 million (the "Rubbermaid Acquisition"). Based
upon final 1998 calendar sales of the DCG, the purchase price was
adjusted downward to approximately $60.5 million.
The assets acquired included inventory, manufacturing equipment,
tradenames (including the Con-Tact trademark) and all other rights to
three product lines: (i) the Con-Tact self-adhesive coverings line that
was manufactured exclusively for Rubbermaid by the Company, (ii) Shelf
Liner, a proprietary product line that was manufactured by Rubbermaid,
and (iii) the Grip Liner non-adhesive covering line which is
manufactured by a third party pursuant to the terms of an exclusive
manufacturing agreement.
F - 9
<PAGE> 24
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The acquisition cost for the DCG of approximately $66.0 million (final
purchase price of $60.5 million, adjusted for acquisition related
closing costs of approximately $4.3 million and costs of $2.7 million
related to the relocation/installation of the Shelf Liner equipment
acquired, less amounts related to transition services of $1.5 million
paid to Rubbermaid) was allocated to the assets acquired and liabilities
assumed as follows:
<TABLE>
<S> <C>
Inventory $ 7,000,000
Property and equipment 3,690,000
Intangible assets:
Con-Tact tradename 20,300,000
Customer relationships 27,400,000
Goodwill 8,567,000
Accrued liabilities (919,000)
------------
$ 66,038,000
============
</TABLE>
In order to finance the Rubbermaid Acquisition, the Parent issued senior
secured notes (the "Notes"). A portion of the Note proceeds were
advanced to the Company for the Rubbermaid Acquisition or approximately
$60,800,000 (includes approximately $300,000 of accrued interest) and to
refinance existing Company debt and pay-related fees (approximately
$29,900,000). At the same time the Company entered into a three year,
$15.0 million secured revolving line of credit (the "Credit Facility").
Its availability is based on a factor of the amount of the Company's
accounts receivable and inventory. As of March 31, 1999, the Credit
Facility had not been utilized.
Direct financing transaction costs incurred of approximately $152,000
were deferred and are being amortized, on a straight-line basis, over
the term of the respective financings.
The results for fiscal 1999 were also impacted by a one-time non-cash
charge of approximately $800,000 for the step-up in basis of certain DCG
inventory acquired in the Rubbermaid Acquisition. This charge related
primarily to inventory sold by the Company to Rubbermaid prior to the
Rubbermaid Acquisition. Pursuant to purchase accounting, the
manufacturer's profit related to such inventory must be reflected in the
inventory basis upon the sale of such inventory.
The Rubbermaid Acquisition was an acquisition of product lines for which
separate financial statements were not maintained by Rubbermaid;
therefore, pro forma unaudited operating results reflecting the
Rubbermaid Acquisition had it occurred prior to April 29, 1998 are not
presented.
F - 10
<PAGE> 25
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVENTORIES
Inventories consist of (000's):
<TABLE>
<CAPTION>
MARCH 31,
1999 1998
<S> <C> <C>
Raw materials $ 3,418 $ 3,131
Work-in-process 6,230 1,626
Finished goods 10,560 1,397
------- -------
$20,208 $ 6,154
======= =======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of (000's, except useful life data):
<TABLE>
<CAPTION>
USEFUL MARCH 31,
LIFE 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Land $ 379 $ 379
Buildings 20 - 30 6,932 4,673
Machinery and equipment 10 11,022 9,570
Furniture and fixtures 5 2,440 440
Leasehold improvements 5 617 617
Construction-in-progress 852 568
-------- --------
22,242 16,247
Less: accumulated depreciation (11,027) (9,257)
-------- --------
$ 11,215 $ 6,990
======== ========
</TABLE>
Depreciation expense was $1,806,000, $1,478,000 and $1,652,000 for
fiscal 1999, 1998 and 1997, respectively.
F - 11
<PAGE> 26
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles consist of the following (000's):
<TABLE>
<CAPTION>
MARCH 31,
1999 1998
<S> <C> <C>
Goodwill $ 19,723 $ 11,156
Less: accumulated amortization (2,481) (2,034)
-------- --------
17,242 9,122
-------- --------
Customer relationships 27,400 --
Con-Tact trademark 20,300 --
Cobra trademark 2,000 2,000
Other 230 280
-------- --------
49,930 2,280
Less: accumulated amortization (2,336) (880)
-------- --------
47,594 1,400
-------- --------
$ 64,836 $ 10,522
======== ========
</TABLE>
Goodwill amortization was $446,000, $287,000 and $285,000 for fiscal
1999, 1998 and 1997, respectively. Amortization of other intangibles was
$1,505,000, $117,000 and $133,000 for fiscal 1999, 1998 and 1997,
respectively.
6. EMPLOYEE BENEFIT PLANS
The Company and its union have executed an agreement to provide
retirement benefits to qualified union employees through the Paper
Industry Union - Management Pension Fund (the "Fund"). Based upon this
agreement, the Company contributes a contractually agreed upon amount
for each qualifying hour that a union employee works. Total
contributions to the Fund were $344,000, $302,000, and $334,000 in
fiscal 1999, 1998 and 1997, respectively.
The Company has a profit sharing plan and a 401(k) plan covering its
salaried employees. The Company does not contribute to the 401(k) plan.
The Company contributes to the profit sharing plan based upon Company
performance at the discretion of executive management. Total expense
relative to the profit sharing contributions amounted to $69,000,
$200,000, and $175,000 in fiscal 1999, 1998 and 1997, respectively.
F - 12
<PAGE> 27
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. DEBT
Debt consists of (000's):
<TABLE>
<CAPTION>
MARCH 31,
1999 1998
<S> <C> <C>
Subordinated Loan (a) $ -- $ 18,000 *
Term Loans (b) 122 6,910 *
Lines of Credit (c) -- 2,500 *
Industrial Development Revenue Bonds (d) 2,210 2,460
-------- --------
2,332 29,870
Less: Amounts due within one year (331) (326)
Unamortized debt discount -- (770)
-------- --------
$ 2,001 $ 28,774
======== ========
</TABLE>
* Amounts were paid in full with a portion of the proceeds of the
debt offering completed by the Parent in April 1998 (see Note 2).
The amounts which would have been classified as current portion of
debt at the end of fiscal 1998 have been reclassified to long-term
debt due to the refinancing.
Amounts maturing in fiscal 2000, 2001, 2002, 2003 and 2004 are:
$331,000, $298,000, $250,000, $250,000 and $250,000, respectively.
Substantially all of the Company's assets have been pledged as
collateral. The Company's debt agreements generally prohibit the payment
of dividends.
(a) On September 30, 1997, the Company entered into an $18 million
subordinated loan agreement with a Pension Fund to provide a
portion of the financing for the Parent's acquisition of the stock
of Konrad Hornschuch AG ("Hornschuch"), a German corporation. The
Pension Fund was also granted Series A warrants for the Parent's
stock which are exercisable for the purchase of 1,818,000 shares of
common stock at an exercise price of $5.00 per share.
(b) In September, 1995, the Company borrowed $375,000 from the
Washington County Local Development Corporation. The loan bears
interest at 5.00% and is payable in monthly installments ending
September 1, 2000. It is secured by certain of the Company's
property and equipment. As of March 31, 1999, the outstanding
balance of this loan was $122,000.
At March 31, 1998, the Company also had two term loans with its
primary lender aggregating $6,712,000. The two loans of $3,837,000
and $2,875,000 bore interest at 30-day LIBOR plus 2.00% and were
secured by certain accounts receivable, inventory and property and
equipment; such term loans were repaid in full in April 1998.
F - 13
<PAGE> 28
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(c) On April 28, 1998, the Company entered into a $15.0 million
revolving line of credit which matures in May 2001 and is secured
by various accounts receivable and inventory. The line of credit
replaced two lines of credit which would have matured in August
1998. The amount outstanding under the facility, at the borrower's
election, bears interest at either the lender's prime rate or LIBOR
plus 2.25 basis points. There were no borrowings outstanding under
the line of credit at March 31, 1999 and the full capacity of the
agreement was available.
The Company had a revolving line of credit of up to $6,000,000
which would have matured in August 1998 and was secured by various
accounts receivable, inventory and equipment. The amount
outstanding under the facility bore interest at prime plus 1-1/4%.
On March 27, 1997, the Company established a second line of credit
of up to $1,000,000 which also would have matured in August 1998,
bore interest at prime plus 1.0% and was secured by certain
accounts receivable. Availability under this credit facility was
limited by specified percentages of certain international trade
accounts receivable. At March 31, 1998, the amount outstanding
under these lines of credit of $2,500,000 was repaid in full with
the proceeds of the Notes.
(d) On November 13, 1996, the Company borrowed $2,460,000 through the
issuance of Tax-Exempt Industrial Development Revenue Bonds (Decora
Project), Series 1996 by the Counties of Warren and Washington, New
York Industrial Development Agency. These bonds mature on November
1, 2004, require sinking fund payments of $20,833 per month
beginning November 1997 and bear interest at a floating rate which
is adjusted weekly based on the remarketing agent's ability to
re-market the bonds at par. As of March 31, 1999, the interest rate
on the bonds was 3.05%. The bonds are credit enhanced through a
letter of credit issued by the Company's primary lender and, in
addition to interest on the bonds, the Company pays its primary
lender an annual letter of credit fee equal to 1.50% of the
outstanding balance of the letter of credit.
(e) Effective April 1, 1997, the Company entered into an interest rate
swap agreement with its primary bank lender which expires May 31,
1999. The agreement effectively converted $8,523,000 of its
variable rate borrowings into fixed rate obligations. Under the
terms of the agreement, the Company makes payments at a fixed rate
of 8.58% and receives variable rate payments at LIBOR plus 200
basis points, repriced at the beginning of each month. While the
underlying debt obligations have been repaid, the Company continues
to make payments under the agreement until expiration in May 1999.
The net amount paid or received is included in interest expense.
F - 14
<PAGE> 29
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. INCOME TAXES
Income taxes are summarized as follows (000's):
<TABLE>
<CAPTION>
Year Ended March 31,
1999 1998 1997
<S> <C> <C> <C>
Current provision:
Federal $ 4,631 $ 710 $ 993
State 15 35 100
------- ------- -------
4,646 745 1,093
Deferred provision (benefit) (217) (233) (71)
------- ------- -------
$ 4,429 $ 512 $ 1,022
======= ======= =======
</TABLE>
The income tax benefit resulting from the extraordinary charge in the
fiscal year ended March 31, 1999 was approximately $1,328,000.
Net deferred tax assets (liabilities) are comprised of the following
(000's):
<TABLE>
<CAPTION>
MARCH 31,
1999 1998
<S> <C> <C>
CURRENT DEFERRED TAX ASSETS (LIABILITIES):
Accruals $ 144 $ 156
Non-deductible reserves 412 164
----- -----
$ 556 $ 320
===== =====
</TABLE>
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
NON-CURRENT DEFERRED TAX ASSETS (LIABILITIES):
Depreciation $(395) $(466)
Other, net (329) (288)
Tax credits 175 208
----- -----
$(549) $(546)
===== =====
</TABLE>
The Company had $152,000 in research and development tax credits at
March 31, 1999, which begin to expire in 2005.
F - 15
<PAGE> 30
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax
rate to pre-tax income as a result of the following (000's):
<TABLE>
<CAPTION>
Year Ended March 31,
1999 1998 1997
<S> <C> <C> <C>
Provision at statutory rate $3,875 $ 443 $ 840
Effect of permanent items 152 152 176
Other 402 (83) 6
------ ----- ------
Income tax provision $4,429 $ 512 $1,022
====== ===== ======
</TABLE>
9. NON-RECURRING CHARGES
The Statement of Income for fiscal 1998 reflects certain non-recurring
charges totaling $672,000. Of these charges, $531,000 related to
severance costs for U.S. work force reductions implemented in
anticipation of operating synergies with the Parent's acquisition of
Hornschuch and $141,000 related to print tooling redundancies between
the two operations.
10. EXTRAORDINARY ITEM
In conjunction with the Rubbermaid Acquisition, the Company repaid debt
totalling approximately $27.5 million prior to maturity. As a result,
the Company paid a one-time pre-payment penalty of approximately $2.2
million and wrote off unamortized deferred loan costs and debt discount
totalling approximately $1.1 million. Consequently, an extraordinary
charge of approximately $2.0 million (net of income taxes) was recorded
in fiscal 1999.
11. COMMITMENTS AND CONTINGENCIES
LEASES - The Company uses certain equipment and property under lease
agreements, all of which are accounted for as operating leases. Rent
expense was $161,000, $17,000 and $15,000, respectively. Rental
commitments under long-term noncancellable operating leases are as
follows (000's):
<TABLE>
<S> <C>
Fiscal 2000 $151
Fiscal 2001 98
Fiscal 2002 97
Fiscal 2003 97
Fiscal 2004 40
</TABLE>
F - 16
<PAGE> 31
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS - The Company is involved in various legal
proceedings, the ultimate resolution of which, in the opinion of
management, will not have a materially adverse impact on the financial
condition, results of operations or cash flows of the Company.
GUARANTEE OF PARENT DEBT - The Notes issued in connection with the
Rubbermaid Acquisition (see Note 2) are fully and unconditionally
guaranteed by the Company and are secured by a first-priority lien on
all capital stock of the Company.
MINIMUM PURCHASE AGREEMENT - In conjunction with the Rubbermaid
Acquisition, the Company entered into an exclusive manufacturing
agreement in which the Company is required to purchase at least $6
million of product annually. If the minimum purchase requirement is not
met, the contract can be terminated at the option of the third-party
manufacturer.
CHANGE IN CONTROL AGREEMENTS - The Company has granted to a key
executive a compensation arrangement such that a change in control of
the Company and his subsequent termination would result in a payment of
a multiple of annual compensation.
12. BUSINESS AND CREDIT CONCENTRATIONS
Prior to the Rubbermaid Acquisition (see Note 2), the Company's primary
customer was Rubbermaid which accounted for 84%, and 89% of net sales in
fiscal 1998 and 1997, respectively. Accounts receivable from Rubbermaid
at March 31, 1998 were $4,279,000. During fiscal 1999, the Company had
three customers that represented 26%, 15% and 13% of the Company's net
sales, respectively. The Company has no other unusual credit risks or
concentrations. The Company estimates an allowance for doubtful accounts
based upon the credit worthiness of its customers as well as general
economic conditions. Consequently, an adverse change in these factors
could affect the Company's estimate.
13. RELATED PARTY TRANSACTIONS
During fiscal 1999, 1998 and 1997, the Company paid management fees of
approximately $1,000,000, $800,000 and $800,000, respectively, to the
Parent which are included in selling, general and administrative
expenses on the Statements of Income. These fees relate to various
operating and management services.
Due from affiliate represents the net intercompany transactions between
the Company, the Parent and the Parent's German subsidiary. As more
fully described in Note 2, the Parent advanced the Company approximately
$85,800,000 from the proceeds of the Notes. In addition, Hornschuch
loaned the Company approximately $10,000,000. Of the total amount
advanced to the Company of approximately $95,800,000, approximately
$60,800,000 was paid to Rubbermaid, approximately $29,900,000 was used
to repay outstanding indebtedness and related fees and the balance was
used to pay closing costs associated with the Rubbermaid Acquisition and
for working capital purposes.
F - 17
<PAGE> 32
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
As more fully described in Note 7, the Company had borrowed $18,000,000
from a Pension Fund on October 1, 1997 to assist the Parent in financing
the acquisition of the stock of Hornschuch. The funds were loaned to the
Parent with $15,100,000 being used to acquire shares of Hornschuch and
$2,900,000 of the remaining funds being used to retire certain
indebtedness. The debt was issued with warrants to purchase shares of
the Parent's common stock at an exercise price of $5.00 per share. The
fair value of the warrant as of the date of issuance approximated
$818,000, which was accounted for as debt discount and an increase to
additional paid in capital.
The average balance (due to)/from affiliates was $(69,686,000),
$10,644,000 and $3,577,000 for fiscal 1999, 1998 and 1997, respectively.
The Parent's sources of income are limited to the management fees
received from the Company and the dividends, if any, that it receives
from its foreign subsidiaries.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in current assets and liabilities, exclusive of acquisitions and
dispositions of subsidiaries, were as follows (000's):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1999 1998 1997
<S> <C> <C> <C>
(Increase) decrease in accounts receivable $(3,210) $ 231 $(2,017)
(Increase) decrease in inventory (7,054) (715) 564
(Increase) decrease in other assets (89) (155) 106
Increase (decrease) in accounts payable 2,059 1,250 (159)
Increase (decrease) in accrued interest (1,106) 778 (133)
Increase in accrued liabilities 957 494 27
------- ------- -------
$(8,443) $ 1,883 $(1,612)
======= ======= =======
Supplemental cash flow information is as follows (000's):
Cash paid during the year for interest $ 322 $ 1,551 $ 1,816
======= ======= =======
Cash paid during the year for income taxes $ 90 $ 184 $ 194
======= ======= =======
</TABLE>
During fiscal 1997, 200,000 shares of the Parent's common stock and
notes payable in the amount of $874,000 were issued upon the conversion
of $1,642,000 of warrants to purchase stock in a subsidiary.
F - 18
<PAGE> 33
DECORA, INCORPORATED
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN 000'S)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
--------------------------
ADDITIONS
BALANCE CHARGED BALANCE
AT (CREDITED) ADDITIONS DEDUCTIONS AT
BEGINNING TO COSTS & TO FROM END OF
DESCRIPTION OF PERIOD EXPENSES GOODWILL ACCOUNTS PERIOD
<S> <C> <C> <C> <C> <C>
Reserve deducted from asset
to which it applied:
For the year ended
March 31, 1999
Accounts receivable
Reserves $ 170 $ 486 $ 919 $ 212 $1,363
For the year ended
March 31, 1998
Accounts receivable
Reserves $ 499 $ 146 $ -- $ 475 $ 170
For the year ended
March 31, 1997
Accounts receivable
Reserves $ 202 $ 554 $ -- $ 257 $ 499
(a) Uncollectible receivables written off net of recoveries
For the year ended
March 31, 1999
Inventory reserves $ 92 $ 723 $ 300 $ 518 $ 597
For the year ended
March 31, 1998
Inventory reserves $ 130 $ 74 $ -- $ 112 $ 92
For the year ended
March 31, 1997
Inventory reserves $ -- $ 130 $ -- $ -- $ 130
</TABLE>
F - 19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 547
<SECURITIES> 0
<RECEIVABLES> 9,591
<ALLOWANCES> (1,363)
<INVENTORY> 20,208
<CURRENT-ASSETS> 29,960
<PP&E> 22,242
<DEPRECIATION> (11,027)
<TOTAL-ASSETS> 107,354
<CURRENT-LIABILITIES> 8,422
<BONDS> 2,332
0
0
<COMMON> 160
<OTHER-SE> 18,684
<TOTAL-LIABILITY-AND-EQUITY> 107,354
<SALES> 66,650
<TOTAL-REVENUES> 66,650
<CGS> 42,260
<TOTAL-COSTS> 13,180
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 486
<INTEREST-EXPENSE> 138
<INCOME-PRETAX> 11,072
<INCOME-TAX> 4,429
<INCOME-CONTINUING> 6,643
<DISCONTINUED> 0
<EXTRAORDINARY> (2,019)
<CHANGES> 0
<NET-INCOME> 4,624
<EPS-BASIC> 0.29
<EPS-DILUTED> 0.29
</TABLE>