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 2, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-7753
DECORATOR INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1001433
------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10011 Pines Blvd., Pembroke Pines, Florida 33024
------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954)436-8909
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- -------------------------------------- ----------------------------------------
Common Stock, Par Value $.20 Per Share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value at March 9, 1999 of outstanding shares of Common Stock
other than shares held by officers, directors and their respective associates:
$23,271,616
Number of shares outstanding at March 9, 1999: 3,496,494
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
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:
1998 - 52 weeks ended January 2, 1999
1997 - 53 weeks ended January 3, 1998
1996 - 52 weeks ended December 28, 1996
1995 - 52 weeks ended December 30, 1995
1994 - 52 weeks ended December 31, 1994
1993 - 52 weeks ended January 1, 1994
PART I
------
Item 1. Business.
The Company is engaged in the design, manufacture and sale of window
coverings, bedspreads, furniture and complementary products. These products are
sold to original equipment manufacturers of recreational vehicles and
manufactured housing and to the hospitality industry (motels/hotels) either
through distributors or directly to the customers.
The Company has one industry segment and one class of products. The
business in which the Company is engaged is very competitive, and the Company
competes with manufacturers located throughout the country. However, no reliable
information is available to enable the Company to determine its relative
position among its competitors. The principal methods of competition are price,
design and service.
During 1998, two customers, Fleetwood Enterprises and Champion
Enterprises, accounted for approximately 20% and 14% respectively of the
Company's total sales. In the event of the loss of one or both of these
customers, there would be a material adverse effect on the Company. Fleetwood
operates in the manufactured housing and recreational vehicle industries,
whereas Champion operates solely in manufactured housing. Purchasing decisions
are made at each individual plant of these customers. The Company services many
of these plants and considers each of the plants it services to be an
independent customer.
The Company's backlog of orders at any given time is not material in
amount and is not significant in the business. No material portion of the
Company's sales or income is derived from customers in foreign countries.
The chief raw materials used by the Company are largely fabrics made
from both natural and man-made fibers. The raw materials are obtained primarily
from converters and mills. The Company is not dependent upon one or a very few
suppliers. Most of its suppliers are large firms with whom, in the opinion of
management, the Company enjoys good relationships. The Company has never
experienced any significant shortage in its supply of raw materials.
The Company has no significant patents, licenses, franchises or
concessions. It owns certain trademarks and copyrights. Although the Company
believes the trademarks aid in identifying its products, it is unable to
evaluate the importance of the trademarks to its business. Expenditures for
research and development during 1998 and 1997 were not significant.
Compliance with federal, state and local environmental protection
provisions will have no material effect upon the capital expenditures, earnings
or competitive position of the Company.
The Company employs approximately 700 sales, production, warehouse and
administrative employees and also uses the services of independent sales
representatives.
1
<PAGE>
Item 2. Properties.
The following table summarizes certain information concerning the
Company's properties:
<TABLE>
<CAPTION>
Approx.
Location Principal Use Square Feet Owned/Leased
-------- ------------- ----------- ------------
<S> <C> <C> <C>
Haleyville, Alabama Offices, manufacturing and warehouse 54,000 Owned
Lakeland, Florida Offices, manufacturing and warehouse 7,500 Leased
Pembroke Pines, Florida Offices 3,148 Leased
Eatonton, Georgia Offices, manufacturing and warehouse 5,000 Leased
Elkhart, Indiana Offices, manufacturing and warehouse 16,000 Leased
Elkhart, Indiana Offices, manufacturing and warehouse 35,000 Leased
Goshen, Indiana Offices, manufacturing and warehouse 55,700 Owned
Bossier, Louisiana Offices, manufacturing and warehouse 20,000 Owned
Salisbury, North Carolina Offices, manufacturing and warehouse 22,500 Leased
Berwick, Pennsylvania Warehouse 5,000 Leased
Bloomsburg, Pennsylvania Offices, manufacturing and warehouse 56,500 Owned
Memphis, Tennessee Offices, manufacturing and warehouse 14,000 Leased
Abbotsford, Wisconsin Offices, manufacturing and warehouse 21,600 Leased
</TABLE>
The Company considers that its offices, plants, machinery and equipment
are well maintained, adequately insured and suitable for their purposes and that
its plants are adequate for the presently anticipated needs of the business.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock is listed and traded on the American Stock
Exchange, AMEX symbol DII.
Common Stock price information is set forth in the table below. Sales
prices have been adjusted for stock splits.
<TABLE>
<CAPTION>
1998 Sales Prices 1997 Sales Prices
----------------- -----------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter 8-7/8 7-3/16 7-7/8 6-13/16
Second Quarter 11-3/16 8-1/8 7-11/16 7-1/8
Third Quarter 11-3/4 7-3/8 8-13/16 7-1/8
Fourth Quarter 8-5/8 6-3/4 8-1/8 7-1/8
</TABLE>
As of March 9, 1999, the Company had 407 shareholders of record of its
Common Stock.
Total cash dividend payments were $.28 per share in 1998 and 1997.
2
<PAGE>
<TABLE>
<CAPTION>
DECORATOR INDUSTRIES, INC.
Item 6. Selected Financial Data
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
FOR THE YEAR
- ------------
Net Sales $ 51,966,829 $ 43,395,923 $ 38,649,687
Income from Continuing Operations $ 3,080,895 $ 3,035,257 $ 3,065,220
Net Income $ 3,080,895 $ 2,898,339 $ 3,065,220
---------------------------------------------------------
AT YEAR-END
- -----------
Total Assets $ 21,462,694 $ 20,301,268 $ 18,394,357
Long-term Obligations $ 463,037 $ 506,169 $ 549,433
Long-term Debt/Total Capitalization 3.45% 3.71% 4.03%
Working Capital $ 8,244,161 $ 8,406,250 $ 9,003,836
Working Capital Ratio 2.59:1 2.61:1 2.94:1
Stockholders' Equity $ 15,559,732 $ 14,347,297 $ 13,010,945
---------------------------------------------------------
PER SHARE
- ---------
Continuing Operations $0.85 $0.82 $0.84
Basic $0.85 $0.78 $0.84
Diluted $0.79 $0.73 $0.78
Book Value $4.37 $3.94 $3.52
Cash Dividends Declared $0.28 $0.28 $0.28
1995 1994 1993
---- ---- ----
FOR THE YEAR
- ------------
Net Sales $ 34,207,259 $ 33,246,590 $ 28,964,223
Income from Continuing Operations $ 2,414,678 $ 2,823,770 $ 2,370,232
Net Income $ 2,414,678 $ 2,823,770 $ 2,370,232
---------------------------------------------------------
AT YEAR-END
- -----------
Total Assets $ 16,415,659 $ 16,406,670 $ 13,188,452
Long-term Obligations $ 587,084 $ 629,450 $ 431,260
Long-term Debt/Total Capitalization 5.14% 5.30% 4.70%
Working Capital $ 6,925,352 $ 7,479,176 $ 5,322,279
Working Capital Ratio 2.54:1 2.75:1 2.39:1
Stockholders' Equity $ 11,147,754 $ 11,322,046 $ 8,741,511
---------------------------------------------------------
PER SHARE
- ---------
Continuing Operations $0.60 $0.69 $0.60
Basic $0.60 $0.69 $0.60
Diluted $0.55 $0.62 $0.53
Book Value $2.99 $2.71 $2.20
Cash Dividends Declared $0.27 $0.23 $0.15
</TABLE>
Note: Per share amounts, except for cash dividends, have been adjusted for
five-for-four stock splits effective July 21, 1998 and June 13, 1997, a
four-for-three stock split in June 1996 and a two-for-one stock split
in April 1993.
3
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Financial Resources:
The Company's financial condition continues to be strong, as evidenced
by the following statistical measures:
1) Working capital at January 2, 1999 was $8,244,161 compared to
$8,406,250 at January 3, 1998.
2) The current ratio was 2.59:1 at year-end 1998 compared to 2.61:1 at
year-end 1997.
3) The liquid ratio changed from 1.73:1 at year-end 1997 to 1.49:1 at
year-end 1998.
4) The long-term debt ratio continued to be minimal, at 3.45% January 2,
1999 compared to 3.71% a year earlier.
A significant use of working capital was made for purchases of Common
Stock to be held for the treasury ($1,044,240).
Accounts receivable increased $203,932 (6%) and inventories increased
$1,146,845 (25%). The percentage increase in inventories was somewhat higher
than the 20% increase in net sales.
Capital expenditures for 1998 were $1,166,032 which included
approximately $494,000 for land and facility additions. In February 1999, the
construction of a new building in Goshen, Indiana was completed at a cost of
approximately $1,240,000. This building replaced a leased facility. During 1999,
the Company was awarded an industrial revenue bond in the amount of $1,500,000,
the net proceeds of which will be used for the funding of this building and the
purchase of equipment at this location.
Management does not foresee any events which will adversely affect its
liquidity during 1999, and, further, the Company's financial condition is more
than adequate to finance internal growth and any additional acquisitions of
businesses.
Year 2000 Issues
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failure or
miscalculations causing disruptions in operations, including, among other
things, a temporary inability to process transactions, generate invoices, or
engage in similar normal business activities.
Based on management's assessment, the Company determined that it would
be required to modify or replace portions of its software and hardware so that
its computer systems will properly recognize dates beyond December 31, 1999. The
majority of the Company's manufacturing processes are not dependent on
computers. The Company presently believes that with modification or replacement
of software and hardware, the Year 2000 issue can be mitigated. If such
modifications and replacements are not made, or are not completed timely, the
Year 2000 issue would not have a material adverse effect on the Company. The
Company has created no formal contingency plans in the event that the Year 2000
readiness is not completed on schedule. However, the Company believes that this
would cause only minor problems and delays.
4
<PAGE>
The Company plans to complete the Year 2000 project during the third
quarter of fiscal 1999. The total cost incurred to date related to the Year 2000
project, which have been charged to expense, have not been material, and the
Company does not anticipate that the expected remaining costs will be material.
The Company has initiated formal communications with all of its
significant suppliers and large customers to determine the extent to which the
Company is vulnerable to those third parties' failure to remedy their own Year
2000 issues. Failure on the part of these entities to timely remediate their
Year 2000 issues could result in disruptions in the Company's supply of
materials, disruptions in its customers' ability to conduct business and
interruptions to the Company's daily operations. Management believes that its
exposure to third party risk is minimal because it does not rely significantly
on any one supplier or customer. There can be no guarantee, however, that the
systems of other unrelated entities on which the Company's systems and
operations rely will be corrected on a timely basis and will not have a material
adverse effect on the Company.
Results of Operations:
The following table shows the percentage relationship to net sales of
certain items in the Company's Statement of Earnings:
1998 1997 1996
---- ---- ----
Net sales............................... 100.0% 100.0% 100.0%
Cost of products sold................... 78.0 75.4 74.1
Selling and administrative expenses..... 13.1 14.5 14.5
Interest and investment income.......... (.4) (.8) (.8)
Interest expense........................ - .1 .1
Income from continuing operations....... 5.9 7.0 7.9
Net income.............................. 5.9 6.7 7.9
1998 vs. 1997
Net sales for the year 1998 were $51,966,829, an increase of 20% compared to the
1997 sales of $43,395,923. The increase in sales dollars came from both the
businesses acquired in 1997 (46% of the increase) and the older businesses (54%
of the increase). Most of the increased sales were to recreational vehicle
manufacturers.
Cost of goods sold as a percentage of sales increased to 78.0% in 1998 from
75.4% in 1997. This increase is largely attributable to (1) a change in the
product mix including the increased sales to recreational vehicle manufacturers
and (2) productivity issues resulting in excessive labor costs and (3) market
conditions which have resulted in a lowering of operating margins.
Selling and administrative expenses as a percentage of sales decreased
significantly in 1998 to 13.1% from 14.5% in 1997. This decrease is a result of
fixed costs being spread over increased sales.
Interest and investment income decreased by $150,000 in 1998 because investable
balances were lower in 1998 than in 1997 and the market downturn caused the
Company to recognize a market loss of $32,000 in 1998 versus a market gain of
$71,000 in 1997.
The provision for income taxes as a percentage of pre-tax income increased
slightly to 35.8% compared to 35.1% in 1997.
5
<PAGE>
1997 vs. 1996
For the fiscal year 1997, net sales were $43,395,923 compared with
$38,649,687 in fiscal 1996. This represents an increase of 12% and was
attributable to the acquisitions made in 1997. Net sales to the manufactured
housing market were $18,732,000 in 1997 compared with $21,533,000 in 1996. This
decrease was largely due to the reduction in the number of manufactured homes
produced by the original equipment manufacturers. Net sales to the recreational
vehicle market were $15,306,000 in 1997 compared with $8,696,000 the prior year.
This increase results from the acquisitions made in 1997 and from the continued
growth of the existing businesses. Net sales to the hospitality market were
$9,375,000 in 1997 compared to $8,417,000 in 1996. This increase was due largely
to the acquisitions made in 1997.
Cost of products sold as a percentage of sales increased to 75.4% in
1997 as compared to 74.1% in 1996. The increase was attributable to the higher
cost of products sold for acquired businesses, higher expenses associated with
the growth of existing businesses and market conditions which have resulted in a
lowering of operating margins.
Selling and administrative expenses were $6,303,975 (14.5% of sales) in
1997 versus $5,611,222 (14.5% of sales) in 1996. This increase was from selling
and administrative expenses of the acquired businesses.
For the fiscal year 1997, income from continuing operations was
$3,035,257, almost equal to the record earnings of $3,065,220 reported in the
prior year. The decline in net income ($166,881) was primarily due to the
decision to discontinue the manufacturing and sale of products for the retail
market, which resulted in a net loss of $136,918 for discontinued operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The financial statements and reports of independent certified public
accountants listed in Item 14(a) of this report are filed under this Item 8.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
6
<PAGE>
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
Information concerning the directors and executive officers of the
Company is set forth below.
William A. Bassett, age 62, has been President and a director of the
Company since 1980, Chief Executive Officer since February 1993 and Chairman of
the Board since January 1994.
Michael S. Baxley, age 42, has been Executive Vice President of the
Company since January 1999. He was employed as Executive Vice President for the
Apparel Group of Scovill Fasteners, Inc., a manufacturer of apparel and
industrial fasteners, from February 1997 to July 1998. Previously he was in
various management positions with ACD Tridon, a subsidiary of Devtek (Automotive
products), Johnston & Murphy, a division of Genesco (Footwear), Fruit of the
Loom (Apparel), Procter & Gamble (Consumer Products) and the U.S. Navy.
Michael K. Solomon, age 49, has been Vice President of the Company
since November 1994, Treasurer and Chief Financial Officer of the Company since
1985 and a director of the Company since 1987.
William A. Johnson, age 39, was appointed an officer of the Company on
June 12, 1998. He has been Controller since January 6, 1997. From 1993 until
1996, he held various financial positions with Security Management Corporation.
Previously he served as Treasurer of National Family Services Association from
1991 to 1992.
Jerome B. Lieber, age 78, has been Secretary and a director of the
Company since 1961. He is Senior Counsel to the law firm of Klett Lieber Rooney
& Schorling, a Professional Corporation, Pittsburgh, Pennsylvania, which serves
as general counsel to the Company. Mr. Lieber previously had been a senior
partner in that firm.
Joseph N. Ellis, age 70, has been a director of the Company since 1993.
He founded LaSalle-Deitch Co., Inc. a distributor of products for the
manufactured housing and recreational vehicle industry, in 1963 and served as
its President, Chief Executive Officer and Chairman from 1971 until his
retirement in 1992. Mr. Ellis is currently a management consultant.
William H. Allen, Jr., age 63, has been a director of the Company since
1995. He has been Vice Chairman of the Board of NationsBank N.A. (South) since
1996 and previously served as Chairman of the Board and Chief Executive Officer
of Intercontinental Bank. Mr. Allen is also a director of American Bankers
Insurance Group and Winsloew Furniture, Inc.
Ellen Downey, age 46, has been a director of the Company since 1997.
She was employed by Ryder System, Inc. in various financial positions from 1978
to 1991 and from 1991 to 1993 served as Vice President and Treasurer of that
company.
Thomas L. Dusthimer, age 64, has been a director of the Company since
1997. Since 1992 he has served as a consultant to and director of Key Bank
(Elkhart, Indiana District). From 1973 until his retirement in 1992, Mr.
Dusthimer served in various executive positions, including President, Chief
Executive Officer and Chairman, with Ameritrust Indiana Corporation and
Ameritrust National Bank.
7
<PAGE>
Item 11. Executive Compensation.
The following table shows the compensation of the named executive
officers of the Company for each of the last three fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------- ------
Name and Fiscal Optioned All Other Com-
Principal Position Year Salary($)(1) Bonus($) Other($)(2) Shares(#) pensation($)(3)
- ------------------ ---- ------------ -------- ----------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
William A. Bassett(4) 1998 262,000 127,000 89,977 31,250 36,745
Chairman of the Board, 1997 249,712 123,000 87,723 -- 34,745
President and Chief Executive 1996 236,156 156,000 * 52,083(5) 34,745
Officer
Michael K. Solomon 1998 114,650 24,000 * 12,500 447
Vice President, Treasurer and 1997 112,370 25,550 * -- --
Chief Financial Officer 1996 107,000 28,940 27,106 20,832(5) --
</TABLE>
- ------------------------
(1) The fiscal year 1997 was a 53-week fiscal period.
(2) Medical/dental reimbursement plan payments, country club memberships,
personal use of Company vehicles, and payments made in accordance with
Company policy for disqualifying sales of Common Stock acquired upon
the exercise of a qualified stock option. For 1998 and 1997, payments
to Mr. Bassett for such sales were $86,106 and $84,289, respectively.
These payments provided net benefits to the company of $16,359 for 1998
and $16,383 for 1997. For 1996, payment to Mr. Solomon for such sales
was $18,059, which provided a net benefit to the Company of $11,919. An
asterisk indicates that the total of other annual compensation for that
year was less than 10% of salary and bonus for that year.
(3) Premiums paid by the Company on life and long-term disability insurance
policies and Company contributions to the 401(k) Retirement Savings
Plan.
(4) The Company has an employment agreement with Mr. Bassett which provides
for an annual salary of not less than $214,200. The agreement expires
July 1, 2004.
(5) As adjusted for the four-for-three stock split in June 1996 and
five-for-four stock splits in June 1997 and July 1998.
The Company's medical and dental reimbursement plan provides
reimbursement to the corporate and certain divisional officers of the Company
and their dependents (as defined in Section 152 of the Internal Revenue Code)
for their medical and dental expenses. Benefits under the plan are limited to
10% of the participant's compensation during the plan year. The plan also
prohibits any participant from receiving "double reimbursement"; i.e., if a
participant receives reimbursement from another source, he or she must remit to
the Company benefits received under the plan.
On September 1, 1998 the Company began a 401(k) Retirement Savings Plan
available to all eligible employees. To be eligible for the plan, the employee
must be at least 21 years of age and have completed one year of employment.
Eligible employees may contribute up to 15% of their earnings with a maximum of
$10,000 for 1998 based on the Internal Revenue Service annual contribution
limit. The Company will match 25% of the first 4% of the employee's
contributions up to 1% of the employee's earnings. Contributions are invested at
the direction of the employee in one or more funds. Company contributions begin
to vest after three years.
8
<PAGE>
The Company's 1984 Incentive Stock Option Plan, which expired February
22, 1994, authorized the granting to key employees of options to purchase up to
804,976 shares (as adjusted for stock splits) of the Company's Common Stock. The
purchase price of optioned shares was the fair market value of the Common Stock
on the date of grant, and the maximum term of the options is ten years; in the
case of options granted to employees who owned more than 10% of the outstanding
Common Stock, however, the purchase price was 110% of the fair market value of
the Common Stock on the date of grant and the term of the options is five years.
The number of optioned shares and the purchase price per share are subject to
adjustment for stock splits, stock dividends, reclassifications and the like.
On April 3, 1995 the board of directors adopted, and on June 5, 1995
the stockholders approved, the Company's 1995 Incentive Stock Option Plan (the
"1995 Plan") which has a term of ten years. The 1995 Plan authorizes the
issuance of up to 520,830 shares (as adjusted for stock splits) of Common Stock
pursuant to stock options granted to key employees of the Company. The purchase
price of optioned shares must be the fair market value of the Common Stock on
the date of grant, and the maximum term of the options is ten years; in the case
of options granted to employees who own more that 10% of the outstanding Common
Stock, however, the purchase price must be 110% of the fair market value of the
Common Stock on the date of grant and the term of the option cannot exceed five
years. The number of shares that may be issued under the 1995 Plan, the number
of optioned shares and the purchase price per share are subject to adjustment
for stock splits, stock dividends, reclassifications and the like.
The following table sets forth information concerning the exercise of
stock options during fiscal 1998 by the named executive officers and the value
of their unexercised, in-the-money stock options at the end of that fiscal year
(January 2, 1999). All options outstanding at January 2, 1999, except for those
granted after fiscal 1995, were exercisable at any time prior to their
respective expiration dates.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Shares Optioned Value of
Acquired Value Shares at Options at
Name on Exercise Realized ($) 01/02/99 (#) 01/02/99($)(1)
- ---- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
William A. Bassett 25,000 198,245 147,913(3) 765,481
35,416(4) 32,029
Michael K. Solomon 10,000(2) 70,300 50,828(3) 241,364
14,166(4) 12,812
</TABLE>
- --------------------------
(1) Assumes a market value of $7.875 per share, which was the last reported
sale price on the American Stock Exchange on December 31, 1998.
(2) As adjusted for the five-for-four stock split in July 1998.
(3) Exercisable.
(4) Unexercisable.
Compensation of Directors
Directors who are not employees of the Company are paid a fee of
$10,000 per year for their services as directors. The fee is paid quarterly in
shares of the Company's Common Stock valued at their closing price on the
American Stock Exchange on the third business day following the release of sales
and earnings for the preceding fiscal year. Under the Company's Stock Plan for
Non-Employee Directors, such directors may elect to defer receipt of their
shares, until after they leave the Board, by having them delivered to the Trust
established under the Plan.
9
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information concerning the common stockholding at March 9, 1999 of the
directors and named executive officers of the Company, and the directors and
executive officers as a group, is set forth in the following table. Unless
otherwise indicated, each stockholder has sole voting and investment power with
respect to the shares listed.
<TABLE>
<CAPTION>
Name or Group Shares Beneficially Owned Percent of Class (1)
- ------------- ------------------------- --------------------
<S> <C> <C>
William A. Bassett 357,071(2) 9.81%
Michael K. Solomon 96,267(3) 2.72%
Jerome B. Lieber 13,705(4)(5) --
Joseph N. Ellis 2,500(5) --
William H. Allen, Jr. 5,000(5) --
Ellen Downey 1,562(5) --
Thomas L. Dusthimer 1,250(5) --
All directors and executive officers
as a group 477,356(6) 12.95%
</TABLE>
- ----------------------------
(1) Shares which the named stockholder has the right to acquire within 60
days are deemed outstanding for the purpose of computing that
stockholder's percentage.
(2) Includes 147,913 optioned shares which may be acquired within 60 days
and 11,216 shares held as Trustee of the trust established under the
Company's Stock Plan for Non-Employee Directors (the "Trust"). Mr.
Bassett disclaims beneficial ownership of the shares he holds as
Trustee.
(3) Includes 42,828 optioned shares, which may be acquired within 60 days.
(4) Includes 5,040 shares held in a charitable trust as to which Mr. Lieber
disclaims beneficial ownership.
(5) Excludes shares held in the Trust for his or her account.
(6) Includes 190,740 optioned shares, which may be acquired within 60 days.
FMR Corp. of Boston, Massachusetts, has furnished the Company a copy of
its Schedule 13G dated February 1, 1999 in which it reported that as of December
31, 1998 Fidelity Management & Research Company, a wholly-owned subsidiary of
FMR Corp. and a registered investment adviser, had sole investment power with
respect to 377,915 shares (10.81%) of the Company's Common Stock.
First Manhattan Co. of New York, New York has furnished the Company a
copy of its Schedule 13G dated February 11, 1999 in which it reported beneficial
ownership of a total of 252,570 shares (7.22%) of the Company's Common Stock
including sole power to vote and dispose of 7,812 shares, shared power to vote
237,462 shares and shared power to dispose of 244,758 shares. First Manhattan is
a registered broker-dealer and investment adviser.
Heartland Advisors, Inc. of Milwaukee, Wisconsin, a registered
investment adviser, has furnished the Company a copy of its Schedule 13G dated
January 13, 1999 in which it reported that it had sole dispositive power with
respect to 312,500 shares (8.94%) of the Company's Common Stock.
Item 13. Certain Relationships and Related Transactions.
In November 1998, the Company bought 25,000 shares of the Company's
Common Stock from the President, William A. Bassett, for $212,500 to aid Mr.
Bassett in the payment of taxes resulting from the exercise of stock options.
10
<PAGE>
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
-----------------------------------------------------------
Financial Statements and Schedules
----------------------------------
(1) Independent Auditors' Report
(2) Balance Sheets - January 2, 1999 and January 3,1998
(3) Statements of Earnings for the three fiscal years ended January 2,
1999
(4) Statements of Stockholders' Equity for the three fiscal years ended
January 2, 1999
(5) Statements of Cash Flows for the three fiscal years ended January
2, 1999
(6) Notes to the Financial Statements
(7) Report of Independent Auditors' Report on Financial Statement
Schedule
Schedule VIII - Valuation and Qualifying Accounts
All other schedules are omitted because they are not required or are
inapplicable or the information is included in the financial statements
or notes thereto.
Exhibits
--------
3A Articles of Incorporation as amended to date, filed as Exhibit
3A to Form 10-K for the fiscal year ended December 28, 1985
and incorporated herein by reference.
3B.1 By-laws as amended to date, filed as Exhibit 3B.1 to Form 10-Q
for the Quarter ended July 2, 1988 and incorporated herein by
reference.
10E Lease dated February 9, 1984 between registrant, as lessee,
and Leon and Eleanor Bradshaw covering property at 500 North
Long Street, Salisbury, North Carolina, filed as Exhibit
10(b)(4)(iv) to Registration Statement No. 2-92853 and
incorporated herein by reference.
10H Lease Agreement dated December 13, 1983 covering property at
101 West Linden Street, Abbotsford, Wisconsin, and assignment
thereof to the registrant, as lessee, dated October 2, 1985,
filed as Exhibit 10H to Form 10-K for the fiscal year ended
December 28, 1985 and incorporated herein by reference.
10H.1 Lease Modification Agreement dated May 20, 1988 regarding
Exhibit 10H, filed as Exhibit 10H.1 to Form 10-K for the
fiscal year ended December 31, 1988 and incorporated herein by
reference.
11
<PAGE>
10H.2 Lease Modification Agreement dated September 30, 1996
regarding Exhibit 10H, filed as Exhibit 10H.2 to Form 10-K for
the fiscal year ended December 28, 1996 and incorporated
herein by reference.
10K.1 1984 Incentive Stock Option Plan, as amended to date, filed as
Exhibit 10K.1 to Form 10-Q for the quarter ended October 3,
1987 and incorporated herein by reference.*
10M.1 Medical and Dental Reimbursement Plan, as amended to date,
filed as Exhibit 10M.1 to Form 10-K for the fiscal year ended
January 3, 1987 and incorporated herein by reference.*
10T Employment Agreement dated August 2, 1994 between the
registrant and William Bassett, filed as Exhibit 10T to Form
10-Q for the quarter ended July 2, 1994 and incorporated
herein by reference.*
10U 1995 Incentive Stock Option Plan, filed as Exhibit 10U to Form
10-K for the fiscal year ended December 30, 1995 and
incorporated herein by reference.*
10V Purchase and Sale Agreement dated March 14, 1997 between the
registrant and Specialty Window Coverings Corp. filed as
Exhibit 10V to Form 10-K for the fiscal year ended December
28, 1996, and incorporated herein by reference.
10W Stock Plan for Non-employee Directors and related Grantor
Trust Agreement, filed as Exhibit 10W to Form 10-Q for the
quarter ended June 28, 1997 and incorporated herein by
reference.*
11N Computation of diluted income per share, filed herewith.
24F Consent of Independent Auditors, filed herewith.
27H Financial Data Schedule, filed herewith.
-----------------------
*Management contract or compensatory plan.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the last quarter of 1998.
12
<PAGE>
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 24, 1999
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.
<TABLE>
<CAPTION>
Name Title Signature Date
- ---- ----- --------- ----
<S> <C> <C> <C>
William A. Bassett Chairman, President, /s/ William A. Bassett March 24, 1999
Chief Executive Officer and ---------------------------
Director
Michael K. Solomon Vice President, Treasurer, /s/ Michael K. Solomon March 24, 1999
Principal Financial and ---------------------------
Accounting Officer,
And Director
Jerome B. Lieber Director /s/ Jerome B. Lieber March 24, 1999
---------------------------
Joseph N. Ellis Director /s/ Joseph N. Ellis March 24, 1999
---------------------------
William H. Allen, Jr. Director /s/ William H. Allen, Jr. March 24, 1999
---------------------------
Ellen Downey Director /s/ Ellen Downey March 24, 1999
---------------------------
Thomas Dusthimer Director /s/ Thomas Dusthimer March 24, 1999
---------------------------
</TABLE>
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors
and Stockholders of
Decorator Industries, Inc.
We have audited the accompanying balance sheets of Decorator
Industries, Inc. as of January 2, 1999 and January 3, 1998 and the related
statements of earnings, stockholders' equity and cash flows for each of the
three fiscal years in the period ended January 2, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Decorator
Industries, Inc. as of January 2, 1999 and January 3, 1998, and the results of
its operations and its cash flows for each of the three fiscal years in the
period ended January 2, 1999 in conformity with generally accepted accounting
principles.
LOUIS PLUNG & COMPANY, LLP
Certified Public Accountants
Pittsburgh, Pennsylvania
February 20, 1999 (March 24, 1999 as to Note 7)
F-1
<PAGE>
DECORATOR INDUSTRIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
Fiscal Year End
ASSETS 1998 1997
------ ---- ----
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 2,633,999 $ 3,157,861
Short-term Investments 861,032 2,006,882
Accounts Receivable, less allowance for
doubtful accounts ($111,706 and $218,018) 3,847,435 3,643,503
Inventories 5,725,226 4,578,381
Other Current Assets 349,394 256,425
----------- -----------
Total Current Assets 13,417,086 13,643,052
----------- -----------
Property and Equipment:
Land, Buildings & Improvements 2,676,183 2,182,228
Machinery, Equipment, Furniture and Fixtures 4,124,579 3,500,122
----------- -----------
Total Property and Equipment 6,800,762 5,682,350
Less: Accumulated Depreciation and Amortization 2,635,683 2,208,956
----------- -----------
Net Property and Equipment 4,165,079 3,473,394
----------- -----------
Goodwill, less accumulated
Amortization of $1,070,336 and $963,466 3,288,582 3,010,422
Other Assets 591,947 174,400
----------- -----------
Total Assets $21,462,694 $20,301,268
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current Liabilities:
Accounts Payable $ 2,869,889 $ 3,114,661
Current Maturities of Long-term Debt 43,133 42,423
Accrued Expenses:
Compensation 1,373,572 1,323,276
Other 886,331 756,442
----------- -----------
Total Current Liabilities 5,172,925 5,236,802
----------- -----------
Long-Term Debt 463,037 506,169
Deferred Income Taxes 267,000 211,000
----------- -----------
Total Liabilities 5,902,962 5,953,971
----------- -----------
Stockholders' Equity
Common stock $.20 par value: Authorized shares, 10,000,000;
Issued shares, 4,373,916 and 3,463,840 874,784 692,794
Paid-in Capital 1,396,137 1,513,280
Retained Earnings 16,756,377 14,588,269
----------- -----------
19,027,298 16,794,343
Less: Treasury stock, at cost: 812,500 and 554,100 shares 3,467,566 2,447,046
----------- -----------
Total Stockholders' Equity 15,559,732 14,347,297
----------- -----------
Total Liabilities and Stockholders' Equity $21,462,694 $20,301,268
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-2
<PAGE>
DECORATOR INDUSTRIES, INC.
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
For the Fiscal Year
-------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Sales $51,966,829 $43,395,923 $38,649,687
Cost of Products Sold 40,546,325 32,736,117 28,626,094
----------- ----------- -----------
Gross Profit 11,420,504 10,659,806 10,023,593
Selling and Administrative Expenses 6,806,968 6,303,975 5,611,222
----------- ----------- -----------
Operating Income 4,613,536 4,355,831 4,412,371
Other Income (Expense):
Interest and Investment Income 194,456 344,559 305,370
Interest Expense (9,097) (24,133) (38,521)
----------- ----------- -----------
Earnings Before Income Taxes 4,798,895 4,676,257 4,679,220
Provision for Income Taxes 1,718,000 1,641,000 1,614,000
----------- ----------- -----------
Income from Continuing Operations 3,080,895 3,035,257 3,065,220
Loss on Discontinued Operations, less
applicable income tax of $83,000 -- (136,918) --
----------- ----------- -----------
Net Income $3,080,895 $2,898,339 $3,065,220
=========== =========== ===========
Earnings Per Share:
Continuing Operations $0.85 $0.82 * $0.84 *
===== ===== =====
Basic $0.85 $0.78 * $0.84 *
===== ===== =====
Diluted $0.79 $0.73 * $0.78 *
===== ===== =====
Average Number of Shares Outstanding:
Basic 3,631,457 3,714,838 * 3,646,830 *
Diluted 3,880,619 3,968,380 * 3,924,390 *
</TABLE>
* Restated to reflect the five-for-four stock splits effective July 21, 1998
and June 13, 1997 and the four-for-three stock split effective June 17, 1996.
The accompanying notes are an integral part of the
financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
DECORATOR INDUSTRIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
----- ------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
Balance at
December 30, 1995 $528,973 $1,692,185 $12,228,865 $(3,302,269) $11,147,754
Transactions for 1996
Net profit 3,065,220 3,065,220
Issuance of stock for
exercise of options 16,122 148,890 165,012
Stock option tax
benefit 18,000 18,000
Purchase of common
stock for treasury (769,829) (769,829)
Dividends paid (613,922) (613,922)
Record stock split (312,923) (2,201,539) 2,513,172 (1,290)
--------------- ---------------- ----------------- ------------------ -----------------
Balance at
December 28, 1996 $545,095 $1,546,152 $12,478,624 $(1,558,926) $13,010,945
Transactions for 1997
Net profit 2,898,339 2,898,339
Issuance of stock for
exercise of options 9,273 61,356 70,629
Issuance of stock for
directors compensation 19,330 15,539 34,869
Stock option tax
benefit 26,000 26,000
Purchase of common
stock for treasury (903,659) (903,659)
Dividends paid (788,694) (788,694)
Record stock split 138,426 (139,558) (1,132)
--------------- ---------------- ----------------- ----------------- -----------------
Balance at
January 3, 1998 $692,794 $1,513,280 $14,588,269 $(2,447,046) $14,347,297
Transactions for 1998
Net profit 3,080,895 3,080,895
Issuance of stock for
exercise of options 7,138 14,731 21,869
Issuance of stock for
directors compensation 28,377 23,720 52,097
Stock option tax
benefit 16,350 16,350
Purchase of common
stock for treasury (1,044,240) (1,044,240)
Dividends paid (912,787) (912,787)
Record stock split 174,852 (176,601) (1,749)
--------------- ---------------- ----------------- ----------------- -----------------
Balance at
January 2, 1999 $874,784 $1,396,137 $16,756,377 $(3,467,566) $15,559,732
=============== ================ ================= ================= =================
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
DECORATOR INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
For the Fiscal Year
-------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $3,080,895 $2,898,339 $3,065,220
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 569,681 517,258 412,172
Provision for Losses on Accounts Receivable 68,471 (4,000) 40,000
Deferred Taxes 41,000 72,000 43,000
(Gain) Loss on Disposal of Assets (5,206) 6,849 (264)
Increase (Decrease) from Changes in:
Accounts Receivable (272,403) 25,210 (236,533)
Inventory (1,146,845) (951,927) (77,621)
Prepaid Expenses (137,969) 20,844 9,104
Other Assets (417,547) (33,808) 153,981
Accounts Payable (244,772) 490,109 (126,777)
Accrued Expenses 180,185 106,977 259,280
----------------- ---------------- ---------------
Net Cash Provided by Operating Activities 1,715,490 3,147,851 3,541,562
----------------- ---------------- ---------------
Cash Flows From Investing Activities:
Capital Expenditures (1,166,032) (537,555) (418,557)
Proceeds from Property Dispositions 16,742 125,827 5,609
Short-term Investments 1,145,850 532,731 (2,525,006)
Note Receivable 60,000 80,000 80,000
Net Cash Paid for Acquisitions -- (3,300,096) --
Deferred Purchase Price Payments (385,030) -- --
----------------- ---------------- ---------------
Net Cash Used in Investing Activities (328,470) (3,099,093) (2,857,954)
----------------- ---------------- ---------------
Cash Flows From Financing Activities:
Long-term Debt Payments (42,422) (43,264) (36,997)
Dividend Payments (912,787) (788,694) (613,922)
Proceeds from Exercise of Stock Options 21,869 70,627 165,012
Cash in Lieu of Fractional Shares (1,749) (1,132) (1,288)
Issuance of Stock for Director's Compensation 52,097 34,869 --
Stock Option Tax Benefit 16,350 26,000 18,000
Purchase of Common Stock for Treasury (1,044,240) (903,659) (769,829)
----------------- ---------------- ---------------
Net Cash Used in Financing Activities (1,910,882) (1,605,253) (1,239,024)
Net Increase (Decrease) in Cash and Cash Equivalents (523,862) (1,556,495) (555,416)
Cash and Cash Equivalents at Beginning of Year 3,157,861 4,714,356 5,269,772
================= ================ ===============
Cash and Cash Equivalents at End of Period $2,633,999 $3,157,861 $4,714,356
================= ================ ===============
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $25,630 $26,893 $29,393
Income Taxes $1,794,790 $1,534,242 $1,568,476
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-5
<PAGE>
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Nature of Operations
The Company is engaged in the design, manufacture and sale of window
coverings, bedspreads, furniture and complementary products. These
products are sold to original equipment manufacturers of recreational
vehicles and manufactured housing and to the hospitality industry
(motels/hotels) either through distributors or directly to the
customers.
The Company has one industry segment and one class of products. The
business in which the Company is engaged is very competitive, and the
Company competes with manufacturers located throughout the country.
However, no reliable information is available to enable the Company to
determine its relative position among its competitors. The principal
methods of competition are price, design and service.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and all subsidiary companies. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Fiscal Year
-----------
The Company's fiscal year is a 52-53 week period ending the Saturday
nearest to December 31, which results in every sixth year containing 53
weeks. Fiscal year 1998 was a 52-week period ending January 2, 1999;
1997 was a 53-week period ending January 3, 1998 and 1996 was a 52-week
period ending December 28, 1996.
Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Property and Depreciation
-------------------------
Buildings and equipment are stated at cost, and depreciated on both
straight-line and accelerated methods over estimated useful lives.
Leasehold improvements are capitalized and amortized over the assets'
estimated useful lives or remaining terms of leases, if shorter.
Equipment is depreciated over 3-10 years, buildings over 20-30 years
and leasehold improvements over 5-10 years.
Excess of Cost over Net Assets Acquired
---------------------------------------
The excess of investment costs over the fair value of net assets
related to the acquisitions of Haleyville Manufacturing (1973), Liberia
Manufacturing (1985), Paragon Interiors (1995), Specialty Windows
(1997) and Southern Interiors (1997) are being amortized over a period
of 40 years. Amortization of $106,870 was charged to income during
fiscal year ended January 2, 1999, $89,242 in fiscal year ended January
3, 1998, and $58,786 in fiscal year ended December 28, 1996.
F-6
<PAGE>
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
------------------------------------------------------
The Company evaluates the impairment of goodwill on the basis of
whether goodwill is recoverable from the projected undiscounted net
income before goodwill amortization of the related assets.
Reclassification
----------------
Certain prior year amounts have been reclassified to conform to the
current year presentation.
Cash and Cash Equivalents
-------------------------
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with a maturity of three months
or less at the time of purchase to be cash equivalents.
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
General Funds $33,363 $246,400
Demand Notes 1,700,000 2,845,000
Repurchase agreements 900,636 66,461
--------------- ---------------
$2,633,999 $3,157,861
=============== ===============
</TABLE>
The demand notes are guaranteed by letters-of-credit.
Short-term Investments
----------------------
Short-term investments are categorized as trading securities. The
estimated fair values of the company's trading securities, which are
the amounts reflected in the balance sheet, are based on quoted market
prices. A loss of $32,020 is included in income for the year ended
January 2, 1999 compared to an unrealized gain of $70,969 for the year
ended January 3, 1998.
Deferred Income Taxes
---------------------
The Company accounts for income taxes in accordance with the Statement
of Financial Accounting Standards No. 109 "Accounting for Income
Taxes," which requires the recognition of deferred tax liabilities and
assets at currently enacted tax rates for the expected future tax
consequences of events that have been included in the financial
statements or tax returns.
Credit Risk
-----------
The Company sells primarily on thirty day terms. The Company's
customers are spread over a wide geographic area. As such the Company
believes, that it does not have an abnormal concentration of credit
risk within any one geographic area.
F-7
<PAGE>
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
-----------------------------------------------------
Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Fair Value of Financial Instruments
-----------------------------------
Marketable securities are carried at fair value. All other financial
instruments are carried at amounts believed to approximate fair value.
Stock Split
-----------
The Company declared a five-for-four stock split effective July 21,
1998. Per share and share data have been adjusted to reflect this stock
split.
Earnings Per Share
------------------
Basic earnings per share is computed by dividing net income by
weighted-average number of shares outstanding. Diluted earnings per
share includes the dilutive effect of stock options. See note 11
"Earnings Per Share" for computation of EPS.
Stock Based Compensation
------------------------
In accordance with the provisions of SFAS No. 123, the Company follows
the intrinsic value based method of accounting as prescribed by APB 25,
"Accounting for Stock Issued to Employees," for its stock-based
compensation. Accordingly, no compensation cost is recognized.
Segment Information
-------------------
The Company has one business segment, the interior furnishings
business, and follows the requirements of SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information."
Recent Accounting Developments
------------------------------
The following Statements of Financial Accounting Standards (SFAS) were
issued by the Financial Accounting Standards Board. These statements
will have no effect on the Company.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," was issued February 1998. The statement
requires employers with one or more defined benefit plans or one or
more defined post retirement plans to provide additional disclosures
about these plans. This statement is effective for fiscal years
beginning after December 15, 1997.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998. The statement requires derivatives
to be recorded on the balance sheet as assets or liabilities, measured
at fair value. Gains or losses resulting from changes in fair value of
the derivatives are recorded depending upon whether the instruments
meet the criterion for hedge accounting. This statement is effective
for fiscal years beginning after June 15, 1999.
F-8
<PAGE>
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(2) ACQUISITIONS AND DIVESTITURES
-----------------------------
As of March 15, 1997, the Company acquired the business and certain
assets of Specialty Window Coverings Corp. for $2,455,783 and future
consideration, not to exceed $2 million, based on Specialty's earnings
over the two years ending April 3, 1999. Specialty is an Elkhart,
Indiana based manufacturer of pleated shades for the recreational
vehicle market.
As of May 12, 1997, the Company acquired the business and certain
assets of Southern Interiors, Inc. for $844,313 and future
consideration, not to exceed $500,000, based on Southern's sales over
the three years ending July 1, 2000. Southern is located in Memphis,
Tennessee and manufactures draperies for the hospitality market from
fabric supplied by its customers, largely hotel design and supply
firms.
These acquisitions have been included in the consolidated financial
statements from the dates of acquisition. They have been accounted for
as a purchase. In each case, the purchase price has been allocated to
the underlying assets based upon their estimated fair values at the
date of acquisition. The excess of purchase price over the fair value
of the net assets acquired ("goodwill") is $1,260,328 and $436,517
respectively, which is being amortized over 40 years.
In December 1997 the Company decided to discontinue the manufacturing
and sale of products for the retail market. This resulted in an
after-tax loss of $136,918 on net sales of $412,492.
The cash payments for deferred purchase price of $385,030 represents
the additional consideration paid for the acquisitions of Specialty
Window Coverings and Southern Interiors. Additional consideration may
be due Specialty after April 3, 1999 and Southern after July 1, 1999
and July 1, 2000.
(3) INVENTORIES
-----------
Inventories consisted of the following classifications:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Raw materials & supplies $5,462,938 $4,343,132
In process & finished goods 262,288 235,249
--------------- ---------------
$5,725,226 $4,578,381
=============== ===============
</TABLE>
(4) LEASES
------
The Company leases certain buildings and equipment used in its
operations. Building leases generally provide that the Company bears
the cost of maintenance and repairs and other operating expenses. Rent
expense was $478,635 in 1998, $361,558 in 1997 and $248,286 in 1996.
Commitments under these leases extend through November 2006 and are as
follows:
1999 $399,266
2000 $286,854
2001 $158,820
2002 $65,804
2003 $51,804
Thereafter $146,778
F-9
<PAGE>
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(5) COMMITMENTS
-----------
The Company has commitments under certain employment and non-compete
agreements entered into with individuals in management positions. The
commitments under these agreements are payable $296,750, $214,200 and
$214,200, respectively, from 1999 through 2001 and $535,500 thereafter.
(6) SIGNIFICANT CUSTOMERS
---------------------
Sales to Fleetwood Enterprises accounted for 20.1%, 22.6% and 22.5% of
Company sales in 1998, 1997 and 1996, respectively. Fleetwood operates
in the manufactured housing and recreational vehicle industries. Sales
to Champion Enterprises accounted for 13.5% and 14.2% of Company sales
in 1998 and 1997 respectively. Champion operates solely in manufactured
housing. Purchasing decisions are made at each individual plant of
these customers. The Company services many of these plants and
considers each of the plants it services to be an independent customer.
(7) LONG TERM-DEBT AND CREDIT ARRANGEMENTS
--------------------------------------
<TABLE>
<CAPTION>
Long-term debt consists of the following:
1998 1997
---- ----
<S> <C> <C>
Note payable in monthly payments of $2,088 at 4% interest. Term is 15
years. This note is secured by the first mortgage on the Bloomsburg, PA
building. $181,170 $198,592
Bond payable in monthly installments through November 2008. The
interest rate is variable and is currently less than 4%. This bond is
secured by the Company's Bloomsburg, PA property. 325,000 350,000
------------ -------------
506,170 548,592
Less amount due within one year 43,133 42,423
------------ -------------
$463,037 $506,169
============ =============
</TABLE>
On March 24, 1999 the Company closed on a bond to fund its new Goshen,
Indiana facility. The principal payments on this bond and other
long-term debt for the five years subsequent to January 2, 1999 are as
follows:
1999 $ 88,133
2000 $103,871
2001 $104,640
2002 $105,440
2003 $126,273
(8) EMPLOYEE BENEFIT PLANS
----------------------
On September 1, 1998 the Company began a 401(k) Retirement Savings Plan
available to all eligible employees. To be eligible for the plan, the
employee must be at least 21 years of age and have completed 1 year of
employment. Eligible employees may contribute up to 15% of their
earnings with a maximum of $10,000 for 1998 based on the Internal
Revenue Service annual contribution limit. The Company will match 25%
of the first 4% of the employee's contributions up to 1% of each
employee's earnings. Contributions are invested at the direction of the
employee to one or more funds. Company contributions begin to vest
after three years. Company contributions to the plan were $19,000 in
1998.
F-10
<PAGE>
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(9) STOCK OPTIONS
-------------
At January 2, 1999, 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 earning[s] per share would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Pro forma net income $3,026,032 $2,844,631 $3,007,470
Pro forma earnings per share:
Basic $0.83 $0.77 $0.82
Diluted $0.78 $0.72 $0.77
</TABLE>
During the initial phase-in period of SFAS No. 123 the pro forma
disclosure may not be representative of the impact on the net income in
future years.
Under the 1984 Incentive Stock Option Plan, which expired in 1994, the
Company granted options to its employees for 804,976 shares (as
adjusted for stock splits). Under the 1995 Incentive Stock Option Plan,
the company may grant options to its key employees for up to 520,830
(as adjusted for stock splits) shares of common stock. Under both
plans, the exercise price of the option equals the fair market price of
the Company's stock on the date of the grant and an option's maximum
term is 10 years. Under the 1995 Incentive Stock Option Plan 260,410
(as adjusted for stock splits) shares were granted in 1996, 7,813 (as
adjusted for stock splits) shares were granted in 1997 and 168,750 (as
adjusted for stock splits) shares were granted in 1998. The options
granted in 1997 and 1996 vest 20% each year starting with the date of
the grant. The options granted in 1998 vest 20% each year beginning at
the end of the first year.
The fair value of 1996 and 1997 option grants are estimated on the date
of grant using the Flexible Binomial options-pricing method with the
following weighted-average assumptions used for the grants in 1997 and
1996: dividend yield of 3.6 percent for all years; expected volatility
of 40.6 percent for all years; risk-free interest rate of 6.4 percent
for all years; and expected life of 3.7 years for all grants. The 1998
grant used the Black-Sholes options-pricing method with the following
weighted-average assumptions: dividend yield of 2.6 percent; expected
volatility of 47.7 percent; risk-free interest rate of 5.6 percent; and
expected life of 5 years.
F-11
<PAGE>
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(9) STOCK OPTIONS (Continued)
------------------------
A summary of the status of the Company's outstanding stock options as
of January 2, 1999, January 3, 1998 and December 28, 1996, and changes
during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Exercise Exercise Exercise
Shares(1) Price(2) Shares(1) Price(2) Shares(1) Price(2)
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 424,124 $3.40 508,212 $3.09 404,615 $1.19
Granted 168,750 $8.10 7,813 $7.28 260,410 $4.80
Exercised (38,367) $0.57 (68,980) $1.02 (156,813) $1.05
Forfeited -- -- (22,921) $4.82 -- --
--------- ---------- ---------
Outstanding at year-end 554,507 $5.03 424,124 $3.40 508,212 $3.09
Options exercisable at year-end 285,242 274,129 299,884
Weighted-average fair value of
options granted during the year $3.21 $1.68 $1.68
</TABLE>
The following information applies to fixed stock options outstanding at
January 2, 1999:
<TABLE>
<CAPTION>
<S> <C>
Number outstanding (1) 554,507
Range of exercise prices $0.57 to $8.10
Weighted-average exercise price $5.03
Weighted-average remaining contractual life 8.7 years
</TABLE>
-----------------------
(1) As adjusted for the four-for-three stock split in June 1996 and the
five-for-four stock splits in June 1997 and July 1998.
(2) Based on the weighted-average exercise price.
(10) INCOME TAXES
------------
A summary of income taxes from continuing operations is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $1,410,000 $1,322,000 $1,350,000
State 275,000 247,000 221,000
Deferred 33,000 72,000 43,000
---------------------- --------------------- ---------------------
Total $1,718,000 $1,641,000 $1,614,000
====================== ===================== =====================
</TABLE>
F-12
<PAGE>
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(10) INCOME TAXES (Continued)
-----------------------
Temporary differences between the financial statement carrying amounts
and tax bases of assets and liabilities that give rise to net deferred
income tax liability relate to the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Property and equipment, due to differences in depreciation $241,000 $187,000
Installment sale of land & building -- 12,500
Inventories, due to additional cost
recorded for income tax purposes (17,000) (13,000)
Accounts receivable, due to allowance
for doubtful accounts (42,000) (83,000)
Accrued liabilities, due to expenses not yet
deductible for income tax purposes (18,000) 27,500
--------------- --------------
Net deferred income tax liability $164,000 $131,000
=============== ==============
</TABLE>
The net deferred income tax liability is presented in the balance
sheets as follows:
1998 1997
---- ----
Current Asset $103,000 $ 80,000
Long-term Liability 267,000 211,000
The effective income tax rate varied from the statutory Federal tax
rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes, net of
federal income tax benefit 4.0 3.8 3.3
Other (2.2) (2.7) (2.8)
----- ----- -----
Effective income tax rate 35.8% 35.1% 34.5%
===== ===== =====
</TABLE>
(11) EARNINGS PER SHARE
------------------
In accordance with SFAS No. 128, the following is a reconciliation of
the numerators and denominators of the basic and diluted EPS
computations.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net income $3,080,895 $2,898,339 $3,065,220
================== ================== =================
Denominator:
Weighted-average number of
common shares outstanding 3,631,457 3,714,838 3,646,830
Dilutive effect of
stock options on net income 249,162 253,542 277,560
------------------ ------------------ -----------------
3,880,619 3,968,380 3,924,390
------------------ ------------------ -----------------
Diluted earnings per share: $0.79 $0.73 $0.78
================== ================== =================
</TABLE>
F-13
<PAGE>
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(12) QUARTERLY FINANCIAL INFORMATION
-------------------------------
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter Year
---- ------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
Net Sales $12,649,704 $13,709,226 $13,210,272 $12,397,627 $51,966,829
Gross Profit $2,986,507 $3,009,633 $2,795,094 $2,629,270 $11,420,504
Net Income $879,888 $911,903 $711,515 $577,589 $3,080,895
Earnings Per
Common Share:
Continuing Operations $0.24 $0.25 $0.20 $0.16 $0.85
Basic $0.24 $0.25 $0.20 $0.16 $0.85
Diluted $0.22 $0.23 $0.19 $0.15 $0.79
Average Common
Shares Outstanding:
Basic 3,655,994 3,662,245 3,639,427 3,573,056 3,631,457
Diluted 3,885,200 3,948,675 3,918,211 3,775,283 3,880,619
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter Year
---- ------- ------- ------- ------- ----
Net Sales $9,386,543 $11,777,358 $11,051,332 $11,180,690 $43,395,923
Gross Profit $2,464,389 $2,968,229 $2,545,621 $2,681,567 $10,659,806
Net Income $702,606 $879,544 $636,223 $679,966 $2,898,339
Earnings Per
Common Share:
Continuing Operations $0.19 $0.25 $0.20 $0.18 $0.82
Basic $0.19 $0.24 $0.17 $0.18 $0.78
Diluted $0.18 $0.22 $0.16 $0.17 $0.73
Average Common
Shares Outstanding:
Basic 3,708,145 3,724,564 3,734,516 3,690,828 3,714,838
Diluted 3,993,858 3,967,754 3,989,620 3,922,290 3,968,380
</TABLE>
F-14
<PAGE>
REPORT OF INDEPENDENT AUDITORS' REPORT
ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors
and Stockholders of
Decorator Industries, Inc.
The audit referred to in our opinion dated February 20, 1999 of the
financial statements as of January 2, 1999 and for each of the three fiscal
years then ended includes the related supplemental financial schedule as listed
in item 14 (a), which, when considered in relation to the basic financial
statements, presents fairly in all material respects the information shown
therein.
LOUIS PLUNG & COMPANY, LLP
Certified Public Accountants
Pittsburgh, Pennsylvania
February 20, 1999
F-15
<PAGE>
<TABLE>
<CAPTION>
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
- ----------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
ALLOWANCE FOR
DOUBTFUL ACCOUNTS
1998 $218,018 $68,471 -0- $174,783(A) $111,706
1997 232,302 (4,000) -0- 10,284(A) 218,018
1996 229,722 40,000 -0- 37,420(A) 232,302
</TABLE>
(A) Write-off bad debts
F-16
DECORATOR INDUSTRIES, INC.
COMPUTATION OF DILUTED INCOME PER SHARE OF COMMON STOCK
FOR THE FIVE FISCAL YEARS ENDED JANUARY 2, 1999
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income $3,080,895 $2,898,339 $3,065,220 $2,414,678 $2,823,770
============== =============== =============== ============== ==============
Average number of
common shares
outstanding 3,631,457 3,714,838 3,646,830 4,039,950 4,108,274
Dilutive effect of
stock options on
net income 249,162 253,542 277,560 319,701 414,021
-------------- --------------- --------------- -------------- --------------
3,880,619 3,968,380 3,924,390 4,359,651 4,522,295
============== =============== =============== ============== ==============
Diluted earnings
per share:
Net income $0.79 $0.73 $0.78 $0.55 $0.62
============== =============== =============== ============== ==============
</TABLE>
Note: Per share amounts and shares outstanding have been adjusted for a
five-for-four stock splits effective July 21, 1998 and June 13, 1997, a
four-for-three stock split in June 1996 and a two-for-one stock split in
April 1993.
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the incorporation by reference in Registration Statement
No. 33-47895 on Form S-8 and the Prospectus included therein of our reports
dated February 20, 1999 included in the Annual Report on Form 10-K of Decorator
Industries, Inc. for the fiscal year ended January 2, 1999.
LOUIS PLUNG & COMPANY, LLP
Certified Public Accountants
Pittsburgh, PA
March 24, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> JAN-02-1999
<CASH> 2,633,999
<SECURITIES> 861,032
<RECEIVABLES> 3,959,141
<ALLOWANCES> 111,706
<INVENTORY> 5,725,226
<CURRENT-ASSETS> 13,417,086
<PP&E> 6,800,762
<DEPRECIATION> 2,635,683
<TOTAL-ASSETS> 21,462,694
<CURRENT-LIABILITIES> 5,172,925
<BONDS> 0
0
0
<COMMON> 874,784
<OTHER-SE> 14,684,948
<TOTAL-LIABILITY-AND-EQUITY> 21,462,694
<SALES> 51,966,829
<TOTAL-REVENUES> 51,966,829
<CGS> 40,546,325
<TOTAL-COSTS> 47,090,366
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 68,471
<INTEREST-EXPENSE> 9,097
<INCOME-PRETAX> 4,798,895
<INCOME-TAX> 1,718,000
<INCOME-CONTINUING> 3,080,895
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,080,895
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.79
</TABLE>
