UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-7753
DECORATOR INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1001433
------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10011 Pines Blvd., Suite #201, Pembroke Pines, Florida 33024
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 436-8909
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of each class Outstanding at May 1, 2000
------------------- --------------------------
Common Stock, Par Value $.20 Per Share 3,166,139
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
- -------------------------------
DECORATOR INDUSTRIES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
April 1, 2000 Jan. 1, 2000
------------- ------------
ASSETS (UNAUDITED)
------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 972,913 $ 484,328
Short-term Investments 624,888 1,455,796
Accounts Receivable, less allowance for
doubtful accounts ($189,789 and $158,996) 4,892,954 3,725,556
Inventories 6,051,724 5,739,303
Other Current Assets 457,319 372,258
------------ ------------
Total Current Assets 12,999,798 11,777,241
------------ ------------
Property and Equipment:
Land, Buildings & Improvements 4,130,751 4,123,189
Machinery, Equipment, Furniture and Fixtures 4,913,026 4,808,280
------------ ------------
Total Property and Equipment 2,043,777 8,931,469
Less: Accumulated Depreciation and Amortization 3,243,500 3,104,989
------------ ------------
Net Property and Equipment 5,800,277 5,826,480
------------ ------------
Goodwill, less accumulated
amortization of $1,220,799 and $1,189,871 3,618,037 3,648,965
Other Assets 516,767 412,837
------------ ------------
Total Assets $ 22,934,879 $ 21,665,523
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current Liabilities:
Accounts Payable $ 4,180,197 $ 3,100,681
Current Maturities of Long-term Debt 102,575 103,871
Accrued Expenses:
Income Taxes 228,213 --
Compensation 817,041 1,278,660
Other 929,946 647,173
------------ ------------
Total Current Liabilities 6,257,972 5,130,385
------------ ------------
Long-Term Debt 1,786,096 1,814,169
Deferred Income Taxes 375,000 356,000
------------ ------------
Total Liabilities 8,419,068 7,300,554
------------ ------------
Stockholders' Equity
Common stock $.20 par value: Authorized shares, 10,000,000;
Issued shares, 4,444,997 and 4,408,831 888,999 881,766
Paid-in Capital 1,441,676 1,427,788
Retained Earnings 18,725,758 18,368,158
------------ ------------
21,056,433 20,677,712
Less: Treasury stock, at cost: 1,264,587 and 1,219,801 shares 6,540,622 6,312,743
------------ ------------
Total Stockholders' Equity 14,515,811 14,364,969
------------ ------------
Total Liabilities and Stockholders' Equity $ 22,934,879 $ 21,665,523
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
DECORATOR INDUSTRIES, INC.
STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THIRTEEN WEEKS ENDED:
--------------------------------------------------------------
April 1, 2000 April 3, 1999
------------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 13,391,582 100.00% $ 13,211,871 100.00%
Cost of Products Sold 10,688,670 79.82% 10,314,840 78.07%
------------ ------- ------------ ------
Gross Profit 2,702,912 20.18% 2,897,031 21.93%
Selling and Administrative Expenses 1,772,424 13.23% 1,781,393 13.48%
------------ ------ ------------ ------
Operating Income 930,488 6.95% 1,115,638 8.45%
Other Income (Expense):
Interest and Investment Income 18,637 0.14% 17,906 0.13%
Interest Expense (20,180) -0.15% (4,528) -0.03%
------------ ------- ------------ ------
Earnings Before Income Taxes 928,945 6.94% 1,129,016 8.55%
Provision for Income Taxes 348,000 2.60% 426,000 3.23%
------------ ------- ------------ ------
Net Income $ 580,945 4.34% $ 703,016 5.32%
============ ======= ============ ======
Earnings Per Share:
Basic $ 0.18 $ 0.20
============ ============
Diluted $ 0.18 $ 0.19
============ ============
Weighted-Average Number of Shares Outstanding:
Basic 3,180,033 3,526,904
Diluted 3,222,562 3,694,190
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
DECORATOR INDUSTRIES, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THIRTEEN WEEKS ENDED:
April 1, 2000 April 3, 1999
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 580,945 $ 703,016
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 187,234 156,833
Provision for Losses on Accounts Receivable 26,000 13,000
Deferred Taxes 11,000 --
(Gain) Loss on Disposal of Assets (400) 3,833
(Increase) Decrease from Changes in Accounts Receivable (1,193,398) (878,122)
(Increase) Decrease from Changes in Inventory (312,421) 712,275
(Increase) Decrease from Changes in Prepaid Expenses (77,051) 8,245
(Increase) Decrease from Changes in Other Assets (103,930) 358,922
Increase (Decrease) from Changes in Accounts Payable 1,079,516 732,528
Increase (Decrease) from Changes in Accrued Expenses 49,366 (291,036)
----------- -----------
Net Cash Provided by Operating Activities 246,861 1,519,494
----------- -----------
Cash Flows From Investing Activities:
Capital Expenditures (130,111) (1,391,086)
Proceeds from Property Dispositions 400 --
Short-term Investments 830,908 (1,001,714)
----------- -----------
Net Cash Provided by (Used in) Investing Activities 701,197 (2,392,800)
----------- -----------
Cash Flows From Financing Activities:
Long-term Debt Payments (29,369) (12,056)
Proceeds from Debt -- 1,222,965
Dividend Payments (223,345) (245,772)
Proceeds from Exercise of Stock Options 21,460 18,833
Issuance of Stock for Directors' Compensation 10,000 12,500
Purchase of Common Stock for Treasury (238,219) (1,253,200)
----------- -----------
Net Cash Used in Financing Activities (459,473) (256,730)
Net Increase (Decrease) in Cash and Cash Equivalents 488,585 (1,130,036)
Cash and Cash Equivalents at Beginning of Year 484,328 2,633,999
----------- -----------
Cash and Cash Equivalents at End of Period $ 972,913 $ 1,503,963
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 9,651 $ 6,334
Income Taxes $ 26,413 $ 26,147
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED APRIL 1, 2000 AND APRIL 3, 1999
(UNAUDITED)
NOTE 1. In the opinion of management, the accompanying unaudited
financial statements contain all adjustments necessary to
present fairly the Company's financial position as of April 1,
2000, the changes therein for the thirteen week period then
ended and the results of operations for the thirteen week
periods ended April 1, 2000 and April 3, 1999.
NOTE 2. The financial statements included in the Form 10-Q are
presented in accordance with the requirements of the form and
do not include all of the disclosures required by generally
accepted accounting principles. For additional information,
reference is made to the Company's annual report on Form 10-K
for the year ended January 1, 2000. The results of operations
for the thirteen week periods ended April 1, 2000 and April 3,
1999 are not necessarily indicative of operating results for
the full year.
NOTE 3. INVENTORIES
-----------
Inventories at April 1, 2000 and January 1, 2000 consisted of
the following:
April 1, 2000 January 1, 2000
------------- ---------------
Raw Material
and Supplies $ 5,533,926 $ 5,363,747
In Process and
Finished Goods 517,798 375,556
----------- -----------
Total Inventory $ 6,051,724 $ 5,739,303
=========== ===========
NOTE 4. 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. In accordance with SFAS No. 128, the following is a
reconciliation of the numerators and denominators of the basic
and diluted EPS computations.
April 1, 2000 April 3, 1999
------------- -------------
Numerator:
Net income $ 580,945 $ 703,016
========== ==========
Denominator:
Weighted-average number of
common shares outstanding 3,180,033 3,526,904
Dilutive effect of
stock options on net income 42,529 167,286
---------- ----------
3,222,562 3,694,190
========== ==========
Diluted earnings per share: $ 0.18 $ 0.19
========== ==========
4
<PAGE>
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED APRIL 1, 2000 AND APRIL 3, 1999
(UNAUDITED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations.
--------------
FINANCIAL CONDITION
- -------------------
The Company's financial condition, as measured by the following ratios,
continues to be strong at the end of the First Quarter 2000.
April 1, 2000 January 1, 2000
------------- ---------------
Current Ratio 2:08 2:30
Quick Ratio 1:11 1:18
LT Debt to Total Capital 10.96% 11.21%
Working Capital $6,741,826 $6,646,856
Days sales outstanding in accounts receivable were 33.0 days at April 1, 2000
compared to 34.2 days at April 3, 1999, Although accounts receivable increased
by more than 31%. Inventories increased by 5% during the quarter. A use of
working capital was for the purchase of Common Stock for Treasury ($238,219)
during the quarter.
Cash and Short-Term Investments totaled $1,597,801 at April 1, 2000. Management
does not foresee any events which will adversely affect its liquidity during
2000. On April 19,2000 the Company signed an agreement for a $5,000,000
revolving line of credit. With this credit line in place and the Company's cash
balances the financial condition is more than adequate to finance internal
growth and for the acquisitions of businesses.
RESULTS OF OPERATIONS
- ---------------------
The following tables show the percentage relationship to net sales of certain
items in the Company's Statement of Earnings:
First First
Quarter Quarter
2000 1999
---- ----
Earnings Ratios
---------------
Net sales 100.0% 100.0%
Cost of products sold 79.8 78.1
Selling and administrative 13.2 13.5
Interest and investment income (0.1) (0.1)
Interest expense 0.2 0.0
Income taxes 2.6 3.2
Net income 4.3 5.3
5
<PAGE>
DECORATOR INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED APRIL 1, 2000 AND APRIL 3, 1999
(UNAUDITED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- ------- ------------------------------------------------------------------------
of Operations. (Continued)
--------------
Thirteen Week Period Ended April 1, 2000, (First Quarter 2000) compared to
Thirteen Week Period Ended April 3, 1999, (First Quarter 1999)
- --------------------------------------------------------------
Net sales for the First Quarter 2000 were $13,391,582, compared to $13,211,871
for the same period in the previous year, a 1.4% increase. This increase was the
result of growth in sales to the recreational vehicle and hospitality markets.
The Company's sales to the manufactured housing market continue to be adversely
affected by a decline in manufactured housing production, caused by an excess
dealer inventory of manufactured homes.
Cost of products sold increased to 79.8% in the First Quarter 2000 compared to
78.1% a year ago. This increase is largely attributable to a change in the
product mix including the increased sales to recreational vehicle and
hospitality markets. Additionally, fixed expenses for manufactured housing sales
were absorbed over a smaller sales volume.
Selling and administrative expenses were $1,772,424 in the First Quarter 2000
versus $1,781,393 in the First Quarter 1999.
Interest and investment income was $731 more in the First Quarter 2000 than the
amount earned in the First Quarter 1999.
Net income decreased to $580,945 from $703,016 for the same period a year ago
but improved from $446,317 achieved in the prior quarter. Diluted earnings per
share decreased to 18 cents per share from 19 cents in the first quarter of last
year.
6
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
- ------- ---------------------------------
(a) Exhibits:
---------
10Y - Revolving line of credit agreement with
Comerica Bank dated April 19, 2000, filed
herewith.
27M - Financial data schedule, filed herewith.
(b) No reports on Form 8-K were filed by the Company during the
quarterly period ended April 1, 2000.
SIGNATURES
Pursuant to the requirements 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)
Date: May 5, 2000 By: /s/ William A. Bassett
----------- ------------------------------------
William A. Bassett, President
Date: May 5, 2000 By: /s/ Michael K. Solomon
----------- -------------------------------------
Michael K. Solomon, Treasurer
7
April 19, 2000
Decorator Industries, Inc.
10011 Pines Boulevard, Suite 201
Pembroke Pines, Florida 33024-6167
Gentlemen:
This letter constitutes an agreement by and between COMERICA BANK, a
Michigan banking corporation (herein called "Bank"), and DECORATOR INDUSTRIES,
INC., a Pennsylvania corporation, (herein called "Company"), pertaining to
certain loans and other credit which Bank has made and/or may from time to time
hereafter make available to Company.
In consideration of all present and future loans, advances and other
credit from time to time made available by Bank to or in favor of Company,
including, without limitation, a Five Million Dollar ($5,000,000.00) revolving
line of credit (herein called "Revolving Line") as evidenced by a Promissory
Note of even date maturing July 19, 2002 (herein called "Maturity Date"), made
available by Bank to Company, and in consideration of all present and future
liabilities, obligations and indebtedness of Company to Bank, howsoever created,
evidenced, existing or arising, whether direct or indirect, absolute or
contingent, joint or several, now or hereafter existing or arising, or due or to
become due (herein collectively called the "Liabilities"), Company represents,
warrants, covenants and agrees as follows:
1. Each loan, advance or other extension of credit made by Bank to or
otherwise in favor of Company shall be evidenced by and subject to a promissory
note or other agreement or evidence of indebtedness acceptable to Bank, in each
case, executed and delivered by Company unto Bank. The funding and disbursement
of any loan or advance, and the extension of any other credit, to or in favor of
Company shall be subject to the execution and/or delivery unto Bank of such
documents, instruments, agreements, opinions and certificates as Bank may
reasonably require, and shall be further subject to the satisfaction of such
other conditions and requirements as Bank, and its counsel, may from time to
time require (any and all notes, instruments, documents and agreements at any
time evidencing, governing, securing or otherwise relating to any of the
Liabilities are herein collectively called the "Loan Documents").
2. Provided that no Default or Event of Default under the Loan
Documents has occurred and is continuing, Company may, by written notice to the
Bank prior to June 19, 2002, thirty (30) days before the maturity, but not
before May 20 2002, sixty (60) before maturity, request that the Bank extend the
Maturity Date of the Revolving Line for an additional one year period. The
Maturity Date for the Revolving Line shall be extended for an additional year
only if Bank approves such extension. Bank shall notify Company of an approval
and extension and in the event Bank does not approve an extension of the
Maturity Date, the Revolving Line shall terminate on the Maturity Date.
Exhibit 10Y
-----------
<PAGE>
3. Company hereby represents and warrants, and such representations and
warranties shall be deemed to be continuing representations and warranties
during the entire life of this Agreement, and thereafter, so long as any
Liabilities remain unpaid and outstanding:
(a) It is a corporation duly organized, validly existing and in
good standing under the laws of the State of its
incorporation, it is duly qualified and authorized to do
business in each jurisdiction where the character of its
assets or the nature of its activities makes such
qualification necessary, and it has the legal power and
authority to own its properties and assets and to carry out
its business as now being conducted in each such jurisdiction
wherein such qualification is necessary; execution, delivery
and performance of this Agreement, and any and all other Loan
Documents to which Company is a party or by which it is
otherwise bound, are within Company's corporate powers and
authorities, have been duly authorized by all requisite
corporate or other necessary or appropriate action, and are
not in contravention or violation of law or the terms of
Company's Articles of Incorporation or Bylaws, and do not
require the consent or approval of any governmental body,
agency or authority; and this Agreement, and any other Loan
Documents contemplated hereby, when executed, issued and/or
delivered by Company, or by which Company is otherwise bound,
will be valid and binding and legally enforceable against
Company in accordance with their terms.
(b) The execution, delivery and performance of this Agreement and
any other Loan Documents required under or contemplated by
this Agreement to which Company is a party or by which it is
otherwise bound, and the issuance of this Agreement and any
such other Loan Documents by Company, and the borrowings and
other transactions contemplated hereby and thereby, are not in
contravention or violation of the unwaived terms of any
indenture, agreement or undertaking to which Company is a
party or by which it or any of its property or assets is
bound, and will not result in the creation or imposition of
any lien or encumbrance of any nature whatsoever upon any of
the property or assets of Company, except to or in favor of
Bank.
(c) No litigation or other proceeding before any court or
administrative agency is pending, or, to the knowledge of
Company or any of its officers, is threatened against Company,
the outcome of which could materially impair Company's
financial condition or its ability to carry on its business or
its ability to pay and perform its liabilities and obligations
hereunder or otherwise in respect of the Liabilities.
(d) There are no security interests in, liens, mortgages, or other
encumbrances on any of Company's property or assets, except
Permitted Encumbrances (as hereinafter defined).
(e) There exists no Event of Default (as hereinafter defined), or
any condition or event which, with the giving of notice or the
passage of time, or both, would constitute an Event of Default
(any such condition or event is herein called a "Default")
under any of the Liabilities.
2 Exhibit 10Y
-----------
<PAGE>
(f) The most recent financial statements with respect to Company
delivered to Bank fairly present the financial condition of
Company as of the date thereof and for the period(s) covered
thereby in accordance with generally accepted accounting
principles consistently applied ("GAAP"), and since October 2,
1999, there has been no material adverse change in the
condition (financial or otherwise) of Company.
4. So long as Bank shall have any commitment or obligation, if any, to
make any loans or extend credit to or in favor of Company, and so long as any
Liabilities remain unpaid and outstanding, Company covenants and agrees that it
shall:
(a) Furnish to Bank, or cause to be furnished to Bank, in each
case, in form and detail and on a reporting basis satisfactory
to Bank, the following:
(i) as soon as available, and in any event not later than
ninety (90) days after the close of each fiscal year
of Company, beginning with the fiscal year ending
December 30, 2000, audited financial statements of
Company, containing the balance sheet of Company as
of the close of each such fiscal year, statements of
income and retained earnings and a statement of cash
flows for each such fiscal year, and such other
comments and financial details as are usually
included in similar reports, including any management
letter(s). Such financial statements shall be
prepared in accordance with GAAP, shall be in such
detail as Bank may reasonably require, and shall be
reviewed by independent certified public accountants
of recognized standing selected by Company and
acceptable to Bank;
(ii) as soon as available, and in any event not later than
sixty (60) days after the close of each fiscal year
of Company, beginning with the fiscal year ending
December 30, 2000, Borrower's annual projections,
including, but not limited to, Company's projections
for sales, net income, capital expenditures and
redemption of Company's stock;
(iii) as soon as available, and in any event not later than
forty-five (45) days after and as of the close of
each fiscal quarter (except the fiscal year end) of
each fiscal year of Company, beginning with the
fiscal quarter ending April 1, 2000, financial
statements of Company, containing the balance sheet
of Company as of the close of each such fiscal
quarter, statements of income and retained earning
and a statement of cash flows for Company for such
fiscal quarter and for the portion of the fiscal year
of Company through the end of the fiscal quarter then
ending, and such other comments and financial details
as are usually included in similar reports. Such
financial statements shall be prepared by Company in
accordance with GAAP, and shall be certified as to
accuracy and fairness by an authorized officer of
Company;
(iv) simultaneous with the delivery to Bank of the
respective financial statements required in
sub-sections (i) and (iii) above, quarterly
compliance certificates in form and detail
satisfactory to Bank, certified by an authorized
officer of
3 Exhibit 10Y
-----------
<PAGE>
Company, certifying that, as of the date thereof, to
the best of each such authorized officer's knowledge,
no Default or Event of Default shall have occurred
and be continuing or exist, or if any Default or
Event of Default shall have occurred and be
continuing or exist, specifying, in detail, the
nature and period of existence thereof and any action
taken or proposed to be taken by Company in respect
thereof, and also certifying as to whether Company is
in compliance with the financial covenants contained
in Sections 3(g) through (i) of this Agreement (which
certificate shall set forth, in reasonable detail,
Company's calculations and the resultant ratios or
financial tests determined thereunder);
(v) as soon as possible, and in any event within three
(3) Business Days after becoming aware of the
occurrence or existence of any Default or Event of
Default, or of any other condition or occurrence
which has had or could reasonably be expected to have
a materially adverse effect upon Company's business,
properties, or financial condition or upon Company's
ability to comply with its obligations hereunder, a
written statement of an authorized officer of Company
setting forth the details of such Default or Event of
Default, or such other condition or occurrence, and
the action which Company has taken or caused to be
taken, or proposes to take or cause to be taken with
respect thereto; and
(vi) promptly, at such times as Bank may reasonably
require, in form and detail satisfactory to Bank,
such other information and reports as may be required
under the terms of any Loan Documents or as Bank may
reasonably request from time to time.
(b) Keep proper books of record and account in which full and
correct entries shall be made of all of its financial
transactions and its assets and businesses so as to permit the
presentation of financial statements (including, without
limitation, those financial statements to be delivered to Bank
pursuant to Section 3(a) above) prepared in accordance with
GAAP; and permit Bank, or its representatives, at reasonable
times and intervals, to visit all of Company's offices and to
make inquiries as to Company's respective financial matters
with its respective directors, officers, employees, and
independent certified public accountants.
(c) Permit Bank, through Bank's authorized attorneys, accountants
and representatives, to inspect, audit and examine Company's
books, accounts, records, ledgers and assets and properties of
every kind and description, wherever located, at all
reasonable times during normal business hours, upon written
request of Bank. Company agrees to reimburse Bank for all
reasonable costs and expenses incurred by Bank in connection
with such inspections, examinations and audits, and to pay to
Bank such fees as Bank may reasonably charge in respect of
such inspections, examinations and audits, or as otherwise
mutually agreed upon by Company and Bank if such inspections,
examinations and audits are conducted due to any Event of
Default by Company.
4 Exhibit 10Y
-----------
<PAGE>
(d) The Company will maintain, with respect to its business and
properties, insurance at all times by insurance companies of
nationally recognized stature and responsibility which the
Company believes to be financially sound, of a character
usually insured by corporations engaged in the same or a
similar business similarly situated against loss or damage of
the kinds and in the amounts customarily insured against and
for by such corporations, and carry or cause to be carried,
with such insurers in customary amounts (with customary
deductibles), such other insurance, including public liability
insurance as is usually carried by corporations engaged in the
same or a similar business similarly situated: provided,
however, that all insurance maintained pursuant to this
paragraph shall be carried in amounts sufficient to prevent
the Company from incurring liability as a co-insurer under law
or the terms of the applicable policy or policies.
(e) Pay and discharge promptly when due: all taxes, assessments,
and governmental charges and levies imposed upon Company, its
income, or any of its properties, before the same shall become
delinquent; and provided, however, that none of the foregoing
need to be paid while the same is being contested in good
faith by appropriate proceedings diligently conducted so long
as adequate reserves shall have been established in accordance
with GAAP with respect thereto. The Company will file all
federal, state and local tax returns and all other tax reports
as required by law.
(f) Do or cause to be done all things necessary to preserve and
keep in full force and effect Company's corporate existence,
rights and franchises and comply with all applicable laws
where failure to do so has had or could reasonably be expected
to have a material adverse effect upon Company's business,
properties, or financial condition or upon Company's ability
to comply with its obligation hereunder; continue to conduct
and operate its business substantially as conducted and
operated during the present and preceding calendar year; at
all times maintain, preserve and protect all franchises and
trade names and preserve all the remainder of its property and
keep the same in good repair, working order and condition; and
from time to time make, or cause to be made, all needed and
proper repairs, renewals, replacements, betterments and
improvements thereto so that the business carried on in
connection therewith may be properly and advantageously
conducted at all times.
(g) Maintain, at all times, Net Income of not less than One
Million Dollars ($1,000,000.00).
For purposes of this Agreement, the Net Income shall be
calculated quarterly and shall be equal to the sum of
Company's Net Income for the immediately four preceding fiscal
quarters.
"Net Income" shall mean, as applied to any Person, the net
income (or net loss) of such Person for the period in question
after giving effect to deduction or provision for all
operating expenses, all taxes and reserves (including reserves
for deferred taxes) and all other proper deductions all
determined in accordance with GAAP.
5 Exhibit 10Y
-----------
<PAGE>
"Person" shall mean any individual, corporation, partnership,
limited liability company, trust, incorporated or
unincorporated organization, joint venture, joint stock
company, government, or any agency or political subdivision
thereof, or any other entity of any kind.
(h) Maintain a Funded Debt to EBITDA Ratio of not more than 3.0 to
1.0.
For purposes of this Agreement, the Funded Debt to EBITDA
Ratio shall be calculated quarterly as of the end of each
fiscal quarter of Company, and shall be calculated based upon
and for the fiscal quarter of Company then ending. EBITDA
shall be calculated on a rolling four quarter basis.
"Funded Debt" shall mean all the sum of all funded debt of the
Company plus letter of credit obligations plus all capitalized
leases.
"EDITDA" shall mean earnings (or loss) from operations of the
Company for such period, after eliminating therefrom all
extraordinary non-recurring items of income (including gain on
the sale of assets and earnings from the sale of discontinued
business lines) and after all expenses and proper charges but,
before payment or provision for payment of interest, taxes,
depreciation and amortization, all determined in accordance
with GAAP, for the Company for period being measured.
(i) Maintain a Funded Debt to Capitalization Ratio of not more
than .50 to 1.0.
For purposes of this Agreement, the Funded Debt to
Capitalization Ratio shall be calculated quarterly as of the
end of each fiscal quarter of Company, and shall be calculated
based upon and for the fiscal quarter of Company then ending.
"Capitalization" shall mean the sum of Funded Debt plus Net
Worth.
"Net Worth" shall mean with respect to any Person, such
Person's total shareholders equity (including capital stock,
additional paid-in capital and retained earnings, after
deducting treasury stock) which would appear as such on a
balance sheet of such Person prepared in accordance with GAAP.
(j) Take all actions and fulfill all conditions necessary to
maintain any and all plans in substantial compliance with
applicable requirements of ERISA, the Code, and all applicable
foreign law, if any, until such Plans are terminated, and the
liabilities discharged thereof, in accordance with applicable
law. No domestic Pension Plan (other than a Multiemployer
plan) will incur any accumulated funding deficiency (within
the meaning of Section 412 of the Code), and no foreign
Pension Plan will be in violation of any funding requirement
imposed by applicable foreign law, which deficiency or
violation would or would be reasonably likely to, materially
adversely affect the business, earnings, prospects,
properties, or condition (financial or otherwise) of the
Borrower.
6 Exhibit 10Y
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<PAGE>
"Plan" shall mean any "employee benefit plan" (within the
meaning of Section 3 (3) of ERISA) that the Company maintains,
contributes to, or is obligated to contribute to for the
benefit of employees or former employees of the Company.
"Pension Plan" shall mean any Plan that is an "employee
pension benefit plan" within the meaning of Section 3 (2) of
ERISA.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and any successor
statute, together with the rules and regulations thereunder.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute, together
with the rules and regulations thereunder.
"Multiemployer Plan" shall mean any Plan that is a
"multiemployer plan" within the meaning of Section 4001(a)(3)
of ERISA.
(k) Comply in all material respects with all applicable
Environmental Laws, and maintain all material permits,
licenses and approvals required under applicable Environmental
Laws, where the failure to do so could have a material adverse
effect upon the business, operations, condition (financial or
otherwise) performance or properties of Company, or could have
a material adverse effect upon the ability of Company to
perform its obligations under this Agreement or any of the
other Loan Documents, or could materially adversely affect the
enforceability of this Agreement or any of the other Loan
Documents; and promptly provide to Bank, immediately upon
receipt thereof, copies of any material correspondence,
notice, pleading, citation, indictment, complaint, order,
decree, or other document from any source asserting or
alleging a violation of any Environmental Laws by Company, or
of any circumstance or condition which requires or may require
a financial contribution by Company, or a clean-up, removal,
remedial action or other response by or on behalf of Company
under applicable Environmental Law(s), or which seeks damages
or civil, criminal, or punitive penalties from Company for any
violation or alleged violation of any Environmental Law(s) by
Company. Company hereby indemnifies, saves and holds Bank, and
any of Bank's past, present and future officers, directors,
shareholders, employees, representatives and consultants,
harmless from any and all losses, damages, suites, penalties,
costs, liabilities and expenses (including, without
limitation, reasonable legal expenses and attorneys' fees)
incurred or arising out of any claim, loss or damage of any
property, injuries to or death of any persons, contamination
of or adverse effects on the environment, or other violation
of any applicable Environmental Law(s), in any case, caused by
Company, or in any way related to any property owned or
operated by Company, or due to any acts of Company, or any of
its officers, directors, shareholders, employees, consultants
and/or representations; provided, however, that the foregoing
indemnification shall not be applicable, and Company shall not
be liable for any such losses, damages, suits, penalties,
costs, liabilities or expenses, to the extent (but only to the
extent) the
7 Exhibit 10Y
-----------
<PAGE>
same arise or result from any gross negligence or willful
misconduct of Bank or any of its agents or employees.
"Environmental Laws" shall mean all laws, codes, ordinances,
rules, regulations, orders, decrees and directives issued by
any federal, state, local, foreign or other governmental or
quasi-governmental authority or body (or any agency,
instrumentality or political subdivision thereof) pertaining
to hazardous or toxic materials, including, without
limitation, any hazardous materials or wastes, toxic
substances, flammable, explosive or radioactive materials,
asbestos, and/or other similar materials; any so-called
"superfund" or "superlien" law pertaining to hazardous or
toxic materials on or about any property at any time owned,
leased or otherwise used by Company, or any portion thereof,
including, without limitation, those relating to soil,
surface, subsurface groundwater conditions and the condition
of the ambient air; and any other federal, state, foreign or
local statute, law, ordinance, code, rule, regulation, order
or decree regulating, relating to, or imposing liability or
standards of conduct concerning, any hazardous, toxic,
radioactive, flammable or dangerous waste, substance or
material, as now or at any time hereafter in effect.
5. So long as Bank shall have any commitment or obligation, if any, to
make any loans or extend credit to or in favor of Company, and so long as any
Liabilities remain unpaid and outstanding, Company covenants and agrees that it
shall not, without the prior written consent of Bank:
(a) Create, incur, assume or suffer to exist any mortgage, pledge,
encumbrance, security interest, lien or charge of any kind
upon any of its property or assets (including, without limit,
any charge upon property purchased or acquired under a
conditional sales or other title retaining agreement or lease
required to be capitalized under GAAP), whether now owned or
hereafter acquired, other than the following (collectively,
"Permitted Encumbrances"):
(i) liens, mortgages, security interests and encumbrances
to or in favor of Bank;
(ii) liens for taxes, assessments or other governmental
charges incurred in the ordinary course of business
and for which no interest, late charges or penalties
which in aggregate do not exceed Fifty Thousand
Dollars ($50,000.00), are attaching or which are
being contested in good faith by appropriate
proceedings diligently pursued and, if requested by
Bank, bonded in an amount and manner satisfactory to
Bank;
(iii) liens, not delinquent, created by statute in
connection with workers' compensation, unemployment
insurance, social security, old age pensions (subject
to the applicable provisions of this Agreement) and
similar statutory obligations;
8 Exhibit 10Y
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<PAGE>
(iv) liens in favor of mechanics, materialmen, carriers,
warehousemen or other like statutory or common law
liens securing obligations incurred in good faith in
the ordinary course of business that are not yet due
and payable;
(v) minor encumbrances or imperfections of title
consisting of existing or future zoning restrictions,
existing recorded rights-of-way, existing recorded
easements, existing recorded private restriction or
existing or future public restrictions on the use of
real property, none of which (individually or in the
aggregate) materially impairs, or would materially
impair, the present or future use of such property in
the operation of the business for which it is used,
or would be violated in any material respect by any
existing or proposed structure or land use or would
have a material adverse effect on the sale or lease
of such property, or render title thereto
unmarketable;
(vi) purchase money security interests to secure purchase
money indebtedness permitted under Section 5(b)(iv)
of this Agreement, so long as such purchase money
security interests (A) arise substantially
contemporaneously with the purchase or acquisition of
the respective property or assets encumbered by and
subject to such purchase money security interests,
(B) do not at any time encumber any property or
assets other than the respective property or assets
financed by the respective purchase money
indebtedness, and (C) secure only the respective
purchase money indebtedness incurred to finance the
purchase or acquisition of such property or assets;
(vii) any liens and encumbrances existing as of the date of
this Agreement, as more particularly identified in
Schedule 5(a) attached hereto, and
(viii) any other liens agreed or consented to, in writing,
by Bank.
(b) Incur, create, assume or permit to exist any indebtedness or
liability on account of deposits or advances or any
indebtedness or liability for borrowed money, or any other
indebtedness or liability evidenced by notes, bonds,
debentures or similar obligations, or any other indebtedness
whatsoever, except for (i) the Liabilities, (ii) Subordinated
Debt, (iii) existing indebtedness to the extent set forth on
attached Schedule 5(b) attached hereto, (iv) purchase money
indebtedness not to exceed Five Hundred Thousand Dollars
($500,000.00) in aggregate principal amount each fiscal year
of Company incurred to finance Company's purchase or
acquisition of capital assets (whether pursuant to a loan,
capital lease or otherwise); (v) unsecured trade indebtedness
incurred and paid in the ordinary course of business of
Company or another Person acquired by Company; (vi) contingent
indebtedness to the extent permitted by Section 5(d) of this
Agreement, (vii) indebtedness secured by Permitted
Encumbrances, and (viii) lease obligations (whether in respect
of capitalized leases, operating leases or otherwise), not
otherwise disclosed in Schedule 5(b) attached hereto, (ix)
Funded Indebtedness incurred for the acquisition of corporate
real estate.
9 Exhibit 10Y
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<PAGE>
(c) Make loans, advances or extensions of credit to any Person,
except, without duplication, (i) employees of Company in an
unpaid principal amount not to exceed One Hundred Thousand
Dollars ($100,000.00), in aggregate, at any time, (ii) sales
on open account in the ordinary course of business, and (iii)
other loans, advances and extensions of credit in the ordinary
course of business in an unpaid principal amount not to exceed
Two Hundred Fifty Thousand Dollars ($250,000.00), in
aggregate, at any time.
(d) Guarantee or otherwise, directly or indirectly, in any way be
or become responsible for obligations of any other Person,
whether by agreement to purchase the indebtedness of any other
Person, agreement for the furnishing of funds to any other
Person through the furnishing of goods, supplies or services,
by way of stock purchase, capital contribution, advance or
loan, for the purpose of paying or discharging (or causing the
payment or discharge of) the indebtedness of any other Person,
or otherwise, except (i) guaranties in favor of Bank; and (ii)
the endorsement of negotiable instruments in the ordinary
course of business for deposit or collection.
(e) Subordinate any indebtedness due to it from a Person to
indebtedness of other creditors of such Person.
(f) Sell, lease (as lessor), transfer or otherwise dispose of
properties and assets, except as to the sale of inventory and
equipment in the ordinary course of business; change its name,
consolidate with or merge into any other corporation, permit
any other corporation to merge into it except as set forth in
Section 5(k) hereof, enter into any reorganization or
recapitalization, or reclassify its capital stock, or enter
into any sale-leaseback transaction.
(g) Allow any fact, condition or event to occur or exist with
respect to any employee pension or profit sharing plan
established or maintained by it which might constitute grounds
for termination of any such plan or for the court appointment
of a trustee to administer any such plan; or permit any such
plan to be the subject of termination proceedings (whether
voluntary or involuntary) from which termination proceedings
there may result in a liability of Company to the PBGC which,
in the opinion of Bank, will have a materially adverse effect
upon the operations, business, property, assets, financial
condition or credit of Company.
(h) Furnish Bank with any certificate or other document that
contains any untrue statement of a material fact or omits to
state a material fact necessary to make such certificate or
document not misleading in light of the circumstances under
which it was furnished.
(i) Apply any of the proceeds of any loan. advance or other
extension of credit by Bank to or in favor of Company, to the
purchase or carrying of any "margin stock" within the meaning
of Regulation U of the Board of Governors of the Federal
Reserve System, or any regulations, interpretations or rulings
thereunder.
10 Exhibit 10Y
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<PAGE>
(j) Make Capital Expenditures, excluding acquisitions of real
property, shall not exceed One Million Five Hundred Thousand
Dollars ($1,500,000.00), annually.
Capital Expenditures shall mean with respect to any Person,
all expenditures made and liabilities incurred for the
acquisition of assets which are not, in accordance with GAAP,
treated as expense items for such person in the year made or
incurred or as a prepaid expense applicable to a future year
or years.
(k) Shall not participate in any Acquisition of any Person,
individually or in the aggregate, in excess of Five Million
Dollars ($5,000,000.00).
Acquisition shall mean as applied to any business unit or
investment, means the acquiring or acquisition of such
business unit or investment by purchase, exchange, issuance of
stock or other securities, or by merger, reorganization or any
other method.
6. An "Event of Default" shall be deemed to have occurred or
exist under this Agreement upon the occurrence and/or existence of any of the
following conditions or events:
(a) Company shall fail to pay the principal of or interest on or
shall otherwise fail to pay any other amount owing by Company
to Bank, when due, under any of the Liabilities, and such
default in payment shall continue unremedied or uncured beyond
any applicable period of grace provided with respect thereto,
if any, in the relevant Loan Document(s);
(b) any representation, warranty, certification or statement made
or deemed to have been made by Company herein, or by any
Person(s) (including, without limit, Company) in any
certificate, financial statement or other document or
agreement delivered by or on behalf of Company in connection
with the Liabilities or any of the Loan Documents, shall prove
to be untrue in any material respect;
(c) Company shall fail to observe or perform any condition,
covenant or agreement of Company, set forth in Section 4(a)
hereof, for a period exceeding fifteen (15) days;
(d) Company shall fail to observe or perform any condition,
covenant or agreement of Company, set forth in Section 5
hereof, for a period exceeding five (5) days;
(e) Company shall fail to observe or perform any condition,
covenant or agreement of Company set forth herein;
(f) Company shall fail to observe or perform any condition,
covenant or agreement of Company set forth in any other Loan
Document (other than as provided in subparagraphs (a) and (c)
above), and such default shall remain unremedied or uncured
beyond any applicable period of grace or cure, if any,
provided with respect thereto;
11 Exhibit 10Y
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<PAGE>
(g) if there shall be any change, for any reason whatsoever, in
the management, including, but not limited to, the termination
of employment or title of William A. Bassett as Chairman and
CEO, or control of Company which, in the reasonable discretion
of Bank, could have a material adverse effect upon the
business, operations or condition (financial or otherwise) of
Company;
(h) whenever Bank, in good faith, deems the prospect of payment or
performance of any of the Liabilities to be impaired; or
(i) upon the occurrence or existence of any "Default" or "Event of
Default", as the case may be, set forth in any other Loan
Document.
7. Upon the occurrence and at any time during the continuance
or existence of any Event of Default, Bank may give notice to Company declaring
all outstanding Liabilities to be due and payable, whereupon all such
Liabilities then outstanding shall immediately become due and payable, without
further notice or demand, and any commitment or obligation, if any, on the part
of Bank to make loans or otherwise extend credit to or in favor of Company shall
immediately terminate. Further, upon the occurrence or at any time during the
continuance or existence of any Event of Default hereunder, Bank may collect,
deal with and dispose of all or any part of any security in any manner permitted
or authorized by the Michigan Uniform Commercial Code or other applicable law
(including public or private sale), and after deducting expenses (including,
without limitation, reasonable attorneys' fees and expenses), Bank may apply the
proceeds thereof in part or full payment of any of the Liabilities, whether due
or not, in any manner or order Bank elects. In addition to the foregoing, upon
the occurrence and at any time during the continuance or existence of any Event
of Default hereunder, Bank may exercise any and all rights and remedies
available to it as a result thereof, whether by agreement, by law, or otherwise.
8. Company hereby acknowledges and agrees that Company's
compliance with the terms and conditions set forth herein, and the absence of
any Event of Default hereunder, shall not, in any way whatsoever, limit,
restrict or otherwise affect or impair Bank's right or ability to make demand
for payment of any or all of the Liabilities which may be on a demand basis at
any time in Bank's sole and absolute discretion, with or without reason or
cause, and the existence of any Event of Default hereunder shall not be the sole
reason or basis for enabling Bank to make demand for payment of all or any part
of such Liabilities.
9. No forbearance on the part of the Bank in enforcing any of
its rights or remedies under this Agreement or any other Loan Document, nor any
renewal, extension or rearrangement of any payment or covenant to be made or
performed by Company hereunder or any such other Loan Document, shall constitute
a waiver of any of the terms of this Agreement or such Loan Document or of any
such right or remedy.
10. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Michigan.
11. All covenants, agreements, representations and warranties
by or on behalf of Company made in connection with this Agreement and any other
Loan Documents shall survive the
12 Exhibit 10Y
-----------
<PAGE>
borrowing hereunder or thereunder and shall be deemed to have been relied upon
by Bank. All statements contained in any certificate or other document delivered
to Bank at any time by or on behalf of Company pursuant hereto shall constitute
representations and warranties by Company.
12. Company agrees that it will pay all costs and expenses
incurred by Bank in connection with the preparation of this Agreement and any
other Loan Documents contemplated hereby, including, without limitation,
reasonable attorneys' fees and distributions of counsel for the Bank.
13. This Agreement shall inure to the benefit of and shall be
binding upon the parties hereto and their respective successors and assigns;
provided, however, that Company shall not assign or transfer any of its rights
or obligations hereunder or otherwise in respect of any of the Liabilities
without the prior written consent of Bank.
14. COMPANY AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY
JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR
CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVE ANY RIGHT
TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE LIABILITIES.
If the foregoing is acceptable to Company, please indicate such with the
authorized signature(s) of Company as provided below.
Very truly yours,
COMERICA BANK
By: /s/ Michael Orzco
------------------
Its: Vice President
-----------------
ACCEPTED AND AGREED:
DECORATOR INDUSTRIES, INC.
By: /s/ Michael K. Solomon
------------------------
Its: Vice President
--------------------
Dated: April 19, 2000
-----------------------
13 Exhibit 10Y
-----------
<PAGE>
SCHEDULE 4(a)
Permitted Encumbrances
1. UCC Financing Statement filed in the State of Indiana on March 25, 1999
with Key Bank National Association as Secured Party and Decorator
Industries, Inc. as Debtor covering all of debtor's equipment and
fixtures, including but not limited to machinery, parts, tools,
fixtures, furniture and accessories wherever located in Indiana,
together with all attachments, additions and accessions thereto, and
added and substituted parts, equipment and repairs now or hereafter
placed upon such property.
14 Exhibit 10Y
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<PAGE>
SCHEDULE 4(b)
Permitted Indebtedness
<TABLE>
<CAPTION>
Total Amount Due
----------------
<S> <C> <C>
1. Pennsylvania Industrial Financing Authority $163,037.00
2. Pennsylvania Economic Development Financing Authority $300,000.00
3. Indiana Development Financing Authority $1,455,000.00
</TABLE>
15 Exhibit 10Y
-----------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-START> JAN-02-2000
<PERIOD-END> APR-01-2000
<CASH> 972,913
<SECURITIES> 624,888
<RECEIVABLES> 5,082,743
<ALLOWANCES> 189,789
<INVENTORY> 6,051,724
<CURRENT-ASSETS> 12,999,798
<PP&E> 9,043,777
<DEPRECIATION> 3,243,500
<TOTAL-ASSETS> 22,934,879
<CURRENT-LIABILITIES> 6,257,972
<BONDS> 0
0
0
<COMMON> 888,999
<OTHER-SE> 13,626,812
<TOTAL-LIABILITY-AND-EQUITY> 22,934,879
<SALES> 13,391,582
<TOTAL-REVENUES> 13,391,582
<CGS> 10,688,670
<TOTAL-COSTS> 12,416,457
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 26,000
<INTEREST-EXPENSE> 20,180
<INCOME-PRETAX> 928,945
<INCOME-TAX> 348,000
<INCOME-CONTINUING> 580,945
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 580,945
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.18
</TABLE>
