<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended March 31, 2000.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to ______ .
Commission File Number: 0-16072
DECORA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 68-0003300
(State or other jurisdiction of I.R.S. Employer Identification No.)
incorporation or organization)
1 MILL STREET
FORT EDWARD, NEW YORK 12828
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (518) 747-6255
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $ .01 PAR VALUE
<PAGE> 2
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (section 229.405 of this chapter) 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. [ ]
As of July 12, 2000, the Registrant had 7,823,886 shares of Common Stock
outstanding. The aggregate market value of the Common Stock held by
non-affiliates as of July 12, 2000, was approximately $3,607,860 based
on the closing price of the registrant's common stock on The Nasdaq
National Market on that date.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
================================================================================
<PAGE> 3
PART I
ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF THE BUSINESS
Decora Industries, Inc. ("DII") is a leading, worldwide manufacturer and
marketer of self-adhesive, branded, consumer decorative products. DII, a holding
company, is a Delaware corporation operating through its wholly owned
subsidiaries, Decora, Incorporated ("Decora") and Decora Industries Deutschland
GmbH ("DI Deutschland"). DI Deutschland owns approximately 90% of the voting
stock of Konrad Hornschuch AG ("Hornschuch"). The main emphasis of DII and its
subsidiaries (the "Company") is the world-wide development of its branded,
self-adhesive consumer decorative products and of specialty industrial and
commercial products, utilizing proprietary adhesive systems and coating
technologies.
Con-Tact(R), Cobra(R) and Wearlon(R) are registered trademarks of Decora.
d-c-fix(R), ceramo-fix(R), skai(R) and sol-pal(R) are registered trademarks of
Hornschuch. Rubbermaid(R) is a registered trademark of Rubbermaid, Incorporated
("Rubbermaid").
HISTORY OF THE COMPANY
DII is a Delaware corporation organized in 1992. Decora was incorporated in New
York in 1990. In 1992, Utilitech Incorporated, a Delaware corporation, and then
the holder of all of the outstanding shares of Decora, was merged into DII, with
DII remaining as the surviving corporation. The Company's primary lines of
business, self-adhesive consumer decorative products, are best known under the
brands Con-Tact and d-c-fix. Con-Tact self-adhesive consumer products were first
introduced in the United States in the 1950's by Decora's upstate New York
operation which was formerly known as the Decora Division of United Merchants
and Manufacturers, Inc. ("UM&M"). This operation developed and introduced the
line and has always been its manufacturer; however, from 1981 through April
1998, Con-Tact products were distributed by Rubbermaid Incorporated
("Rubbermaid") pursuant to an exclusive distribution and manufacturing
agreement, initially, between Rubbermaid and UM&M, and later, between Rubbermaid
and the Company after the Company acquired the Decora Division assets from UM&M.
UM&M sold the Con-Tact brand name to Rubbermaid in 1983. The Company's
predecessor-in-interest, Utilitech, Incorporated, acquired the Decora Division
assets from UM&M in 1990 and the Company maintained the established relationship
with Rubbermaid until April 1998, when the Company acquired the Con-Tact brand
name back from Rubbermaid along with all the assets, product lines and market
position of Rubbermaid's entire Decorative Coverings Group ("DCG"). At the time
of the 1990 acquisition, the Company was a holding company for numerous
disparate industrial and telecommunication services businesses. In the early
1990's, a decision was made to rationalize these disparate businesses to focus
on the Company's core decorative products business. Consequently, the Company
underwent a significant divestiture program (which was completed in 1995) and in
1992 changed its name to "Decora Industries, Inc." to better reflect its core
business. After completing this divestiture program, the Company was primarily a
contract manufacturer of Con-Tact brand products for Rubbermaid and it focused
on improving manufacturing efficiencies, broadening its product lines and
enhancing its relationship with Rubbermaid.
1
<PAGE> 4
On October 1, 1997, the Company changed the course of its business significantly
by acquiring a majority interest in one of the largest manufacturers and
marketers of consumer decorative products in Europe, along with one of the most
well known self-adhesive consumer brands, thus beginning the transformation into
a vertically integrated, branded consumer products company. On that date, the
Company acquired 73.2% of the voting stock of Hornschuch through its newly
formed subsidiary, DI Deutschland (the "Hornschuch Acquisition"), a German
corporation organized in 1997. Since October 1997, DII Deutschland has since
increased its ownership of Hornschuch to approximately 90%. Hornschuch, which
was one of the world's largest independent manufacturers and marketers of
consumer self-adhesive products, is best known for its d-c-fix brand, which is
one of the most popular brands of such products outside of the United States.
Hornschuch also manufactures decorative and functional films for use by original
equipment manufacturers ("OEM's") in the automotive, building, furniture,
handbag, shoe and interior decoration markets.
Soon after the Hornschuch Acquisition, the Company entered into an acquisition
agreement with Rubbermaid for the assets of the DCG (the "Rubbermaid
Acquisition"). The Rubbermaid Acquisition was completed on April 29, 1998 and
included all the assets and brand names associated with three product lines: (i)
the Con-Tact self-adhesive product line, which is manufactured by Decora, (ii)
the Shelf Liner light-adhesive line, which was previously manufactured by
Rubbermaid, and (iii) the Grip Line non-adhesive covering line, which is
manufactured by third parties.
The Rubbermaid Acquisition completed the transformation of the Company from a
contract manufacturer of products for others to its current position as one of
the world's largest vertically integrated manufacturers and marketers of branded
consumer self-adhesive products.
In April 1999, the Company acquired the assets of EtchArt Inc., a manufacturer
of "Wallpaper" for Windows(TM), a line of window and glass coverings. This
acquisition complements the Company's strategy to diversify its core strength in
shelf lining products and additional distribution channels.
NARRATIVE DESCRIPTION OF THE BUSINESS
GENERAL
The Company is a manufacturer and marketer of branded, consumer, self-adhesive
decorative and surface coverings and of specialty industrial and commercial
products. The Company markets its consumer products primarily under the Con-Tact
and d-c-fix brands. These two consumer brands are considered to be two of the
most recognized brands of such products in the world, especially in the United
States and Europe. In the United States, the primary market for the Con-Tact
brand, products are distributed to leading retailers such as K-mart, Target, The
Home Depot and Wal-Mart where the products occupy prominent shelf space.
Similarly, in Germany, Italy and the Czech Republic, d-c-fix products are sold
directly to retail chains such as Brico, Metro and OBI. In the remainder of
Western Europe, Eastern Europe, South America, Africa, the Middle East and the
Far East, products under both brands are sold and distributed through a network
of approximately 45 wholesalers, independent distributors and agents.
2
<PAGE> 5
Decora and Hornschuch utilize similar manufacturing processes to produce a wide
variety of consumer and industrial products. Each finished product is assembled
from a range of basic components such as film and adhesive using a wide variety
of surface treatments and designs. Final performance attributes of these
products are determined by the specific product application and the Company's
product marketing strategy for end-use categories including (i) decorative
coverings for household surfaces including shelving and drawers, (ii)
transparent and semi-transparent decorative coverings for windows and other
glass surfaces, (iii) arts and crafts project materials and (iv) decorative and
surface protection coverings for do-it-yourself ("DIY") home resurfacing and
improvement projects.
The commercial and industrial products also use a broad range of film, release
and coating technologies. These products are sold to OEM's for use in (i)
furniture, automotive, handbag and shoe products, (ii) pressure-sensitive
hazardous marking tape products and (iii) coatings for industrial applications,
such as those utilizing the Company's proprietary release technology sold under
the brand name Wearlon.
INDUSTRY OVERVIEW
The Company operates within two segments: consumer household products and
industrial products. During the fiscal year ended March 31, 2000, sales of
consumer products and industrial products represented 67% and 33% of total
revenues, respectively. The Company's branded consumer products are manufactured
through the conversion of various films into complete functional, packaged
goods. These products are sold by retailers to consumers for a wide range of
applications including shelf lining, glass covering, furniture and door repair
and resurfacing, arts and crafts and general surface protection. Consumers
purchase these products based upon their ease of application, design, durability
and price. The products are sold in a wide variety of retail stores, ranging
from mass-merchants like Wal-Mart to individual, independently owned food, drug
and hardware stores.
The Company's manufacturing processes enable it to sell converted films beyond
its consumer lines into various industrial sectors. Various printed, coated and
textured films are sold to users and OEM's in diversified markets, principally
in Europe, for use in the manufacture of cabinets, furniture, automobiles,
luggage and shoes. Customers require high quality products with exact design
specifications and consistency as most products are intended to simulate the
appearance and texture of natural materials such as wood, stone and leather.
PRODUCTS AND MARKETS
The Company is a world leader in consumer, self-adhesive, surface covering
products and owns what management believes to be two of the most popular
consumer brand names in its markets, Con-Tact and d-c-fix. The Company also
manufactures films and other products for industrial and OEM applications. In
terms of geographic distribution, in fiscal 2000, sales to customers in the
United States, Germany and the rest of the world were 36%, 28% and 36% of net
sales, respectively. For additional product line and geographic segment
information, see Note 16 to the Consolidated Financial Statements included in
this report.
3
<PAGE> 6
North American Operations
Decora operates as a branded consumer products company with its Con-Tact brand
product offering. Con-Tact is a repositionable, self-adhesive decorative
covering material which is used for DIY applications and is marketed to four
strategic product categories including shelving, surface protection, arts and
crafts and glass covering. Con-Tact is the leader in the U.S. consumer
self-adhesive decorative market and is sold primarily in the housewares
departments of mass merchandisers and home improvement centers in the United
States. Con-Tact is manufactured by Decora utilizing a proprietary and patented
repositionable adhesive technology and is sold in roll form with a wide range of
finishes, including functional coatings, printed patterns, solid colors and
clear and textured films. In its shelving category, the Company also sells
Con-Tact brand Shelf Liner and Grip Line product lines that are also decorative
and functional covering materials. Shelf Liner is a light-adhesive covering
material which is used primarily as a removable shelf liner. Grip Liner is a
cushioned, non-adhesive surface covering with non-slip qualities also used
primarily for shelving applications. Decora intends to expand into and penetrate
additional consumer product segments with both existing and new products.
Decora has developed an industrial coatings business which markets a range of
proprietary coatings under the Wearlon brand name. These non-stick, yet
abrasion-resistant, coatings are water-based and cure at room temperature,
providing the industrial market with an environmentally friendly coating system
for a range of specialized applications. Decora also markets various other
industrial products, including commercial laminating, coating and printing
services and a line of high quality hazardous marking tapes sold under Decora's
Cobra brand name.
European Operations
Hornschuch's net sales for the twelve months ended March 31, 2000 were comprised
48% from consumer products and 52% from industrial products. Hornschuch's
consumer products, in addition to d-c-fix self-adhesive products, include
tablecloths and place mats.
Hornschuch's consumer products historically have been sold through the
hardware/DIY market, in contrast to those of Decora which typically have been
marketed as a housewares application. As a result, Hornschuch's products differ
somewhat from Decora's Con-Tact brand products in range of design, grade of
materials and utility. Through Hornschuch, management expects to introduce
Decora's housewares market-oriented products into Europe. Similarly, management
expects to introduce products that currently target the DIY market segment in
Europe into the United States to address product line gaps in Decora's DIY
market offerings.
In addition to its consumer decorative products, Hornschuch's industrial
business includes films processed specifically for sale primarily into the
fashion, automotive, laminate and construction markets, which accounted for
approximately 15%, 13%, 19% and 5% respectively, of Hornschuch's net sales for
fiscal 2000. The fashion films line includes synthetic leathers and other
materials which are sold for use in the manufacture of shoes, upholstery and
handbags under the brand name Skai. Hornschuch's automotive line primarily
consists of artificial leather for use in automobile interiors, and its
laminates line consists of films which are laminated to wood, metal and
injection molded products during the manufacturing of furniture and cabinetry.
4
<PAGE> 7
The Company's foreign operations are conducted primarily through Hornschuch. The
Company's European operations are subject to special risks inherent in doing
business outside the United States, including governmental instability, war and
other international conflicts, civil and labor disturbances, requirements of
local ownership, partial or total expropriation, nationalization, currency
devaluation, foreign exchange controls and foreign laws and policies, each of
which may limit the movement of assets or funds or result in the deprivation of
contract rights or the taking of property without fair compensation.
MARKETING AND DISTRIBUTION
Prior to the Hornschuch Acquisition and the Rubbermaid Acquisition, the Company,
as primarily a contract manufacturer, did not incur traditional sales and
marketing expenses. In the past, Rubbermaid had sold and distributed Decora's
Con-Tact products and Decora conducted its international sales primarily through
a limited number of distributors. As a result of the two acquisitions, the
Company now performs full sales and marketing activities to support its
integrated manufacturing operations and sells directly to retailers. During a
nine month transition period following the Rubbermaid Acquisition, Decora
established its own marketing and sales team and its own distribution system and
since January 1999 has been operating without any further services from
Rubbermaid. Decora's consumer products are warehoused and delivered to customers
by a third party logistics services provider.
Hornschuch has complete marketing and distribution operations which handle sales
of consumer products in Germany. In addition, approximately 45 independent
distributors and sales representatives in 100 countries worldwide purchase
product directly from Hornschuch and resell to customers. In the Czech Republic
and Italy, subsidiaries of Hornschuch also make direct sales. Industrial
products are marketed to OEM's through a small group of technically-oriented
sales persons.
CUSTOMERS
Decora sells its consumer Con-Tact products primarily to large retailers such as
K-mart, Target, The Home Depot and Wal-Mart as well as to wholesalers who sell
to smaller retailers and food, drug and hardware stores. Sales of decorative
coverings products are concentrated. During fiscal 2000, sales to Decora's top
five customers represented 58% of Decora's net sales. The loss of any one or
more of these customers could have a material adverse effect on Decora's
business and financial condition. Decora also sells consumer products
internationally and has industrial product customers in the U.S. which purchase
its tape and coating products.
Hornschuch's consumer decorative coverings products known as d-c-fix are sold
worldwide to large and small retailers in Germany and to independent
distributors outside of Germany. The top five customers for Hornschuch's
decorative products in fiscal 2000, fiscal 1999 and for the post acquisition six
month period ended March 31, 1998 represented 10%, 10% and 15% of its net sales,
respectively. The loss of any one or more of these customers could have a
material adverse effect on Hornschuch's business and financial condition. For
fiscal 2000, fiscal 1999 and for the six months ended March 31, 1998,
approximately 30%, 32% and 31%, respectively, of Hornschuch's net sales of
decorative products were made in Germany and the remainder primarily
5
<PAGE> 8
in other parts of Europe, the Far East and the Middle East. During fiscal 2000,
1999 and for the six months ended March 31, 1998, a single distributor in Russia
constituted 9%, 8% and 18% of Hornschuch's total decorative products net sales,
respectively. Hornschuch's remaining divisions sell to the OEM market and each
has diversified customers, except for the automotive division which sells
primarily to four or five automotive manufacturers.
COMPETITION
Consumer Decorative Coverings
The Con-Tact product line has long held the leading market position in the
United States. The competition is divided among several smaller companies which
have slightly increased their market share in the last several years in certain
product categories. The Shelf Liner product line has dominated the light
adhesive market with a leading market share for a significant period, while the
Grip Line product line is a significant player in a larger field of
approximately four competitors, only one of which the Company believes has a
market share in this category which is equal to Decora's. Although each product
has a solid competitive position, availability of retail shelf space in the
competitive retail market can be impacted both by products in direct competition
with Decora's products and by products serving different functions than Decora's
products.
Hornschuch's decorative coverings products have been in the market since 1957.
In Germany, Hornschuch holds an approximately 40% market share, while outside of
Germany and in other countries around the world, Hornschuch competes with
approximately ten smaller competitors.
The Company's decorative products compete effectively on the basis of brand name
recognition, selection, price, service and quality of products, as well as
retail shelf space and location.
Industrial Products
The Company sells industrial products in a variety of market segments including
automotive, clothing, textile and furniture manufacturing. The Company does not
hold a significant market share in any of these markets and competes with many
larger and smaller competitors on the basis of quality, performance, customer
service and price.
MANUFACTURING
North American Operations
The majority of the products sold by Decora are produced at its facility in Fort
Edward, New York. Decora also utilizes outside suppliers when required for
certain specific printing, coating and finishing purposes for which it does not
currently have sufficient industrial capabilities. Decora purchases its Grip
Liner products from third party suppliers. Management anticipates making capital
expenditures in amounts appropriate to maintain operating
6
<PAGE> 9
efficiencies and add additional capacity as warranted by product demand and mix.
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations "Liquidity and Capital Resources."
The primary raw materials used in Decora's products are paper, polyvinyl
chloride ("PVC"), adhesives, inks, silicone and other chemicals. Decora uses two
primary suppliers for its PVC, and relations with such suppliers are good.
Decora believes that it has alternative sources of supply for all of its
significant and primary raw materials.
European Operations
The majority of the products sold by Hornschuch are produced at its facility in
Weissbach, Germany. Historically, Hornschuch has entered into arrangements with
various suppliers for certain specific printing purposes and in October 1999
completed the installation of new printing capacity. Hornschuch is eliminating
its outside suppliers as such manufacturing capacity is made available to it.
Management of Hornschuch expects to increase its capital expenditures over the
next three years to increase efficiencies and to add additional capacity when
required (see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations").
As with Decora, the primary raw materials used in Hornschuch's products are
paper, PVC, adhesives, inks, silicone and other chemicals. Hornschuch uses at
least two primary suppliers for each of its raw materials, and relations with
such suppliers are good. Management believes that Hornschuch has alternative
sources for its significant and primary raw materials.
SEASONALITY
Decora has generally experienced higher sales of consumer products and earnings
in its first two fiscal quarters as a result of increased seasonal demand for
Con-Tact products in the late spring and summer. The effect of this seasonality
on the Company's consolidated operations has been somewhat moderated by the
Hornschuch Acquisition. Overall, Hornschuch's historical sales have demonstrated
little seasonality; however, sales patterns have varied from year to year.
RESEARCH AND DEVELOPMENT
The Company recorded expenses of $3,090,000, $2,532,000 and $1,024,000 in fiscal
2000, fiscal 1999 and fiscal 1998, respectively for research and development.
North American Operations
Decora has reduced its research and development function and currently maintains
a small internal research group. The majority of recent efforts have been placed
on the refinement and enhancement of existing products; however, that group also
continues to pursue new consumer and industrial products and applications
periodically. As a result of these research and development efforts, the Company
has refined a high-end liquid coating product for certain industrial
applications sold under the name Wearlon. Wearlon is a water-based co-polymer
which management believes is a breakthrough in coatings requiring non-stick and
slip-lubricity properties. Decora owns a patent on a
7
<PAGE> 10
portion of this technology and certain prominent manufacturers are using Wearlon
industrial maintenance coating systems within their production lines for mold
release and non-stick applications.
European Operations
The majority of Hornschuch's recent efforts has been placed on the refinement
and enhancement of products already developed; however, a limited amount of
research and development is devoted to the pursuit of new industrial products
and applications. Recent research and development has de-emphasized automotive
and fashion products and focused primarily on the development of laminated film
products for desktops, tabletops and bookcases and new films for use in
decorative product manufacturing.
Through collaboration on research and development efforts between Decora and
Hornschuch, management believes that savings will result from the elimination of
efforts as each of the firms currently markets products that the other was
planning to develop. Management further believes that collaboration on research
and development will also result in a quicker response to new product
development through the sharing of technical expertise, although no assurance
can be given that this will prove to be the case. In particular, management
expects to benefit from the combined significant expertise in adhesive
technology developed by Decora and significant expertise in film technology
developed by Hornschuch.
PROPRIETARY RIGHTS
North American Operations
Decora owns the rights to the pressure sensitive adhesive technology used in the
manufacturing of its self-adhesive Con-Tact products and owns the rights to the
Con-Tact trade name throughout most of the world. Con-Tact is a registered
trademark in over 50 countries worldwide; however, sales of Con-Tact products
outside of North America have been minimal. In connection with the Rubbermaid
Acquisition, Decora also acquired 20 unregistered trade names. In addition,
Decora owns the Cobra, Wearlon and Decora trade names. Decora is not aware of
any circumstances that would materially impair its trademarks. Decora has also
applied in the United States for trade name and patent protection for certain of
its other new products and has applied for foreign protection for certain of its
technologies and trademarks.
European Operations
Hornschuch does not currently own any patents; rather, Hornschuch's management
believes that Hornschuch's products are protected under the laws of Germany and
elsewhere with respect to proprietary information. Hornschuch owns 21 German
trademark registrations, four U.S. trademark registrations and 151 trademark
registrations in all countries combined, where Hornschuch is active.
Hornschuch's trademarks include d-c-fix, ceramo-fix, furnit, howesol, laif,
noblessa, select, skai and sol-pal.
8
<PAGE> 11
Management considers seven of Hornschuch's trademarks, including the original
d-c-fix, skai, laif, furnit, select, howesol and sol-pal, to be important to
Hornschuch's business. Hornschuch is not aware of any circumstances that would
materially impair its trademarks.
The Company believes that its commercial position is enhanced by the patents it
owns as well as the know-how and trade secrets it has developed. Although the
Company seeks to protect its proprietary information by obtaining patents,
registering trade names and entering into trade secret and confidentiality
agreements, there is no guarantee that competitors will not misappropriate
proprietary information or develop similar products that are outside the
protection of the Company's patents, trade secrets and other proprietary rights.
GOVERNMENTAL REGULATION
The operations of Decora and Hornschuch are subject to regulation by various
federal, state and local authorities regarding the manufacturing of their
products. The Company's manufacturing facilities and products are subject to
periodic inspection by federal, state and local authorities. The Company
believes that it is currently in substantial compliance with all material
governmental laws and regulations and maintains all material permits and
licenses relating to its operations. Nevertheless, there can be no assurance
that the Company is in full compliance with all such laws and regulations or
that it will be able to comply with any future laws and regulations in a
cost-effective manner. Failure by the Company to comply with applicable laws and
regulations could subject it to civil remedies, including fines, injunctions,
recalls or seizures, as well as potential criminal sanctions, which could have a
material adverse effect on the Company's business, financial condition or
results of operations.
ENVIRONMENTAL MATTERS
Decora's and Hornschuch's operations and properties are subject to numerous U.S.
and German federal, state and local environmental laws and regulations relating
to the emission, discharge, storage, treatment, handling, generation,
transportation, release, disposal, investigation and remediation of certain
materials, substances and wastes used in or resulting from their respective
operations. As with other companies engaged in similar businesses, the nature of
the Company's operations exposes it to the risk of liabilities or claims with
respect to environmental matters, including those relating to the disposal and
release of hazardous substances.
Based on Decora's experience to date, Decora believes that the future cost of
compliance with existing environmental laws and regulations and liability for
known environmental conditions will not have a material adverse effect on the
Company's business, financial condition or results of operations. Decora has not
made any material expenditures during the last three fiscal years in order to
comply with environmental laws or regulations.
Hornschuch's manufacturing facility is located on property which has been used
for manufacturing purposes for the last 100 years. The current facilities
include water treatment and wastewater treatment facilities and an energy
production facility. Management of Hornschuch reports that certain environmental
issues may exist with respect to both Hornschuch-owned and third party waste
disposal sites, wastewater discharges and dust and hot air emissions. Hornschuch
management believes that any costs associated any remediation activities will
not be material and will not materially impact operations.
9
<PAGE> 12
The Company cannot predict what environmental or health and safety legislation
or regulations will be enacted in the future or how existing or future laws or
regulations will be enforced, administered or interpreted, nor can it predict
the amount of future expenditures which may be required in order to comply with
such environmental or health and safety laws or regulations or to respond to new
environmental claims.
EMPLOYEES
At March 31, 2000, DII employed seven people in its corporate office, Decora
employed approximately 209 people and Hornschuch employed approximately 741
people.
As of the same date, 125 of Decora's employees were represented by Local #13
United Paper Workers International Union (AFL-CIO) under a contract which was
renegotiated and renewed in March 1999 and expires in March 2002.
As of the same date, 701 of Hornschuch's employees were represented by a labor
union. Almost all of the union members belong to the Textile and Clothing trade
union, which merged into the Metal trade union effective April 1, 1998. The most
recent collective agreement for Hornschuch's employees (including both blue
collar workers and white collar employees below management level) was signed in
June 1999 and expires in August 2000.
Neither Decora nor Hornschuch has experienced any work stoppage in recent years,
and management believes that relations with the Company's labor force are good.
ITEM 2. PROPERTIES
Decora owns its 220,000 square foot manufacturing facility located on
approximately 12 acres in Fort Edward, New York. The Company's corporate
headquarters are located within this facility. The Fort Edward property is
subject to two mortgages securing indebtedness of Decora of up to $2,225,000 and
$2,000,000, respectively, to Ableco Finance LLC ("Ableco"). These mortgages were
executed by Decora in connection with the $27 million financing which Decora
obtained from Ableco in May 2000. See discussion in Part II, Item 7, entitled
"Management's Discussion and Analysis of Financial Conditions - Liquidity and
Capital Resources."
Decora also leases a 10,000 square foot manufacturing and office facility in
Longwood, Florida and a 10,000 square foot office facility in North Ridgeville,
Ohio. In addition, Decora warehouses inventory in Aurora, Ohio, Atlanta, Georgia
and Rancho Cucamonga, California at locations leased by a third party who
provides warehousing and distribution services to Decora.
Hornschuch owns its approximately 1.0 million square foot manufacturing and
office facility located on approximately 48 acres in Weissbach, Germany.
Through a subsidiary corporation, Hornschuch also owns two commercial real
estate properties which are unrelated to its operating business and which are
being held for sale. These properties collateralize bank loans totaling
approximately $9,586,000. Although these properties are currently generating
rental income sufficient to cover related expenses, no assurance can be given
that this will continue to be true in the future. (See discussion in Part II,
Item 7, entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations").
10
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS
In April 1998, the Company acquired the assets of the Decorative Coverings Group
of Rubbermaid Incorporated pursuant to the terms of an asset purchase agreement
(the "Asset Purchase Agreement"). Decora and Rubbermaid also entered into a
service agreement pursuant to which Rubbermaid agreed to provide certain
logistics services for a nine-month transition period following the acquisition
(the "Transition Services Agreement"). On or about April 1, 1999, the Company
commenced a proceeding against Rubbermaid with the American Arbitration
Association. The Company has alleged causes of action for breach of contract,
breach of fiduciary duty, fraud and deceit, conversion, breach of the covenant
of good faith and fair dealing, constructive fraud, and money had and received.
The Company's claims arise from Rubbermaid's failure to perform its obligations
as set forth in the Transition Services Agreement. The Company seeks damages in
excess of $5,000,000 as a result of Rubbermaid's wrongful acts. The Company is
proceeding with the prosecution of its claims in arbitration.
On July 19, 1999, Rubbermaid filed a "counterclaim" against the Company in
connection with the parties' rights and obligation under the Transition Services
Agreement. Rubbermaid claims an entitlement to an amount in excess of $1,280,000
as a result of services it allegedly performed and/or payments it allegedly made
in connection with the Transition Services Agreement. The Company intends to
continue to vigorously defend itself against these claims, which it believes to
be unfounded.
The date of the arbitration hearing with respect to the above matter is August
28, 2000.
On September 16, 1999, the Company commenced a legal action against Rubbermaid
in the United States District Court for the Northern District of Ohio. In the
action, the Company has alleged causes of action for fraudulent and negligent
misrepresentations in connection with the Asset Purchase Agreement. The Company
claims that Rubbermaid fraudulently induced Decora into acquiring Rubbermaid's
Decorative Coverings Group by means of certain material misrepresentations,
including misrepresentations with respect to the status of certain of the
Decorative Covering Group's major customer accounts. The Company seeks damages
in excess of $14,000,000 as a result of Rubbermaid's wrongful acts. In response,
Rubbermaid generally has denied the allegations in the Company's complaint but
has not asserted any affirmative claims, such as a cross-complaint, against the
Company, except that in its prayer for relief, Rubbermaid requests that it be
awarded costs and attorney's fees to which it may be entitled under the terms of
the Asset Purchase Agreement if it were the prevailing party in the action. The
parties have stipulated and the federal court has ordered that the claims
asserted in the federal action are to be arbitrated and that the arbitration is
to commence no later than August 28, 2000.
The Company and its subsidiaries are defendants in pending actions which, in the
opinion of management of the Company, are not material to the Company's
financial condition or results of operations. Although no assurances can be
given regarding the ultimate outcome of such matters, the Company has accrued
amounts for defense and settlement costs which the Company considers adequate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
11
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
a. Market Information
Prior to August 17, 1998, the Company's common stock was traded on The
Nasdaq SmallCap Market under the symbol "DECO." From August 17, 1998
until May 18, 2000, the Company's common stock was traded on The Nasdaq
National Market under the same symbol. On May 16, 2000, the Nasdaq
Listings Qualifications Panel (the "Panel") determined to transfer the
listing of the Company's securities to The Nasdaq SmallCap Market
effective May 19, 2000 because the closing bid price of the Company's
common stock had been below $5.00, the minimum required closing bid
price for Nasdaq National Market securities, for a period in excess of
30 consecutive trading days. The transfer of the listing of the
Company's common stock to The Nasdaq SmallCap Market was contingent
upon, among other requirements, the Company maintaining a minimum
closing bid price of $1.00. Because the Company had evidenced a closing
bid price of less than $1.00 per share during the month of May, Nasdaq
determined that it was unable to approve the Company's application for
listing on The Nasdaq SmallCap Market. However, pursuant to the Panel's
authority under Nasdaq Marketplace Rule 4300, the Panel determined to
allow the Company to continue to trade on the Nasdaq SmallCap Market
under a conditional listing until August 23, 2000. On or before this
date the Company must evidence a closing bid price of at least $1.00 per
share; and immediately thereafter, the Company must continue to evidence
a closing bid price of at least $1.00 per share for a minimum of ten
consecutive trading days or possibly a longer period in the discretion
of the Panel. In the event the Company is unable to comply with the
minimum closing bid requirements described above, its common stock may
be delisted from the Nasdaq SmallCap Market. Effective June 12, 2000,
the trading symbol of the Company's securities was changed from "DECO"
to "DECOC" to indicate the conditional nature of the Company's listing.
b. Stock Price Information
The following table sets forth the high and low sales prices of the
Company's Common Stock for the periods indicated, as reported by The
Nasdaq Stock Market. Such prices reflect a one-for-five reverse stock
split of the Company's Common Stock which became effective on December
29, 1997.
<TABLE>
<CAPTION>
Sales Prices
High Low
---- ---
<S> <C> <C>
Fiscal 1999:
First Quarter 7 7/8 5 1/2
Second Quarter 7 15/16 4
Third Quarter 8 3/16 3 11/16
Fourth Quarter 8 6
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 2000:
First Quarter 6 1/2 5 3/8
Second Quarter 6 5/16 4 9/16
Third Quarter 5 1/8 2 1/2
Fourth Quarter 3 1/2 2 7/16
</TABLE>
The Company has also authorized a class of preferred stock, although no
shares of preferred stock have been issued.
c. Approximate Number of Holders of Common Stock.
There were 677 holders of record of Common Stock as of June 19, 2000.
d. Dividends
The Company has never paid a cash dividend and intends to retain
earnings, if any, for use in its business. In addition, the Company's
agreements with its lenders restrict the ability of the Company to pay
cash dividends.
e. Recent Sales of Unregistered Securities
The Company believes that the transactions described below in which
securities were sold or granted were exempt from registration under the
Securities Act of 1933 by virtue of Section 4(2) thereof as transactions
not involving any public offerings. In each transaction, the number of
investors was limited, the investors were provided with information
about the Company and/or access to such information, and restrictions
were placed on resale of the securities.
<TABLE>
<CAPTION>
Date Title Amount Consideration Purchaser
------ ------------------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
6/1/99 Options to purchase 125,000(1) Services Employee
common stock
10/1/99 Options to purchase 150,000(2) Services Employee
common stock
10/1/99 Options to purchase 10,000(3) Services Director
common stock
10/1/99 Options to purchase 52,400(4) Services Director
common stock
10/1/99 Options to purchase 15,000(5) Services Director
common stock
</TABLE>
13
<PAGE> 16
<TABLE>
<S> <C> <C> <C> <C>
10/1/99 Options to purchase 52,400(6) Services Director
common stock
2/1/00 Options to purchase 200,000(7) Services Employee
common stock
2/1/00 Options to purchase 30,000(8) Services Employee
common stock
2/1/00 Options to purchase 50,000(9) Services Employee
common stock
2/1/00 Options to purchase 150,000(10) Services Employee
common stock
2/1/00 Options to purchase 100,000(11) Services Employee
common stock
2/1/00 Options to purchase 100,000(12) Services Employee
common stock
2/1/00 Options to purchase 100,000(13) Services Employee
common stock
2/1/00 Options to purchase 150,000(14) Services Employee
common stock
</TABLE>
----------------
(1) These options have an exercise price of $6.0625 and originally expired
on May 31, 2004. 41,666 of these options vested immediately upon grant.
The remaining 83,334 options were to have vested in increments of 27,778
on each of June 21, 2000, June 21, 2001 and June 21, 2002. As the
recipient ceased to be employed by the Company in May 2000, all of his
options will expire in August 2000.
(2) These options originally were granted on January 7, 1992 at an exercise
price of $5.60 per share (after giving effect to the one-for-five
reverse stock split which was effective on December 29, 1997) and
originally expired on December 30, 1996. In October 1996, the expiration
date of the options was extended to December 30, 1999. On October 1,
1999, the Board of Directors extended the expiration date of the options
to December 30, 2002. On February 1, 2000, the expiration date of the
options was extended to May 31, 2005. See also footnote 10. The exercise
price remains the same.
(3) These options originally were granted on July 5, 1994 at an exercise
price of $6.25 per share (after giving effect to the one-for-five
reverse stock split which was effective December 29, 1997) and
originally expired on July 4, 1999. On October 1, 1999, the Board of
Directors extended the expiration date of the options to July 4, 2002.
The exercise price remains the same.
(4) These options originally were granted on January 7, 1992 at an exercise
price of $5.60 per share (after giving effect to the one-for-five
reverse stock split which was effective December 29, 1997) and
originally expired on December 30, 1996. In October 1996, the expiration
date of the options was extended to December 30, 1999. On October 1,
1999, the Board of Directors extended the expiration date of the options
14
<PAGE> 17
to December 30, 2002. The exercise price remains the same.
(5) These options originally were granted on July 5, 1994 at an exercise
price of $6.25 per share (after giving effect to the one-for-five
reverse stock split which was effective December 29, 1997) and
originally expired on July 4, 1999. On October 1, 1999, the Board of
Directors extended the expiration date of the options to July 4, 2002.
The exercise price remains the same.
(6) These options originally were granted on January 7, 1992 at an exercise
price of $5.60 per share (after giving effect to the one-for-five
reverse stock split which was effective December 29, 1997) and
originally expired on December 30, 1996. In October 1996, the expiration
date of the options was extended to December 30, 1999. On October 1,
1999, the Board of Directors extended the expiration date of the options
to December 30, 2002. The exercise price remains the same.
(7) These options have an exercise price of $5.00 and expire on February 1,
2005. These options vested upon the date of grant.
(8) These options originally were granted on August 15, 1994 at an exercise
price of $10.00 (after giving effect to the one-for-five reverse stock
split which was effective on December 29, 1997) and originally expired
on August 14, 1997. Pursuant to the terms of the original option
agreement, these options vested if the average price of the Company's
common stock reached $15.00 per share (on a post reverse split basis).
In August 1996, the Company reset the exercise price at $7.50 per share
(on a post reverse split basis), extended the term of the options to
August 1998, and amended the vesting schedule so that the options would
vest if the average price of the Company's common stock reaches $10.00
per share (on a post-reverse split basis) for 30 consecutive days. In
March 1998, the Company extended the term of the options to August 2001.
On February 1, 2000, the expiration date of the options was extended to
May 31, 2005. The exercise price and vesting terms remain the same.
(9) These options originally were granted on August 15, 1994 at an exercise
price of $10.00 per share (after giving effect to the one-for-five
reverse stock split which was effective on December 29, 1997) and
originally expired on August 14, 1997. Pursuant to the terms of the
original option agreement, these options vested if the average price of
the Company's common stock reached $20.00 per share (on a post reverse
split basis). In August 1996, the Company reset the exercise price at
$7.50 per share (on a post reverse split basis), extended the term of
the options to August 1998, and amended the vesting schedule so that the
options would vest if the average price of the Company's common stock
reaches $15.00 per share (on a post reverse split basis) for 30
consecutive days. In March 1998, the Company extended the term of the
options to August 2001. On February 1, 2000, the expiration date of the
options was extended to May 31, 2005. The exercise price and vesting
terms remain the same.
(10) These options originally were granted on January 7, 1992 at an exercise
price of $5.60 per share (after giving effect to the one-for-five
reverse stock split which was effective on December 29, 1997) and
originally expired on December 30, 1996. In October 1996, the Company
extended the expiration date of the options to December 30, 1999. On
October 1, 1999, the Board of Directors extended the expiration date of
the options to December 30, 2002. On February 1, 2000, the expiration
date of the options was extended to May 31, 2005. See also footnote 2.
The exercise price remains the same.
(11) These options originally were granted on February 19, 1998 at an
exercise price of $5.50 and originally expired on February 18, 2003. On
February 1, 2000, the expiration date of the options was extended to May
31, 2005. These options vested on February 19, 1998. The exercise price
remains the same.
(12) These options originally were granted on February 19, 1998 at an
exercise price of $5.50 and originally
15
<PAGE> 18
expired on February 18, 2003. On February 1, 2000, the expiration date
of the options was extended to May 31, 2005. These options vested on
February 19, 1999. The exercise price remains the same.
(13) These options were originally granted on February 19, 1998 at an
exercise price of $5.50 and originally expired on February 18, 2003. On
February 1, 2000, the expiration date of the options was extended to May
31, 2005. These options vested on February 19, 2000. The exercise price
remains the same.
(14) These options originally were granted on June 8, 1999, effective May 1,
1999, and originally expired on April 30, 2004. On February 1, 2000, the
expiration date of the options was extended to May 31, 2005. The
exercise price remains the same.
ITEM 6. SELECTED FINANCIAL INFORMATION.
The following selected financial data of the Company are derived from the
consolidated financial statements that have been audited by
PricewaterhouseCoopers LLP as to all years.
The following table should be read in conjunction with the Company's historical
consolidated financial statements and the notes thereto appearing elsewhere in
this Form 10-K. Unless otherwise indicated, none of the information in the table
includes discontinued operations of the Company. See also Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
16
<PAGE> 19
DECORA INDUSTRIES, INC.
SELECTED FINANCIAL DATA
For the five years ended March 31, 2000(1)
(In thousands except per share data)
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------------------------------------
Statement of Operations Data: 2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 162,450 $ 176,577 $ 98,407 $ 41,082 $ 38,828
Operating income 1,985 21,560 11,049 4,726 4,108
Income (loss) from continuing operations (22,046) 3,696 2,730 3,566 2,919
Extraordinary item, net of income taxes -- (2,019) -- -- --
--------- --------- --------- --------- ---------
Net income (loss) $ (22,046) $ 1,677 $ 2,730 $ 3,566 $ 2,919
========= ========= ========= ========= =========
Basic income (loss) per share(2):
Continuing operations $ (2.87) $ 0.50 $ 0.38 $ 0.51 $ 0.45
Extraordinary item, net of income taxes -- (0.27) -- -- --
--------- --------- --------- --------- ---------
Net income(2) $ (2.87) $ 0.23 $ 0.38 $ 0.51 $ 0.45
========= ========= ========= ========= =========
Diluted income (loss) per share(2):
Continuing operations $ (2.87) $ 0.44 $ 0.35 $ 0.46 $ 0.44
Extraordinary item, net of income taxes -- (0.24) -- --
--------- --------- --------- --------- ---------
Net income(2) $ (2.87) $ 0.20 $ 0.35 $ 0.46 $ 0.44
========= ========= ========= ========= =========
Balance Sheet Data:
Total Assets $ 202,419 $ 220,739 $ 131,216 $ 37,189 $ 36,157
Working capital $ (1,410) $ 34,657 $ 16,133 $ 6,631 $ 1,460
Long-term obligations $ 122,253 $ 164,663 $ 74,540 $ 18,817 $ 20,299
Stockholders equity (deficit) $ (6,323) $ 18,865 $ 18,089 $ 14,503 $ 10,139
Cash dividends per common share(3) -- -- -- --
</TABLE>
(1) The selected historical operating data for the fiscal years ended March
31, 2000 and 1999 reflect the results following the Rubbermaid
Acquisition that was completed on April 29, 1998. Additionally, the
historical operating data in fiscal 2000, fiscal 1999 and in fiscal 1998
reflect the results of Hornschuch since the Hornschuch Acquisition on
October 1, 1997. The Rubbermaid Acquisition and the Hornschuch
Acquisition materially impact the comparability of the information
reflected in the selected financial data table for fiscal 2000, 1999 and
1998 to that of prior years (see Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations").
(2) Per share amounts reflect a one-for-five reverse stock split which
became effective on December 29, 1997.
(3) The Company has not paid dividends during the five years ended March 31,
2000 and does not anticipate paying cash dividends in the foreseeable
future.
17
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
During fiscal 2000, the Company completed its transformation from a contract
manufacturer operating under an exclusive agreement with Rubbermaid as it
existed prior to October 1997, to the vertically integrated, international
consumer products company it is today. Fiscal 2000 was the second year to
include a full twelve months of results from Hornschuch and, in North America,
significant effort and investment was required to build a sales, marketing and
product delivery infrastructure following the acquisition of the Con-Tact brand
and related product lines in April 1998. During the year, management focused on
completing the transitioning of these new operations and customer relationships
from Rubbermaid and setting the course for new product expansion and
segmentation with emphasis on marketing tailored product offerings to specific
market segments and establishing an integrated global marketing strategy.
On April 29, 1998, the Company acquired the assets of the Decorative Products
Group ("DCG") from Rubbermaid for an aggregate cost, including transaction
costs, of approximately $66 million. The assets acquired included: (i) the
Con-Tact self-adhesive line, which is manufactured by Decora, (ii) the Shelf
Liner light-adhesive line, which was manufactured by Rubbermaid, and (iii) the
Grip Line non-adhesive covering line, which is manufactured by third parties.
The Rubbermaid Acquisition has enabled Decora, which previously had been
primarily only a manufacturer of Con-Tact, to integrate the marketing, sales and
distribution of the complete category of decorative covering products with its
manufacturing capabilities. In conjunction with the financing of the Rubbermaid
Acquisition, the Company refinanced a substantial portion of its outstanding
debt and made significant investments which were required to integrate the
acquired assets into the Company's business during a nine month transition
period following the acquisition. During this nine month period, Decora
established a totally new sales, marketing, customer service and distribution
management team and operation in its new North American headquarters in North
Ridgeville, Ohio, installed new financial and enterprise resource planning
software and hardware systems, established a third party warehousing and
distribution service to handle consumer product shipments in North America and
relocated acquired manufacturing operations to its Fort Edward, New York
manufacturing facility. While executing this transformation, the Company strove
to strengthen customer relationships and interest in the Con-Tact product line
which had deteriorated during the past several years.
In Europe, the Company's main emphasis was to solidify its management structure,
a process which was completed last year. Hornschuch's operations were negatively
impacted by a soft economy in Germany and by economic crises in Russia and the
Far East. Despite these challenges, Hornschuch was able to achieve some
offsetting gains in other product segments and to pursue the revitalization of
its consumer product offering, laying the groundwork for the potential
broadening of its market reach in fiscal 2000 while integrating its consumer
product plans with the Company's global marketing and product strategy.
As a result of the Rubbermaid Acquisition completed during fiscal 1999 and the
Hornschuch Acquisition completed in fiscal 1998, the Company has established
itself as the worldwide market leader in the self- adhesive consumer product
market with significant competitive strengths including dominant brand
recognition, strong
18
<PAGE> 21
product placement with retailers, vertically integrated manufacturing
operations, proprietary technologies, broad product lines and cross-selling
opportunities. The Company's strategy is to utilize these competitive strengths
in order to build on its share of market, increase margins, and, as a result to
increase shareholder value.
The results of operations of the Company reflect the results associated with the
Rubbermaid Acquisition since April 29, 1998 and the results of Hornschuch and DI
Deutschland (unless otherwise noted, in this section, financial information
regarding DI Deutschland represents the consolidated results and financial
position of Hornschuch and DI Deutschland) since the acquisition on October 1,
1997, thus affecting the comparability of results between the three years as
well as to those of prior years.
RESULTS OF OPERATIONS
This annual report on Form 10-K (the "10-K") includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical facts, including, without
limitation, the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and located elsewhere herein
regarding company and industry prospects are forward-looking statements.
Although management believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from management's expectations are disclosed
in this Form 10-K.
Prior to October 1997, the Company was operating primarily as a toll
manufacturer under an exclusive agreement with Rubbermaid Incorporated with
approximately 90% of its sales to Rubbermaid. Since October 1, 1997, the Company
has been transforming itself into a vertically integrated, world-wide leader in
the self-adhesive consumer decorative products category through a series of
acquisitions and restructuring of operations including the following:
- The October 1, 1997 acquisition of approximately 73.2% of the shares of
Konrad Hornschuch AG (since increased to approximately 90% as of March 31,
2000) by the Company's wholly-owned subsidiary, Decora Industries
Deutschland GmbH (the "Hornschuch Acquisition").
- The April 29, 1998 acquisition of certain assets from Rubbermaid, including
the Con-Tact(R) brand name, which constituted Rubbermaid's DCG.
- The acquisition of EtchArt, a manufacturer of decorative, window and glass
covering product line known as "Wallpaper for Windows" in 1999.
- The establishment of a totally new, self-reliant organization in North
America, including sales, marketing, customer service, distribution and
financial operations, together with associated computer systems. Prior to
the current fiscal year these functions had been provided by Rubbermaid.
YEAR ENDED MARCH 31, 2000 VS. YEAR ENDED MARCH 31, 1999
For the year ended March 31, 2000, the Company has operated in North America for
the first time as a vertically
19
<PAGE> 22
integrated consumer products company with its newly developed infrastructure.
Since the Consolidated Statement of Income of the Company for the year ended
March 31, 1999 reflect the effects of only eleven months of results from the
Rubbermaid Acquisition, during which time the Company was operating under the
transition agreement with Rubbermaid, the results for the year ended March 31,
2000 are not directly comparable with those of the year ended March 31, 1999.
Net sales for the year ended March 31, 2000 decreased by 8% to $162,450,000 as
compared with net sales of $176,577,000 for the year ended March 31, 1999. The
decrease of $14,127,000 resulted from decreases in net sales at Hornschuch and
the North American operations. The decrease in net sales at Hornschuch is
principally due to two factors: The first is an unfavorable foreign currency
translation adjustment (German marks to U.S. dollars) in the current year period
which reduced net sales by approximately $9,000,000 as compared with the prior
year period. The second factor contributing to the decrease in net sales at
Hornschuch is the collapse of the Russian economy at the end of the second
quarter of fiscal 1999, and since that time sales to Eastern Europe have
declined sharply. The negative sales impact of this economic decline was more
than $5 million. These two factors were partially offset by sales gains achieved
in Hornschuch's laminates business. Lower net sales in North America were the
result of reduced sales associated with the Rubbermaid transition. Significant
customer relationship improvements were achieved during the second half of the
year and management expects this development to have a positive impact on sales
going forward.
Gross profit was $47,538,000, or 29.3% of net sales, for the year ended March
31, 2000, as compared to $63,409,000 or 35.9% of net sales in the prior year
period. The decrease, which occurred primarily in the third and fourth quarters,
was a result of a decrease in gross profit at Hornschuch, primarily due to an
unfavorable currency translation adjustment (German marks to U.S. dollars) in
the current year period which reduced gross margin by approximately $3 million
as compared with the prior year period and the reduction in higher margin sales
to customers in Russia discussed above, higher levels of sales allowances and a
less favorable product mix in the current year period. The decrease in gross
margin at the North American operations which occurred in the third and fourth
quarter was due to the recording of a one time charge of $3,700,000 for one-time
inventory writedowns totaling $3,700,000 (of which $2,200,000 is attributable to
charges in the third quarter for slow moving and excess inventory related to the
Rubbermaid transaction and $1,500,000 is attributable to charges in the fourth
quarter relating to the Company's international non-branded business), a higher
level of sales allowances and lower sales volumes in the current year period,
the discontinuation of a private label export business and increased
distribution costs driven by escalating freight charges.
Selling, general and administrative expenses were $45,553,000 or 28.0% of net
sales, for the year ended March 31, 2000 as compared with $41,849,000 or 23.7%
of net sales, in the year ended March 31, 1999. The increase of $3,704,000 was
principally a result of higher expenses in the North American operations which
operated throughout the year ended March 31, 2000 with a fully developed sales,
marketing, supply chain and accounting infrastructure in place, as compared with
the prior year period when these functions were in transition from Rubbermaid,
partially offset by a decrease in variable expenses due to the lower sales
discussed above.
Interest expense, net was $16,011,000 for the year ended March 31, 2000 as
compared with $14,085,000 in the prior year. The increase of $1,926,000 is
principally due to the current year period reflecting twelve months of interest
expense relative to the $112,750,000 of senior secured notes issued April 29,
1998 (the "Notes") as
20
<PAGE> 23
compared with eleven months of interest expense in the prior year period and
higher average balances and interest rates on other borrowings in the current
year period as compared with the prior year.
As a result of the above, the Company recorded a loss before income taxes,
minority interest and extraordinary item of $14,026,000 in the year ended March
31, 2000, as compared with income of $7,475,000 in the year ended March 31,
1999.
At fiscal year end 2000, the Company determined that it was appropriate to
record a full valuation allowance against its U.S. deferred income tax assets as
a result of its assessment of the probability of realizing those assets in the
ordinary course of business. This $6,370,000 valuation allowance represents
substantially all of the $7,761,000 year 2000 tax provision, the remainder being
attributable to non-U.S operations.
The Company recognized an extraordinary charge of $2,019,000 (net of income
taxes) in the year ended March 31, 1999 associated with the debt refinancing and
the Rubbermaid Acquisition in April 1998.
As a result of the above-noted changes, the Company reported a $4,531,000
increase in the provision for income taxes despite a $21,501,000 decrease in
pretax profits. The Company also reported a $290,000 decrease in the deduction
for the minority interest in earnings of Hornschuch.
The Company sustained an after-tax net loss of $22,046,000 as compared to a net
income of $1,677,000 in the prior year. Of the $22,046,000 net loss figure,
approximately $15,000,000 are non-cash events and are attributable to
depreciation and amortization in the approximate amount of $9,000,000 and a
valuation allowance for deferred taxes in the approximate amount of $6,370,000.
Year Ended March 31, 1999 vs. Year Ended March 31, 1998
As noted above, the comparability of results between fiscal 1999 and fiscal 1998
is significantly affected by the inclusion of Hornschuch for only six months in
fiscal 1998 and the inclusion of results following the Rubbermaid Acquisition in
April 1998. As a result, cost of goods sold, gross margin and selling, general
and administrative expense levels in fiscal 1999 may not be meaningfully
compared with the prior year as the Company transitioned from being a contract
manufacturer for Rubbermaid to an integrated branded consumer products company.
Management's focus for North American operations during the year included the
establishment of new management and infrastructure for the product lines
acquired from Rubbermaid. Decora's results were impacted by these factors and
also by the nine month transition period during which Rubbermaid continued to
distribute the acquired product lines and the Company operated primarily under
product promotion and merchandising programs which were established by
Rubbermaid prior to the Rubbermaid Acquisition.
Net sales for the year ended March 31, 1999 were $176,577,000 (reflecting the
impact of the Hornschuch Acquisition for the entire period and the Rubbermaid
Acquisition since April 29, 1998) as compared with net sales of $98,407,000 for
the year ended March 31, 1998 (which reflect the inclusion of DI Deutschland
results for only six months). The increase of $78,170,000 resulted principally
from the inclusion of a full year of DI Deutschland net sales of $110,745,000 in
the current year as compared with $62,150,000 in the prior year, and the
Rubbermaid Acquisition contributed to an increase in net sales of $30,345,000 in
the U.S. operations.
21
<PAGE> 24
Gross profit was $63,409,000, or 35.9% of net sales, for the year ended March
31, 1999 as compared with $30,187,000 or 30.7% of net sales, for the year ended
March 31, 1998. The increase of $33,222,000 and the increase in gross profit
margin reflect the impact of the Hornschuch Acquisition and the Rubbermaid
Acquisition and the fact that all subsidiaries now sell directly to retailers.
The gross margin for the year ended March 31, 1999 reflects only eleven months
of the operations of Rubbermaid's Decorative Coverings Group ("DCG")which were
acquired on April 29, 1998. Additionally, gross margin for the year ended March
31, 1999 was partially offset by a one-time non-cash charge of approximately
$800,000 for the step-up in basis of DCG inventory acquired in the Rubbermaid
Acquisition. Excluding the impact of this one-time charge, total Company gross
profit would have been approximately $64,209,000 or 36.4% of net sales.
Selling, general and administrative expenses were $41,849,000, or 23.7% of net
sales, for the year ended March 31, 1999 as compared with $17,677,000 or 18.0%
of net sales in the year ended March 31, 1998. The increase of $24,172,000 was a
result of the addition of DI Deutschland's selling, general and administrative
expenses for the entire period and an increase at the U.S. operations primarily
due to the incremental sales and marketing costs incurred relative to the change
from being primarily a contract manufacturer to being a vertically integrated
manufacturer and marketer of Con-Tact products following the Rubbermaid
Acquisition.
Interest expense was $14,085,000 for the year ended March 31, 1999 as compared
with $3,829,000 in the prior year. The increase of $10,256,000 is principally
due to interest expense of approximately $12,200,000 on the $112,750,000 senior
secured notes which were issued by the Company on April 29, 1998 in connection
with the Rubbermaid Acquisition (the "Notes"), partially offset by interest
income earned on cash deposits and lower interest expense on other debt due to
lower average borrowings in the current year.
The Company recognized income before income taxes, minority interest in earnings
of subsidiary and extraordinary item of $7,475,000 in the year ended March 31,
1999, as compared with income of $7,220,000 in the year ended March 31, 1998.
This increase is principally a result of the increase in earnings resulting from
the Rubbermaid Acquisition and the Hornschuch Acquisition, partially offset by
higher interest expense on the Notes.
Net income of $1,677,000 for the year ended March 31, 1999 was $1,053,000 lower
than the year ended March 31, 1998 as a result of the extraordinary charge (net
of income taxes) of $2,019,000 incurred in connection with the Rubbermaid
Acquisition and debt refinancing in April 1998, partially offset by the above
noted changes and a $663,000 decrease in the deduction for the minority interest
in earnings of Hornschuch.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash flow are cash from operations and
borrowings under its credit facilities. The Company's primary capital
requirements include debt service, capital expenditures and working capital
needs.
BORROWINGS UNDER CREDIT FACILITIES
The Company has substantial debt in relation to its shareholders' equity, as
well as substantial debt service requirements that are significant compared to
its cash flow from operations.
22
<PAGE> 25
The Rubbermaid Acquisition was funded in part by the issuance of the Notes by
DII. The Notes were issued in April 1998 with an original issue discount of
$2,664,000, resulting in gross cash proceeds of $110,086,000. Interest on the
Notes is 11% per annum and is due semi-annually on May 1 and November 1 of each
year. No principal payments are required to be made prior to the maturity of the
Notes on May 1, 2005. The remainder of the funds required to complete the
Rubbermaid Acquisition were obtained from borrowings by Hornschuch of
DM18,000,000 (approximately $10,000,000) under its secured credit facilities,
which funds were loaned to Decora pursuant to an intercompany note (the
"Hornschuch Intercompany Note"). The Hornschuch Intercompany Note is secured by
a first priority security interest in Decora's machinery, equipment and
fixtures. The Hornschuch Intercompany Note matures in April 2001 and bears
interest at an effective rate of 0.50% above the applicable interest rate paid
by Hornschuch to its lenders.
In addition to financing the Rubbermaid Acquisition and related fees, the
borrowings under the Notes and the Hornschuch Intercompany Note primarily were
used to: (i) refinance approximately $32,100,000 of debt of DII and Decora; (ii)
acquire additional shares of Hornschuch at an approximate cost of $5,800,000
(which increased DI Deutschland's ownership in Hornschuch from 76% to 90%);
(iii) pay acquisition and financing related transaction fees and expenses in the
amount of approximately $8,800,000; (iv) finance the relocation of manufacturing
assets acquired from Rubbermaid; and (v) finance general corporate purposes.
Concurrently with the Rubbermaid Acquisition, Decora entered into a three year
secured revolving line of credit facility with Fleet Bank to finance Decora's
working capital requirements and capital expenditures. The Fleet credit facility
originally provided for revolving loans to Decora in an aggregate amount up to
the lesser of (i) $15.0 million and (ii) the sum of 85% of eligible accounts
receivable of Decora and 60% of eligible inventory of Decora (subject to
sublimits on borrowings based on inventory). Advances under the Fleet credit
facility bore interest, at the option of Decora, at Fleet Bank's prime rate or a
floating rate per annum equal to 2.25% in excess of LIBOR, and was payable
monthly in arrears.
On May 2, 2000, the Fleet credit facility was refinanced by the Ableco Credit
Facility, as described below. As of May 2, 2000 outstanding borrowings and
accrued interest under the Fleet credit facility totaled approximately
$11,735,000. Fleet Bank had also provided Decora with a $2.5 million declining
balance direct pay letter of credit on which Decora paid a fee of 1.5% per
annum. The letter of credit secured Decora's obligations under the IRB Credit
Facility, as described below. Decora's obligations under the Fleet Credit
Facility were secured by a first priority lien in Decora's accounts receivable,
inventory and certain intangibles and by a first mortgage on Decora's Fort
Edward, New York facility.
The Fleet credit facility originally required Decora to maintain compliance with
a minimum fixed charge coverage ratio of 1.1 to 1.0. In February 2000, Fleet
Bank modified, solely for the rolling four quarter period ended December 31,
1999, the method of calculating the minimum fixed charge coverage ratio, as
described below under the caption "Defaults Under Credit Facilities."
The Hornschuch Acquisition was funded from (i) a loan of approximately
DM37,300,000 (approximately $18.3 million at March 31, 2000) to DI Deutschland
from Dresdner Bank payable September 30, 2004 (the "DI Deutschland Credit
Facility"), and (ii) a loan of $18,000,000 from a Textron pension fund. Textron
was also granted warrants to purchase common stock of DII. $2,900,000 of the
Textron loan proceeds were used to repay existing subordinated debt of Decora
and $15,100,000 of such proceeds were utilized to fund the Hornschuch
Acquisition. DII also raised an additional $750,000 through the private
placement of common stock to an institutional investment fund. The Textron loan
was paid in full in April 1998 with a portion of the proceeds of the Notes.
23
<PAGE> 26
Loans under the DI Deutschland credit facility bear interest at a floating rate
per annum equal to 2.50% in excess of the 3- or 6- month DM-LIBOR rate (as
chosen by Dresdner Bank). DI Deutschland is charged a fee of 0.50% per annum on
the average daily balance of the unused portion of the credit facility, payable
monthly in arrears. DI Deutschland was also charged a one-time front-end fee of
2.0% of the total loan amount, payable on the first day of the draw down under
the DI Deutschland Credit Facility. Loans under the DI Deutschland Credit
Facility are to be repaid in semi-annual installments of approximately DM3.0
million beginning March 30, 1999. The final installment is due and payable on
September 30, 2004. The facility is secured by a pledge of all of the capital
stock of Hornschuch owned by DI Deutschland and a guarantee by DII of up to
DM5.0 million plus accrued interest, commissions, expenses and all costs. In
addition, DII was obligated to pay DI Deutschland's interest obligation until
March 30, 1999 by means of providing DI Deutschland with subordinated
shareholder loans.
DI Deutschland is required to use 100% of its "excess cash flow" (i.e.,
dividends received from Hornschuch plus any tax credits in excess of taxes,
management fees, interest and repaid principal under the DI Deutschland Credit
Facility plus cash and positive balances on bank accounts) to pay the principal
outstanding under the facility. DI Deutschland is subject to certain financial
and negative covenants under the DI Deutschland Credit Facility, including
without limitation, covenants that restrict, subject to specified exceptions,
(i) the incurrence of additional indebtedness and other obligations and the
granting of additional liens, (ii) mergers, acquisitions, investments and
acquisitions and dispositions of assets, (iii) the incurrence of capitalized and
operating lease obligations, and (iv) advances, dividends and stock repurchases
and redemptions. There are also covenants regarding financial reporting,
maintenance of insurance, interest rate protection and compliance with certain
specified financial ratios.
Hornschuch has two term loans aggregating approximately DM7,050,000
(approximately $3,466,000) at March 31, 2000. The first term loan has a balance
of DM2,850,000 (approximately $1,401,000), matures in March 2006, bears interest
at 4.8% and is secured by certain assets. The first loan requires payments of
DM238,000 ($131,000) semiannually. The second term loan of DM4,200,000
(approximately $2,065,000) matures in March 2003, bears interest at LIBOR plus
0.9% (4.1% at March 31, 2000), is payable in semiannual installments of
DM700,000 (approximately $344,000) and is secured by a new printing press.
Hornschuch has separate lines of credit with its primary lender and certain
other financial institutions. Interest rates under the lines of credit range
from 4.05% to 7.24% at March 31, 2000. At March 31,2000, the availability under
these lines was DM14.0 million ($6.9 million).
In September 1995, Decora borrowed $375,000 from the Washington County Local
Development Corporation for working capital and training costs for the operation
of Decora's business at its principal place of business in Fort Edward, New York
(the "HUD Credit Facility"). The five-year note bears interest at 5.0% and is
payable in monthly installments ending September 1, 2000. The loan is secured by
a second priority lien on certain of Decora's property and equipment and a
guarantee of DII. As of March 31, 2000, the outstanding balance of the HUD
Credit Facility was approximately $42,000.
In November 1996, Decora borrowed $2,460,000 through the issuance of Tax-Exempt
Industrial Development Revenue Bonds (Decora, Incorporated Project), Series 1996
by the Counties of Warren and Washington, New York Industrial Development Agency
(the "IRB Credit Facility"). These bonds matured on November 1, 2004, and
required sinking fund payments by Decora of $20,833 per month beginning November
1997. The bonds bore interest at a floating rate which was adjusted weekly based
on the remarketing agent's ability to re-market the bonds at par. As of March
31, 2000, the interest rate on the bonds was 3.65%. The bonds were secured by a
letter of credit issued by Fleet Bank.
On July 6, 2000, the outstanding principal amount of the bonds and accrued
interest thereon outstanding under the IRB Credit Facility, totaling $1,968,190,
were paid in full by a draw down under the Fleet letter of credit. At
24
<PAGE> 27
the time of the draw down, the Fleet letter of credit was backed by a "support"
letter of credit issued under the Ableco Credit Facility. Simultaneously with
the draw down under the Fleet letter of credit, Decora obtained a term loan
under the Ableco Credit Facility in the amount of $1,968, 190 to repay its
reimbursement obligation under the "support" letter of credit.
In May 2000, Decora obtained a syndicated credit facility from Ableco and The
CIT Group/Business Credit, Inc. (the "Ableco Credit Facility"). The Ableco
credit facility provides for term loans of up to $13,000,000 and a revolving
credit facility of up to $14,000,000. The revolving credit facility initially
included a $2,092,330 letter of credit subfacility for a "support" letter of
credit to support the Fleet letter of credit under the IRB Credit Facility. At
closing, approximately $11,735,000 of the proceeds of the Ableco Credit Facility
were used to pay off principal and interest outstanding under the Fleet credit
facility, while approximately $6,209,000 of the proceeds were used to fund the
interest payment on the Notes due on May 1, 2000. Proceeds of future advances
under the Ableco Credit Facility, if there is availability under the borrowing
formulas described below, may be used to make future interest payments under the
Notes and for Decora's general working capital purposes.
Borrowings under the Ableco Credit Facility may not exceed the lesser of
$14,000,000 and the Borrowing Base. The Borrowing Base is defined generally as
the lesser of (i) the difference between (A) the sum of up to 85% of the value
of eligible accounts receivable plus the lesser of up to 50% of the book value
of eligible inventory and 80% of the orderly liquidation value of eligible
inventory, and (B) the sum of a reserve equal to the outstanding principal
amount of the HUD Credit Facility (which as of March 31, 2000, was $42,000) plus
additional discretionary reserves and (ii) the borrowing base under the
indenture governing the terms of the Notes (the "Indenture Borrowing Base").
Such Indenture Borrowing Base is defined generally as the difference between (i)
the greater of (A) $15.0 million and (B) the sum of 85% of the book value of
accounts receivable and 60% of the book value of inventory of DII and its
Restricted Subsidiaries (other than any Foreign Subsidiary) (as each such term
is defined in the indenture governing the terms of the Notes), calculated on a
consolidated basis in accordance with GAAP and (ii) $9.0 million, provided,
that, at any time following the German Holdings Revocation (as defined in the
indenture governing the Notes), the $9.0 million amount may be reduced a single
time by up to $2.0 million at Decora's option.
Decora initially borrowed $11,000,000 in term loans under the Ableco Credit
Facility. Upon the payoff of the IRB Facility on July 6, 2000, Ableco made an
additional term loan to Decora in the amount of $1,968,190 (the "Additional Term
Loan"). The Additional Term Loan was used to repay Decora's reimbursement
obligation under the "support" letter of credit, which backed the Fleet letter
of credit under the IRB Credit Facility.
If an event of default has not occurred, term loans under the Ableco Credit
Facility bear interest at a rate per annum equal to the greater of (i) the prime
rate plus 3.00% and (ii) 12.00%. However, the interest rate on the Additional
Term Loan shall be increased by 5% on the first day of each month after April
30, 2002.If an event of default has not occurred, revolving loans under the
Ableco Credit Facility bear interest at a rate of per annum equal to the greater
of (i) the prime rate plus 2.00% and (ii) 11.00%.
Upon the occurrence and during the continuance of an event of default under the
Ableco Credit Facility, the principal of, and all accrued interest on, all loans
and other obligations under the Ableco Credit Facility shall bear interest, from
the date such event of default occurs until the date such default is cured or
waived, at a rate per annum equal to the rate of interest otherwise in effect
plus 2%, or if a rate of interest is not otherwise in effect, the prime rate
plus 2%. As discussed below under the subheading "Defaults Under Credit
Facilities," since June 15, 2000, Ableco has required Decora to pay interest at
the default rate.
25
<PAGE> 28
Borrowings under the Ableco Credit Facility, other than the Additional Term
Loan, are secured by a first priority lien in certain of Decora's personal
property, including equipment, inventory, accounts receivable, intellectual
property, investment property, securities and cash. The Additional Term Loan is
secured only by inventory, accounts receivable and a mortgage on Decora's real
property located in Fort Edward, New York. Borrowings under the Ableco Credit
Facility are also secured by a guarantee of DII and a first priority lien in
certain of DII's personal property, including equipment, inventory, accounts
receivable, intellectual property, investment property, securities and cash,
with the exception of DII's shares in Decora, which have already been pledged as
collateral to the trustee for the holders of the Notes.
The Ableco Credit Facility requires Decora to maintain compliance with: (i) a
leverage ratio (ratio of consolidated funded indebtedness to consolidated
earnings before interest, taxes, depreciation and amortization), on a rolling
four-quarter basis ending on the last day of each of the following quarters, of
2.70 to 1.0 on June 30, 2000, 2.50 to 1.0 on September 30, 2000, 2.25 to 1.0 on
December 31, 2000, and 2.0 to 1.0 on the last day of each quarter thereafter
until March 31, 2002; (ii) a fixed charge coverage ratio, on a rolling
four-quarter basis, of 0.58 to 1.0 on June 30, 2000, such ratio increasing at
the end of each quarter thereafter until March 31, 2002, at which time the ratio
will reach 0.92 to 1.0 and (ii) minimum consolidated earnings before interest,
taxes, depreciation and amortization at the end of each fiscal quarter as
follows: $10,000,000 on June 30, 2000; $11,500,000 on September 30, 2000;
$13,000,000 on December 31, 2000, $14,500,000 on March 31, 2001, and $16,000,000
on June 30, 2001 and on the last day of each quarter thereafter until March 31,
2002.
The agreements governing the Ableco Credit Facility include events of default
which are typical for these types of credit facilities, including without
limitation, failure to pay any principal or interest when due, failure of any
representation or warranty to be true, failure to comply with certain covenants,
including the financial covenants described above, failure to pay indebtedness
owing to other parties in excess of $200,000, judgments in excess of $200,000,
the occurrence of a change of control, certain bankruptcy and ERISA events, and
any event or development having a material adverse effect on Decora's
operations, business, assets, properties, condition (financial or otherwise) or
prospects, or Decora's ability to perform its obligations under the loan
documents. The occurrence of any of such events of default could result in
acceleration of Decora's obligations under the Ableco Credit Facility and
foreclosure on the collateral securing such obligations. As described below
under the subheading "Defaults Under Credit Facilities," on June 12, 2000,
Ableco gave notice to Decora of the occurrence of an event of default and
effective June 15, 2000, has been charging Decora the default rate of interest
pursuant to the terms of the Ableco loan documents.
The final maturity date of the Ableco Credit Facility is April 30, 2002. On this
date, all outstanding revolving credit loans must be repaid. On the final
maturity date, all outstanding term loans must also be repaid, unless Decora
obtains a new revolving credit facility from another lender on terms acceptable
to Ableco. The agreements governing the Ableco Credit Facility allow prepayment
of revolving loans and term loans in whole or in part without penalty. Decora,
at its option, may reduce the maximum amount of the revolving credit facility in
multiples of $1,000,000 without penalty.
Decora paid a $270,000 closing fee and $270,000 commitment fee in connection
with the Ableco Credit Facility. In addition, Decora must pay an unused line fee
of 0.5%, payable monthly, a loan servicing fee in the amount of $25,000 per
quarter and an anniversary fee in May 2001 equal to 1% of the average principal
amount of loans outstanding during the previous twelve months.
As of June 30, 2000, borrowings under the Ableco Credit Facility totaled
$23,590,000, consisting of $12,968,000 in term loans and $10,622,000 in
revolving loans. As of the date of this report, Decora does not have any
additional borrowing availability under the Ableco Credit Facility.
26
<PAGE> 29
DEFAULTS UNDER CREDIT FACILITIES
During fiscal year 2000, the Company began to experience deteriorating liquidity
as a result of operating losses in its Decora operations. These losses were
attributable to, among other factors, lower than expected sales levels due to
the Rubbermaid transition and higher distribution costs associated with
escalating freight charges. Liquidity has also been adversely impacted by
limitations on the Company's ability to upstream funds from Hornschuch's
operations to DI Deutschland to assist DI Deutschland in meeting its
obligations. Because of ongoing disputes with the remaining 10% minority
interest in Hornschuch, Hornschuch has been unable to declare a dividend to DI
Deutschland which could be applied to payment of the debt service on the DI
Deutschland Credit Facility.
As a result of the foregoing, during fiscal year 2000 the Company has defaulted
under some of its credit facilities. In December 1999, the Company became aware
that Decora had failed to meet the minimum fixed charge coverage ratio of its
credit facility with Fleet Bank for the four quarters ended September 30, 1999.
In February 2000, Fleet Bank waived this violation as at September 30, 1999 and
modified the fixed charge coverage ratio covenant for the rolling four quarter
period ended December 31, 1999 to 6.70 to 1.00. The foregoing amendments to the
fixed charge coverage ratio applied only to the rolling four quarter period
ended December 31, 1999 and not to succeeding quarters. In addition, the
February 2000 amendment to the Fleet Bank loan documents revised the definitions
of acceptable accounts receivable and acceptable inventory in such a manner as
to increase the amount available for borrowing under the revolving credit
facility. The February 2000 amendment required DII to make a loan or capital
contribution to Decora in the amount of $3,500,000 by April 27, 2000. However,
this contribution was not made because Decora refinanced the Fleet credit
facility with the proceeds of the Ableco Credit Facility in early May 2000.
As at December 31, 1999 and March 31, 2000, Decora was not in compliance with
the fixed charge coverage ratio covenants of the Fleet credit facility.
Therefore, from January 1, 2000 until the date the Fleet credit facility was
terminated, Fleet Bank collected interest on its outstanding loans at the
default rate of interest equal to the Fleet Bank prime rate plus 2.25 percentage
points per annum.
As a result of the limitations on Hornschuch's ability to pay dividends to DI
Deutschland as described above, on March 30, 2000, DI Deutschland was unable to
meet a principal and interest payment totaling DM 3,793,760(approximately
$1,850,000) due to Dresdner Bank under the DI Deutschland Credit Facility. The
entire amount of this financing has been shown in current liabilities.
On June 12, 2000, Ableco notified Decora that a development having a material
adverse effect had occurred under the Ableco credit facility which constituted
an event of default. This development was the provision by Decora in late May
2000 of estimates for earnings before interest, depreciation, taxes and
amortization for the fiscal year ended March 31, 2000 which differed from
earlier estimates provided by Decora prior to the closing of the Ableco Credit
Facility. Ableco has advised Decora that it will collect interest at the default
rate during the continuation of the default. While the occurrence of a default
permits Ableco to accelerate the maturity of borrowings already made under the
Ableco Credit Facility and to prohibit Decora from making additional borrowings
under the facility, to date Ableco has allowed Decora to draw under the
revolving facility and has not notified Decora of its intention to accelerate
repayment. At June 30, 2000, Decora does not believe that prospectively it will
be able to comply with the financial covenants of the Ableco Credit Facility
without significant accommodations from the Ableco syndicate.
WORKING CAPITAL AND CONSOLIDATED STATEMENTS OF CASH FLOWS
As shown on the Company's Condensed Consolidated Balance Sheets, the Company's
net working capital was $34,657,000 at March 31, 1999 as compared to negative
$1,410,000 at March 31, 2000, reflecting a decrease of $36,067,000. The change
is primarily due to decreases in cash and cash equivalents and inventories, and
an
27
<PAGE> 30
increase in accrued liabilities and the current portion of long-term debt,
partially offset by increases in accounts receivable which, in part, reflects
the transition, late in fiscal 1999, from a single customer (Rubbermaid)
remitting on a fixed payment schedule to a multi-customer structure, deferred
income taxes and a decrease in other current liabilities. The current portion of
long-term debt reflects indebtedness outstanding under the Fleet and DI
Deutschland credit facilities, due to the defaults under these facilities as
described above under the caption "Defaults Under Credit Facilities." Absent the
outstanding indebtedness included in current liabilities at March 31, 2000 as a
result of these defaults, current portion of long term debt would have been
$24,948,000, and therefore, working capital at March 31, 2000 would have been
$23,538,000, representing a decrease of $11,119,000, or 32% from 1999.
Net cash flow used in operating activities for the year ended March 31, 2000 was
$1,495,000 versus cash flow provided by operating activities of $6,142,000 for
the year ended March 31, 1999. The change of $7,637,000 was primarily due to the
decrease of net income of $23,723,000, the extraordinary charge reflected in the
prior year period of $2,019,000 incurred in connection with the Rubbermaid
Acquisition and the one-time net change of $5,844,000 in deferred tax assets,
partially offset by the changes in current assets and liabilities discussed
above. During the fourth quarter, management determined that it was appropriate
to establish a valuation allowance for all of its U.S. deferred tax assets in
the amount of $6,370,000. Foreign taxes represented the remainder of the
$7,761,000 consolidated tax provision as compared to a $3,230,000 provision in
the prior year. The Company was required to recognize a $4,531,000 increase in
tax expense in 2000.
Net cash flow used in investing activities for the year ended March 31, 2000 was
$9,308,000 as compared with $81,748,000 in the prior year period. The change
resulted primarily from the effect of the Rubbermaid Acquisition and the
issuance of the Notes in the prior year period.
Net cash provided by financing activities in the year ended March 31, 2000 was
$6,106,000 as compared with $80,593,000 in the year ended March 31, 1999. The
change was primarily a result of the issuance of the Notes in the prior year
period, partially offset by the use of a portion of the proceeds to repay
existing long-term debt.
Capital expenditures for the year ended March 31, 2000 were $5,723,000 versus
$8,693,000 for the year ended March 31, 1999. For the fiscal year ending March
31, 2001, the Company plans to make capital expenditures where necessary and
appropriate and intends to finance such expenditures with operating cash flow.
The Company currently owns, through DI Deutschland, approximately 90% of the
outstanding shares of Hornschuch, a foreign entity. As a result, the Company's
consolidated operations and cash flow have become significantly exposed to
changes in exchange rates between the U.S. dollar and the German Mark/Euro. To
date, the Company has engaged in limited hedging transactions to protect against
fluctuations in exchange rates. Although the Company plans to utilize limited
hedging strategies in the future as the need arises, its profitability will
continue to be affected by fluctuations in foreign exchange rates.
Certain indirect subsidiaries of Hornschuch own two commercial real estate
properties in Germany which are unrelated to its operating business and which
collateralize bank loans totaling approximately $9,586,000. Currently, the
properties are producing rental income sufficient to cover interest payments.
Negotiations to sell the properties are at an advanced stage. While there is no
guarantee that these negotiations will be completed in the near term, management
believes the real estate can be sold at a price sufficient to repay the loans in
full. Hornschuch could be required to pay the amount of any shortfall.
As discussed in more detail in Part I, Item 3, entitled "Legal Proceedings," in
April 1999, the Company commenced an arbitration proceeding against Rubbermaid,
alleging causes of action for breach of contract and other claims arising out of
the execution and performance of the transition services agreement between the
Company and Rubbermaid during the nine-month period subsequent to the Company's
acquisition of
28
<PAGE> 31
Rubbermaid's Decorative Coverings Division. The Company also has asserted claims
in federal court against Rubbermaid on account of Rubbermaid's alleged
fraudulent and negligent misrepresentations in connection with the asset
purchase agreement executed in connection with the Company's acquisition of
Rubbermaid's Decorative Coverings Division. Both matters against Rubbermaid are
scheduled to be arbitrated on August 28, 2000. The Company is seeking in excess
of $10 million in damages. Management is hopeful that the Company will be
successful in obtaining an award against Rubbermaid, which would contribute to
improved liquidity. However, no assurances can be given.
ABILITY OF COMPANY TO CONTINUE AS A GOING CONCERN
For the year ended March 31, 2000, the Company incurred a net loss of
$22,046,000 and had net cash flow used by operating activities of $1,495,000.
During the same period, the Company had a net capital deficit (excess of
liabilities over assets) of $6,323,000. In addition, as discussed above, the
Company is in default under certain of its loan agreements. As a result of the
defaults, $24,948,000 of long-term indebtedness has been reclassified as a
current liability as of March 31, 2000. Moreover, as described above, the
Company may not be able to pay the interest due on November 1, 2000 under the
Notes solely by relying on results of operations. For the foregoing reasons,
there is substantial doubt as to the Company's ability to continue as a going
concern.
OUTLOOK
During the current fiscal year, the Company completed its transition in North
America from being a toll manufacturer into a vertically integrated consumer
branded products company. A major objective is to continue to enhance the value
of the Company's consumer brands by capitalizing on each brand's strength and
popularity in its respective region; Con-Tact(R) in North America and d-c-fix(R)
in Europe. The Company has a strong distribution position in the housewares
market in North America and primarily in the home furnishing market in Europe.
The Company has started to capitalize on the Con-Tact(R) brand recognition and
awareness in North America by expanding its product offerings beyond its
housewares and shelving position into the other categories for which the
European products are used. Similarly, by capitalizing on the same strengths of
d-c-fix(R), the North American products, targeted for different applications,
have expanded the product offering in Europe. The Company's new Collections line
is being well received by the trade. The other major objective in the short term
is to continue to rebuild goodwill at certain customers where relationships had
eroded due to poor customer service from Rubbermaid. In this connection, the
Company is vigorously pursuing legal action against Rubbermaid which is detailed
in Part I, Item 3., entitled "Legal Proceedings".
As discussed above, there is substantial doubt about the Company's ability to
continue as a going concern. Scheduled debt maturities during fiscal 2001 total
$34,343,000, excluding $12,402,000 for interest payments on the Notes. As
discussed above, due to the Company's current inability to upstream funds from
Hornschuch to DI Deutschland, the Company has defaulted on a DM3,793,760
(approximately $1,850,000) principal and interest payment due to Dresdner Bank
under the DI Deutschland Credit Facility. Moreover, due to the operating losses
described above, the Company currently does not have sufficient cash flow from
its North American operations to make the next interest payment on the Notes, in
the approximate amount of $6,209,000, on November 1, 2000, the next scheduled
interest payment date. The Company is reviewing Decora's business plan with its
financial advisors to ascertain what actions can be taken to enhance liquidity
and thereby generate cash from operations. However, even if Decora can achieve
improved liquidity in its Decora operations by the next scheduled interest
payment date, it is likely that the Company will still require funds from its
German operations in order to make such interest payment. The Company currently
is negotiating with DI Deutschland and the Hornschuch minority shareholders to
permit payments of dividends from Hornschuch to DI Deutschland, which payments
could be used by DI Deutschland to pay amounts currently due and owing to
Dresdner Bank under the DI Deutschland Credit Facility, as well as upstreamed by
DI Deutschland to DII to be applied by DII toward the next interest payment due
on the Notes in November 2000. However, there are no assurances that such
negotiations will be successful.
In addition to the actions described above, management is also liquidating aged
inventory and considering the sale of non-productive assets in order to ensure
adequate liquidity to meet future debt obligations. The Company is also
reviewing Decora's business plan with the Company's financial advisers and
Decora's lenders with the objective of seeking appropriate accommodations. In
addition, the Company is evaluating potential changes in its capital structure
and additional financial resources. As discussed above, management is also
pursuing its claims against Rubbermaid and is hopeful that the Company will be
successful in obtaining an award against Rubbermaid, which would contribute to
improved liquidity. However, there can be no assurance that the Company will be
successful in any of its endeavors to improve liquidity.
CERTAIN TRENDS AND UNCERTAINTIES
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company is hereby filing cautionary
statements identifying important risk factors that could cause the Company's
actual results to differ materially from those projected in forward-looking
statements of the Company made by or on behalf of the Company. The Company
wishes to caution readers that these factors, among others, could cause
29
<PAGE> 32
the Company's actual results to differ materially from those expressed in any
projected, estimated or forward-looking statements relating to the Company. The
following factors should be considered in conjunction with any discussion of
operations or results by the Company or its representatives, including any
forward-looking discussion, as well as comments contained in press releases,
presentations to securities analysts or investors, or other communications by
the Company. In making these statements, the Company is not undertaking to
address or update each factor in future filings or communications regarding the
Company's business or results, and is not undertaking to address how any of
these factors may have caused changes to discussions or information contained in
previous filings or communications. In addition, certain of these matters may
have affected the Company's past results and may affect future results.
THE COMPANY IS IN DEFAULT UNDER CERTAIN OF ITS CREDIT FACILITIES AND CURRENTLY
IS UNABLE TO SERVICE CERTAIN OF ITS INDEBTEDNESS; AS A RESULT, THE COMPANY'S
LENDERS COULD ELECT TO ACCELERATE REPAYMENT OF ALL OUTSTANDING LOANS, WHICH
WOULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY'S BUSINESS AND FINANCIAL
CONDITION. As a result of the financing associated with the Rubbermaid
Acquisition and the Hornschuch Acquisition, the Company has substantial debt,
$133,294,000, in relation to its shareholders' equity. Interest payments on this
debt are significant compared to cash flow from Decora's and Hornschuch's
operations. During fiscal year 2000, the Company began to experience
deteriorating liquidity as a result of operating losses in its Decora
operations. These losses were attributable to, among other factors, lower than
expected sales levels due to the Rubbermaid transition and higher distribution
costs associated with escalating freight charges. Liquidity has also been
adversely impacted by limitations on the Company's ability to upstream funds
from Hornschuch's operations to DI Deutschland to assist DI Deutschland in
meeting its obligations. Because of ongoing disputes with the remaining 10%
minority interest in Hornschuch, Hornschuch has been unable to declare a
dividend to DI Deutschland which could be applied to payment of the debt service
on the DI Deutschland Credit Facility. As a result, DI Deutschland was unable to
meet a principal and interest payment totaling DM3,800,000 (approximately
$1,900,000) due under the DI Deutschland Credit Facility on March 30, 2000. The
Company has been negotiating with Dresdner Bank a moratorium on payments of
principal and interest under the DI Deutschland Credit Facility until such time
as a settlement with the minority shareholders could be achieved and payment of
a dividend permitted. However, there can be no assurances that these
negotiations will be successful. The Company's cash flow from operations,
together with amounts available from DI Deutschland, currently are not
sufficient to permit the Company to meet its next interest payment on the Notes,
which is due on November 1, 2000.
In June 2000 Ableco Finance declared Decora in default under the Ableco Credit
Facility because the Company's year-end results were less than originally
predicted by the Company. As of July 11, 2000, Decora has approximately
$12,968,190 in term loans and $10,868,000 in revolving loans outstanding under
its credit facility with Ableco Finance, LLC. While the occurrence of an event
of default would permit Ableco to accelerate the maturity of borrowings already
made under the Ableco Credit Facility and to prohibit Decora from making
additional borrowings under the facility, to date Ableco has allowed Decora to
draw under the facility and has not notified Decora of its intention to
accelerate repayment. Management believes that Decora will not be able, on a
prospective basis, to comply with the financial covenants in the agreements
governing the Ableco Credit Facility without significant accommodations from the
Ableco syndicate.
As a result of the defaults described above, the Company's lenders could elect
to declare all outstanding loans due and payable, which would have a material
adverse effect on the Company's business and financial condition. The Company is
considering several options in order to assist the Company in servicing its debt
obligations and otherwise complying with the terms of its loan agreements,
including the liquidation of aged inventory and the sale of certain assets. The
Company is also negotiating with Dresdner Bank, as described above, and
reviewing Decora's business plan with the Company's financial advisors and
Decora's lenders with the objective of seeking appropriate accommodations and to
ascertain what actions can be taken to enhance liquidity and thereby generate
cash from operations to assist in paying the Company's debt service. The Company
is also evaluating potential changes in its capital structure and additional
financial resources. There can be no assurance that the Company will be
successful in any of the foregoing endeavors.
If the Company is unable to service its indebtedness, the Company may be
required to alter its business plans,
30
<PAGE> 33
restructure or refinance its indebtedness or seek additional equity capital.
There can be no assurance that these objectives could be accomplished on
favorable terms.
IF ACCOUNTS PAYABLE CONTINUE TO AGE, THE COMPANY'S RELATIONSHIPS WITH ITS
VENDORS COULD BE ADVERSELY AFFECTED. As a result of Decora's reduced liquidity,
as described above, its accounts payable have increased from $5,292,000 as of
March 31, 1999, to $7,076,000 as of March 31, 2000, representing an increase of
$1,784,000, or 33.7%. In addition, 90% of payables were within terms at March
31, 1999 while that percentage had declined to 35% at March 31, 2000. At the
same time vendors have restricted credit lines available to the Company. There
is a possibility that the Company's relationships with some of its vendors could
be adversely affected if accounts payable continue to rise and/or age. The
Company is in continual discussions with its vendors to achieve the most
favorable payment terms possible.
THE COMPANY MAY NOT BE ABLE TO IMPLEMENT THE CHANGES NECESSARY TO CONTINUE AS A
GOING CONCERN. For the year ended March 31, 2000, the Company incurred a net
loss of $22,046,000 (of which approximately $9,000,000 is attributable to
depreciation and amortization, and approximately $6,370,000 is attributable to a
valuation allowance for deferred taxes) and had net cash used by operating
activities of $1,495,000. During the same period, the Company had a net capital
deficit (excess of liabilities over assets) of $6,323,000. In addition, as
discussed above, the Company is in default under certain of its loan agreements.
As a result the defaults, $24,948,000 of long term indebtedness has been
reclassified as a current liability as of March 31, 2000. Moreover, as described
above, the Company may not be able to pay the interest due on November 1, 2000
under the Notes solely by relying on the results of operations. For the
foregoing reasons, there is substantial doubt about the Company's ability to
continue as a going concern.
As noted above, the Company is considering several options in order to assist
the Company in servicing its debt obligations and otherwise complying with the
terms of its loan agreements, including the liquidation of aged inventory and
the sale of certain assets. The Company is also reviewing its business plan with
financial advisors and U.S. and German lenders with the objective of seeking
appropriate accommodations and to ascertain what actions can be taken to restore
profitability and thereby generate cash from operations to assist in paying the
Company's debt service. The Company is also evaluating potential changes in and
additional financial resources. There can be no assurances that the Company will
be able to successfully implement the changes necessary for the Company to
remain a going concern.
THE COMPANY'S COMMON STOCK MAY BE DELISTED FROM THE NASDAQ SMALLCAP MARKET,
WHICH MAY MAKE IT DIFFICULT FOR THE COMPANY'S STOCKHOLDERS TO BUY, SELL AND
OBTAIN PRICING INFORMATION ABOUT THE COMPANY'S COMMON STOCK. From August 17,
1998 until May 18, 2000, the Company's common stock was listed on The Nasdaq
National Market under the symbol "DECO." As the closing bid price of the
Company's common stock remained below $5.00 from November 1999 until May 2000,
Nasdaq determined to transfer the listing of the Company's securities to The
Nasdaq SmallCap Market effective May 19, 2000. The transfer of the listing was
contingent upon the Company's compliance with all requirements for listing on
the Nasdaq SmallCap Market through May 30, 2000. Prior to May 30, 2000, the
Company's stock failed to evidence a closing bid price of at least $1.00 per
share for ten consecutive trading days. As a result, the Nasdaq determined that
it was unable to approve the Company's application for listing on the Nasdaq
SmallCap Market. However, it determined to allow the Company to continue to
trade on the Nasdaq SmallCap Market under a conditional listing until August 23,
2000. On or before this date the Company must evidence a closing bid price of at
least $1.00 per share; and immediately thereafter, the Company must evidence a
closing bid price of at least $1.00 per share for a minimum of ten consecutive
trading days or possibly a longer period in the discretion of Nasdaq. In the
event the Company is unable to comply with the minimum closing bid requirements
described above, its common stock may be delisted from the Nasdaq Stock Market.
Effective June 12, 2000, the trading symbol of the Company's securities was
changed from "DECO" to "DECOC" to indicate the conditional nature of the
listing.
31
<PAGE> 34
The loss of a listing on the Nasdaq SmallCap Market could have a material
adverse effect on the Company's business prospects. The Nasdaq market system
provides brokers and others with immediate access to the best bid and asked
prices, as well as other information, about the Company's common stock. With the
loss of the designation, stockholders may find it more difficult to buy, sell
and obtain pricing information about our common stock. The Company also risks no
longer qualifying as a "margin security" as defined by the Federal Reserve Board
and becoming subject to the SEC's "penny stock" rules thereby reducing the
attractiveness of the Company's stock as an investment vehicle and making it
more difficult for the investor to purchase and sell the Company's stock.
IF THE COMPANY WHICH DECORA RELIES UPON FOR WAREHOUSING AND DISTRIBUTION OF ITS
PRODUCTS IN THE UNITED STATES FAILED TO PERFORM ITS AGREEMENTS, SUCH EVENT WOULD
HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY'S BUSINESS AND FINANCIAL
CONDITION. Prior to the Hornschuch Acquisition and the Rubbermaid Acquisition,
the Company, as primarily a contract manufacturer, was not required to implement
a sales, warehousing and distribution system for its products. In the past,
Rubbermaid had sold and distributed Decora's Con-Tact products and Decora
conducted its international sales primarily through a limited number of
distributors. As a result of the two acquisitions, the Company now performs full
sales and marketing activities to support its integrated manufacturing
operations and sells directly to retailers. During a nine month transition
period following the Rubbermaid Acquisition, Decora established its own
marketing and sales team and its own distribution system and since January 1999
has been operating without any further services from Rubbermaid. Decora's
consumer products are currently warehoused and delivered to customers by a third
party logistics services provider pursuant to a logistics services agreement.
Decora is critically dependent upon this vendor to distribute its products
efficiently and effectively. If the company which Decora relies upon for
warehousing and distribution of its products failed to perform its agreements,
such event would have a material adverse effect on the Company's business and
financial condition.
AN INCREASE IN THE PRICE OF RAW MATERIALS COULD HAVE A MATERIAL ADVERSE EFFECT
ON THE COMPANY'S BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS. The
primary raw materials used by Decora and Hornschuch are paper, polyvinyl
chloride ("PVC"), adhesives, inks, silicone and other chemicals. The prices of
these raw materials are subject to fluctuations based on changes in industry and
general economic conditions. Over the past year, the price of some of the raw
materials used by the Company, including PVC, has increased substantially. The
Company has passed on some of these price increases to customers, and to date,
the financial condition of the Company has not been adversely affected by such
price increases. However, there can be no assurance that the Company would be
able to pass on to customers any future increases in the price of raw materials
due to competitive conditions in the marketplace. If there are future
significant increases in the price of raw materials which cannot be passed on to
customers, the Company's business, financial condition or results of operations
could be materially adversely affected.
THE LOSS OF OUTSIDE SUPPLIERS COULD DAMAGE CUSTOMER RELATIONSHIPS AND HAVE A
MATERIAL ADVERSE EFFECT ON THE COMPANY'S BUSINESS, FINANCIAL CONDITION OR
RESULTS OF OPERATIONS. Decora purchases its Grip Line products from third party
suppliers. The loss by Decora of the services of any one or more outside
suppliers could affect the ability of Decora to deliver product in a timely
fashion. As a result, customer relationships could be damaged and the Company's
business, financial condition or results of operations could suffer.
32
<PAGE> 35
DECORA'S COMPETITIVE POSITION MAY BE AFFECTED BY A LACK OF AVAILABILITY OF
RETAIL SHELF SPACE. The Con-Tact product line has long held the leading market
position in the United States. The competition is divided among several smaller
companies which have slightly increased their market share in the last several
years in certain product categories. The Shelf Liner product line has dominated
the light adhesive market with a leading market share for a significant period,
while the Grip Line product line is a significant player in a larger field of
approximately four competitors only one of which the Company believes has a
market share which is equal to Decora's. Although each product currently has a
solid competitive position, this competitive position may be affected by the
continuing availability of retail shelf space. A cutback in available shelf
space could adversely affect Decora's competitive position in the marketplace.
SPECIAL RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS COULD HAVE A MATERIAL
ADVERSE EFFECT ON THE COMPANY'S BUSINESS, FINANCIAL CONDITION OR RESULTS OF
OPERATIONS. The Company's foreign operations are conducted primarily through
Hornschuch. Hornschuch's operations are subject to special risks inherent in
doing business outside the United States, including governmental instability,
war and other international conflicts, civil and labor disturbances,
requirements of local ownership, partial or total expropriation,
nationalization, currency devaluation, foreign exchange controls and foreign
laws and policies, each of which may limit the movement of assets or funds or
result in the deprivation of contract rights or the taking of property without
fair compensation. As an example, following the collapse of the Russian economy
in August 1998, Hornschuch's sales in that area declined sharply. Hornschuch's
sales to all Eastern European customers for the fiscal year ended March 31, 2000
were approximately $5,000,000 less than that reported in the prior year.
THE COMPANY'S PROFITABILITY IS AFFECTED BY FLUCTUATIONS IN FOREIGN EXCHANGE
RATES. The Company currently owns, through DI Deutschland, approximately 90% of
the outstanding shares of Hornschuch, whose financial statements are maintained
in German marks. As a result, the Company's consolidated operations and cash
flow have become significantly exposed to changes in exchange rates between the
U.S. dollar and the German Mark/Euro, as well as, to a limited extent, other
foreign currencies. To date, the Company has engaged in limited hedging
transactions to protect against fluctuations in exchange rates. Although the
Company plans to utilize limited hedging strategies in the future as the need
arises, its profitability will continue to be affected by fluctuations in
foreign exchange rates. Hornschuch's sales when translated to dollars declined
by $9,000.000 in the fiscal year ended March 31, 2000 as compared with that
reported in the prior year.
33
<PAGE> 36
A PROLONGED WORK STOPPAGE OR STRIKE AT THE COMPANY'S HORNSCHUCH FACILITIES COULD
HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY'S BUSINESS, FINANCIAL CONDITION OR
RESULTS OF OPERATIONS. At March 31, 2000 125 of Decora's employees were
represented by Local #13 United Paper Workers International Union (AFL-CIO)
under a contract which was renegotiated and renewed in March 1999 and expires in
March 2002. As of the same date, 701 of Hornschuch's employees were represented
by a labor union. Almost all of Hornschuch's union members belong to the Metal
trade union. The most recent collective agreement for Hornschuch's employees
(including both blue collar workers and white collar employees below management
level) was signed in June 1999 and expires in August 2000. There can be no
assurance that upon the expiration of existing collective bargaining agreements,
new agreements will be reached without union action or that any such new
agreements will be on terms satisfactory to Decora or Hornschuch.
34
<PAGE> 37
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk represents the risk of loss that may impact the consolidated
financial position, results of operations or cash flows of the Company. The
Company is exposed to market risk in the areas of interest rates and foreign
currency exchange rates.
INTEREST RATES
The Company's exposure to market risk from interest rate changes relates
primarily to variable rate bank lines of credit. As of March 31, 2000, the
Company had cash flow exposure on its bank lines of credit in Germany
(approximately DM 51.4 million or $25.3 million) due to its variable LIBOR
pricing and on its Tax-Exempt Industrial Revenue Bonds ($1,960,000) in the
United States which bear interest at a variable rate. Accordingly, as of March
31, 1999 a 54 basis point (10% increase in the LIBOR) and a 45 basis point
increase in the bond's floating rate (10% increase) would have an immaterial
effect on the Company's pre-tax earnings.
FOREIGN EXCHANGE RISK
The Company is exposed to foreign exchange risk to the extent of adverse
fluctuations in foreign currencies. For the fiscal year ended March 31, 2000,
approximately 63% of the Company's net sales were in currencies other than U.S.
dollars, primarily German marks. The Company enters into foreign exchange
contracts periodically to hedge currency fluctuation relative to future fixed
payments. Such hedging activities are not significant in total. A 10% change in
the value of all foreign currencies would have resulted in a change of
approximately $283,000 in pre-tax earnings for the fiscal year ended March 31,
2000.
INTEREST RATE SWAPS AND CAPS
Hornschuch has four interest rate cap agreements as of March 31, 2000 for DM 7.0
million, DM 5.6 million, DM 3.0 million and DM 3.0 million which are used to
hedge against fluctuations in interest rates for existing debt balances.
Hornschuch is also party to three interest swap agreements as of March 31, 2000
for DM 6.0 million, DM 5.0 million and DM 3.1 million. These agreements are used
to convert variable rate debt to fixed rate debt. For the DM 5.0 million
instrument, the related debt had been repaid early. However, Hornschuch was
obliged to maintain the swap and pay (receive) the difference between
Hornschuch's fixed rate and the original variable rate.
At March 31, 2000, the fair value of the Company's interest rate caps and
interest rate swaps approximate carrying value.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is submitted in response to Part IV
hereof. See the Index to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
35
<PAGE> 38
PART III
DIRECTORS AND EXECUTIVE OFFICERS
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY AND OFFICERS OF SUBSIDIARIES
The following table sets forth certain biographical information, present
occupation and business experience for the past five years of the Company's
executive officers and directors and key officers of the Company's subsidiaries
as of June 14, 2000:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Nathan Hevrony 48 Director, Chairman, Chief Executive Officer
Ronald Artzer 56 Director, President, Chief Operating Officer
Robert J. Hanlon, Jr. 53 Chief Financial Officer
Rolf J. Gemmersdorfer 48 Executive Vice President; President and General
Manager of Hornschuch
Richard A. DeCoste 61 Executive Vice President; Vice President of
Operations of Decora
Roger Grafftey-Smith 69 Director
Gabriel Thomas 59 Director
Stephen Verchick 59 Director
</TABLE>
NATHAN HEVRONY. Mr. Hevrony has served as a director of the Company
since August 1988 and as Chief Executive Officer and Chairman of the Board since
October 1989.
RONALD A. ARTZER. Mr. Artzer has served as a director of the Company
since May 1994. In February 2000, Mr. Artzer was appointed President and Chief
Operating Officer of the Company. From 1998 to 2000, Mr. Artzer was the
co-founder of Tak-a-Sample Marketing, Inc., a promotional and marketing firm.
From August 1997 until February 2000, Mr. Artzer also worked as a self-employed
management consultant. From March 1994 to August 1997, Mr. Artzer served as
President and Chief Executive Officer of SoPakCo Foods, a food processing and
packaging company.
ROBERT J. HANLON, JR. Mr. Hanlon was appointed Chief Financial Officer
of the Company in May 2000. From 1996 until the time he joined the Company, Mr.
Hanlon was Managing Director at John W. Loofburrow Associates, an investment
banking and consulting firm. From 1993 to 1996, Mr. Hanlon was Senior Vice
President and Chief Financial Officer of Grubb & Ellis Company, a publicly held
commercial real estate company.
ROLF J. GEMMERSDORFER. Mr. Gemmersdorfer was named Executive Vice
President of the Company and Chairman of Hornschuch's Management Board in August
1998. From 1995 through 1997, Mr. Gemmersdorfer was General Manager of Oral-B
Laboratories GmbH, a subsidiary of the Gillette Company. From 1992 through 1994,
Mr. Gemmersdorfer was a general manager of the largest division of VP.
Schickedanz, Inc.
36
<PAGE> 39
RICHARD A. DECOSTE. Mr. DeCoste joined Decora in January 1993. In
February 1994, Mr. DeCoste became President of Decora's Consumer Decorative
Products Group. In November 1994, he became Executive Vice President of the
Company and in June 1997 he became Director of Operations of Decora.
ROGER GRAFFTEY-SMITH. Mr. Grafftey-Smith has served as a director of the
Company since August 1988 and has been a managing partner of Grafftey-Smith &
Associates, an international financial consulting firm, since 1981. Mr.
Grafftey-Smith also serves as a director of Americanino Capital Corporation, a
publicly-traded corporation.
GABRIEL B. THOMAS. Mr. Thomas has served as a director of the Company
since June 1991. He has served as President and Director of Unilab Corporation,
a clinical laboratory services company, since December 1989.
STEPHEN H. VERCHICK. Mr. Verchick has served as a director of the
Company since October 1993. He has been engaged in the private practice of law
as President of Stephen H. Verchick & Associates, Professional Corporation, in
Beverly Hills, California, for the past 24 years. Mr. Verchick is also President
of Warner Capital Associates, a Los Angeles based venture capital firm.
Officers of the Company are elected by the Board of Directors and hold
office until their successors are chosen and qualified, until their death or
until they resign or have been removed from office. All corporate officers serve
at the discretion of the Board of Directors. There are no family relationships
between any director or executive officer of the Company and any other director
or executive officer of the Company.
Directors of the Company hold office until the next annual meeting of
stockholders, until successors are elected and qualified or until their earlier
resignation or removal.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who beneficially own
more than ten percent of a registered class of the Company's equity securities
("reporting persons"), to file with the Securities and Exchange Commission (the
"Commission") initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company. Reporting persons
are required by Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
reports and amendments thereto on Forms 3, 4 and 5 furnished to the Company by
reporting persons during, and with respect to, its fiscal year ended March 31,
2000, and on a review of written representations from reporting persons to the
Company that no other reports were required to be filed for such fiscal year,
all Section 16(a) filing requirements applicable to the Company's directors,
executive officers and greater than ten percent beneficial owners during such
period were satisfied in a timely manner, except that Gabriel Thomas, a director
of the Company, failed to timely file a report on Form 5.
37
<PAGE> 40
ITEM 11. EXECUTIVE COMPENSATION
The tables and discussion below set forth information about the compensation
awarded to, earned by or paid to the following persons during each of the fiscal
years ended March 31, 2000, March 31, 1999 and March 31, 1998: (i) the Company's
Chief Executive Officer, (ii) the Company's four other most highly compensated
executive officers serving as of March 31, 2000, and (iii) one additional
individual who served as an executive officer during the fiscal year ended March
31, 2000 and who would have been included among the Company's four most highly
compensated executive officers as of the end of the Company's last completed
fiscal year, but for the fact that such individual was not serving as an
executive officer as of the end of such year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM
FISCAL -------------------------- COMPENSATION SHARES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS(1)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nathan Hevrony 2000 $366,081(2) $340,500(3) 680,000(4)
Chairman and Chief 1999 $326,423(2) $391,625 --
Executive Officer 1998 $217,644(2) $400,000 300,000
-----------------------------------------------------------------------------------------------------------------------
Ronald Artzer 2000 $ 54,808(5) $125,000(6) 200,000(7)
President and Chief 1999 -- -- --
Operating Officer 1998 -- -- --
-----------------------------------------------------------------------------------------------------------------------
Robert Macdonald 2000 $193,446(9) -- 125,000(10)
Chief Financial Officer(8) 1999 -- -- --
1998 -- -- --
-----------------------------------------------------------------------------------------------------------------------
Rolf J. Gemmersdorfer 2000 $277,095(11) $79,170 --
Executive Vice President and 1999 $191,504 -- 120,000(12)
Chairman of Hornschuch 1998 -- -- --
Management Board
-----------------------------------------------------------------------------------------------------------------------
Richard A. DeCoste 2000 $140,732 $10,000(13) --
Executive Vice President 1999 $140,000 $ 6,000 --
Director of Operations of 1998 $140,000 -- 50,000
Decora
-----------------------------------------------------------------------------------------------------------------------
Timothy N. Burditt 2000 $168,673 $143,010(15) 55,000(16)
Executive Vice President, 1999 $190,865 $247,925 --
Administration and Business 1998 $141,592 $275,000 60,000
Development(14)
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
-------------------------
(1) The option share totals reflect the one-for-five reverse stock split
which was effective December 29, 1997.
(2) The Company also paid the premium of $17,665 for term life insurance for
the benefit of Mr. Hevrony.
38
<PAGE> 41
(3) Based on the Company's achievement of objectives for the fiscal year
ended March 31, 1999, Mr. Hevrony was awarded an incentive bonus of
$340,500 in August 1999 pursuant to the terms of the Company's Executive
Incentive Plan. This bonus was paid to Mr. Hevrony during the fiscal
year ended March 31, 2000.
(4) The 680,000 figure in the table includes 530,000 options originally
granted to Mr. Hevrony prior to the fiscal year ended March 31, 2000.
During the period covered by this report, the term of these 530,000
options was extended to May 31, 2005 as described in the following
paragraphs of this footnote (2). The 680,000 figure in the table also
includes 150,000 additional options granted to Mr. Hevrony, effective
May 1, 1999, under the Decora Industries, Inc. 1999 Stock Option Plan
(the "1999 Plan"). These options have an exercise price of $6.50 per
share and originally expired on April 30, 2004, subject to the terms and
provisions of the 1999 Plan. During the period covered by this report,
the term of these 150,000 options was also extended to May 31, 2005, as
described in the following paragraphs of this footnote (2).
On January 7, 1992, the Company issued to Mr. Hevrony options to
purchase 150,000 shares of Common Stock at an exercise price of $5.60
per share (after giving effect to the one-for-five reverse stock split
which was effective on December 29, 1997). These options originally
expired on December 30, 1996. In October 1996, the Company amended the
terms of Mr. Hevrony's option agreement to extend the expiration date of
the options to December 30, 1999. On October 1, 1999, the Board of
Directors extended the expiration date of the options to December 30,
2002. On February 1, 2000, the expiration date of the options was
extended to May 31, 2005 pursuant to the terms of Mr. Hevrony's Amended
Employment/Consulting Agreement. The exercise price remains the same.
See also the chart entitled "Option Grants in Fiscal Year Ended March
31, 2000" appearing in this Item 11.
On August 15, 1994, the Company issued to Mr. Hevrony options to
purchase 50,000 shares of Common Stock at an exercise price of $10.00
per share (after giving effect to the one-for-five reverse stock split
which was effective on December 29, 1997). Pursuant to the terms of the
original option agreement, these options vested if the average price of
the Company's common stock reached $20.00 per share (on a post reverse
split basis) for 30 consecutive days. These options originally expired
on August 14, 1997. In August 1996, the Company reset the exercise price
at $7.50 per share (on a post reverse split basis), extended the term of
the options to August 1998, and amended the vesting schedule so that the
options would vest if the average price of the Company's common stock
reaches $15.00 per share (on a post reverse split basis) for 30
consecutive days. In March 1998, the Company extended the term of the
options to August 2001. On February 1, 2000, the expiration date of the
options was extended to May 31, 2005 pursuant to the terms of Mr.
Hevrony's Amended Employment/Consulting Agreement. The exercise price
and vesting terms remain the same. See also the chart entitled "Option
Grants in Fiscal Year Ended March 31, 2000" appearing in this Item 11.
On August 15, 1994, the Company issued to Mr. Hevrony options to
purchase 30,000 shares of Common Stock at an exercise price of $10.00
per share (after giving effect to the one-for-five reverse stock split
which was effective on December 29, 1997). Pursuant to the term of the
original option agreement, these options vested if the average price of
the Company's common stock reached $15.00 per share (on a post reverse
split basis) for 30 consecutive days. These options originally expired
on August 14, 1997. In August 1996, the Company reset the exercise price
at $7.50 per share (on a post reverse split basis), extended the term of
the options to August 1998, and amended the vesting schedule so that the
options would vest if the average price of the Company's common stock
reaches $10.00 per share (on a post reverse split basis) for 30
consecutive days. In March 1998, the Company extended the term of the
options to August 2001. On February 1, 2000, the expiration date of the
options was extended to May 31, 2005 pursuant to the terms of Mr.
Hevrony's Amended Employment/Consulting Agreement. The
39
<PAGE> 42
exercise price and vesting terms remain the same. See also the chart
entitled "Option Grants in Fiscal Year Ended March 31, 2000" appearing
in this Item 11.
On February 19, 1998, the Company issued to Mr. Hevrony options to
purchase 300,000 shares of Common Stock at an exercise price of $5.50
per share. These options vested as follows: 100,000 on February 19,
1998; 100,000 on February 19, 1999; and 100,000 on February 19, 2000.
All 300,000 options originally expired on February 18, 2003. On February
1, 2000, the expiration date of the options was extended to May 31, 2005
pursuant to the terms of Mr. Hevrony's Amended Employment/Consulting
Agreement. The exercise price remains the same. See also the chart
entitled "Option Grants in Fiscal Year Ended March 31, 2000" appearing
in this Item 11.
On June 8, 1999, the Board of Directors approved the grant to Mr.
Hevrony of options to purchase 150,000 shares of common stock of the
Company under the 1999 Plan, effective May 1, 1999. On February 1, 2000,
the expiration date of the options was extended to May 31, 2005 pursuant
to the terms of Mr. Hevrony's Amended Employment/Consulting Agreement.
See also the chart entitled "Option Grants in Fiscal Year Ended March
31, 2000" appearing in this Item 11.
(5) Mr. Artzer entered into an employment agreement with the Company
effective February 1, 2000. Pursuant to the terms of the employment
agreement, Mr. Artzer shall receive an initial base salary in an amount
equal to a rate of $285,000 per annum. The base salary shall be subject
to periodic adjustment upwards but not downwards in accordance with the
discretion of the Compensation Committee of the Board of Directors of
the Company. The employment agreement further provides that at such time
as the Board of Directors, in its discretion, assigns to Mr. Artzer full
responsibility for the Company's operations in Germany (but in no event
later than December 31, 2000), then his base salary shall be adjusted
upwards to $360,000. Mr. Artzer's base salary is payable in equal
monthly installments, subject to proportionate adjustment in the event
of an adjustment upwards in Mr. Artzer's salary. During the fiscal year
ended March 31, 2000, Mr. Artzer was paid $43,846 in base salary
pursuant to the terms of his employment agreement. Mr. Artzer was also
paid a $50,000 relocation allowance. The Company also paid the premium
of $13,445 for life insurance for Mr. Artzer.
(6) Pursuant to the terms of Mr. Artzer's employment agreement, Mr. Artzer
was granted a bonus in the amount of $125,000, to be paid to Mr. Artzer
as soon as possible following the execution of such agreement, at such
times and in such increments as shall, in the good faith judgment of the
Board of Directors of the Company, not result in an undue burden upon
the working capital resources of the Company. As of March 31, 2000, the
entire amount of such bonus had been paid to Mr. Artzer.
(7) Concurrently with the execution of his employment agreement, the Company
granted to Mr. Artzer options to purchase 200,000 shares of the
Company's common stock pursuant to the 1999 Plan. These options vested
immediately and are exercisable at a price of $5.00 per share. The
options expire on February 1, 2005, subject however to such earlier
expiration as provided by the terms of the 1999 Plan.
(8) Mr. Macdonald resigned as Chief Financial Officer of the Company on May
10, 2000.
(9) On October 1, 1999, Mr. Macdonald entered into an employment agreement
with the Company, effective as of June 21, 1999. Pursuant to the terms
of the employment agreement, Mr. Macdonald was entitled to base salary
in an amount equal to a rate of $290,000 per annum. During the fiscal
year ended March 31, 2000, Mr. Macdonald was paid $182,292 in base
salary pursuant to the terms of his employment agreement.
(10) Concurrently with the execution of his employment agreement, the Company
granted to Mr. Macdonald options to purchase 125,000 shares of the
Company's common stock at an exercise price of $6.0625 per
40
<PAGE> 43
share pursuant to the 1999 Plan. 41,666 of these options vested
immediately upon grant and the remaining 83,334 options were to have
vested in three increments of 27,778 on the first, second and third
anniversary, respectively, of Mr. Macdonald's employment with the
Company. As Mr. Macdonald ceased to be employed by the Company in May
2000, all of the options will expire in August 2000, pursuant to the
terms of the 1999 Plan.
(11) The Company also paid the premium of $13,193 for life insurance for the
benefit of Mr. Gemmersdorfer.
(12) Of these options, 12,000 vested on August 1, 1998, 12,000 vested on
August 1, 1999, 12,000 will vest on August 1, 2000, 12,000 will vest on
August 1, 2001 and 12,000 will vest on August 1, 2002. The remaining
60,000 options will vest, if at all, upon the achievement of certain
performance objectives during Hornschuch's fiscal years ended December
31, 1999 through December 31, 2002. As of March 31, 2000, a total of
24,000 options were vested.
(13) This bonus was awarded during the fiscal year ended March 31, 2000 with
respect to performance goals achieved during the fiscal year ended March
31, 1999.
(14) Mr. Burditt resigned as Executive Vice President of the Company in
October, 1999.
(15) In August 1999, Mr. Burditt was awarded a bonus of $143,010 pursuant to
the terms of the Company's Executive Incentive Plan, based on the
Company's achievement of financial objectives for the fiscal year ended
March 31, 1999. This bonus was paid to Mr. Burditt during the fiscal
year ended March 31, 2000.
(16) Effective May 1, 1999, the Company granted to Mr. Burditt options to
purchase 55,000 shares of the Company's common stock at an exercise
price of $6.0625 per share pursuant to the 1999 Plan. These options
vested immediately upon grant. As Mr. Burditt ceased to be employed by
the Company in October, 1999, all of these options expired in January,
2000, pursuant to the terms of the 1999 Plan.
EMPLOYMENT AGREEMENTS
In June 1997, the Company entered into an employment agreement with Mr. Hevrony
which expired on May 31, 2000. The agreement provided for payment of an initial
base annual salary of $197,500, subject to periodic increases at the discretion
of the Compensation Committee of the Board of Directors, plus performance
bonuses. In January 1999, the Compensation Committee increased Mr. Hevrony's
annual salary to $375,000 after considering the evaluation of Buck Consultants,
an international compensation consulting firm engaged to review the Company's
compensation programs.
In February 2000, the Company entered into an amended employment/consulting
Agreement with Mr. Hevrony. The amended agreement extended the term of Mr.
Hevrony's employment for an additional one year term commencing June 1, 2000 and
ending May 31, 2001 (the "Extended Employment Term"). Commencing June 1, 2001
and ending May 31, 2002 (the "Consulting Term"), the Company will retain Mr.
Hevrony as an independent consultant to the Company.
Mr. Hevrony will continue to perform the duties specified in his original
employment agreement during the Extended Employment Term, along with such other
duties pertaining to the Company's business as the Board of Directors may from
time to time direct. During the Extended Employment Term, Mr. Hevrony will
receive a base annual salary of $375,000, which shall be subject to periodic
adjustment upwards, in the discretion of the Compensation Committee of the Board
of Directors. During the Extended Employment Term, Mr. Hevrony will also be
entitled to additional performance compensation of up to 140% of his base salary
through participation in the Decora Industries, Inc. Executive Incentive Plan
(as described below). Mr. Hevrony is also entitled during the
41
<PAGE> 44
Extended Employment Term to a minimum of three weeks vacation, sick and personal
leave in accordance with the Company's standard employee policies, health
insurance, life insurance with a death benefit of $1,000,000, use of an
automobile, participation in any employee stock option, profit sharing or
pension plan maintained by the Company for its employees, and any other benefits
as may be granted in the discretion of the Company to employees performing
similar services.
During the Consulting Term, Mr.Hevrony will be available to (i) locate and
advise the Company on corporate opportunities; (ii) assist the Company in
maintaining its relationships with major stockholders; (iii) assist the Company
in communications with lending institutions, and (iv) provide such other advice
within Mr. Hevrony's area of expertise as the Board of Directors may from time
to time direct. Mr. Hevrony will be entitled to receive a consulting fee of
$300,000 per annum during the Consulting Term. During the Consulting Term, Mr.
Hevrony will also be entitled to health insurance, life insurance with a death
benefit of $1,000,000 and any other benefits as may be granted by the Company in
its discretion.
As further consideration for the execution by Mr. Hevrony of the amended
employment/consulting agreement, the Company agreed to amend Mr. Hevrony's
existing stock option agreements with the Company as necessary so as to extend
the expiration date of such options to a date not earlier than three (3) years
following expiration of the Consulting Term (i.e., May 31, 2005). (See also the
table entitled "Option Grants in Fiscal Year Ended March 31, 2000" appearing in
Item 11, entitled "Executive Compensation," of Part III of this report in Form
10-K).
The Company may terminate Mr. Hevrony's employment at any time for cause, as
defined in the amended employment/consulting agreement, and upon 90 days written
notice for any reason. In the event Mr. Hevrony is terminated without cause
pursuant to the 90 day notice provision referred to above, then Mr. Hevrony is
entitled to the remaining salary payable on the remainder of his Extended
Employment Term and Consulting Term, plus salary for an additional 24 month
period. However, in the event Mr. Hevrony's termination constitutes a "trigger
event" under his supplemental executive compensation agreement (as described
below), and as a result, Mr. Hevrony becomes entitled to payments under that
agreement, then Mr. Hevrony shall have the right to receive the greater of the
payment he is entitled to receive under his amended employment/consulting
agreement or the payment he is entitled to receive under his supplemental
executive compensation agreement, but not both.
In June 1999, the Board of Directors adopted the Decora Industries, Inc. 1999
Stock Option Plan and granted thereunder, effective May 1, 1999, a total of
360,000 options to executive officers and directors of the Company, including
150,000 options granted to Mr. Hevrony at an exercise price of $6.50 per share.
Mr. Hevrony's options vested effective May 1, 1999 upon shareholder approval of
the Plan on October 26, 1999.
Mr. Hevrony is also entitled to receive additional compensation pursuant to the
terms of a supplemental executive compensation agreement executed by the Company
and Mr. Hevrony effective February 1, 2000. This agreement provides for special
payments to Mr. Hevrony in the event of a change in control of the Company. In
the event of Mr. Hevrony's termination (other than for cause) or resignation
after the occurrence of a change of control of the Company, Mr. Hevrony is
entitled to receive a payment equal to three times his base annual salary plus
three times the bonus which he otherwise would have earned under the Company's
Executive Incentive Plan (as described below), assuming that the Company
achieves 100% of the targets established by such plan. The foregoing payments
would be in addition to any incentive amount that would be payable to Mr.
Hevrony under the Company's Executive Incentive Plan for the year in which he
resigned or was terminated. The supplemental executive compensation agreement
also provides, in the event of a change of control of the Company, for an
additional payment of a "market value enhancement initiative" of up to three
times Mr. Hevrony's base compensation. The amount of such additional payment is
dependent upon the closing market price of the Company's Common Stock around the
time of the change of control. The Company entered into the supplemental
executive compensation agreement with Mr. Hevrony in order to enable Mr. Hevrony
to focus his attention on enhancing shareholder value without concern for
personal compensation considerations in the event of a proposed change of
control of the Company.
42
<PAGE> 45
In February 2000, the Company entered into an Employment Agreement with Ronald
Artzer, pursuant to which Mr. Artzer is employed by the Company as its President
and Chief Operating Officer for a period of three years. Mr. Artzer has served
as a director of the Company since May 1994 and continues to serve as a
director. Mr. Artzer is entitled to receive an initial base salary of $285,000
per annum, which shall be subject to periodic adjustment upwards but not
downwards in the discretion of the Compensation Committee of the Board of
Directors. At such time as the Board, in its discretion, assigns to Mr. Artzer
full responsibility for the Company's operations in Germany (but in no event
later than December 31, 2000), then his base salary shall be adjusted upwards to
$360,000.
Concurrently with the execution of the employment agreement, the Company granted
to Mr. Artzer a signing bonus of $125,000, to be paid at such times and in such
increments as shall, in the good faith judgment of the Board of Directors, not
result in an undue burden upon the working capital resources of the Company. As
of March 31, 2000, the entire amount of this bonus has been paid to Mr. Artzer.
The Company also granted Mr. Artzer options to purchase 200,000 shares of the
Company's common stock pursuant to the Decora Industries, Inc. 1999 Stock Option
Plan, which options have a five year term and an exercise price per share of
$5.00. These options vested immediately upon the date of grant. Mr. Artzer is
also entitled to a $50,000 relocation allowance, a minimum of three weeks
vacation, sick and personal leave in accordance with the Company's standard
employee policies, health insurance, life insurance with a death benefit of
$500,000, use of an automobile, participation in any retirement or pension plan
maintained by the Company for its employees, and any other benefits as may be
granted in the discretion of the Company.
Mr. Artzer's employment agreement is subject to automatic renewal for successive
one year periods, unless either the Company or Mr. Artzer gives 180 days written
notice to the other party of its intention to terminate the agreement.
Notwithstanding the foregoing, the Company may also terminate the employment
agreement at any time for cause, as defined in the agreement, and upon 90 days
written notice for any reason. In the event Mr. Artzer is terminated without
cause pursuant to the 90 day notice provision referred to above, then he is
entitled to the greater of the remaining salary payable on the remainder of his
initial employment term, or salary for an additional 24 month period. However,
in the event Mr. Artzer's termination constitutes a "trigger event" under his
supplemental executive compensation agreement (as described below), and as a
result, Mr. Artzer becomes entitled to payments under that agreement, then Mr.
Artzer shall have the right to receive the greater of the payment he is entitled
to under his employment agreement or the payment he is entitled to receive under
his supplemental executive compensation agreement, but not both.
Mr. Artzer is also entitled to additional performance compensation of up to 140%
of his base salary, commencing with the Company's 2001 fiscal year, through
participation in the Decora Industries, Inc. Executive Incentive Plan (as
described below).
Mr. Artzer is entitled to receive additional compensation pursuant to the terms
of a supplemental executive compensation agreement executed by the Company and
Mr. Artzer effective February 1, 2000. This agreement provides for special
payments to Mr. Artzer in the event of a change in control of the Company. In
the event of Mr. Artzer's termination (other than for cause) or resignation
after the occurrence of a change of control of the Company on or before March
31, 2002, Mr. Artzer is entitled to receive a payment equal to three times his
base annual salary plus three times the bonus which he otherwise would have
earned under the Company's Executive Incentive Plan, assuming that the Company
achieves 100% of the targets established by such plan. In the event of Mr.
Artzer's termination (other than for cause) or resignation after the occurrence
of a change of control of the Company after March 31, 2002, Mr. Artzer is
entitled to receive a payment equal to two times his base annual
43
<PAGE> 46
salary plus two times the bonus which he otherwise would have earned under the
Company's Executive Incentive Plan, assuming that the Company achieves 100% of
the targets established by such plan. The foregoing payments would be in
addition to any incentive amount that would be payable to Mr. Artzer under the
Company's Executive Incentive Plan for the year in which he resigned or was
terminated. The supplemental executive compensation agreement also provides, in
the event of a change of control of the Company, for an additional payment of a
"market value enhancement initiative" of up to three times Mr. Artzer's base
compensation. The amount of such additional payment is dependent upon the
closing market price of the Company's Common Stock around the time of the change
of control. The Company entered into the supplemental executive compensation
agreement with Mr. Artzer in order to enable Mr. Artzer to focus his attention
on enhancing shareholder value without concern for personal compensation
considerations in the event of a proposed change of control of the Company.
In October 1998, the Compensation Committee of the Board of Directors adopted an
Executive Incentive Plan to award bonuses calculated with respect to the
Company's financial performance to key executive officers, including Mr. Hevrony
and Mr. Artzer. These officers are eligible to receive awards pursuant to the
terms of the Executive Incentive Plan if the Company meets objectives for EBITDA
and operating profit which are set annually by the Compensation Committee. Based
on the Company's achievement of objectives for the fiscal year ended March 31,
1999, Mr. Hevrony was awarded an incentive bonus of $340,500 in August 1999
pursuant to the terms of this plan which was paid during the fiscal year ended
March 31, 2000.
Prior to the adoption of the Executive Incentive Plan, performance bonuses were
awarded to key executive officers under the Company's Acquisition Incentive
Plan. The Company's Acquisition Incentive Plan was established by the
Compensation Committee early in fiscal 1998 in order to further the Company's
objective of building shareholder value through key acquisitions by rewarding
participants for their role in completing such acquisitions. In implementing the
plan, the Company sought to provide an incentive to senior management to pursue
acquisition opportunities which would transform the Company from a contract
manufacturer to a company with its own sales, marketing and distribution system,
and thus a greater ability to control brand identity and potential business
opportunities. The Acquisition Incentive Plan included Mr. Hevrony and other key
officers. Officers covered under the plan were entitled to payment of a bonus
based on the ratio of the acquired company's earnings before interest, taxes,
depreciation and amortization (EBITDA) to the Company's EBITDA for the 1998
fiscal year, multiplied by a designated percentage of the participant's base
salary. The application of these criteria resulted in a bonus to Mr. Hevrony of
$391,625 during the 1999 fiscal year in connection with his role in negotiating,
structuring and obtaining financing (through a $112.75 million bond offering)
for the Company's acquisition in April 1998 of the Decorative Coverings Group of
Rubbermaid Incorporated (the "Rubbermaid Acquisition"). The Rubbermaid
Acquisition completed the transformation of the Company from a contract
manufacturer of products for others to its current position as one of the
world's largest vertically integrated manufacturers and marketers of branded
consumer self-adhesive products. Going forward, the Compensation Committee has
decided to replace the Acquisition Incentive Plan with the Executive Incentive
Plan, as described above.
The Company has an employment agreement with Mr. DeCoste, Decora's Director of
Operations, until May 30, 2000 which provides for annual compensation of
$140,000. Upon termination without cause, Mr. DeCoste is entitled to receive
compensation for the lesser of twelve months or to the end of the term. The
Company is in the process of amending Mr. DeCoste's employment agreement to
extend the term thereof to June 30, 2001. As part of his employment agreement,
Mr. DeCoste was granted an option to purchase, until June 1, 2000, 20,000 shares
of the Company's Common Stock at an exercise price of $5.00 per share. All of
such options vested immediately
44
<PAGE> 47
upon the date of grant. The Company is in the process of extending the term of
the options to one or possibly two years beyond the original expiration date.
Hornschuch has a five year employment agreement with Mr. Gemmersdorfer which
expires in July 2003. Pursuant to the agreement, Mr. Gemmersdorfer is the
Chairman of Hornschuch's Management Board. The agreement provides for annual
base compensation of DM 500,000 plus an annual bonus of up to DM 200,000 in 1999
and DM 250,000 in years 2000 through 2003. The actual amount of the bonus in any
year depends on the achievement of certain enumerated financial targets. In the
event that such financial targets are exceeded in any year, Mr. Gemmersdorfer
will be entitled to receive for such year, in addition to the bonus described
above, an additional bonus based on a formula, although the total combined bonus
payments in any year shall not exceed the base compensation payable in such
year. In case of premature termination of the employment agreement during the
first three years, Mr. Gemmersdorfer will be entitled to remuneration in the
maximum amount of two times his annual salary.
In August 1998, the Company entered into an option agreement with Mr.
Gemmersdorfer pursuant to which he was granted 120,000 options at an exercise
price of $8.00 per share. 12,000 options vest on each of August 1, 1998, August
1, 1999, August 1, 2000, August 1, 2001 and August 1, 2002. The remaining 60,000
options will become eligible for vesting if certain financial performance
objectives are met with respect to Hornschuch's fiscal years ended December 31,
1999 through December 31, 2002. If such performance objectives are met with
respect to any such fiscal year, Mr. Gemmersdorfer may be eligible to receive
options at the end of each such fiscal year as follows: December 31, 1999 -
24,000; December 31, 2000 - 12,000; December 31, 2001 - 12,000; December 31,
2001 - 12,000; and December 31, 2002 - 12,000. Each option granted pursuant to
the option agreement shall be exercisable commencing from the date of vesting
until the earlier of July 31, 2003 or the third anniversary from the date of
vesting.
On May 8, 2000, the Company entered into an employment agreement with Robert J.
Hanlon, Jr., pursuant to which Mr. Hanlon has agreed to serve as the Company's
Chief Financial Officer at a salary of approximately $200,000 per annum. The
agreement will expire on December 31, 2001. Pursuant to the terms of the
agreement, the Company granted to Mr. Hanlon options to purchase 50,000 shares
of the Company's common stock at an exercise price of $5.00 per share. These
options vested immediately upon grant and expire in May 2005. Mr. Hanlon is also
entitled to receive a bonus of up to approximately 84% of his base annual salary
through participation in the Decora Industries, Inc. Executive Incentive Plan.
45
<PAGE> 48
OPTION GRANTS IN FISCAL YEAR ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
------------------------------------------------------------------------------ POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED RATES
NUMBER OF OPTIONS OF STOCK PRICE
SHARES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES IN OPTION TERM
OPTIONS THE FISCAL EXERCISE EXPIRATION ----------------------
NAME GRANTED YEAR(1) PRICE DATE 5% 10%
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nathan Hevrony 150,000(2) 10.8% $6.50 4/30/04 $189,000 $489,000
------------------------------------------------------------------------------------------------------
Nathan Hevrony 150,000(3) 10.8% $6.50 5/31/05 0 0
------------------------------------------------------------------------------------------------------
Nathan Hevrony 30,000(4) 2.2% $7.50 5/31/05 0 0
------------------------------------------------------------------------------------------------------
Nathan Hevrony 50,000(5) 3.6% $7.50 5/31/05 0 0
------------------------------------------------------------------------------------------------------
Nathan Hevrony 150,000(6) 10.8% $5.60 5/31/05 0 0
------------------------------------------------------------------------------------------------------
Nathan Hevrony 100,000(7) 7.2% $5.50 5/31/05 0 0
------------------------------------------------------------------------------------------------------
Nathan Hevrony 100,000(8) 7.2% $5.50 5/31/05 0 0
------------------------------------------------------------------------------------------------------
Nathan Hevrony 100,000(9) 7.2% $5.50 5/31/05 0 0
------------------------------------------------------------------------------------------------------
Ronald Artzer 200,000(10) 14.4% $5.00 2/1/05 0 0
------------------------------------------------------------------------------------------------------
Robert Macdonald 125,000(11) 9% $6.0625 5/31/04 $212,188 $462,500
------------------------------------------------------------------------------------------------------
Timothy Burditt 55,000(12) 4% $ 6.50 4/30/04 $ 69,300 $179,300
------------------------------------------------------------------------------------------------------
</TABLE>
----------------------
(1) Percentages in the chart are based on a total of 1,390,000 options
granted to employees during the fiscal year ended March 31, 2000. The
1,390,000 number includes: (i) 530,000 options originally granted to Mr.
Hevrony prior to the fiscal year ended March 31, 2000, the term of which
was extended to May 31, 2005 during the period covered by this report
(see footnotes (4), (5), (6), (7), (8) and (9)); (ii) 150,000 new
options granted to Mr. Hevrony during the fiscal year ended March 31,
2000 (see footnote (2)); and (iii) 150,000 options deemed granted to Mr.
Hevrony during the fiscal year ended March 31, 2000 (see footnote (3)).
The 150,000 options described in clause (iii) are the same options
referred to in clause (ii), but for purposes of this table are treated
as a new grant of options because the expiration date thereof was
extended from April 30, 2004 to May 31, 2005 (see footnotes (2) and
(3)). The 1,390,000 number also includes the following options granted
during the fiscal year ended March 31, 2000: (A) 200,000 options granted
to Ronald Artzer (see footnote (10)); (B) 125,000 options granted to
Robert Macdonald (see footnote (11)); (C) 55,000 options granted to
Timothy Burditt (see footnote (12)); and (D) a total of 180,000 options
granted to other employees of the Company.
(2) These options were granted on June 6, 1999, effective as of May 1, 1999
pursuant to the Decora
46
<PAGE> 49
Industries, Inc. 1999 Stock Option Plan (the "1999 Plan") and vested
immediately, subject to approval of the Plan by the Company's
stockholders. Such stockholder approval was obtained on October 26,
1999.
(3) These options originally were granted effective as of May 1, 1999 (see
footnote (2)). On February 1, 2000, the expiration date of the options
was changed to May 31, 2005, pursuant to the terms of the Amended
Employment/Consulting Agreement dated as of February 1, 2000 between the
Company and Mr. Hevrony.
(4) These options originally were granted on August 15, 1994 at an exercise
price of $10.00 per share (after giving effect to the one-for-five
reverse stock split which was effective on December 29, 1997) and
expired on August 14, 1997. Pursuant to the terms of the original option
agreement, these options vested if the average price of the Company's
common stock reached $15.00 per share (on a post reverse split basis)
for 30 consecutive days. In August 1996, the Company reset the exercise
price at $7.50 per share (on a post reverse split basis), extended the
term of the options to August 1998, and amended the vesting schedule so
that the options would vest if the average price of the Company's common
stock reaches $10.00 per share (on a post reverse split basis) for 30
consecutive days. In March 1998, the Company extended the term of the
options to August 2001. On February 1, 2000, the expiration date of the
options was changed to May 31, 2005, pursuant to the terms of the
Amended Employment/Consulting Agreement dated as of February 1, 2000
between the Company and Mr. Hevrony. The exercise price and vesting
terms remain the same.
(5) These options originally were granted on August 15, 1994 at an exercise
price of $10.00 per share (after giving effect to the one-for-five
reverse stock split which was effective on December 29, 1997) and
expired on August 14, 1997. Pursuant to the terms of the original option
agreement, these options vested if the average price of the Company's
common stock reached $20.00 per share (on a post reverse split basis)
for 30 consecutive days. In August 1996, the Company reset the exercise
price at $7.50 per share (on a post reverse split basis), extended the
term of the options to August 1998, and amended the vesting schedule so
that the options would vest if the average price of the Company's common
stock reaches $15.00 per share (on a post reverse split basis) for 30
consecutive days. In March 1998, the Company extended the term of the
options to August 2001. On February 1, 2000, the expiration date of the
options was changed to May 31, 2005, pursuant to the terms of the
Amended Employment/Consulting Agreement dated as of February 1, 2000
between the Company and Mr. Hevrony. The exercise price and vesting
terms remain the same.
(6) These options originally were granted on January 7, 1992 and expired on
December 30, 1997. In October 1996, the Company amended the terms of Mr.
Hevrony's option agreement to extend the expiration date of the options
to December 30, 1999. On October 1, 1999, the Board of Directors
extended the expiration date of these options to December 30, 2002. On
February 1, 2000, the expiration date of the options was extended to May
31, 2005, pursuant to the terms of the Amended Employment/Consulting
Agreement dated as of February 1, 2000 between the Company and Mr.
Hevrony. These options vested on January 7, 1992.
(7) These options originally were granted on February 19, 1998 and expired
on February 18, 2003. On February 1, 2000, the expiration date of the
options was changed to May 31, 2005 pursuant to the terms of the Amended
Employment/Consulting Agreement dated as of February 1, 2000 between the
Company and Mr. Hevrony. These options vested on February 19, 1998.
(8) These options originally were granted on February 19, 1998 and expired
on February 18, 2003. On February 1, 2000, the expiration date of the
options was changed to May 31, 2005 pursuant to the terms of the Amended
Employment/Consulting Agreement dated as of February 1, 2000 between the
Company and Mr. Hevrony. These options vested on February 19, 1999.
47
<PAGE> 50
(9) These options originally were granted on February 19, 1998 and expired
on February 18, 2003. On February 1, 2000, the expiration date of the
options was changed to May 31, 2005 pursuant to the terms of the Amended
Employment/Consulting Agreement dated as of February 1, 2000 between the
Company and Mr. Hevrony. These options vested on February 19, 2000.
(10) These options were granted effective as of February 1, 2000 pursuant to
the terms of Mr. Artzer's employment agreement and vested immediately
upon grant.
(11) These options were granted effective as of June 21, 1999 pursuant to the
1999 Plan and originally expired on May 31, 2004. 41,666 of these
options vested immediately upon grant and the remaining 83,334 options
were to have vested in three increments of 27,778 on the first, second
and third anniversary, respectively, of Mr. Macdonald's employment with
the Company. As Mr. Macdonald ceased to be employed by the Company in
May 2000, all of the options will expire in August 2000, pursuant to the
terms of the plan.
(12) These options were granted effective as of May 1, 1999 pursuant to the
1999 Plan and vested immediately upon grant. The options originally
expired on April 30, 2004. As Mr. Burditt ceased to be employed by the
Company in October, 1999, all of these options expired in January, 2000,
pursuant to the terms of the 1999 Plan.
AGGREGATED MARCH 31, 2000 YEAR END OPTION VALUES
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL YEAR
NAME YEAR END (1) END(2)(3)
----------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nathan Hevrony 600,000 80,000 $ 0 $ 0
--------------------------------------------------------------------------------------------
Ronald Artzer 275,000 20,000 $ 0 $ 0
--------------------------------------------------------------------------------------------
Robert Macdonald 41,666 83,334 $ 0 $ 0
--------------------------------------------------------------------------------------------
Rolf J. Gemmersdorfer 24,000 96,000 $ 0 $ 0
--------------------------------------------------------------------------------------------
Richard A. DeCoste 65,000 0 $ 0 $ 0
--------------------------------------------------------------------------------------------
Timothy N. Burditt 0 0 $ 0 $ 0
--------------------------------------------------------------------------------------------
</TABLE>
--------------
(1) Option share totals reflect the one-for-five reverse stock split which
was effective December 29, 1997.
(2) All options listed in the table were out-of-the money as of March 31,
2000, based on the closing sales price of $2.75 for the Company's Common
Stock on that date.
(3) During the year ended March 31, 2000, none of the named executive
officers exercised any outstanding stock options. The only unexercised
options held by such executive officers as of March 31, 2000 are shown
in the table above.
COMPENSATION OF DIRECTORS
Effective April 1, 1999, directors are paid $20,000 per year. Directors may also
receive stock options pursuant to a new stock option plan known as the Decora
Industries, Inc. 1999 Stock Option Plan which was adopted by the Board of
Directors on June 8, 1999 and approved by the stockholders of the Company at its
annual meeting held
48
<PAGE> 51
on October 26, 1999. The plan reserves for grant and issuance to employees,
directors and consultants 1,000,000 shares of the Company's Common Stock. In
addition, directors may also receive options by other grant by the Company. The
Company reimburses directors for reasonable expenses incurred in connection with
their attendance at meetings and other Company related functions.
COMPENSATION COMMITTEE INERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors establishes salary and
bonus compensation to be paid to the Company's principal officers. Until
December 1999, the members of the Compensation Committee were Ronald Artzer
(Chairman), Roger Grafftey-Smith, Gabriel Thomas and Stephen Verchick. In
December 1999, Mr. Artzer resigned from the Compensation Committee and Mr.
Thomas was appointed as the new Chairman of the Compensation Committee. With the
exception of Mr. Artzer, the individuals who served as the members of the
Compensation Committee during the fiscal year ended March 31, 2000 were
non-employee directors. In February 2000, Mr. Artzer was appointed as the
Company's President and Chief Operating Officer. Mr. Artzer resigned from the
Compensation Committee prior to his appointment as President and Chief Operating
Officer.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 14, 2000, certain information with
respect to the Company's Common Stock which may be deemed to be beneficially
owned by each stockholder who is known by the Company to own more than five
percent of the Company's outstanding Common Stock, by each director of the
Company, by each executive officer named in Item 11, and by all directors and
named executive officers as a group, excluding in each case rights under options
or warrants not exercisable within 60 days. The share totals reflect a
one-for-five reverse stock split which was effective December 29, 1997.
49
<PAGE> 52
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS COMMON OTHER PERCENT OF
OF BENEFICIAL OWNER(1) STOCK SECURITIES(2) TOTAL CLASS(3)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert W. Johnson, IV 376,416(4) 385,000(4) 761,416(4) 9.3%
The Johnson Company
630 Fifth Avenue, Suite 1510
New York, NY 10111
---------------------------------------------------------------------------------------------------------------
Nathan Hevrony (5) 150,750 600,000(6) 750,750 8.9%
---------------------------------------------------------------------------------------------------------------
Roger Grafftey-Smith (7) 75,000 117,400(8) 192,400(8) 2.4%
---------------------------------------------------------------------------------------------------------------
Gabriel B. Thomas (9) 0 147,400(10) 147,400(10) 1.8%
---------------------------------------------------------------------------------------------------------------
Stephen H. Verchick (11) 0 80,000(12) 80,000(12) 1.0%
---------------------------------------------------------------------------------------------------------------
Ronald A. Artzer (13) 0 275,000(14) 275,000(14) 3.4%
---------------------------------------------------------------------------------------------------------------
Rolf J. Gemmersdorfer (15) 0 24,000(16) 24,000(16) *
---------------------------------------------------------------------------------------------------------------
Richard A. DeCoste (17) 4,000 65,000 69,000 *
---------------------------------------------------------------------------------------------------------------
Robert Macdonald (18) 0 41,666(19) 41,666(19) *
---------------------------------------------------------------------------------------------------------------
Timothy N. Burditt (20) 2,000 0(21) 2,000(21) *
---------------------------------------------------------------------------------------------------------------
All directors and executive officers as 231,750 1,350,466 1,582,216 17.2%
a group, including the named persons
(8 persons)
---------------------------------------------------------------------------------------------------------------
</TABLE>
------------
(*) Each of these persons owns less than 1% of the outstanding Common Stock
of the Company.
(1) Unless otherwise indicated, each person included in the table has sole
investment power and sole voting power with respect to the securities
beneficially owned. The address of each director and officer listed is 1
Mill Street, Fort Edward, New York 12828.
(2) The amounts shown reflect shares of Common Stock underlying stock
options, convertible notes or warrants which are exercisable within 60
days.
(3) Percent of class calculation based on 7,823,886 shares of Common Stock
outstanding as of June 13, 2000, plus number of shares of Common Stock,
if any, issuable to the named stockholders upon exercise of options and
warrants exercisable within 60 days.
(4) Based on Amendment No. 2 to Schedule 13D dated May 3, 1998 filed by Mr.
Johnson on July 17, 1998 with the Securities and Exchange Commission and
information provided by Mr. Johnson to the Company since the date of
such filing, Mr. Johnson beneficially owns 376,416 shares of Common
Stock and warrants to purchase a total of 385,000 shares of Common
Stock. According to the Amendment No. 2 to Schedule 13D filed by Mr.
Johnson on July 17, 1998, the shares of Common Stock issuable upon
exercise of the warrants are broken down as follows: 45,000 shares
issuable to Mr. Johnson upon exercise of the Series A Warrant to
purchase Shares, dated November 3, 1992, as amended (the "Series A
Warrant"); 20,000 shares of Common Stock are issuable to Mr. Johnson
upon exercise of the Series B Warrant to purchase Shares, dated November
3, 1992, as amended (the "Series B Warrant"), 260,000 shares of Common
Stock are issuable to Mr. Johnson upon exercise of the Series C Warrant
and 60,000 shares of Common Stock are issuable to Mr. Johnson's
children, which are held in custodian accounts, of which Mr. Johnson is
the custodian. Mr. Johnson disclaims beneficial interest in 27,000
shares which are held by trusts for which he is a trustee. Mr. Johnson
has sole voting power and dispositive power over the securities
beneficially owned by him as reflected in the table.
(5) Mr. Hevrony is a Director, Chairman and Chief Executive Officer of the
Company.
50
<PAGE> 53
(6) This number does not include 80,000 shares of Common Stock issuable upon
exercise of options which were not vested as of June 14, 2000.
(7) Mr. Grafftey-Smith is a Director of the Company.
(8) This number does not include 20,000 shares of Common Stock issuable upon
exercise of options which were not vested as of June 14, 2000.
(9) Mr. Thomas is a Director of the Company.
(10) This number does not include 20,000 shares of Common Stock issuable upon
exercise of options which were not vested as of June 14, 2000.
(11) Mr. Verchick is a Director of the Company.
(12) This number does not include 20,000 shares of Common Stock issuable upon
exercise of options which were not vested as of June 14, 2000.
(13) Mr. Artzer is a Director, President and Chief Operating Officer of the
Company.
(14) This number does not include 20,000 shares of Common Stock issuable upon
exercise of options which were not vested as of June 14, 2000.
(15) Mr. Gemmersdorfer is Executive Vice President and Chairman of the
Hornschuch Management Board.
(16) This number does not include 96,000 shares of common stock issuable upon
exercise of options which were not vested as of June 14, 2000.
(17) Mr. DeCoste is Executive Vice President and Director of Operations of
Decora.
(18) Mr. Macdonald served as Chief Financial Officer until May 10, 2000.
(19) This number does not include 83,334 shares of common stock issuable upon
exercise of options which were not vested as of June 14, 2000. As Mr.
Macdonald ceased to be employed by the Company in May 2000, all of his
options will expire in August 2000.
(20) Mr. Burditt served as Executive Vice President, Finance and
Administration, until October 22, 1999.
(21) As Mr. Burditt ceased to be employed by the Company in October 1999, all
of his options expired in January 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 8, 1999, the Board of Directors of the Company approved, subject to the
approval of the Company's stockholders at the Annual Meeting, the Decora
Industries, Inc. 1999 Stock Option Plan (the "1999 Plan"). The Plan reserves for
grant and issuance to employees, directors and consultants 1,000,000 shares of
the Company's Common Stock. Simultaneously with its approval of the Plan, the
Board of Directors approved the issuance under the Plan, effective May 1, 1999,
of options to directors and executive officers as follows: Ronald Artzer
(25,000); Roger Grafftey-Smith (25,000); Gabriel Thomas (25,000); Stephen
Verchick (25,000); Nathan Hevrony
51
<PAGE> 54
(150,000); Timothy Burditt(55,000) and Earl Wearsch (55,000). All options were
granted at an exercise price of $6.50 and expire on April 30, 2004, subject to
the terms and provisions of the 1999 Plan. The 1999 Plan was approved by the
Company's shareholders at the annual meeting held on October 26, 1999. As Mr.
Burditt ceased to be employed by the Company in October 1999, all of his options
expired in January 2000 pursuant to the terms of the Plan.
Effective June 1999, the Company issued options to purchase 125,000 shares of
the Company's Common Stock to Robert Macdonald, the former Chief Financial
Officer of the Company, at an exercise price of $6.0625 and an original
expiration date of May 31, 2004, pursuant to the terms of the Plan. 41,666 of
these options vested immediately upon grant. The remaining 83,334 options were
to have vested in increments of 27,778 on each of June 21, 2000, June 21, 2001
and June 21, 2002. As Mr. Macdonald ceased to be employed by the Company in May
2000, all of his options will expire in August 2000, pursuant to the terms of
the Plan.
On January 7, 1992, the Company issued to Gabriel Thomas, a director of the
Company, options to purchase 52,400 shares of Common Stock at an exercise price
of $5.60 per share (after giving effect to the one-for-five reverse stock split
which was effective December 29, 1997). These options originally expired on
December 30, 1996. In October 1996, the Company amended the terms of Mr. Thomas'
option agreement to extend the expiration date of the options to December 30,
1999. On October 1, 1999, the Board of Directors extended the expiration date of
the options to December 30, 2002. The exercise price remains the same.
On January 7, 1992, the Company issued to Roger Grafftey-Smith, a director of
the Company, options to purchase 52,400 shares of the Company's Common Stock at
an exercise price of $5.60 per share (after giving effect to the one-for-five
reverse stock split which was effective December 29, 1997). These options
originally expired on December 30, 1996. In October 1996, the Company amended
the terms of Mr. Grafftey-Smith's option agreement to extend the expiration date
of the options to December 30, 1999. On October 1, 1999, the Board of Directors
extended the expiration date of the options to December 30, 2002. The exercise
price remains the same.
On July 5, 1994, the Company issued to Ronald Artzer, a director of the Company,
options to purchase 10,000 shares of Common Stock at an exercise price of $6.25
per share (after giving effect to the one-for-five reverse stock split which was
effective December 29, 1997). These options originally expired on July 4, 1999.
On October 1, 1999, the Board of Directors extended the expiration date of the
options to July 4, 2002. The exercise price remains the same. Mr. Artzer
currently serves as Director, President and Chief Operating Officer of the
Company.
On July 5, 1994, the Company issued to Stephen Verchick, a director of the
Company, options to purchase 15,000 shares of Common Stock at an exercise price
of $6.25 per share (after giving effect to the one-for-five reverse stock split
which was effective December 29, 1997). These options originally expired on July
4, 1999. On October 1, 1999, the Board of Directors extended the expiration date
of the options to July 4, 2002. The exercise price remains the same.
On February 1, 2000, the Company issued to Mr. Artzer options to purchase
200,000 shares of Common Stock of the Company. These options have an exercise
price of $5.00 and expire on February 1, 2005. These options vested upon the
date of grant.
On January 7, 1992, the Company issued to Mr. Hevrony options to purchase
150,000 shares of Common Stock at an exercise price of $5.60 per share (after
giving effect to the one-for-five reverse stock split which was effective on
December 29, 1997). These options originally expired on December 30, 1996. In
October 1996, the Company amended the terms of Mr. Hevrony's option agreement to
extend the expiration date of the options to December 30, 1999. On October 1,
1999, the Board of Directors extended the expiration date of the options to
December 30, 2002. On February 1, 2000, the expiration date of the options was
extended to May 31, 2005 pursuant to the
52
<PAGE> 55
terms of Mr. Hevrony's Amended Employment/Consulting Agreement. The exercise
price remains the same. See also the chart entitled "Option Grants in Fiscal
Year Ended March 31, 2000" appearing in Item 11, "Executive Compensation."
On August 15, 1994, the Company issued to Mr. Hevrony options to purchase 50,000
shares of Common Stock at an exercise price of $10.00 per share (after giving
effect to the one-for-five reverse stock split which was effective on December
29, 1997). Pursuant to the terms of the original option agreement, these options
vested if the average price of the Company's common stock reached $20.00 per
share (on a post reverse split basis) for 30 consecutive days. The options
originally expired on August 14, 1997. In August 1996, the Company reset the
exercise price at $7.50 per share (on a post reverse split basis), extended the
term of the options to August 1998, and amended the vesting schedule so that the
options would vest if the average price of the Company's common stock reaches
$15.00 per share (on a post-reverse split basis) for 30 consecutive days. In
March 1998, the Company extended the term of the options to August 2001. On
February 1, 2000, the expiration date of the options was extended to May 31,
2005 pursuant to the terms of Mr. Hevrony's Amended Employment/Consulting
Agreement. The exercise price and vesting terms remain the same. See also the
chart entitled "Option Grants in Fiscal Year Ended March 31, 2000" appearing in
Item 11, "Executive Compensation."
On August 15, 1994, the Company issued to Mr. Hevrony options to purchase 30,000
shares of Common Stock at an exercise price of $10.00 per share (after giving
effect to the one-for-five reverse stock split which was effective on December
29, 1997). Pursuant to the terms of the original option agreement, these options
vested if the average price of the Company's common stock reached $15.00 per
share (on a post reverse split basis) for 30 consecutive days. These options
originally expired on August 14, 1997. In August 1996, the Company reset the
exercise price at $7.50 per share (on a post reverse split basis), extended the
term of the options to August 1998, and amended the vesting schedule so that the
options would vest if the average price of the Company's common stock reaches
$10.00 per share (on a post reverse split basis) for 30 consecutive days. In
March 1998, the Company extended the term of the options to August 2001. On
February 1, 2000, the expiration date of the options was extended to May 31,
2005 pursuant to the terms of Mr. Hevrony's Amended Employment/Consulting
Agreement. The exercise price and vesting terms remain the same. See also the
chart entitled "Option Grants in Fiscal Year Ended March 31, 2000" appearing in
Item 11, "Executive Compensation."
On February 19, 1998, the Company issued to Mr. Hevrony options to purchase
300,000 shares of Common Stock at an exercise price of $5.50 per share (after
giving effect to the one-for-five reverse stock split which was effective on
December 29, 1997). These options vested as follows: 100,000 on February 19,
1998; 100,000 on February 19, 1999; and 100,000 on February 19, 2000. All
300,000 options originally expired on February 18, 2003. On February 1, 2000,
the expiration date of the options was extended to May 31, 2005 pursuant to the
terms of Mr. Hevrony's Amended Employment/Consulting Agreement. The exercise
price remains the same. See also the chart entitled "Option Grants in Fiscal
Year Ended March 31, 2000" appearing in Item 11, "Executive Compensation."
As described in the first paragraph of this Item 13, on June 8, 1999, the Board
of Directors approved the grant to Mr. Hevrony of options to purchase 150,000
shares of common stock of the Company under the 1999 Plan, effective May 1,
1999. On February 1, 2000, the expiration date of the options was extended to
May 31, 2005 pursuant to the terms of Mr. Hevrony's Amended
Employment/Consulting Agreement. See also the chart entitled "Option Grants in
Fiscal Year Ended March 31, 2000" appearing in Item 11, "Executive
Compensation."
On August 3, 1999, Textron Master Trust, then a holder of excess of 5% of the
Company's outstanding Common Stock and warrants to purchase 2,136,534 shares of
the Company's Common Stock, warrants to purchase 69,557 shares of the Company's
Series A Convertible Preferred Stock and contingent warrants to purchase Common
Stock, exchanged all of such warrants for 400,000 shares of the Company's Common
Stock and a payment by the Company in the amount of $750,000.
53
<PAGE> 56
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. See Index to Consolidated Financial
Statements.
2. Financial Statement Schedules. See Index to Consolidated
Financial Statements.
3. Exhibits.
The following exhibits are filed or incorporated by reference as part of this
Report.
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession
2.1 Stock Purchase Agreement by and between Baden-Wurttenbergische Bank AG
and Newco dated as of September 3, 1997, as amended.(12)
2.2 Stock Purchase Agreement by and between der Kunz Holding GmbH & Co. KG
and Newco dated as of August 18, 1997, as amended.(12)
2.3 Asset Purchase Agreement dated as of March 30, 1998, by and between
Rubbermaid Incorporated and Rubbermaid Specialty Products, Inc., on the
one hand, and Decora Industries, Inc. and Decora, Incorporated, on the
other hand.(13)
(3) Articles of Incorporation and By-Laws
3.1 Certificate of Incorporation of DII filed on January 28, 1992.(3)
3.2 Amendment No. 1 to DII's Certificate of Incorporation filed on November
2, 1993.(16)
3.3 Certificate of Designation of Series A Preferred Stock of Decora
Industries, Inc. dated September 26, 1997.(12)
3.4 Amendment No. 2 to DII's Certificate of Incorporation filed on December
29, 1997.(16)
3.5 Amendment No. 3 to DII's Certificate of Incorporation filed on December
29, 1997.(16)
3.6 By-laws of DII.(3)
(4) Instruments Defining the Rights of Security Holders
4.1 Certificate of Incorporation and By-laws (see Exhibits 3.1-3.6).
4.2 Form of Specimen Certificate.(15)
4.3 Form of Indenture dated as of April 29, 1998 among Decora Industries,
Inc. as Issuer, Decora, Incorporated, Subsidiary Guarantors, and United
States Trust Company of New York as Trustee.(15)
4.4 Form of 11% Senior Secured Notes due 2005 issued under Indenture dated
as of April 29, 1998 (included as Exhibit A to Indenture).(15)
54
<PAGE> 57
4.5 Form of Series B 11% Senior Secured Notes due 2005 issuable under
Indenture dated as of April 29, 1998 (included as Exhibit B to
Indenture).(15)
4.6 Form of Guarantee of Decora, Incorporated dated as of April 29, 1998
(included as Exhibit G to Indenture).(15)
4.7 Form of Registration Rights Agreement dated as of April 29, 1998 among
Lazard Freres & Co. LLC, Decora Industries, Inc. and Decora,
Incorporated.(15)
(10) Material Contracts
10.1 Management Agreement dated as of April 18, 1990 by and between Utilitech
and Decora, Incorporated.(1)
10.2 Option Agreement dated as of January 7, 1992, by and between Utilitech,
Incorporated and Nathan Hevrony.(2)+
10.3 Option Agreement dated as of January 7, 1992, by and between Utilitech,
Incorporated and Roger Grafftey-Smith.(2)+
10.4 Option Agreement dated as of January 7, 1992, by and between Utilitech,
Incorporated and Gabriel Thomas.(2)+
10.5 Note and Warrant Purchase Agreement by and between Decora Industries,
Inc. and Robert W. Johnson IV, dated November 3, 1992.(3)
10.6 Series A Warrant to Purchase Common Stock of Decora Industries, Inc.,
dated November 3, 1992 issued to Robert W. Johnson IV.(3)
10.7 Series B Warrant to Purchase Common Stock of Decora Industries, Inc.,
dated November 3, 1992 issued to Robert W. Johnson IV.(3)
10.8 Form of Option Agreement dated as of January 11, 1993, by and between
Richard A. DeCoste and the Company.(4)+
10.9 Promissory Note in the amount of $6,000,000 dated as of July 20, 1994 by
and between Decora Industries, Inc. as borrower and Decora, Incorporated
as lender.(5)
10.10 Form of Option Agreement dated as of July 5, 1994 by and between Decora
Industries, Inc. and Stephen Verchick.(5)+
10.11 Form of Option Agreement dated as of July 5, 1994 by and between Decora
Industries, Inc. and Ronald Artzer.(5)+
10.12 Form of Option Agreement dated as of August 15, 1994 by and between
Decora Industries, Inc. and Nathan Hevrony.(6)+
10.13 Form of Option Agreement dated July 6, 1995 by and between Gabriel
Thomas and Decora Industries, Inc.(7)+
10.14 Form of Option Agreement dated August 8, 1996 by and between Gabriel
Thomas and Decora Industries,
55
<PAGE> 58
Inc.
10.15 Form of Option Agreement dated August 8, 1996 by and between Ronald
Artzer and Decora Industries, Inc.
10.16 Form of Option Agreement dated August 8, 1996 by and between Roger
Grafftey-Smith and Decora Industries, Inc.+
10.17 Form of Option Agreement dated August 8, 1996 between Decora Industries,
Inc. and Stephen Verchick.+
10.18 Amendment No. 1 to Option Agreement dated as of August 8, 1996 by and
between Nathan Hevrony and Decora Industries, Inc. (amending terms of
Option Agreement dated August 15, 1994 by and between Nathan Hevrony and
Decora Industries, Inc.)+
10.19 Amendment No. 1 to Option Agreement dated October 1996 (amending Option
Agreement dated August 8, 1996 between Roger Grafftey-Smith and Decora
Industries, Inc.)+
10.20 Form of Amendment No. 1 to Option Agreement dated as of October 1996
between Decora Industries, Inc. and Gabriel Thomas.+
10.21 Form of Amendment No. 1 to Option Agreement dated as of October 1996
between Decora Industries, Inc. and Nathan Hevrony.+
10.22 Amended and Restated Note and Warrant Purchase Agreement by and between
Decora Industries, Inc. and Johnson.(8)
10.23 Series C Warrant to Purchase Common Stock of Decora Industries, Inc.(8)
10.24 Form of Exchange Agreement dated March 31, 1996 by and among Decora,
Incorporated, CIGNA Mezzanine Partners, Inc., CIGNA Property and
Casualty and Insurance Company of North America.(9)
10.25 Form of Official Statement of Counties of Warren and Washington, New
York, Industrial Development Agency $2,460,000 Tax-exempt Industrial
Development Revenue Bonds (Decora, Incorporated Project), Series
1996.(14)
10.26 Form of Employment Agreement dated as of June 1, 1997 by and between
Decora Industries, Inc. and Nathan Hevrony.(10)+
10.27 Form of Employment Agreement dated as of June 1, 1997 by and between
Decora, Incorporated and Richard DeCoste.(11)+
10.28 Form of Option Agreement dated as of June 1, 1997, by and between Decora
Industries, Inc. and Richard DeCoste.(15)+
10.29 Certificate of Designation of Series A Preferred Stock of Decora
Industries, Inc. dated September 26, 1997(12)
10.30 Note and Warrant Purchase Agreement dated as of September 26, 1997 among
Decora, Incorporated, Decora Industries, Inc., Dorrance Street Capital
Advisors, LLC and Textron Master Trust.(12)
10.31 Common Warrant Certificate with respect to 2,136,534 shares of Decora
Industries, Inc., Common Stock,
56
<PAGE> 59
dated September 29, 1997 issued by Decora Industries, Inc. to Textron
Master Trust.(12)
10.32 Preferred Warrant Certificate with respect to 69,557 shares of Decora
Industries, Inc. Series A Stock, dated September 29, 1997 issued by
Decora Industries, Inc. to Textron Master Trust.(12)
10.33 Contingent Common Warrant Certificate with respect to an indeterminate
number of shares of Decora Industries, Inc. Common Stock, dated
September 29, 1997 issued by Decora Industries, Inc. to Purchaser.(12)
10.34 Promissory Note in the amount of $15,207,000 dated September 30, 1997 by
Decora Industries, Inc. to Decora, Incorporated.(12)
10.35 Loan Agreement dated September 29, 1997 among Decora Industries
Deutschland GmbH, Decora Industries, Inc. and Dresdner Bank AG.(12)
10.36 Guaranty dated September 29, 1997 by Decora Industries, Inc. in favor of
Dresdner Bank AG
10.37 Form of Option Agreement dated as of February 19, 1998, by and between
Decora Industries, Inc. and Nathan Hevrony.(15)+
10.38 Form of Option Agreement dated as of February 19, 1998, by and between
Decora Industries, Inc. and Richard DeCoste.(15)+
10.39 Form of Option Agreement dated as of February 19, 1998, by and between
Decora Industries, Inc. and each of its non-employee directors (Messrs.
Artzer, Grafftey-Smith, Thomas and Verchick, respectively).(15)+
10.40 Amendment No. 2 to Option Agreement dated March 1998 between Decora
Industries, Inc. and Nathan Hevrony (amending terms of Option Agreement
dated as of August 15, 1994, as amended on August 8, 1996).+
10.41 Form of Lease dated as of April 5, 1998 between American Industrial
Center and Etch Art, Inc.
10.42 Form of Notarial Deed dated as of April 28, 1998 between Decora
Industries, Inc. and United States Trust Company of New York relating to
pledge of shares of Decora Industries Deutschland GmbH ("German Pledge
Agreement").(15)
10.43 Form of Guarantor Pledge Agreement dated as of April 29, 1998 between
Decora Industries, Inc. and United States Trust Company of New York.(15)
10.44 Form of Amendment to German Pledge Agreement dated as of April 29, 1998
between Decora Industries, Inc. and United States Trust Company of New
York.(15)
10.45 Form of Loan Agreement dated as of April 28, 1998 between Decora,
Incorporated and Konrad Hornschuch AG.(15)
10.46 Form of Security Agreement dated as of April 29, 1998 between Decora,
Incorporated and Konrad Hornschuch AG.(15)
10.47 Form of License Agreement dated as of April 28, 1998 between Decora,
Incorporated and Konrad Hornschuch AG.
57
<PAGE> 60
10.48 Form of Distribution Agreement dated as of April 28, 1998 between
Decora, Incorporated and Konrad Hornschuch AG.
10.49 Form of Promissory Note in the amount of $90,000,000 executed on April
29, 1998 by Decora, Incorporated to Decora Industries, Inc.
10.50 Form of Logistics Services Agreement between Decora, Incorporated and
Federal Wholesale Group, Inc.
10.51 Form of First Amendment to the Logistics Services Agreement dated May 1,
1999, by and between Decora, Incorporated and Federal Wholesale Group,
Inc.
10.52 Form of Lease dated as of May 15, 1998 between Liberty Parkway
Industrial, Ltd. and Decora, Incorporated.
10.53 Amendment No. 1 to Option Agreement dated as of July 5, 1998, between
Decora Industries, Inc. and Gabriel Thomas, amending terms of Option
Agreement dated July 6, 1998.
10.54 Form of Payment and Deferral Agreement dated as of July 9, 1998 by and
among Decora, Incorporated, Decora Industries, Inc. and each of the
Holders identified and listed on Schedule A attached thereto.(17)
10.55 Form of Employment Agreement dated July 18, 1998 between Konrad
Hornschuch AG and Rolf J. Gemmersdorfer.(20)+
10.56 Form of Option Agreement dated as of August 1, 1998, by and between Rolf
J. Gemmersdorfer and Decora Industries, Inc.(17)+
10.57 Decora Industries, Inc. Executive Incentive Plan.(20)+
10.58 Form of Stock Option Agreement dated as of May 1, 1999 between Decora
Industries, Inc. and each of Ronald Artzer (25,000 options); Roger
Grafftey-Smith (25,000 options); Gabriel Thomas (25,000 options);
Stephen Verchick (25,000 options); Nathan Hevrony (150,000 options);
Timothy Burditt (55,000 options) and Earl Wearsch (55,000 options).+
10.59 First Amendment to Payment and Deferral Agreement with CIGNA dated June
30, 1999.(18)
10.60 Form of Warrant Exchange Agreement dated as of August 3, 1999 between
State Street Bank and Trust Company, as Trustee for the The Textron
Master Trust, Decora Industries, Inc. and Decora, Incorporated(19)
10.61 Form of Amended and Restated Payment and Deferral Agreement dated as of
September 23, 1999 between Decora Industries, Inc. and Connecticut
General Life Insurance Company, Cigna Property and Casualty Insurance
Company, Cigna Mezzanine Partners II, L.P. and Century Indemnity
Company.(19)
10.62 Form of Employment Agreement dated as of February 1, 2000 between Ronald
A. Artzer and Decora Industries, Inc.+
10.63 Form of Stock Option Agreement dated as of February 1, 2000 between the
Company and Ronald Artzer (200,000 options).+
58
<PAGE> 61
10.64 Form of Supplemental Executive Compensation Agreement dated as of
February 1, 2000 between Ronald A. Artzer and Decora Industries, Inc.+
10.65 Form of Amended Employment/Consulting Agreement dated as of February 1,
2000 between Nathan Hevrony and Decora Industries, Inc.+
10.66 Form of Supplemental Executive Compensation Agreement between Nathan
Hevrony and Decora Industries, Inc.+
10.67 Form of Amendment to Loan Agreement dated February 20 between Fleet
National Bank and Decora, Incorporated.
10.68 Form of Restated and Amended Revolving Promissory Note dated February
18, 2000 in the principal amount of $15,000,000 made by Decora,
Incorporated in favor of Fleet National Bank.
10.69 Form of Financing Agreement dated as of May 2, 2000, by and among Decora
Industries, Inc., Decora, Incorporated, Ableco Finance LLC, and The CIT
Group/Business Credit, Inc.
10.70 Form of Term A Note dated May 2, 2000, executed by Decora, Incorporated,
payable to Ableco Finance LLC, in the principal amount of $4,375,000.00
10.71 Form of Term A Note dated May 2, 2000, executed by Decora, Incorporated,
payable to A2 Funding LP, in the principal amount of $4,375,000.00
10.72 Form of Term B Note dated May 2, 2000, executed by Decora, Incorporated,
payable to Ableco Finance LLC, in the principal amount of $1,125,000.00
10.73 Form of Term B Note dated May 2, 2000, executed by Decora, Incorporated,
payable to A2 Funding LP, in the principal amount of $1,125,000.00
10.74 Form of Revolving Credit Note dated May 2, 2000 executed by Decora,
Incorporated, a Delaware corporation, payable to The CIT Group/Business
Credit, Inc., in the principal amount of $14,000,000.00
10.75 Form of Mortgage, Security Agreement, Assignment of Leases and Rents and
Fixture Filing dated May 2, 2000, made by Decora, Incorporated, in favor
of Ableco Finance LLC, in the maximum principal amount of $2,225,000.00
10.76 Form of Mortgage, Security Agreement, Assignment of Leases and Rents and
Fixture Filing dated May 2, 2000, made by Decora, Incorporated in favor
of Ableco Finance LLC, in the maximum principal amount of $2,000,000.00
10.77 Form of Environmental Indemnity Agreement dated as of May 2, 2000, by
Decora, Incorporated, and Decora Industries, Inc., in favor of Ableco
Finance LLC.
10.78 Form of Borrower Security Agreement dated as of May 2, 2000, made by
Decora, Incorporated, in favor of Ableco Finance LLC
59
<PAGE> 62
10.79 Form of Borrower Pledge Agreement dated as of May 2, 2000, made by
Decora, Incorporated in favor of Ableco Finance LLC
10.80 Form of Guarantor Security Agreement dated as of May 2, 2000, made by
Decora Industries, Inc. in favor of Ableco Finance LLC
10.81 Form of Guarantor Pledge Agreement dated as of May 2, 2000, made by
Decora Industries, Inc., in favor of Ableco Finance LLC
(21) Subsidiaries of the Registrant
21.1 Subsidiaries of Decora Industries, Inc.(16)
23.1 Consent of Independent Certified Public Accountants
(27) Financial Data Schedule
27.1 Financial Data Schedule.
60
<PAGE> 63
Notes:
+ Denotes compensatory plan or arrangement.
(1) Previously filed as Exhibits to the Company's Report on Form 8-K dated
April 18, 1990.
(2) Previously filed as Exhibits to the Company's Report on Form 10-K for
the fiscal year ended March 31, 1992.
(3) Previously filed as Exhibits to the Company's Report on Form 8-K dated
November 5, 1992.
(4) Previously filed as Exhibit to the Company's Report on Form 10-K for the
fiscal year ended March 31, 1993.
(5) Previously filed as Exhibit to the Company's Report on Form 10-K for the
fiscal year ended March 31, 1994.
(6) Previously filed as Exhibit to the Company's Report on Form 10-Q for the
fiscal quarter ended December 31, 1994.
(7) Previously filed as Exhibit to the Company's Report on Form 10-K for the
fiscal year ended March 31, 1995.
(8) Previously filed as Exhibit to the Company's Report on Form 10-Q for the
fiscal quarter ended December 31, 1995.
(9) Previously filed as Exhibit to the Company's Report on Form 10-K for the
fiscal year ended March 31, 1996.
(10) Previously filed as Exhibit to the Company's Report on Form 10-K for the
fiscal year ended March 31, 1997.
(11) Previously filed as Exhibit to the Company's Report on Form 10-Q for the
fiscal quarter ended June 30, 1997.
(12) Previously filed as Exhibit to the Company's Report on Form 8-K dated
October 1, 1997.
(13) Previously filed as Exhibit to the Company's Report on Form 8-K dated
March 31, 1998.
(14) Previously filed as Exhibit to the Company's Report on Form 10-Q for the
fiscal quarter ended December 31, 1996.
(15) Previously filed as Exhibit to the Company's report on Form 10-K for the
fiscal year ended March 31, 1998.
(16) Previously filed as Exhibit to the Company's Registration Statement No.
333-58989 on Form S-4 as originally filed on July 13, 1998.
(17) Previously filed as Exhibit to Amendment No. 1 of the Company's
Registration Statement No. 333-58989
61
<PAGE> 64
on Form S-4 as filed on September 4, 1998.
(18) Previously filed as Exhibit to the Company's Report on Form 10-Q for the
fiscal quarter ended June 30, 1999.
(19) Previously filed as Exhibit to the Company's Report on Form 10-Q for the
fiscal quarter ended September 30, 1999.
(20) Previously filed as an Exhibit to the Company's Report on Form 10-K for
the fiscal quarter ended March 31, 1999.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the three months
ended March 31, 2000.
62
<PAGE> 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registered has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
July 14, 2000 DECORA INDUSTRIES, INC.
By: /s/ Nathan Hevrony
------------------------------
Nathan Hevrony
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Nathan Hevrony Chief Executive Officer July 14, 2000
--------------------------- and Director (Principal
Nathan Hevrony Executive Officer)
/s/ Ronald A. Artzer President and Chief July 14, 2000
--------------------------- Operating Officer and
Ronald A. Artzer Director (Principal
Executive Officer)
/s/ Robert J. Hanlon, Jr. Chief Financial Officer July 14, 2000
--------------------------- (Principal Financial and
Robert J. Hanlon, Jr. Accounting Officer)
Director July 14, 2000
---------------------------
Roger Grafftey-Smith
/s/ Gabriel Thomas Director July 14, 2000
---------------------------
Gabriel Thomas
/s/ Stephen H. Verchick Director July 14, 2000
---------------------------
Stephen H. Verchick
</TABLE>
63
<PAGE> 66
DECORA INDUSTRIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Financial Statements Page
-------------------- ----
<S> <C>
The following Consolidated Financial Statements of Decora Industries, Inc. and
Report of Independent Accountants are filed as part of this report:
Report of Independent Accountants F-2
Consolidated Balance Sheets as of March 31, 2000 and 1999 F-3
Consolidated Statements of Income for the years ended
March 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 2000, 1999 and 1998 F-6
Consolidated Statements of Changes in Shareholders' Equity
for the years ended March 31, 2000, 1999 and 1998 F-7
Notes to Consolidated Financial Statements F-8
Financial Statement Schedule for the three years ended March 31, 2000
---------------------------------------------------------------------
Schedule II - Valuation and Qualifying Accounts F-32
</TABLE>
F-1
<PAGE> 67
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Decora Industries, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Decora
Industries, Inc. and its subsidiaries at March 31, 2000 and 1999 and the results
of their operations and their cash flows for each of the three years in the
period ended March 31, 2000 in conformity with accounting principles generally
accepted in the United States. In addition, in our opinion, the financial
statement schedule listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and the financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
an audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully described in
Note 1, the Company incurred a net loss of $22 million for the year ended March
31, 2000, and had a net capital deficit as of March 31, 2000 of $6 million. In
addition, the Company is in default of covenants under certain of its secured
financings, and has disclosed that its ability to pay interest due in November
2000 on its 11% senior secured notes is uncertain. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
PricewaterhouseCoopers LLP
Stamford, Connecticut
June 30, 2000
F-2
<PAGE> 68
Decora Industries, Inc.
Consolidated Balance Sheets
Amounts in 000s (except per share data)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
2000 1999
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 665 $ 6,158
Restricted cash 114 504
Accounts receivable, less allowance for doubtful accounts of $1,121 28,555 26,826
and $2,479 at March 31, 2000 and 1999, respectively
Inventories 37,036 42,676
Prepaid expenses and other current assets 1,828 1,811
-------- --------
Total current assets 68,198 77,975
Property and equipment, net 49,668 54,341
Goodwill and other intangibles, net 77,415 78,081
Deferred income taxes -- 3,769
Deferred financing costs, net 3,675 4,171
Other assets 3,463 2,402
-------- --------
Total assets $202,419 $220,739
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 69
Decora Industries, Inc.
Consolidated Balance Sheets
Amounts in 000s (except per share data)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
2000 1999
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 11,992 $ 11,547
Accrued liabilities 16,141 12,438
Accrued interest 5,813 5,293
Current portion of long-term debt 31,434 9,467
Deferred income taxes 1,304 242
Other current liabilities 2,924 4,331
--------- ---------
Total current liabilities 69,608 43,318
Long-term debt 122,253 140,562
Pension obligation 12,618 14,634
Deferred income taxes 1,467 --
--------- ---------
Total liabilities 205,946 198,514
--------- ---------
Minority interest in subsidiary 2,796 3,360
--------- ---------
Shareholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized, none issued -- --
Common stock, $.01 par value; 20,000,000 shares authorized,
7,823,887 and 7,341,554 shares issued and outstanding at
March 31, 2000 and 1999, respectively 78 73
Additional paid-in capital 33,144 33,634
Accumulated deficit (35,353) (13,307)
Cumulative translation adjustment (3,604) (918)
Additional minimum pension liability (588) (617)
--------- ---------
Total shareholders' equity (deficit) (6,323) 18,865
--------- ---------
Commitments and contingencies -- --
--------- ---------
Total liabilities and shareholders' equity $ 202,419 $ 220,739
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 70
Decora Industries, Inc.
Consolidated Statements of Income
Amounts in 000s (except per share data)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Net sales $ 162,450 $ 176,577 $ 98,407
Cost of goods sold 114,912 113,168 68,220
--------- --------- ---------
Gross profit 47,538 63,409 30,187
Selling, general and administrative expenses 45,553 41,849 17,677
Nonrecurring charges -- -- 1,461
--------- --------- ---------
Operating income 1,985 21,560 11,049
Interest expense, net 16,011 14,085 3,829
--------- --------- ---------
Income (loss) before income taxes, minority interest and (14,026) 7,475 7,220
extraordinary item
Income tax provision 7,761 3,230 3,278
--------- --------- ---------
Income (loss) before minority interest and extraordinary item (21,787) 4,245 3,942
Minority interest in earnings of subsidiary 259 549 1,212
--------- --------- ---------
Income (loss) before extraordinary item (22,046) 3,696 2,730
Extraordinary item, net of income taxes -- (2,019) --
--------- --------- ---------
Net income (loss) $ (22,046) $ 1,677 $ 2,730
========= ========= =========
PER SHARE OF COMMON STOCK:
Income (loss) before extraordinary item
Basic $ (2.87) $ 0.50 $ 0.38
Diluted (2.87) 0.44 0.35
Extraordinary item
Basic -- (0.27) --
Diluted -- (0.24) --
Net income (loss)
Basic (2.87) 0.23 0.38
Diluted (2.87) 0.20 0.35
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 71
Decora Industries, Inc.
Consolidated Statements of Cash Flows
Amounts in 000s
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended March 31,
2000 1999 1,998
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (22,046) $ 1,677 $ 2,730
Adjustments to reconcile net income to net cash provided
by operating activities:
Extraordinary item, net of income taxes -- 2,019 --
Depreciation and amortization 9,090 8,492 5,534
Amortization of debt discount and fees 1,082 989 --
Minority interest in earnings of subsidiary 259 549 1,212
Provision for doubtful notes receivable -- -- 789
Loss on disposal of property and equipment -- -- 98
Deferred income tax provision 5,844 1,782 3,284
Net changes in current assets and liabilities 6,580 (7,939) 2,267
Other, net (2,304) (1,427) (1,133)
--------- --------- ---------
Net cash provided by (used in) operating activities (1,495) 6,142 14,781
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Rubbermaid acquisition (2,307) (66,038) --
Acquisition of Hornschuch shares (928) (5,772) (37,899)
Acquisition of Tarkett assets -- (1,549) --
Acquisition of Etch Art (350) -- --
Reductions in notes receivable -- 304 406
Purchase of property and equipment (5,723) (8,693) (1,778)
--------- --------- ---------
Net cash used in investing activities (9,308) (81,748) (39,271)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 14,021 117,813 39,205
Repayment of long-term debt (8,284) (29,572) (6,011)
Increase (decrease) in short-term borrowings 1,303 (491) (7,216)
Proceeds from exercise of warrants -- -- 63
Proceeds from issuance of common stock -- -- 750
Proceeds from issuance of stock options 120 -- --
Payment of warrant exchange obligation (1,054) (200) --
Payment of debt penalties and fees -- (6,957) (771)
--------- --------- ---------
Net cash provided by financing activities 6,106 80,593 26,020
--------- --------- ---------
Effect of exchange rate fluctuations on
cash and cash equivalents (1,186) (132) 34
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (5,883) 4,855 1,564
Cash and cash equivalents at beginning of year 6,662 1,807 243
--------- --------- ---------
Cash and cash equivalents at end of year $ 779 $ 6,662 $ 1,807
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 72
Decora Industries, Inc.
Consolidated Statements of Changes in Shareholders' Equity
Amounts in 000s
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Other Nonshareholder
Common Stock Additional Nonshareholder Changes in
-------------------- Paid-in Accumulated Changes Equity For
Shares Value Capital Deficit in Equity the Year
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997 7,094 $71 $32,146 (17,714) $ -- $ --
Common shares issued in private placement 187 2 748 -- -- --
Allocable detachable warrants
issued with debt -- -- 818 -- -- --
Warrants exercised 50 -- 63 -- -- --
Nonshareholder changes in equity:
Net income -- -- -- 2,730 -- 2,730
Cumulative translation adjustment -- -- -- -- (775) (775)
-------- -------- -------- -------- -------- --------
Balance at March 31, 1998 7,331 73 33,775 (14,984) (775) 1,955
--------
Common shares issued to settle litigation 10 -- 52 -- -- --
Common shares issued for services 1 -- 7 -- -- --
Payment of warrant exchange obligation -- -- (200) -- -- --
Nonshareholder changes in equity:
Net income -- -- -- 1,677 -- 1,677
Cumulative translation adjustment -- -- -- -- (143) (143)
Additional minimum pension liability -- -- -- -- (617) (617)
-------- -------- -------- -------- -------- --------
Balance at March 31, 1999 7,342 73 33,634 (13,307) (1,535) 917
--------
Shares issued for acquisition of Etch Art 58 1 349 -- -- --
Stock options exercised 24 -- 120 -- -- --
Payment of warrant exchange obligations 400 4 (1,058) -- -- --
Stock options issued -- -- 99 -- -- --
Nonshareholder changes in equity:
Net income (loss) -- -- -- (22,046) -- (22,046)
Cumulative translation adjustment -- -- -- -- (2,686) (2,686)
Additional minimum pension liability -- -- -- -- 29 29
-------- -------- -------- -------- -------- --------
Balance at March 31, 2000 7,824 $ 78 $ 33,144 $(35,353) $ (4,192) $(24,703)
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 73
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Decora Industries, Inc. ("DII" and, together with its subsidiaries, the
"Company") is a leading manufacturer and marketer of self-adhesive consumer
decorative and surface coverings and other specialty industrial products.
The Company is a holding company and operates primarily through two
subsidiaries, Decora, Incorporated ("Decora"), a wholly-owned subsidiary
based in the U.S., and Konrad Hornschuch AG ("Hornschuch"), which is based
in Germany and 90% owned by Decora Industries Deutschland GmbH ("DI
Deutschland"), which, in turn, is wholly-owned by DII. Hornschuch's results
have been included since its acquisition on October 1, 1997 (see Note 2).
The Company's principal products are sold under the Con-Tact and d-c-fix
brands. The Company operates in two business segments, consumer and
industrial.
GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company incurred a net
loss of $22,046,000 for the year ended March 31, 2000 and had a net capital
deficit (excess of liabilities over assets) of $6,323,000 as of March 31,
2000. In addition, as described in Note 7, the Company was in default of
covenants under certain of its secured financings outstanding as of March
31, 2000. Also, as disclosed in Note 8, the Company refinanced one of the
aforementioned secured financings as of May 15, 2000, but was informed of
an event of default by its new lender on June 12, 2000. As further
disclosed in Note 8, relying solely on the results of operations of Decora,
the Company may not be able to pay the interest due on November 1, 2000
under the 11% senior secured notes. The Company is reviewing Decora's
business plan with its financial advisors and lenders with the objective of
seeking appropriate accommodations. The Company is also evaluating
potential changes in its capital structure and additional financial
resources.The Company's continuation as a going concern is dependent, among
other factors, upon its ability to comply with the terms of its financing
agreements and to obtain additional financing. The financial statements do
not include any adjustments relating to the recoverability and
classification of assets or the amounts and classification of liabilities
that might be necessary should the Company be unable to continue as a going
concern.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company.
All significant intercompany balances and transactions have been eliminated
in consolidation.
REVERSE STOCK SPLIT
In December 1997, the Company's shareholders approved a one-for-five
reverse stock split which was effective December 29, 1997. The
presentations of common shares and per share amounts have been restated, as
appropriate, to reflect the reverse stock split.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of cash, accounts receivable, accounts payable and accrued
expenses approximate their carrying values. Financial instruments, when
acquired, are held for purposes other than trading.
F-8
<PAGE> 74
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
The fair value of the Company's senior secured notes has been determined
based upon current market rates (see Note 7). The balance of the Company's
debt, in combination with interest rate swap agreements, bears current
market rates of interest or is payable on demand. Accordingly, the carrying
amount is considered a reasonable approximation of fair value.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments with
original maturities of three months or less. The carrying amount of cash
and cash equivalents approximates their fair values. Certain debt
agreements require the payment of monthly sinking fund deposits in order to
retire the debt. Cash balances transferred for this purpose are considered
restricted and are separately stated in the accompanying financial
statements.
REVENUES AND RECEIVABLES
Sales are recognized when products are shipped. Returns are accounted for
on the accrual basis. The Company's receivables are generally concentrated
from customers in the U.S. and Europe. A portion of the sales made outside
of Germany are covered by confirmed letters of credit or credit insurance.
The Company does not generally require collateral for sales made within the
United States.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, generally three to fifty years.
GOODWILL AND OTHER INTANGIBLES
The excess of the aggregate purchase price over the fair values of the net
assets of businesses and product lines acquired has been recorded as
goodwill and is being amortized on the straight-line method over forty
years. Other intangibles are amortized over periods ranging from three to
forty years.
LONG-LIVED ASSETS
The Company assesses impairment losses to be recorded on long-lived assets
when indications of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets'
carrying amounts.
NET INCOME PER SHARE
Effective fiscal 1998, net income per share is calculated in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings
Per Share. Under SFAS No. 128, the Company is required to report both basic
net income per share based on the weighted average number of common shares
outstanding and diluted net income per share based on the weighted average
number of common shares outstanding plus all potentially dilutive common
shares issuable. Net income per share calculations for fiscal 2000, 1999
and 1998 are presented in Note 13.
F-9
<PAGE> 75
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
INCOME TAXES
Income taxes are provided based on the liability method pursuant to SFAS
No. 109, Accounting for Income Taxes. Deferred income taxes are recorded to
reflect expected future tax consequences of events that have been
recognized in the Company's financial statements or its tax returns, but
not both. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement carrying
amounts and tax bases of assets and liabilities using enacted tax rates in
the years in which the differences are expected to reverse.
RESEARCH AND DEVELOPMENT
Research and development costs related to both present and future products
are expensed as incurred and amounted to $3,090,000, $2,532,000 and
$1,024,000 in fiscal 2000, 1999 and 1998, respectively.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion
("APB") No. 25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for its employee stock options. Under APB No.
25, when the exercise price of employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense
is recorded. The Company has adopted the disclosure only provisions of SFAS
No. 123, Accounting for Stock-Based Compensation (see Note 10).
FOREIGN CURRENCY
The assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars using year-end exchange rates. Income
statement items are translated at average exchange rates prevailing during
the year. The resulting translation adjustments are recorded as a separate
component of shareholders' equity. Exchange rate gains and losses on
intercompany balances of a long-term investment nature are also recorded as
a component of shareholders' equity. Foreign currency transaction gains and
losses, which historically have been immaterial, are included in net
income. In addition, the Company also will occasionally enter into foreign
currency hedges.
INTEREST RATE HEDGES
The Company is party to four interest rate cap agreements as of March 31,
2000 for DM 7.0 million, DM 5.6 million, DM 3.0 million and DM 3.0 million
which are used to hedge against fluctuations in interest rates for existing
debt balances. As these instruments are used to hedge existing debt, there
is no requirement to record these agreements fair value.
The Company is also party to three interest rate swap agreements as of
March 31, 2000 for DM 6.0 million, DM 5.0 million and DM 3.1 million. These
agreements were used to convert variable rate debt to fixed rate debt. For
the DM 5.0 million instrument, the related debt had been repaid early.
However, Hornschuch was obliged to maintain the swap and pay (receive) the
difference between Hornschuch's fixed rate and the original variable rate.
The fair value of this speculative instrument of approximately DM 159,000
(approximately $78,000) is recorded as a current liability in the
accompanying consolidated balance sheet.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets
F-10
<PAGE> 76
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
and liabilities and revenues, costs and expenses during the reporting
period. Actual results may differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' amounts to conform
to the current year presentation.
2. ACQUISITIONS
HORNSCHUCH ACQUISITION
On October 1, 1997, the Company acquired 73.2% of the voting stock (the
"Shares") of Hornschuch through a newly formed subsidiary, DI Deutschland.
The Shares and other intangible assets were acquired directly from
Hornschuch's two largest shareholders (the "Hornschuch Acquisition") in
private transactions for total consideration of DM 61,582,280, or
approximately $35,000,000. Since October 1, 1997, the Company has increased
its ownership to approximately 90% through open market purchases and the
completion of a tender offer in March 1999.
The purchase of the Shares and other intangible assets was funded by a
combination of debt and equity, including a loan (secured by the Shares) of
approximately $21,205,000 to DI Deutschland from a German bank (the "Bank
Loan"), a subordinated loan of $18,000,000 in the United States (the
"Subordinated Loan") provided by a pension fund (the "Pension Fund") and a
private placement of the Company's common stock in the amount of $750,000.
The Pension Fund was also granted Series A warrants which are currently
exercisable for the purchase of 1,818,000 shares of common stock of the
Company at an exercise price of $5.00 per share. The total amount raised
was sufficient to fund the purchase of the other intangible assets and up
to 75% of the shares of Hornschuch, repay an existing subordinated debt of
$2.9 million and pay a portion of the $2.8 million in closing costs
associated with the transaction.
F-11
<PAGE> 77
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
The aggregate cost of Hornschuch shares and other intangible assets
acquired through March 31, 2000 of approximately $45.7 million (including
closing costs of approximately $2.8 million) has been allocated as of the
respective acquisition dates to the assets acquired and the liabilities
assumed as follows (000s):
<TABLE>
<S> <C>
Cash $ 889
Accounts receivable 18,886
Inventories 21,440
Other current assets 1,072
Property, plant and equipment 44,448
Notes receivable 371
Goodwill and other intangibles 14,448
Deferred income taxes 3,342
Other non-current assets 278
Accounts payable (4,976)
Accrued liabilities (12,935)
Other current liabilities (7,475)
Debt (18,696)
Pension obligation (14,332)
Minority interest (1,299)
</TABLE>
RUBBERMAID DECORATIVE COVERINGS GROUP ACQUISITION
On April 29, 1998, the Company acquired certain assets, which had
constituted Rubbermaid's Decorative Coverings Group (the "DCG"), for an
initial purchase price (subject to a purchase price contingency of $2.5
million based upon calendar 1998 DCG sales levels) of approximately $62.5
million (the "Rubbermaid Acquisition"). Based upon final 1998 calendar
sales of the DCG, the purchase price was adjusted downward to approximately
$60.5 million.
The assets acquired included inventory, manufacturing equipment, tradenames
(including the Con-Tact trademark) and all other rights to three product
lines: (i) the Con-Tact self-adhesive coverings line that was manufactured
exclusively for Rubbermaid by Decora, (ii) Shelf Liner, a proprietary
product line that was manufactured by Rubbermaid, and (iii) the Grip Liner
non-adhesive covering line which is manufactured by a third party pursuant
to the terms of an exclusive manufacturing agreement.
The acquisition cost for the DCG of approximately $68.4 million (final
purchase price of $60.5 million, adjusted for acquisition related closing
costs of approximately $6.7 million and costs of $2.7 million related to
the relocation/installation of the Shelf Liner equipment acquired, less
amounts related to transition services of $1.5 million paid to Rubbermaid)
was allocated to the assets acquired and liabilities assumed as follows:
F-12
<PAGE> 78
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
<TABLE>
<S> <C>
Inventory $ 7,000,000
Property and equipment 3,690,000
Intangible assets:
Con-Tact tradename 20,300,000
Customer relationships 27,400,000
Goodwill 10,894,000
Accrued liabilities (919,000)
------------
$ 68,365,000
============
</TABLE>
In order to finance the Rubbermaid Acquisition and to improve its capital
structure, the Company issued $112,750,000 of 11.0% senior secured notes
(the "Notes"). The Notes were issued with an original issue discount of
$2,664,000 with interest payable semi-annually and no principal payments
required prior to maturity on May 1, 2005. In addition, Hornschuch borrowed
under its secured credit facilities approximately $10.0 million. Of the
total amount raised, approximately $60,800,000 (includes approximately
$300,000 of accrued interest) was paid to Rubbermaid, approximately
$32,100,000 was used to refinance existing debt and related fees (including
an $18.0 million 13% subordinated loan (the "Subordinated Loan") which had
been used to finance the Hornschuch Acquisition), approximately $5,800,000
was used to acquire additional Hornschuch shares (which increased DI
Deutschland's ownership from 76% to 90%) and approximately $8,800,000 was
used to pay acquisition and financing related transaction fees and
expenses. The remaining net proceeds were intended to be used to finance a
portion of the acquisition of the remaining 10% equity interest in
Hornschuch and for general corporate purposes, including working capital
requirements. At the same time Decora entered into a three year, $15.0
million secured revolving line of credit. Its availability was based on a
factor of the amount of Decora's accounts receivable and inventory. As of
March 31, 2000, the revolving line of credit had been fully utilized, and
as described in Note 7(f), this credit facility was in default. In May
2000, this Credit Facility was refinanced (see Note 8).
Direct financing transaction costs incurred of approximately $4.7 million
were deferred and are being amortized, using the effective interest rate
method, over the term of the respective financings.
The results for fiscal 1999 were also impacted by a one-time non-cash
charge of approximately $800,000 for the step-up in basis of certain DCG
inventory acquired in the Rubbermaid Acquisition. This charge related
primarily to inventory sold by Decora to Rubbermaid prior to the Rubbermaid
Acquisition. Pursuant to purchase accounting, the manufacturer's profit
related to such inventory must be reflected in the inventory basis upon the
sale of such inventory.
The Company is vigorously pursuing legal action against Rubbermaid (see
Note 14).
TARKETT ACQUISITION
In November 1998, Hornschuch acquired certain assets from Tarkett Folien
GmbH and Co. KG, including a customer list and inventory, for approximately
$1.5 million.
F-13
<PAGE> 79
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
ETCHART INC. ACQUISITION
In April 1999, Decora acquired certain assets from EtchArt Inc., a
manufacturer of "wallpaper" for Windows TM, a line of window and glass
coverings, including a customer list and inventory for approximately
$850,000.
PRO FORMA RESULTS
The Rubbermaid Acquisition was an acquisition of product lines for which
separate financial statements were not maintained by Rubbermaid; therefore,
pro forma unaudited consolidated operating results reflecting the
Rubbermaid Acquisition had it occurred prior to April 29, 1998 are not
presented.
3. INVENTORIES
Inventories consist of (000s):
<TABLE>
<CAPTION>
March 31,
2000 1999
<S> <C> <C>
Raw materials $ 6,862 $ 8,018
Work-in-process 7,581 8,832
Finished goods 22,593 25,826
------- -------
$37,036 $42,676
======= =======
</TABLE>
During the year 2000, the Company has recorded certain inventory writedowns
totaling $3.7 million in connection with the Rubbermaid acquisition ($2.2
million) and its international nonbranded business ($1.5 million).
In 1999, the Company recorded inventory writedowns totaling $0.6 million.
F-14
<PAGE> 80
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT
Property and equipment consists of (000s except useful life data):
<TABLE>
<CAPTION>
Useful March 31,
Life 2000 1999
<S> <C> <C> <C>
Land $ 3,404 $ 3,746
Buildings 20-50 18,205 18,300
Machinery and equipment 8-10 37,367 34,060
Furniture and fixtures 3-8 11,165 10,315
Leasehold improvements 5 617 617
Construction-in-progress 1,565 4,958
------- --------
72,323 71,996
Less - Accumulated depreciation (22,655) (17,655)
-------- --------
$ 49,668 $ 54,341
======== ========
</TABLE>
Depreciation expense was $5,983,000, $5,737,000 and $4,394,000 for fiscal
2000, 1999 and 1998, respectively.
5. GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles consists of the following (000s):
<TABLE>
<CAPTION>
March 31,
2000 1999
<S> <C> <C>
Goodwill $ 34,874 $ 32,717
Less - Accumulated amortization (3,839) (2,957)
-------- --------
31,035 29,760
-------- --------
Customer relationships 27,400 27,400
Con-Tact trademark 20,300 20,300
Cobra trademark 2,000 2,000
Other 1,254 1,326
-------- --------
50,954 51,026
Less - Accumulated amortization (4,574) (2,705)
-------- --------
46,380 48,321
-------- --------
$ 77,415 $ 78,081
======== ========
</TABLE>
F-15
<PAGE> 81
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
Goodwill amortization was $954,000, $768,000 and $458,000 for fiscal 2000,
1999 and 1998, respectively. Amortization of other intangibles was
$1,928,000, $1,809,000 and $198,000 for fiscal 2000, 1999 and 1998,
respectively.
6. EMPLOYEE BENEFIT PLANS
Hornschuch maintains two noncontributory defined benefit pension plans in
Germany. Both pension plans are unfunded as the laws requiring pension
funding in Germany are considerably different than those in the U.S. Plan A
represents a combination of individual pension arrangements negotiated with
approximately 36 participants representing past and present management
individuals and is open to additional participants based on individually
negotiated employment contracts. The pension benefits under Plan A may vary
to include only a specified annual benefit amount or may be based on
compensation level and years of service. Plan B covers all employees of the
Company with 1,652 active and retired participants. Plan B provides for a
fixed monthly retirement benefit after 10 years of service with benefit
increases based on additional years of service. Plan B was closed effective
January 1, 1989, and any active participant at that time was permitted to
accrue up to 10 more years of creditable service through December 31, 1998.
The following provides a reconciliation of the projected benefit obligation
("PBO") for Hornschuch's defined benefit plans (000s):
<TABLE>
<CAPTION>
Year Ended
March 31,
2000 1999
<S> <C> <C>
Balance at beginning of year $ 16,007 $ 14,867
Service cost 127 160
Interest cost 849 986
Net amortization and deferral (89) (19)
Total benefits paid (1,299) (1,196)
Adjustment for the minimum liability 68 1,098
Other (1,944) 111
-------- --------
Balance at end of year $ 13,719 $ 16,007
======== ========
</TABLE>
Based on the purchase accounting for the Hornschuch Acquisition, the full
PBO liability of $15,740,000 was recognized at the acquisition date. The
projected benefit obligations at the end of fiscal 2000 and fiscal 1999 use
a discount rate of 6.5% and a salary increase assumption of 1.5% in the
actuarial valuation.
Included in the Company's consolidated balance sheet at March 31, 2000 and
1999 are a DM 2,128,000 and a DM 2,000,000 (approximately $1,043,000 and
$1,098,000, respectively) additional minimum liability for Hornschuch's
unfunded pension plans. The reduction of shareholders' equity at March 31,
2000 and 1999 is reflected (after tax) of DM 932,000 and DM 876,000
(approximately $457,000 and $481,000, respectively).
F-16
<PAGE> 82
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
Decora and its union have executed an agreement to provide retirement
benefits to qualified union employees through the Paper Industry Union -
Management Pension Fund (the "Fund"). Based upon this agreement, Decora
contributes a contractually agreed upon amount for each qualifying hour
that a union employee works. Total contributions to the Fund were $313,000,
$344,000 and $302,000 in fiscal 2000, 1999 and 1998, respectively.
The Company has a profit sharing plan and a 401K plan covering its U.S.
salaried employees. The Company does not contribute to the 401K plan. The
Company contributes to the profit sharing plan based upon Company
performance. Total expense relative to the profit sharing contributions
amounted to $54,000, $69,000 and $200,000 in fiscal 2000, 1999 and 1998,
respectively.
7. DEBT
Debt consists of (000s):
<TABLE>
<CAPTION>
March 31,
2000 1999
<S> <C> <C>
DII Senior Secured Notes (a) $ 112,750 $ 112,750
DI Deutschland Credit Facility (b) 15,441 20,487
Hornschuch Lines of Credit (c) 11,299 12,365
Decora Term Loans (d) 42 122
Hornschuch Term Loans (e) 3,466 4,513
Decora Lines of Credit (f) 10,854 -
Decora Industrial Development Revenue Bonds (g) 1,960 2,210
--------- ---------
155,812 152,447
Less:
Amounts due within one year (31,434) (9,467)
Unamortized debt discount (2,125) (2,418)
--------- ---------
$ 122,253 $ 140,562
========= =========
</TABLE>
Amounts maturing in fiscal 2001, 2002, 2003, 2004 and 2005 are (000s):
$31,434, $7,684, $342, $273 and $273, respectively.
(a) In April 1998, in order to finance the Rubbermaid Acquisition and to
improve its capital structure, the Company issued $112,750,000 of 11.0%
senior secured notes (the "Notes"). The Notes were issued with an
original issue discount of $2,664,000 with interest payable
semi-annually and no principal payments required prior to maturity on
May 1, 2005. The fair value of the Notes at March 31, 2000 was
approximately $45,000,000, which was determined by the Company using
market information provided by an investment banking firm as to the
market value of similar debt amounts. The estimated fair value of the
Notes does not necessarily reflect the amount at which the debt could
be settled.
(b) On September 29, 1997, DI Deutschland entered into a loan agreement
with a German bank for approximately DM 37.3 million (approximately
$18.3 million at March 31, 2000) to provide a
F-17
<PAGE> 83
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
portion of the financing for the Hornschuch Acquisition. The loan
bears interest at the German interbank borrowing rate plus 2.50%. In
addition, DI Deutschland will be charged a fee of 0.50% per annum on
the average daily balance of the difference between the original loan
amount and the then current balance. The interest rate at March 31,
2000 was 5.6%.
The DI Deutschland Credit Facility is being repaid in semiannual
installments of approximately DM 3.0 million (approximately $1.5
million) which commenced March 30, 1999. The final installment is due
and payable on September 30, 2004. The DI Deutschland Credit Facility
is secured by a pledge of all the capital stock of Hornschuch owned by
DI Deutschland.
On March 30, 2000, the DI Deutschland failed to make principal and
interest payments due in the amount of DM 3.8 million (approximately
$1.9 million ) and were informed by its lender that it was in default
under the DI Deutschland Credit Facility. Accordingly, the entire
outstanding obligation of $15,441,000 is included in current
liabilities as of March 31, 2000.
(c) Hornschuch has separate lines of credit with its primary lender and
certain other financial institutions. Interest rates under the lines
of credit range from 4.05% to 7.24% at March 31, 2000. At March 31,
2000, the availability under these lines was DM 14.0 million ($6.9
million).
(d) In September, 1995, Decora borrowed $375,000 from the Washington
County Local Development Corporation. The loan bears interest at 5.00%
and is payable in monthly installments ending September 1, 2000. It is
secured by certain of Decora's property and equipment. As of March 31,
2000, the outstanding balance of this note was $42,000.
Effective April 1, 1997, Decora entered into an interest rate swap
agreement with its primary bank lender which expired on May 31, 1999.
The agreement effectively converted $8,523,000 of its variable rate
borrowings into fixed rate obligations. Under the terms of the
agreement, Decora makes payments at a fixed rate of 8.58% and receives
variable rate payments at LIBOR plus 200 basis points, repriced at the
beginning of each month. While the underlying debt obligations have
been repaid, Decora continued to make payments under the agreement
until expiration in May 1999. The net amount which was paid or
received is included in interest expense.
(e) Hornschuch has two term loans aggregating approximately DM 7,050,000
(approximately $3,455,000) at March 31, 2000. The first term loan has
a balance of DM 2,850,000 (approximately $1,397,000), matures in March
2006, bears interest at 4.8% and is secured by certain assets. The
first loan requires payments of DM 238,000 ($117,000) semiannually.
The second term loan of DM 4,200,000 (approximately $2,058,000)
matures in March 2003, bears interest at LIBOR plus 0.9% (4.1% at
March 31, 2000) is payable in semiannual installments of DM 700,000
(approximately $343,000) and is secured by a new printing press.
(f) On April 28, 1998, Decora entered into a $15.0 million revolving line
of credit which matures in May 2001 and is secured by various accounts
receivable and inventory. The amount outstanding under the facility,
at the borrower's election, bears interest at either the lender's
prime rate or LIBOR plus 2.25 basis points. As of March 31, 2000,
Decora was unable to comply with certain covenants under this line of
credit. Accordingly, the entire outstanding obligation of $10,854,000
is classified as a current liability as of March 31, 2000. See Note 8
regarding the refinancing of the revolving credit facility with a new
lender.
F-18
<PAGE> 84
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
Decora had a revolving line of credit of up to $6,000,000 which would
have matured in August 1998 and was secured by various accounts
receivable, inventory and equipment. The amount outstanding under the
facility bore interest at prime plus 1-1/4%. On March 27, 1997, Decora
established a second line of credit of up to $1,000,000 which also
would have matured in August 1998, bore interest at prime plus 1.0%
and was secured by certain accounts receivable. Availability under
this credit facility was limited by specified percentages of certain
international trade accounts receivable. At March 31, 1998, the amount
outstanding under these lines of credit of $2,500,000 was repaid in
full with the proceeds of the Notes.
(g) On November 13, 1996, Decora borrowed $2,460,000 through the issuance
of Tax-Exempt Industrial Development Revenue Bonds (Decora Project),
Series 1996 by the Counties of Warren and Washington, New York
Industrial Development Agency. These bonds mature on November 1, 2004
and require sinking fund payments of $20,833 per month beginning
November 1997 and bear interest at a floating rate which is adjusted
weekly based on the remarketing agent's ability to re-market the bonds
at par. As of March 31, 2000, the interest rate on the bonds was
3.05%. The bonds are credit enhanced through a letter of credit issued
by Decora's primary lender and, in addition to interest on the bonds,
Decora pays its primary lender an annual letter of credit fee equal to
1.50% of the outstanding balance of the letter of credit.
8. SUBSEQUENT EVENTS
On May 5, 2000, Decora completed the refinancing of the revolving credit
facility (see Note 7(f)) and the implementation of a secured term
financing. Subsequently, on June 12, 2000, Decora was informed by its new
lender of an event of default under the terms of these secured financings.
The new lender has advised Decora that it will collect interest at the
default rate during the continuation of the default. While the default
permits the lender to accelerate the maturity of these secured financings
and to prohibit the borrower from drawing under the revolving facility, to
date Decora has been able to continue to draw under the revolving facility
and the lender has not notified Decora of its intention to accelerate
payments under the financing. At June 30, 2000, Decora is not able to
comply with the covenants of these secured financings and Decora does not
believe that prospectively it will be able to comply with these covenants
without significant accommodation from its lender. While success in any of
these endeavors cannot be assured, the Company is currently negotiating
with Decora Deutschland's lenders to permit Decora Duetschland to fund the
interest payment on the 11% senior secured notes. Relying solely on the
results of operations of Decora operations, management believes the Company
will not be able to pay the interest due in November 2000 under the 11%
senior secured notes.
The Company is reviewing Decora's business plan with its financial advisers
and lenders with the objective of seeking appropriate accommodations and to
ascertain what actions can be taken to restore profitability. The Company
is also evaluating potential changes in its capital structure and
additional financial resources. There can be no assurance that the Company
will be able to successfully implement the changes necessary for the
Company to remain a going concern.
9. EXTRAORDINARY ITEM
In conjunction with the Rubbermaid Acquisition, the Company repaid debt
totalling approximately $28.5 million prior to maturity. As a result, the
Company paid a one-time pre-payment penalty of approximately $2.2 million
and wrote off unamortized deferred loan costs and debt discount totalling
approximately $1.1 million. Consequently, an extraordinary charge of
approximately $2.0 million (net of income taxes) was recorded in fiscal
1999.
F-19
<PAGE> 85
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
10. STOCK OPTIONS
The Company has several domestic long-term incentive plans under which
shares of the Company's common stock may be sold to directors, officers and
key employees. Certain other parties have been granted stock options by the
Company in connection with various transactions.
The Company adopted a Stock Option Plan in fiscal 1987 (the "1987 Plan")
pursuant to which 340,000 shares of common stock were available for grant.
The 1987 Plan terminated on July 8, 1997. The 1987 Plan is administered by
a committee of Directors of the Company who are not covered by the 1987
Plan. All options granted under the 1987 Plan terminate either five or ten
years after the date of grant and vest quarterly over a three-year period
subsequent to the date of the grant, unless modified by the Company.
In fiscal 1988, the shareholders of the Company approved the Decora
Industries, Inc. 1988 Employee Stock Purchase Plan (the "1988 Plan")
pursuant to which a total of 100,000 shares of the Company's Common Stock
could be issued to participants during the term of the 1988 Plan at an
issue price of 85% of the fair market value at the date of the purchase.
The 1988 Plan was administered by the Board of Directors provided that a
majority were not covered by the 1988 Plan, or by a committee appointed by
the Board of Directors. The 1988 Plan terminated on December 31, 1998; no
shares were purchased pursuant to the 1988 Plan.
In fiscal 2000, the shareholders of the Company approved the Decora
Industries, Inc. 1999 Stock Option Plan (the "1999 Plan") pursuant to which
1,000,000 shares of common stock were available for grant. The Plan is
administered by a committee of directors of the Company. All options
granted under the 1999 Plan terminate five or ten years after the date of
grant.
A summary of stock option activity under all plans for the three years
ended March 31, 2000 follows (000s except average price data):
F-20
<PAGE> 86
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average
Options Price
<S> <C> <C>
Outstanding at:
March 31, 1997 934 $ 6.45
Granted 890 $ 5.46
Exercised - $ -
Expired (130) $ 6.38
-----
March 31, 1998 1,694 $ 5.94
Granted 390 $ 7.18
Exercised - $ -
Expired (145) $ 5.98
-----
March 31, 1999 1,939 $ 6.19
Granted 1,515 $ 5.83
Exercised (24) $ 5.00
Expired (1,160) $ 5.90
-----
March 31, 2000 2,270 $ 6.11
=====
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- -------------------------
Exercise Average Term Average
Price Shares Price (months) Shares Price
<S> <C> <C> <C> <C> <C>
$4.50 - $4.95 50,000 $ 4.63 34.20 16,667 $ 4.63
$5.00 - $5.50 818,000 5.33 47.01 605,000 5.42
$5.55 - $5.95 354,800 5.64 40.55 254,800 5.60
$6.00 - $6.99 730,000 6.36 40.04 540,664 6.37
$7.00 - $7.99 177,000 7.46 31.03 54,000 7.45
$8.00 - $9.30 140,000 8.03 26.36 44,000 8.09
</TABLE>
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair values on the fiscal 2000, 1999 and 1998 grant
dates for those awards, consistent with the requirements of SFAS No. 123,
Accounting for Stock-Based Compensation, the Company's net income and
earnings per common share would have been reduced to the pro forma amounts
indicated below (000s except per share data):
F-21
<PAGE> 87
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended March 31,
2000 1999 1998
<S> <C> <C> <C> <C>
Net income (loss) - As Reported $ (22,046) $1,677 $2,730
- Pro Forma (23,559) 1,564 2,527
Basic earnings per share - As Reported (2.87) 0.23 0.38
- Pro Forma (3.07) 0.21 0.35
Diluted earnings per share - As Reported (2.87) 0.20 0.35
- Pro Forma (3.07) 0.19 0.33
</TABLE>
The fair value of each stock option grant has been estimated on the date of
each grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
Year Ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Risk-free interest rate 5.83% 5.58% 5.49%
Expected life (months) 50.0 36.9 60.0
Expected volatility .510 .495 .484
Expected dividend yield - - -
</TABLE>
The weighted average grant date fair values of options granted during
fiscal 2000, 1999 and 1998 were $1.01, $2.41 and $1.38, respectively.
The Company reserved 95,000 shares of common stock for the future possible
exercise of warrants, which can be exercised at prices ranging from $2.50
to $7.00 and expire on November 3, 2000.
F-22
<PAGE> 88
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
11. INCOME TAXES
Income taxes are summarized as follows (000s):
<TABLE>
<CAPTION>
Year Ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Current provision:
United States:
Federal $ - $ - $ 9
State 16 15 35
Foreign 1,758 134 -
------- ------- -------
1,774 149 44
------- ------- -------
Deferred provision (benefit):
United States:
Federal 6,383 (658) 205
State - - -
Foreign (396) 3,739 3,029
------- ------- -------
5,987 3,081 3,234
------- ------- -------
$ 7,761 $ 3,230 $ 3,278
======= ======= =======
</TABLE>
The foreign provision for income taxes is based on foreign pre-tax earnings
of approximately $3.1 million and $9.1 million, respectively, for fiscal
years 2000 and 1999. Domestic operations accounted for ($17.1) million,
($1.6) million and $0.3 million of pre-tax earnings (loss), respectively,
in fiscal 2000, 1999 and 1998.
F-23
<PAGE> 89
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
Net deferred tax assets (liabilities) are comprised of the following
(000s):
<TABLE>
<CAPTION>
March 31,
2000 1999
<S> <C> <C>
Current deferred tax assets (liabilities):
German statutory accruals $ (601) $ (1,222)
Nondeductible reserves 1,444 980
Other (442) -
-------- --------
401 $ (242)
-------- ========
Noncurrent deferred tax assets (liabilities):
Depreciation (7,390) $ (9,208)
Net operating loss carryforwards 16,991 9,314
Pensions 2,667 2,983
Non-compete agreement 920 1,714
Tax credits 289 304
Other, net (1,523) (1,338)
-------- --------
11,954 $ 3,769
-------- ========
Total deferred tax asset 12,355
Valuation allowance (15,126)
--------
$ (2,771)
========
</TABLE>
The provision for (benefit from) income taxes differs from the amount of
income tax determined by applying the applicable U.S. statutory federal
income tax rate to pre-tax income as a result of the following (000s):
<TABLE>
<CAPTION>
Year Ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Provision at statutory rate $ (4,909) $ 2,616 $ 2,527
State tax expense 16 15 35
Effect of nondeductible items 274 140 160
Change in valuation allowance 12,112 - -
Other 258 459 556
-------- -------- --------
Income tax provision (benefit) $ 7,761 $ 3,230 $ 3,278
======== ======== ========
</TABLE>
Approximately $32,546,000 and $4,100,000 of the Company's net operating
loss carryforwards remain available at March 31, 2000 in the United States
and Germany, respectively. Their use is limited to future taxable earnings
in the respective countries. In the United States, the carryforwards expire
over the period 2003 through 2020, while in Germany the carryforwards have
an unlimited life.
F-24
<PAGE> 90
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
At March 31, 2000, foreign subsidiary earnings of $9,489,000 were
considered permanently invested in those businesses. Accordingly, U.S.
income taxes have not been provided on these earnings. Foreign withholding
taxes would be payable to the foreign taxing authorities if these earnings
were remitted. Subject to certain limitations, the withholding taxes would
then be available for use as credits against the U.S. tax liability.
At fiscal year end 2000, the Company determined that it was appropriate to
record a full valuation allowance against its U.S. deferred income tax
assets as a result of its assessment of the probability of realizing those
assets in the ordinary course of business. This $6,370,000 valuation
allowance represents substantially all of the $7,761,000 year 2000 tax
provision, the remainder being attributable to non-U.S. operations.
12. NONRECURRING CHARGES
The consolidated statement of income for fiscal 1998 reflects certain
non-recurring charges totalling $1,461,000. Of these charges, $531,000
related to severance costs for U.S. work force reductions implemented in
anticipation of operating synergies with Hornschuch and $141,000 related to
print tooling redundancies between the two operations. An additional
$789,000 was recorded to reserve against notes receivable which the Company
obtained in fiscal years 1996 and 1995 in conjunction with the sale of
previously discontinued operations.
13. NET INCOME PER SHARE
The number of shares of common stock and common stock equivalents used in
the computation of net income per common share, assuming dilution for each
period, is the weighted average number of common shares outstanding during
the periods and, if dilutive, common stock options, warrants and
convertible securities which are considered common stock equivalents. The
following is a reconciliation of the denominators for determining basic and
diluted net income per common share for fiscal 2000, 1999 and 1998. The
numerators were the same for both calculations for all years (000s):
<TABLE>
<CAPTION>
Year Ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Weighted average shares:
Shares outstanding at beginning of year 7,342 7,331 7,094
Shares issued on a weighted average-basis 341 7 142
----- ----- -----
Shares used in the calculation of basic EPS 7,683 7,338 7,236
Effect of dilutive securities:
Contingently issuable shares - 328 327
Options/warrants - 757 193
----- ----- -----
Shares used in the calculation of diluted EPS 7,683 8,423 7,756
===== ===== =====
</TABLE>
F-25
<PAGE> 91
The total number of shares of common stock and common stock equivalents
that were not included in the computation of diluted income per common
share because they were anti-dilutive was approximately 2,685,000, 637,000
and 3,546,000 for fiscal 2000, 1999 and 1998, respectively.
14. COMMITMENTS AND CONTINGENCIES
LEASES
The Company uses certain equipment under lease arrangements, all of which
are accounted for as operating leases. Rent expense was $1,977,000,
$1,794,000 and $699,000 for fiscal 2000, 1999 and1998, respectively. Rental
commitments under long-term noncancelable operating leases are as follows
(000s):
<TABLE>
<S> <C>
Fiscal 2001 $1,520
Fiscal 2002 1,002
Fiscal 2003 327
Fiscal 2004 37
Fiscal 2005 -
Thereafter -
</TABLE>
LEGAL PROCEEDINGS
The Company made the Rubbermaid Acquisition pursuant to the terms of an
asset purchase agreement (the "Asset Purchase Agreement"). Decora and
Rubbermaid entered into a service agreement pursuant to which Rubbermaid
agreed to provide certain logistics services for a nine-month transition
period following the acquisition (the "Transition Services Agreement"). On
or about April 1, 1999, the Company commenced a proceeding against
Rubbermaid with the American Arbitration Association. The Company has
alleged causes of action for breach of contract, breach of fiduciary duty,
fraud and deceit, conversion, breach of the covenant of good faith and fair
dealing, constructive fraud, and money had and received. The Company's
claims arise from Rubbermaid's failure to perform its obligations as set
forth in the Transition Services Agreement. The Company seeks damages in
excess of $5,000,000 as a result of Rubbermaid's wrongful acts. The Company
is proceeding with the prosecution of its claims in arbitration.
On July 19, 1999, Rubbermaid filed a "counterclaim" against the Company in
connection with the parties' rights and obligation under the Transition
Services Agreement. Rubbermaid claims an entitlement to an amount in excess
of $1,280,000 as a result of services it allegedly performed and/or
payments it allegedly made in connection with the Transition Services
Agreement. The Company intends to continue to vigorously defend itself
against these claims, which it believes to be unfounded.
The date of the arbitration hearing with respect to the above matter is
August 28, 2000.
On September 16, 1999, the Company commenced a legal action against
Rubbermaid in the United States District Court for the Northern District of
Ohio. In the action, the Company has alleged causes of action for fraud and
negligent misrepresentation in connection with the Asset Purchase
Agreement. The Company claims that Rubbermaid fraudulently induced Decora
into acquiring Rubbermaid's Decorative Coverings Group by means of certain
material misrepresentations, including misrepresentations with respect to
the status of certain of the Decorative Covering Group's
F-26
<PAGE> 92
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
major customer accounts. The Company seeks damages in excess of $14,000,000
as a result of Rubbermaid's wrongful acts. In response, Rubbermaid
generally has denied the allegations in the Company's complaint but has not
asserted any affirmative claims, such as a cross-complaint, against the
Company, except that in its prayer for relief, Rubbermaid requests that it
be awarded costs and attorney's fees to which it may be entitled under the
terms of the Asset Purchase Agreement if it were the prevailing party in
the action. The parties have stipulated and the federal court has ordered
that the claims asserted in the federal action are to be arbitrated and
that the arbitration is to commence no later than August 28, 2000.
The Company also has asserted claims in federal court against Rubbermaid on
account of Rubbermaid's alleged fraud and negligent misrepresentation in
connection with the Asset Purchase Agreement. In response, Rubbermaid
generally has denied the allegations in Decora's complaint but has not
asserted any affirmative claims, such as a cross-complaint, against Decora,
except that in its prayer for relief, Rubbermaid requests that it be
awarded costs and attorney's fees to which it may be entitled under the
terms of the Asset Purchase Agreement if it were the prevailing party in
the action. The parties have stipulated and the federal court has ordered
that the claims asserted in the federal action are to be arbitrated and
that the arbitration is to commence no later than August 28, 2000.
The Company and its subsidiaries are defendants in pending actions which,
in the opinion of management of the Company, are not material to the
Company's financial condition or results of operations. Although no
assurances can be given regarding the ultimate outcome of such matters, the
Company has accrued amounts for defense and settlement costs which the
Company considers adequate.
GUARANTEE OF SUBSIDIARY DEBT
As part of the Hornschuch Acquisition, the Company acquired Hornschuch's
wholly-owned real estate subsidiaries. Management identified these
subsidiaries as noncore operations upon acquisition and decided to sell
them. The subsidiaries carry approximately $11.4 million in debt, with
Hornschuch made a guarantor of the debt by virtue of its profit pooling
agreement with the subsidiaries. The Company has estimated that the debt
exceeds the net realizable value of these subsidiaries by approximately
$2.9 million and has, therefore, recorded a liability for such same amount.
ARRANGEMENT WITH A PRIOR LENDER
On June 28, 1996, as part of an exchange, a lender (the "Holder") received
200,000 shares of the Company's common stock (the "new common stock"). The
new common stock contained a guaranty (the "Guaranty") requiring that the
Company deliver to the Holder (i) additional shares of the Company's common
stock, (ii) cash or (iii) a combination of additional shares of the
Company's common stock and cash if the Company's common stock price did not
exceed $15.00 per share on the valuation date in April 1998 (the "Shortfall
Amount").
On July 9, 1998, the Company and the Holder entered into a payment and
deferral agreement (the "Agreement") relative to the Shortfall Amount. As a
result, the Company paid $200,000 in cash to the Holder leaving an adjusted
Shortfall Amount of approximately $2.0 million. The adjusted Shortfall
Amount is accruing interest at 11.5% per annum until June 30, 1999. At that
time the Company will deliver to the Holder (i) additional shares of the
Company's common stock; (ii) cash;
The July 1998 agreement was amended and restated in its entirety pursuant
to the terms of an amended and restated payment deferral agreement dated
September 23, 1999. Pursuant to the terms of the September 1999 agreement,
the Company agreed to pay the entire Shortfall Amount in stock or cash by
November 30, 1999. However, the Company has not yet paid the entire
Shortfall Amount and is in negotiations with the Holder to obtain an
extension of the time for payment.
F-27
<PAGE> 93
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
or (iii) a combination of additional shares of the Company's common stock
and cash equal to the adjusted Shortfall Amount plus accrued interest.
MINIMUM PURCHASE AGREEMENT
In conjunction with the Rubbermaid Acquisition, the Company entered into an
exclusive manufacturing agreement in which the Company was required to
purchase at least $6 million of product annually. In December 1999, the
agreement was terminated. However, the Company continues to make purchases
under an informal arrangement.
CHANGE IN CONTROL AGREEMENTS
The Company has granted to certain key executives compensation arrangements
such that a change in control of the Company and their subsequent
termination would result in a payment of a multiple of annual compensation.
15. MAJOR CUSTOMERS
Since the acquisition of Hornschuch on October 1, 1997, the Company's sales
reflect a broader range of customers. Prior to the acquisition of the DCG
(see Note 2), Decora's primary customer was Rubbermaid, which accounted for
31% of net sales in fiscal 1998. The Company has no other unusual credit
risks or concentrations. The Company estimates an allowance for doubtful
accounts based upon the credit worthiness of its customers as well as
general economic conditions.
16. SEGMENT FINANCIAL DATA
The Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, as required, in fiscal 1999, which
changes the way the Company reports information about its operating
segments. The Company's operating subsidiaries design, develop, manufacture
and sell products, classified in two principal operating segments. The
Company's operating segments were generally determined on the basis of
strategic business units within the operating subsidiaries which require
different marketing strategies.
Consumer products include global sales of self-adhesive, decorative and
surface protection products sold in a wide variety of retail stores
worldwide.
Industrial products primarily include converted films for use in the
manufacture of cabinets, furniture, automobiles, luggage and shoes which
are sold to users and OEM's in diversified markets, principally in Europe.
Information for fiscal 1999 and 1998 has been restated from the prior
year's presentation in order to conform to the current year presentation.
F-28
<PAGE> 94
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
OPERATING SEGMENTS
<TABLE>
<CAPTION>
Net Sales (000s)
Year Ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Consumer $108,931 $121,269 $ 69,900
Industrial 53,519 55,308 28,507
-------- -------- --------
Consolidated $162,450 $176,577 $ 98,407
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Operating Profits (000s)
Year Ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Consumer $ 4,856 $ 18,977 $ 11,290
Industrial 1,848 4,761 2,385
-------- -------- --------
Total segment 6,704 23,738 13,675
General corporate expenses 4,719 2,178 2,626
-------- -------- --------
1,985 21,560 11,049
Interest expense, net 16,011 14,085 3,829
-------- -------- --------
Consolidated income (loss) before
income taxes, minority interest and
extraordinary item $(14,026) $ 7,475 $ 7,220
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Depreciation and Amortization (000s)
Year Ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Consumer $6,055 $6,857 $3,691
Industrial 3,035 2,624 1,843
------ ------ ------
Consolidated $9,090 $9,481 $5,534
====== ====== ======
</TABLE>
F-29
<PAGE> 95
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
GEOGRAPHIC AREAS
<TABLE>
<CAPTION>
Net Sales (000s)
Year Ended March 31,
2000 1999 1998
<S> <C> <C> <C>
United States $ 57,829 $ 64,368 $ 31,703
International :
Germany 45,402 51,926 30,351
Other 59,219 60,283 36,353
-------- -------- --------
Consolidated $162,450 $176,577 $ 98,407
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Long-lived Assets (000s) Total Assets (000s)
March 31, March 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
United States $ 76,427 $ 76,052 $108,289 $120,091
International :
Germany 50,238 55,825 93,712 100,103
Other 418 545 418 545
-------- -------- -------- --------
Consolidated $127,083 $132,422 $202,419 $220,739
======== ======== ======== ========
</TABLE>
17. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in current assets and liabilities, exclusive of acquisitions, were
as follows (000s):
<TABLE>
<CAPTION>
Year Ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Increase in accounts receivable $ (3,825) $ (1,329) $ (1,951)
(Increase) decrease in inventory 3,170 (7,238) (1,176)
Increase in other assets (173) (296) (19)
Increase in accounts payable 1,413 1,863 2,884
Increase (decrease) in accrued liabilities 5,092 1,613 2,968
Decrease in other current liabilities 903 (2,552) (439)
-------- -------- --------
$ 6,580 $ (7,939) $ 2,267
======== ======== ========
Supplemental cash flow information is as follows (000s):
Cash paid during the year for interest $ 14,627 $ 8,259 $ 2,140
Cash paid during the year for income taxes $ 193 $ 651 $ 184
</TABLE>
F-30
<PAGE> 96
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
-------------------------------------------------------------------------------
18. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
(Amounts in 000s, Except Per Share Data)
lst 2nd 3rd 4th
<S> <C> <C> <C> <C>
FISCAL 2000:
Net sales $ 44,392 $ 43,394 $ 38,002 $ 36,662
Gross profit 15,520 15,381 8,397 8,240
Income (loss) before extraordinary item 752 (170) (3,521) (19,107)
Extraordinary item - - - -
Net income (loss) 752 (170) (3,521) (19,107)
Basic income (loss) per common share:
Income (loss) before extraordinary item 0.10 (0.02) (0.45) (2.49)
Extraordinary item - - - -
Net income (loss) (0.10) (0.02) (0.45) (2.49)
Diluted income (loss) per common share:
Income (loss) before extraordinary item 0.09 (0.02) (0.45) (2.49)
Extraordinary item - - - -
Net income (loss) 0.09 (0.02) (0.45) (2.49)
FISCAL 1999:
Net sales 46,478 49,018 41,174 39,907
Gross profit 14,791 19,337 14,533 14,748
Income before extraordinary item 1,294 1,321 485 596
Extraordinary item (2,019) - - -
Net income (loss) (725) 1,321 485 596
Basic income (loss) per common share:
Income before extraordinary item 0.18 0.18 0.06 0.08
Extraordinary item (0.28) - - -
Net income (loss) (0.10) 0.18 0.06 0.08
Diluted income (loss) per common share:
Income before extraordinary item 0.15 0.16 0.05 0.07
Extraordinary item (0.24) - - -
Net income (loss) (0.09) 0.16 0.05 0.07
</TABLE>
In the fourth quarter of fiscal 2000, the Company recorded; (a) the reversal of
the prior year's deferred tax asset of approximately $6,300,000; (b) the
reversal of the first three quarters of current fiscal year tax benefit of
approximately $4,500,000; and (c) a one-time writedown of inventory of
approximately $1,500,000.
F-31
<PAGE> 97
Decora Industries, Inc.
Valuation and Qualifying Accounts
(amounts in 000s) Schedule II
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A Column B Column C Column D Column E Column F Column G Column H
------------------------
Additions
Balance charged Balance
at (credited) Additions Deductions Deduction Acquisition Trans- at
beginning to costs & to from from of lation end of
Description of period expenses Goodwill accounts Rubbermaid Hornschuch Adjustment period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Reserve deducted from asset
to which it applied:
For the year ended
March 31, 2000
Accounts receivable
Reserves 2,479 563 - 911(a) 919 - 91 1,121
For the year ended
March 31, 1999
Accounts receivable
Reserves 2,148 1,229 919 1,885(a) - - 68 2,479
For the year ended
March 31, 1998
Accounts receivable
Reserves 499 146 - 1,572(a) - 3,195 120 2,148
</TABLE>
(a) Uncollectible receivables written off net of recoveries
F-32
