Decorator Industries Inc.

views updated

Decorator Industries Inc.

18 Industrial Drive
Bloomsburg, Pennsylvania 17815
U.S.A.
Telephone: (570) 752-5644
Fax: (570) 752-8776
Web site: http://www.decoratorindustries.com

Public Company
Incorporated: 1953
Employees: 714
Sales: $41.8 Million (2003)
Stock Exchanges: American
Ticker Symbol: DII
NAIC: 314121 Curtain and Drapery Mills; 314129 Other Household Textile Product Mills

Decorator Industries Inc. designs, manufactures, and sells a wide variety of interior furnishings, primarily draperies, curtains, shades, blinds, bedspreads, valance boards, comforters, pillows, and cushions. The company sells these products to original equipment manufacturers of recreational vehicles and manufactured housing and to the hospitality industry, including hotels and motels, either through distributors or directly to customers. The company's plants are located in Haleyville and Red Bay, Alabama; Lakewood, Florida; Elkhart and Goshen, Indiana; Bossier City, Louisiana; Salisbury, North Carolina; Bloomsburg and Berwick, Pennsylvania; and Abbotsford, Wisconsin.

Company's Founding and Early Development

Decorator was founded and incorporated in Pennsylvania in 1953 under the name of Keck's. In its early years, Decorator prospered as a producer of made-to-measure draperies. In November 1967, the company, which was headquartered in Pittsburgh, Pennsylvania, announced it would split its common stock two-for-one and declare a dividend of 6.25 cents on the split stock. In March 1968, Decorator registered with the Securities and Exchange Commission 160,000 outstanding common shares to be offered for public sale through underwriters headed by Arthurs, Lestrange & Co. of Pittsburg, and Hayden, Miller & Co. of Cleveland, Ohio. The prospectus listed four shareholders who together owned about 58 percent of the company's outstanding common stock and would retain ownership of about 38 percent after the sale. The shareholders said they were selling the stock with the aim of establishing a broad enough market to qualify the shares for daily listing in market reports of National Quotation Bureau, Inc. These moves marked Decorator's rapid growth in the custom made draperies business. By July 1968, the company announced that it expected earnings for the year to be substantially more than the previous year's $330,000, or 41 cents a share. Decorator's president, Earl Rappaport, estimated sales at about $6 million, up from $4.8 million. In November 1968, Decorator declared a 3-for-2 split of its common shares and an increased dividend of four cents on the new shares. The company's robust sales of draperies and bedspreads continued into 1969, boosting Decorator's earnings 25 percent.

In February 1969, Decorator acquired the ill-fated New York-based Melbee Textile Co., a textile converter that specialized in dyes and prints for draperies. The company closed Melbee one year later as some of its products that were considered low markup items were phased out. In 1970, Decorator acquired Cortley Manufacturing Corp., a privately held maker and distributor of draperies headquartered in Hialeah, Florida. Cortley was the first of many such acquisitions to come. Decorator said it was purchasing Cortley with its common stock but declined to state the value of the transaction or to disclose Cortley's sales and earnings numbers. The acquisition complemented Decorator's own business as a producer of medium-priced, custom-made draperies for homes, mobile homes, hotels, and commercial buildings. In 1973, Decorator made two additional acquisitions. In April, it acquired Haleyville Drapery Manufacturing Inc. for $1.8 million in cash and notes, and in June it acquired Drapery Service, Inc. of Hialeah, Florida, for an undisclosed sum of cash and indebtedness. On October 22, 1979, the company acquired Southern Drapery, Inc. of Cullman, Alabama, for cash. In addition, in November 1980 Decorator acquired Qual Fab, Inc. of Hialeah, Florida, for an undisclosed amount of cash and indebtedness. Qual Fab was subsequently merged into the company on January 3, 1981.

Decorator Formulates Growth Strategy in the 1980s

In February 1981, Decorator omitted its quarterly dividend despite showing improved performance for the year. The company explained that it was omitting the usual March payment because it was the prudent course of action until business conditions improved. For the year, the company's earnings of $247,631, or 18 cents a share, were about double fiscal 1980 net of $122,891, or nine cents a share. However, a charge of $52,946 from settlement of a lawsuit lowered the final net for 1981 to $194,685, or 14 cents a share. In October 1982, Decorator sold its made-to-measure and precision-tailored draperies business, which operated under the names Decorama and Cortley, to Perfect Fit Industries Inc. of Monroe, North Carolina. The sale of the businesses, which was made for an undisclosed sum, included inventory, equipment, trademarks, a manufacturing facility in Hialeah, Florida, and certain other assets. The businesses involved in the sale comprised about 33 percent of Decorator's sales in fiscal 1982. The company sold the businesses to focus efforts on its more profitable Haleyville and Qual-Fab divisions. The company planned to apply the proceeds from the sale toward its indebtedness, with the balance added to working capital.

In July 1984, as the stock market began its historic bull run, Decorator forecast that earnings for the first six months would almost triple the $126,315 of the year earlier. Now headquartered in Hialeah, Florida, the company also projected sales in the six-month period would be about 50 percent higher than the $6.9 million of the previous year. Also in July, the company purchased Taylor Draperies, Inc. of Thomasville, Georgia for $187,400 in cash and $25,000 in treasury stock. The company's rapid growth attracted the interest of Coury Investments Ltd., a Coral Gables, Florida-based investment partnership, which acquired a 5.4 percent stake in the company as an investment for future appreciation. From August to December 1984, the investment concern lifted its stake in Decorator from 8 percent to 15.5 percent on soaring earnings reports. Patrick Bell, who managed Coury, told Decorator chief executive officer Earl Rappaport that the acquisition of the company's stock was strictly an investment, but Rappaport expressed uncertainty about the investment firm's intentions, especially since Decorator did not pay dividends.

By the end of the year, Decorator announced that it expected fourth quarter net income to be 70 percent lower than the year before but still anticipated net income to increase by 13 percent. The company attributed lower earnings in the second half of 1984 to expenses associated with the opening of new manufacturing plants in Lakeland, Florida, and Salisbury, North Carolina, and to training costs associated with new machinery. For the year, however, sales rose to an estimated $20 million from $14.5 million in 1983. In April 1985, Coury Investments, which then held an 18.9 percent stake in the company, filed requests for two seats on Decorator's six-member board. In its Security and Exchange Commission filing, Coury said it wanted board representation to better monitor its investment in Decorator. In addition, on September 1985, Decorator acquired Liberia Manufacturing Co. for $1.13 million in cash.

In the late 1980s and throughout the 1990s, Decorator continued to pursue growth through acquisitions, a strategy that it had begun in the 1970s. In February 1988, it acquired the Bloomsburg, Pennsylvania, business and operations of Keck's Draperies Mfg Co. One year later, however, Decorator sold the business and certain assets of its printing division to QF Industries, Inc. for $2.48 million in cash and a $500,000 promissory note. The division, which operated under the name Qual Fab, underperformed with an erratic earnings history. The sale also allowed Decorator to pay off all short-term bank debt except for a building mortgage. With the sale of the printing division, Decorator planned to pursue internal expansion of its remaining businesses, primarily focusing on its lines for hotels/motels and recreational vehicles.

Growth and Acquisitions in the 1990s

In November 1993, Williams Bassett, Decorator's 56-year-old president and chief executive officer, was named to the additional post of chairman of the company's board of directors. Bassett, who succeeded Earl Rappaport, continued the strategy of building the company through acquisitions. In 1995, the company purchased Paragon Interiors, a producer of draperies and bedspreads for the manufactured housing and recreational vehicle markets located in Goshen, Indiana. The company subsequently established Paragon as a division to design and manufacture draperies, valance boards, bedspreads, and mini-blinds for the recreation vehicle and manufactured housing industry. The company believed the acquisition would provide new growth opportunities in the Indiana market, which comprised almost 60 percent of total U.S. production of all motor homes, travel trailers, and conversion vans. Decorator's strategic moves caught the attention of Business Week, which in 1995 listed the company as one of the top small companies in America. In addition, the company was named in a September 1996 Barron's article on small cap stocks entitled "Sifting Gems," and in Forbes Magazine as one of the 200 best small companies in America in 1996.

Company Perspectives:

We manufacture draperies, curtains, bedspreads, pillows, shams, tiebacks, cornices, and related accessories for Recreational Vehicle and Manufactured Housing markets. We take pride in supplying the highest quality products, delivered on time, at a reasonable price.

Continuing its successful growth strategy, in 1997 Decorator acquired the assets of four companies, including Action Design Interiors, Specialty Window Coverings Corp., Denver Maid, and Southern Interiors, Inc. The purchase of Action Design, located in Elkhart, Indiana, enabled the company to expand its product line to include furniture and cushions for the recreational vehicle industry. The company, which concluded the acquisition on March 4, planned to operate the business under the name Haleyville Manufacturing Co. from the former facilities of Action Design. On March 15, Decorator purchased Specialty Window Coverings Corp., an Elkhart, Indiana-based manufacturer of pleated shades for the recreational vehicle market. The acquisition of Specialty provided initial cash payments of approximately $2.3 million plus conditional payments based on earnings not to exceed $2 million over the following two years. Under the acquisition agreement, Specialty would continue to operate from its existing facilities and would retain its management team. The acquisition, together with Decorator's introduction of an imported mini-blind program for recreational vehicles, allowed the company to extend its reach beyond its core fabric window treatments, valance boards, and bedspreads to provide a full range of window covering products These acquisitions complemented the company's purchase of Denver Maid, another manufacturer in the markets served by Decorator. In addition, on May 12, 1997 the company completed the acquisition of Southern Interiors, Inc., a Memphis, Tennessee-based producer of window coverings for the hospitality (motel/hotel) market, for $844,313. Under the agreement, Southern Interiors would continue to operate from its existing facilities in Memphis to manufacture draperies from fabric supplied primarily from its customers, principally hotel design and supply firms. Decorator believed the acquisition would enable it to supply the total hospitality market.

As a result of its recent growth, the company's board of directors declared a five-for-four stock split at its meeting on May 16, 1997. After the split, which became effective on June 13, 1997, the company had three million shares outstanding, reflecting the board's confidence in the increased value and future performance of the company. Due to record earnings for 1997 and the first quarter of 1998, the board declared another five-for-four stock split in June 1998 to be effective July 21. Bassett said that it was the intention of the board to continue the regular cash dividend of seven cents per share on the split shares, representing a 25 percent increase in the cash dividend. For fiscal year 1998, the company declared record net income of $3 million compared to $2.9 million for fiscal year 1997 as the company rode a wave of favorable market conditions. Manufactured housing, for example, achieved a 30-year high in the number of homes produced and set a new record for the number of floors produced and shipped. In addition, deliveries by manufacturers of recreational vehicles were the highest in 20 years, buoyed by exceptional growth in both travel trailers and motor homes. However, there were hints that the robust market for the company's products might take a downswing as reports from the hospitality market suggested that construction of new motels and hotels had peaked. Nonetheless, Decorator reported record net sales of $52.5 million for 1999 as market conditions remained favorable. The company also relocated its Goshen, Indiana, window treatment and bedspread plant to a newly constructed 56,000-square foot facility. Despite the company's impressive revenue growth, Bassett stated that Decorator had to address several productivity issues to improve the bottom line, including building new or expanded facilities, investing in new manufacturing equipment, reducing turnover and increasing productivity among employees, and getting the company Year 2000 compliant.

Early 2000s Downturn and Recovery

On September 9, 2000, Decorator announced that it would continue a plan to repurchase its stock. Up to this time, the company had already repurchased more than 300,000 shares of its common stock, leaving approximately 3.27 million shares outstanding after the purchases. One month after the September stock repurchase announcement, however, Decorator reported its profits had fallen 93 percent during the second quarter. In June 2001, Decorator reported its year 2000 earnings had declined 95 percent to $133,198 and that its sales fell 13 percent to $42.6 million. The company attributed declining sales to downturns in the manufactured housing and recreational vehicle markets. The manufactured housing market had experienced excessive levels of inventory, including repossessions, restricted credit availability, and high interest rates. In addition, high gasoline prices and an erosion of consumer confidence affected the market for recreational vehicles.

By 2003, improving but uneven market conditions substantially affected Decorator's sales mix. While Decorator experienced a sharp rise in orders for the recreation vehicle industry, it saw decreased orders for the manufactured housing market. The recreational vehicle market enjoyed one of its best periods in more than 25 years, reporting increased vehicle shipments of 21 percent. As a result, Decorator reported a stronger earnings balance sheet for fiscal year 2002. The company's net income rose 61 percent on a sales increase of 11 percent. As part of its growth strategy, the company continued to look for opportunities to expand its market share though internal expansion and acquisitions. With strong sales of recreational vehicles in the second half of 2003, Decorator saw its sales increase by 8 percent compared with 2002, to $41.8 million. Net income rose even more, by 13 percent, to $1.6 million.

On January 23, 2004, Decorator announced that it had acquired the Douglas, Georgia, drapery operation of Fleetwood Enterprises, Inc. Fleetwood was the nation's leader in recreational vehicle sales and a leading producer and retailer of manufactured housing. Decorator and Fleetwood also entered into a long-term agreement for Decorator to serve as the exclusive supplier of Fleetwood's drapery, bedspread, and other decor requirements. Fleetwood accounted for a substantial portion of Decorator's total sales, amounting to about 23.8 percent in 2002. Decorator said that although it would supply most of Fleetwood's business from its existing plants, it was also planning to open a new facility in the western part of the United States. In addition to serving Fleetwood, the new plant would expand business with other original equipment producers of recreational vehicles and manufactured homes. With robust growth in the recreational vehicle market shoring up Decorator's bottom line, the company also anticipated a turn around in the manufactured home industry.

Principal Competitors

Flexsteel Industries Inc.; Hunter Douglas; Patrick Industries Inc.

Key Dates:

1953:: The company is incorporated in Pennsylvania.
1970:: Decorator Industries begins a series of acquisitions with Cortley Manufacturing Corporation.
1988:: The company acquires the Bloomsburg, Pennsylvania, business, operations, and assets of Keck's Drapery Manufacturing Company.
1989:: Decorator Industries sells the assets of its printing division to QF Industries.
1997:: The businesses and certain assets of Action Design Interiors, Southern Interiors, Inc., and Specialty Window Covering Corporation are acquired.