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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1996
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-9457
SHELBY WILLIAMS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 62-0974443
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11-111 Merchandise Mart 60654
Chicago, Illinois (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code:
(312) 527-3593
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.05 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _X_
At February 13, 1997, there were 8,743,863 shares of the registrant's common
stock outstanding. As of said date the aggregate market value of the voting
stock held by non-affiliates of the registrant (computed by reference to the
closing sale price on such date) was approximately $83,280,000.
Documents incorporated by reference:
PART OF FORM 10-K INTO WHICH
DOCUMENT DOCUMENT IS INCORPORATED
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Registrant's annual report to stockholders for
1996............................................. Part II, Items 5-8
Registrant's definitive proxy statement to be
filed for 1997 annual meeting.................... Part III, Items 10-13
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PART I
ITEM 1. BUSINESS.
The registrant, Shelby Williams Industries, Inc. ("Shelby Williams" or the
"Company"), a Delaware corporation incorporated in February, 1976, is the
successor to a business formed in Chicago, Illinois in 1954. Its principal
executive offices are located at 11-111 Merchandise Mart, Chicago, Illinois
60654, telephone (312) 527-3593. The Company has additional executive,
operational and administrative offices at 150 Shelby Williams Drive, Morristown,
Tennessee 37813, telephone (423) 586-7000.
In the third quarter of 1996, the Company sold the business and related
manufacturing facility of its "Preview" line of contemporary upholstered seating
products at its approximate carrying value. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note to
Consolidated Financial Statements captioned "Restructuring Charge."
INDUSTRY
The contract furniture industry in which Shelby Williams primarily operates
serves the hospitality (including lodging, gaming, interval vacation and country
club), food service, university, healthcare and other institutional markets.
Approximately 80% of the Company's 1996 net sales were to the hospitality and
food service markets.
Shelby Williams estimates, based upon its experience and knowledge of its
markets, that demand for seating products in the hospitality and food service
industries is primarily for the refurbishment of existing facilities rather than
seating in new facilities. Shelby Williams estimates that food service seating
(including seating for food service facilities in hotels) is replaced
approximately every eight to 12 years and seating for hotel guest rooms every
ten to 15 years. In light of the significant level of acquisitions in the
lodging industry over the last two years and the trend of new owners to
refurbish and reposition following an acquisition, industry analysts expect
strong levels of refurbishing. In addition, increased profits in the lodging
industry resulting from high occupancy levels, coupled with increasing average
daily rates, have made additional funds available for refurbishing. According to
industry research, profitability levels in the United States lodging industry
are expected to remain strong over the next few years.
New construction activity also provides opportunities for additional
contract seating sales. According to independent industry analysts, over 100,000
rooms were constructed in 1996, a 20.8% increase over the previous year. New
construction activity reflects high profits in the lodging industry due to
strong occupancy levels and increasing average daily rates.
Based on net sales, management estimates that Shelby Williams is
approximately three times larger than the next largest manufacturer of contract
seating products for the hospitality and food service industries. The markets
for the seating products in which Shelby Williams competes are served by a small
number of relatively large, privately-held companies and divisions of
publicly-held companies and a large number of relatively small, privately-held
regional manufacturers. Shelby Williams believes that its size provides it with
certain advantages relative to its competitors.
GENERAL
Shelby Williams is the leading designer, manufacturer and distributor of
seating products used in the hospitality (including lodging, gaming, interval
vacation and country club) and food service industries. The Company produces and
markets under the SHELBY WILLIAMS brand name an extensive line of seating
products including wood, metal and rattan chairs, barstools, sofas and sleep
sofas and stacking chairs, as well as banquet-related products under the KING
ARTHUR brand name including folding tables, food service carts and portable
dance floors. In addition, Shelby Williams designs and manufactures seating
products under the THONET brand name for the university, healthcare and other
institutional markets. The Company also manufactures vinyl wallcovering products
for residential, hotel and office use and markets other textile products and
floor coverings to the architectural and design community and end users. The
Company markets these products
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under the brand names SELLERS & JOSEPHSON and PHF, respectively. Shelby Williams
manufactures approximately 350 standard furniture products for the hospitality
and food service industries, and approximately 200 standard products for the
university, healthcare and other institutional markets. The majority of these
products are supplied under special order and finished and upholstered to
customer specifications.
Shelby Williams estimates that, of its 1996 net sales of $172.4 million,
approximately 80% were to the hospitality and food service industries and
approximately 13% were to university, healthcare and other institutional
markets. Representative users of the Company's products include Doubletree,
Embassy Suites, Four Seasons, Hampton Inns, Hilton, Holiday Inns, Hyatt, La
Quinta, Marriott, Ritz Carton and Sheraton, in the lodging industry; Caesars
Palace, Circus Circus, Grand Casino, MGM Grand, Mirage and Sun International, in
the gaming industry; Fairfield Communities, Marriott Vacation, Signature Resorts
and Vacation Break USA, in the interval vacation industry; and Brinker
International (Corner Bakery, Macaroni Grill, Maggiano's), Darden Restaurants
(Olive Garden and Red Lobster), Hard Rock Cafe, Lettuce Entertain You, Luby's
Cafeteria, Morton's of Chicago, Pizza Hut, Planet Hollywood, Starbucks and
Wendy's in the food service industry. The Company's ten largest customers
accounted for approximately 17% of 1996 net sales, and no single customer
accounted for more than 3% of 1996 net sales.
The Company's sales and marketing staff consists of approximately 105
full-time employees, of which 65 are field sales personnel. The Company's
products are marketed to hospitality and food service chains or their buying
agencies and to other customers through interior designers, architects, contract
furniture, food service and office furniture dealers. Shelby Williams markets
its products through 14 showrooms and sales offices in the United States and
approximately 40 distributors internationally. In addition, Shelby Williams
publishes four extensive catalog systems displaying the Company's products.
Customers may order standard products directly from these catalogs or request
changes to meet their design specifications.
Shelby Williams believes that the following factors distinguish it from its
competitors and have contributed to its leading position:
BREADTH OF PRODUCTS. Management believes that Shelby Williams offers the
widest range of seating products in the contract furniture industry for the
hospitality and food service markets. Shelby Williams believes that its ability
to provide a customer with all of its seating requirements (i.e., banquet, guest
room, casino, restaurant and public spaces) from a single source provides it
with a competitive advantage. In addition, Shelby Williams believes that it is
uniquely positioned to take advantage of the trend among large national
hospitality and food service companies to consolidate supplier relationships.
CUSTOMER SERVICE. Management believes that Shelby Williams offers a
superior level of customer service resulting in a high level of customer
satisfaction and enhanced opportunities for repeat business. As part of its
customer service program, Shelby Williams employs a dedicated sales force of 65
field sales personnel knowledgeable about Shelby Williams' products and attuned
to customers' requirements. Shelby Williams believes that its sales force and
the high quality of ongoing service and support it provides have enabled it to
establish strong relationships with its customers.
QUALITY AND RELIABILITY. Shelby Williams' strong reputation for product
quality, reliability and timely delivery has been an important factor in its
success and positions the Company favorably in competing for business. Moreover,
Shelby Williams' reputation for quality has enabled the Company to lead the
industry in setting standards for safety, quality and durability. Management
believes that its SHELBY WILLIAMS, THONET and KING ARTHUR brands are leading
tradenames in their respective markets.
DESIGN AND MANUFACTURING CAPABILITIES. Shelby Williams distinguishes itself
from other industry participants based on its manufacturing flexibility and its
ability to customize orders to customer specifications. Approximately 90% of the
Company's products are catalog items, finished and upholstered to customer
specifications. In addition, Shelby Williams often works with designers and
architects to design new products and customize standard products on behalf of
end users.
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PRODUCTS
Shelby Williams' product lines consist primarily of: (i) seating for dining,
gaming, guest room, conference and banquet facilities, (ii) healthcare and
university seating, and (iii) desks, credenzas and seating for general office
and institutional use. To complement its major product lines, Shelby Williams
also manufactures and distributes banquet folding tables, portable dance floors
and platforms, food service carts and other function furniture, as well as a
full range of vinyl wallcoverings and floor coverings. Shelby Williams' products
are primarily sold: (i) directly to hospitality and food service providers,
gaming establishments, universities and other institutions, (ii) to interior
designers, architects and other buying agencies that in turn sell the products
to the end users, and (iii) to rental companies that store Company products and
rent them to their customers.
Approximately 350 standard furniture products are marketed to the
hospitality and food service industries; approximately 200 standard furniture
products are marketed for healthcare, university and other institutional use;
and approximately 25 standard furniture products are marketed for office use. In
addition to offering a standard line of products, Shelby Williams focuses on the
specific requirements of its customers and end users and has considerable
customization capabilities. Substantially all products are supplied under
special order and are finished and upholstered to customers' specifications.
Shelby Williams' products are marketed through an extensive catalog system,
through which customers may order standard Company products or devise custom
designs to suit their specific needs.
Shelby Williams' products are manufactured in hardwoods, such as maple, elm
and beech, as well as in rattan and metal, and are available in a wide variety
of finishes. Products are made of solid wood or a combination of woods, and many
are constructed with bentwood components, which provides extended durability.
All wooden products are finished on a conveyorized line which incorporates
forced drying cycles. The sealer coat and final conversion varnish coats are
applied by means of a state-of-the-art electrostatic finishing system which
insures uniform application resulting in a durable chip-resistant finish. Chairs
may be covered with fabric upholstery or vinyl, pursuant to customer design and
specification. Metal products are also produced in a wide variety of styles and
finishes.
In addition to its seating products, Shelby Williams produces and
distributes certain function-room furniture items, such as banquet and
conference tables, stages and food service equipment. Shelby Williams also
designs, produces and distributes furniture utilized by private healthcare
practitioners, such as reclining chairs, as well as standard dormitory furniture
utilized by universities. In addition, Shelby Williams designs and markets
approximately 50 standard patterns of textile products. These textile products
are manufactured by outside suppliers and are both used on the Company's own
seating products and distributed through dealers and interior designers for use
by other manufacturers. Shelby Williams also distributes a wide line of floor
coverings in the Pacific Basin which are manufactured by outside sources.
Management believes that it provides one of the widest ranges of seating
products in the contract furniture industry, as well as superior custom-design
capabilities. Due to its component-manufacturing facility in Zacatecas, Mexico,
its 200,000 square foot storage warehouse in Morristown, Tennessee, and its
considerable in-house production capabilities, the Company believes it is able
to provide a shorter lead time on orders than many of its competitors, most of
whom import components from European sources. Shelby Williams believes that all
of these qualities are instrumental in attracting the large orders of hotels,
restaurants and casinos that seek the convenience and pricing of a single-source
provider.
MARKETING
The Company's marketing strategy is based upon a higher degree of direct
sales relative to its competitors which tend to conduct sales through factory
representatives and with minimal sales forces. The Company's sales and marketing
staff consists of approximately 105 full-time employees, approximately 65 of
which are exclusively involved in field sales. This dedicated sales force is an
integral component of the Company's customer service and support strategy.
Management believes the high quality of ongoing service and support provided by
the sales force results in strong customer relationships and enhanced
opportunities for repeat business.
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Each of the Company's sales persons sells products and services customers
within an assigned territory. The Company's sales persons promote customer
satisfaction with periodic service calls in addition to scheduled follow-up
visits. Sales persons receive a base salary, plus commissions based on net
sales. All orders are subject to acceptance by the Company's management.
Shelby Williams markets its products to a wide variety of customers
including: (i) hospitality and food service chains or their buying agencies and
(ii) other users through interior designers, architects, contract furniture,
food service and furniture dealers.
Shelby Williams markets its products through advertising in major trade
publications and illustrating the Company's products in its catalogs. Shelby
Williams publishes four extensive catalogs displaying its products and
distributes catalogs to architects, designers and dealers. Catalogs are
periodically supplemented as new products are introduced. Customers may order
standard products directly from these catalogs or request changes to meet their
design specifications.
DISTRIBUTION
Shelby Williams distributes its products both domestically and
internationally. Shelby Williams has showrooms and sales offices in 14 cities in
the United States, as well as distributors in 32 foreign countries. Many of
these distributors are concentrated in Europe and Asia, and Shelby Williams is
expanding its presence in Latin America and the Middle East. The Company's
design resource center in Honolulu, Hawaii, serves customers in the Pacific
Basin and Far East. In addition, Shelby Williams utilizes its local facilities
and existing distribution channels to assemble and distribute products in the
United States imported from European sources. Shelby Williams also exhibits at
major national and international trade shows.
CUSTOMERS AND END USERS
Some of the Company's major hospitality and food service customers and end
users:
HOTELS
Boykin Lodging Co.
Bristol Hotel Co.
Cap Star Hotels
Ciga Hotels
Doubletree Hotel Corp.
Four Seasons Hotel, Inc.
John Q. Hammons Hotel, Inc.
Hilton Hotel Corp.
Hyatt Hotel Co.
Holiday Inns, Inc.
Intercontinental Hotels
Interstate Hotel Corp.
La Quinta Inns, Inc.
Loews Hotel Corp.
Marcus Corp. (Budgetel Inns)
Marriott Hotel Corp.
Prime Hospitality Corp.
Promus Companies Inc.
(Embassy Suites, Hampton Inns
Homewood Suites)
Renaissance Hotel Corp.
The Ritz Carlton Hotel Co.
The Sheraton Corp.
Starwood Lodging Trust
Westin Hotels
Wyndham Hotels
RESTAURANTS
Applebees Restaurants
Au Bon Pain Restaurants
Brinker International Inc.
(The Corner Bakery,
Macaroni Grill, Maggiano's)
Champs Restaurants
Club Corporation of America
Darden Restaurants Inc.
(The Olive Garden and
Red Lobster Restaurants)
The Hard Rock Cafe
Luby's Cafeteria Inc.
Morton's of Chicago Restaurant
Nick's Fishmarkets
Pizza Hut Inc.
Planet Hollywood Int'l Inc.
Sirloin Stockade
Starbucks Coffee Company
Sullivan Steak Houses
T.G.I. Friday's
Veladi Ranch Steakhouses
Wendy's International Inc.
GAMING
Boyd Gaming Corp.
(Stardust Resort & Casino)
Bally's Casino Resort
Carnival Hotel & Casino
Caesars Palace
Circus Circus Enterprises, Inc.
Cow Creek Indian Gaming Center
Churchill Downs Race Track
Delaware Park Race Track & Casino
Grand Casino, Inc.
Harrah's Entertainment Inc.
Menominee Tribal Gaming
MGM Grand Hotel & Casino
The Mirage Resorts
Sheraton Casino
Showboat Marina Casino
Soaring Eagle Indian Casino
Sun International Hotels
INTERVAL VACATION
(TIME SHARE)
Embassy Vacation Resort
Properties, Inc.
Fairfield Communities, Inc.
Hilton Grand Vacations
Hyatt Vacation Club
Marriott Vacation Club Int'l.
Nevada Resort Properties
The Shell Group
Signature Resorts Inc.
Trendwest Resorts, Inc.
Vacation Break USA, Inc.
Vistana Resorts
Some of the Company's major healthcare and university, wallcovering and
floorcovering and other customers and end users:
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HEALTHCARE AND
UNIVERSITIES
Albert Einstein Medical Center
Assisted Living Concepts
(Columbia/HCA Hospitals)
Georgia Institute of Technology
Georgia State University
Kaiser Foundation Hospitals
Manor Care Inc.
Michigan State University
Roosevelt University
Rutgers University
Sterling House
The University of Chicago
Hospitals
University of California at Davis
University of Tennessee
Wake Forest University
WALLCOVERING AND
FLOORCOVERING
Duron Paints
Island Flooring
Patton Wallcoverings, Inc.
Seabrook Wallcoverings Co. Inc.
Thybony Wallcoverings Co. Inc.
The Warner Company
OTHER
Allstate Insurance Co.
AFNAF (Air Force Non-
Appropriated Funds)
Clinique Cosmetics Departments
The Eckerd Corporation
The General Services Administration
May Department Stores
J.C. Penney Company
Sears, Roebuck & Co.
The Walgreen Co.
The Company's past business relationship with the above customers and end
users is not intended to imply that such relationship will continue in the
future.
In 1996, the Company also sold products to over 220 country clubs.
The Company's ten largest customers accounted for approximately 17% of net
sales in 1996, and no single customer accounted for more than 3% of 1996 net
sales. Approximately 90% of the Company's products are manufactured to fill
specific orders.
TRADEMARKS AND TRADENAMES
The Company sells its hospitality and food service products under the
trademarks SHELBY WILLIAMS-Registered Trademark-, KING
ARTHUR-Registered Trademark- and STERNO-Registered Trademark- and its
healthcare, dormitory and other institutional furniture under the trademark
THONET-Registered Trademark-. The Company markets cutting room tables and
accessories under the PHILLOCRAFT-Registered Trademark- name, fabric products
under the SW TEXTILES-Registered Trademark- name and wallcoverings under the
SELLERS & JOSEPHSON-REGISTERED TRADEMARK- name. The Company distributes wall and
floor coverings, fabrics, textiles and furniture in Hawaii and the entire
Pacific Basin under the name PHF-Registered Trademark-.
BACKLOG
The Company's backlog of orders at December 31, 1996, was $32.0 million, a
record level, as compared to $28.0 million at December 31, 1995, excluding
Preview. The Company expects to ship substantially all of its backlog by the end
of 1997.
RAW MATERIALS AND SUPPLIES
The Company manufactures most of its products to customer order from basic
raw materials. The Company utilizes a wide variety of raw materials in the
manufacture of its products including lumber, plywood, rattan, metal tubing, and
other frame components, foam cushioning, vinyl and textiles, all of which the
Company believes to be in abundant supply and available from a variety of
different sources. The Company has no long-term supply contracts with any of its
suppliers and it has experienced no significant problems in obtaining raw
materials in adequate amounts for its operations.
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MANUFACTURING AND ASSEMBLY
The following table summarizes the products manufactured and assembled at
each of the Company's manufacturing facilities (as of January 1, 1997):
<TABLE>
<CAPTION>
LOCATION PRODUCTS
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<S> <C>
Morristown, TN....................................... Hospitality, food service and gaming
seating; banquet seating (1)
Statesville, NC...................................... Healthcare and university seating;
banquet seating and products
Canton, MS........................................... Upholstered products
Zacatecas, MX........................................ Furniture components
Englewood, NJ........................................ Wallcoverings
Carlstadt, NJ........................................ Wallcoverings
</TABLE>
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(1) Product information is summarized for two manufacturing facilities located
in Morristown, Tennessee.
Shelby Williams operations primarily consist of wood bending, wood working
and finishing, assembly, metal forming and fabrication, electrostatic wood and
metal finishing. Shelby Williams also prints and laminates vinyl wallcoverings.
For certain chair styles, Shelby Williams purchases components manufactured by
other companies. These components, which are manufactured to the Company's
specifications, are assembled, finished and upholstered by Shelby Williams. All
outsourced components are available domestically except for rattan, which is
indigenous to the Phillipines and Indonesia. For many of its standard product
offerings, Shelby Williams optimizes its production costs by sourcing the
components produced at its Zacatecas, Mexico, facility.
All manufacturing operations emphasize quality control during the various
production processes. To provide consistency and speed to the finishing process,
the Company utilizes conveyorized paint lines with spray booths and drying ovens
positioned to allow proper drying times between finishing steps. In addition,
Shelby Williams has recently invested in electrostatic wood-finishing systems
which provide superior finishing qualities and are more advantageous from an
environmental standpoint. The Company intends to invest in powder-coating lines
which provide similar advantages for the metal product lines. Management expects
to continue to invest in automated machinery and equipment.
COMPETITION
All aspects of the Company's business are highly competitive. The Company
competes at some level with Falcon Products, Inc., Gasser Chair Co., L & B
Contract Industries, Inc., WinsLoew Furniture Inc., Virco Manufacturing
Corporation and MTS Seating. The Company competes primarily on the basis of
design, quality, service, product pricing and speed of delivery.
The Company believes that none of its principal competitors offers the
complete range of seating products that the Company offers. There can be no
assurance that the Company's principal competitors will not offer a greater
range of seating products or that new entrants will not enter the market.
EMPLOYEES
As of December 31, 1996, the Company had 1,667 full-time employees. Of
these, 1,449 were engaged in manufacturing, 113 in administrative and clerical
positions, and 105 in sales and marketing. Those engaged in manufacturing
included 241 employees in Mexico.
Hourly manufacturing employees at both Morristown, Tennessee, and Canton,
Mississippi, are represented by separate bargaining agreements with contracts
expiring in November 1999 (covering approximately 600 employees) and November
1997 (covering approximately 200 employees), respectively. The Company believes
that its relations with its employees are good.
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ITEM 2. PROPERTIES.
At January 1, 1997, the Company maintained facilities with an aggregate of
approximately 1,700,000 square feet of space for its operations. The Company
considers all of its facilities to be in good operating condition. Currently,
the Company's manufacturing facilities are operating at approximately 85% of
capacity, with wood products facilities operating at over 90% of capacity. The
following table summarizes the principal physical properties, both owned and
leased, used by the Company in its operations:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
LOCATION USE FOOTAGE OWNED/LEASED EXPIRATION DATE
- ----------------------------------- -------------------- ------------ -------------------- -----------------
<S> <C> <C> <C> <C>
Chicago, IL........................ Showroom/Offices 6,750 Leased July, 2000
Morristown, TN..................... Mfg./Offices 515,960 Owned --
Morristown, TN..................... Mfg./Warehousing 228,000 Owned --
Canton, MS......................... Mfg./Warehousing 406,000 Owned/Leased(1) May, 2001(1)
Statesville, NC.................... Mfg./Warehousing 326,670 Owned --
Zacatecas, MX...................... Mfg./Warehousing 90,000 Owned --
Englewood, NJ...................... Mfg./Warehousing 68,000 Leased Dec., 2003(2)
Honolulu, HI....................... Warehousing 45,000 Leased Aug., 2003(2)
Carlstadt, NJ...................... Mfg./Warehousing 35,000 Leased April, 2004
</TABLE>
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(1) Approximately 238,100 square feet are owned and 167,900 are leased.
(2) The Company has an option to renew the lease for 10 additional years at a
nominal rental increase.
The Company has showrooms and sales offices in 14 United States cities,
including Atlanta, Chicago, Dallas, Honolulu, Los Angeles, New York and
Plantation, Florida.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in various product liability lawsuits arising in
the normal course of business. Management believes that the Company's insurance
is adequate to cover its potential liability under all pending and threatened
litigation. The Company believes, after consultation with counsel, that
allegations of punitive damages, which are alleged in certain cases, are without
merit.
On July 15, 1992, a case was filed in the Chancery Court for Greene County,
Tennessee, entitled Linda Foshie, Joseph Allen Foshie, David Ray Foshie, and
Michael Scott Foshie, suing individually on their own behalf and as
representative parties of a class action, plaintiffs, v. Steve Cansler, Fred
Cansler, Jimmy Cansler, C & C Millwright Maintenance Co., Inc., Foamex Products,
Inc., Recticel Foam Corporation, Foamex L.P., Morristown Foam Corporation, and
Shelby Williams Industries, Inc., defendants. The complaint alleged, among other
things, that defendants conspired to transport and store hazardous waste on
premises which abutted the home of the named plaintiffs, that such activity
violated both state and federal law, and that plaintiffs were damaged thereby.
The complaint sought, among other things, compensatory damages of $2.5 million
for each of the four named plaintiffs and punitive damages of $5 million for
each of the four named plaintiffs, and similar damages for other alleged class
members. On August 11, 1992, a case was filed in the Circuit Court for Greene
County, Tennessee entitled Richard Lee Cobble and wife, Patricia Day Cobble;
Richard Lee Cobble, Jr.; Kenneth Dwayne Cobble; Claude Cobble and wife, Lenora
Cobble; Gary A. Douthat and wife Julia A. Douthat; Donald Joseph Hewitt and wife
Jacqueline Kay Hewitt; Robert Hensley, Jr. and wife Brenda Hensley; Penny
Hensley b/n/f and parents, Robert Hensley, Jr., and Brenda Hensley, Stephen
Hensley b/n/f and parents, Robert Hensley, Jr., and Brenda Hensley, plaintiffs,
v. Steve Cansler; Fred Cansler; Jimmy Cansler; C & C Milwright Maintenance Co.,
Inc.; Foamex Products, Inc.; Recticel Foam Corporation; Foamex L.P.; Morristown
Foam Corporation; and Shelby Williams Industries, Inc., defendants, containing
similar allegations and seeking $5 million in compensatory damages and $10
million in punitive damages for each of nine named plaintiff groups.
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The Company was dismissed by the plaintiffs as a defendant in the lawsuits
filed July 15, 1992 and August 11, 1992 by plaintiffs Linda Foshie, and others,
and Richard Lee Cobble, and others, respectively. The Company's only costs for
these claims were insignificant legal expenses. Another defendant in the Foshie
case filed a cross-complaint against the Company regarding claims against it by
the same plaintiffs. The Company believes that the cross-complaint against it
was without merit and that the Company had meritorious defenses. Among other
things, the Company believes that no acts complained of by the plaintiffs in
these cases occurred prior to July 1979, at which time the Company sold the
stock in its subsidiary, Morristown Foam Corporation, which owned certain
facilities involved in these cases, and that other than its past ownership of
this subsidiary, the Company had no involvement with the facilities in question.
In December 1995, the Company was served with a third party complaint filed by
Steve Cansler in an action in the federal district court for the eastern
district of Tennessee brought by Recticel Foam Corporation against Steve and
Fred Cansler for cost recovery of funds spent by Recticel Foam Corporation in
cleaning up the contamination that is the subject of the actions described
above. In January 1996, the Company was served with an essentially identical
third party complaint in the same action, filed by Fred Cansler. The Company
believes that these third party complaints were meritless, for the same reasons
which led to the Company's dismissal from the tort actions described above.
None of the claims against the Company described in the preceding two
paragraphs is currently pending. In May, 1996 the Recticel case and the claims
against the Company in that case were dismissed without prejudice. In November,
1996 the claim against the Company in the Foshie case was dismissed without
prejudice. In neither case did the Company make any payment as damages or
settlement.
In February, 1997, the Company's King Arthur division received a complaint,
addressed to King Arthur, Inc., in a case pending in the Superior Court of New
Jersey, Camden County, Law Division, entitled Pennsauken Solid Waste Management
Authority, et al., vs. Ward Sand & Material Co., Inc. and a large number of
other defendants. The complaint, which identifies King Arthur, Inc. as one of
the defendants, alleges, among other things, that during the operation of a
landfill from the 1960's to 1984, the defendants improperly generated,
transported and/or disposed of certain hazardous waste materials, and that
defendants are jointly and severally liable to plaintiffs for all costs and
damages incurred by plaintiffs for remediation of the landfill and any
surrounding areas which are found to be contaminated. The complaint does not
specify any dollar amount of damages. The Company acquired certain assets of
King Arthur, Inc. in 1986. The Company has not had an opportunity to make an
independent investigation of the allegations in the complaint, but the Company
believes, based on its present knowledge, that it has valid defenses to the
allegations in the complaint, and that the Company's liability, if any, is not
material. The Company is in the process of putting its insurers on notice of the
complaint.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
9
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
<TABLE>
<CAPTION>
AGE AT PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
NAME 2-1-97 AND POSITION AND OFFICE WITH REGISTRANT
- ----------------------------------------------- --------- ----------------------------------------------
<S> <C> <C>
Paul N. Steinfeld.............................. 42 Chairman of the Board of Directors and Chief
Executive Officer since January, 1996; Vice
Chairman of the Board and Chief Executive
Officer from May, 1991 to January, 1996;
Vice Chairman of the Board and Chief
Administrative Officer prior to May, 1991.
Director during past five years.
Robert P. Coulter.............................. 54 President and Chief Operating Officer since
May, 1990; prior thereto President and
Treasurer. Director during past five years.
Manfred Steinfeld.............................. 72 Chairman of Executive Committee and chairman
of executive compensation committee since
January, 1996; Chairman of the Board and
chairman of executive compensation committee
from May, 1991 to January, 1996; prior
thereto Chairman of the Board and Chief
Executive Officer. Director during past five
years.
Peter W. Barile................................ 54 Executive Vice President since May, 1990.
Sam Ferrell.................................... 55 Vice President, Finance, Treasurer and Chief
Financial Officer and Assistant Secretary
since May, 1990.
</TABLE>
The executive officers of the registrant are elected annually by the Board
of Directors, hold office until their successors are chosen and qualify, and may
be removed at any time by the affirmative vote of a majority of the Board. There
are no written employment agreements with any executive officers. Manfred
Steinfeld is the father of Paul N. Steinfeld; there is no other family
relationship between any director or executive officer of the Company.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information under the heading "Common Stock Information (Unaudited)" on
page 18 of the Company's 1996 Annual Report to Stockholders is hereby
incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information under the heading "Five Year Summary of Selected Financial
Data" on page 3 of the Company's 1996 Annual Report to Stockholders is hereby
incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on page 21 of the Company's 1996
Annual Report to Stockholders is hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information contained on pages 13 (Consolidated Statements of Income),
14-15 (Consolidated Balance Sheets), 16 (Consolidated Statements of Cash Flows),
17 (Consolidated Statements of Stockholders' Equity), 18-20 (Notes to
Consolidated Financial Statements) and 20 (Report of Independent Auditors) of
the Company's 1996 Annual Report to Stockholders is hereby incorporated by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
The information called for by Part III (Item 10 (Directors and Executive
Officers of the Registrant), Item 11 (Executive Compensation), Item 12 (Security
Ownership of Certain Beneficial Owners and Management), and Item 13 (Certain
Relationships and Related Transactions)) is incorporated by reference, to the
extent required, from the Company's definitive proxy statement to be filed
pursuant to Regulation 14A not later than 120 days after December 31, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) List of financial statements and schedules.
(1) Financial statements. The following financial statements are
incorporated by reference in Part II, Item 8 of this report:
Consolidated Statements of Income for the years ended December 31,
1996, 1995, and 1994
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December
31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Auditors
(2) Financial statement schedules:
None since the required information is not present or is not present in
amounts sufficient to require submission of the schedule, or because the
information required is included in the consolidated financial statements or
notes thereto.
(b) No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
(c) List of exhibits: See Exhibit Index immediately preceding exhibits.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 3, 1997
SHELBY WILLIAMS INDUSTRIES, INC.
--------------------------------------
(Registrant)
By PAUL N. STEINFELD
------------------------------------
Paul N. Steinfeld
Chairman of the Board
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>
NAME TITLE DATE
- -------------------------------------------------- ------------------------------ ------------------
<C> <S> <C>
PAUL N. STEINFELD Chairman of the Board and
--------------------------------------- Director (Principal
(Paul N. Steinfeld) Executive Officer)
ROBERT P. COULTER* President and Director
---------------------------------------
(Robert P. Coulter)
MANFRED STEINFELD* Chairman of the Executive
--------------------------------------- Committee and Director
(Manfred Steinfeld)
SAM FERRELL* Vice President of Finance,
--------------------------------------- Treasurer and Assistant
(Sam Ferrell) Secretary (Principal
Financial and Accounting
Officer)
ROBERT L. HAAG* Director
---------------------------------------
(Robert L. Haag) March 3, 1997
WILLIAM B. KAPLAN* Director
---------------------------------------
(William B. Kaplan)
DOUGLAS A. PARKER* Director
---------------------------------------
(Douglas A. Parker)
HERBERT L. ROTH* Director
---------------------------------------
(Herbert L. Roth)
TRISHA WILSON* Director
---------------------------------------
(Trisha Wilson)
*By PAUL N. STEINFELD
-----------------------------------
Paul N. Steinfeld, Attorney-in-fact
</TABLE>
9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Asset Purchase Agreement dated September 16, 1996 between Preview Furniture Corporation, the Registrant
and Ferguson Copeland, LLC.
3(i) Registrant's Certificate of Incorporation and all amendments thereto, filed as Exhibit 3.1 to
Registrant's annual report on Form 10-K for 1987 and hereby incorporated by reference.
3(ii) Registrant's By-Laws, as amended, filed as Exhibit 3(ii) to Registrant's annual report on Form 10-K for
1995 and hereby incorporated by reference.
4.0 The Registrant agrees to furnish a copy of the capital lease referred to in the Registrant's Consolidated
Financial Statements to the Commission upon request.
4.1 The Registrant agrees to furnish a copy of the 7.8% note agreement dated July 31, 1992 and payable in
quarterly installments of $1,000,000 beginning in October 1997, for $8,000,000, to the Commission upon
request.
*10.1 1995 Senior Management Incentive Plan, filed as Exhibit 10.3 to Registrant's annual report on Form 10-K
for 1994 and hereby incorporated by reference.
*10.2 1996 Senior Management Incentive Plan, filed as Exhibit 10.3 to Registrant's annual report on Form 10-K
for 1995 and hereby incorporated by reference.
*10.3 1997 Senior Management Incentive Plan.
*10.4 Registrant's 1992 Key Employees' Incentive Stock Option Plan, filed as Exhibit 10.6 to Registrant's
annual report on Form 10-K for 1991 and hereby incorporated by reference.
*10.5 Registrant's 1995 Directors' Stock Option Plan, filed as Exhibit 10.1 to Registrant's Form 10-Q for
quarter ended March 31, 1995 and hereby incorporated by reference.
13.1 Portions of Registrant's annual report to stockholders for 1996.
21.1 Subsidiaries of the Registrant.
23.1 Consent of independent auditors to incorporation by reference in Form 10-K.
23.2 Consent of independent auditors to incorporation by reference in Form S-8.
24.1 Power of Attorney.
27.1 Financial Data Schedule (EDGAR only).
</TABLE>
- ------------------------
* Compensation plan.
10
<PAGE>
ASSET PURCHASE AGREEMENT
THIS AGREEMENT is made September 16, 1996, between Preview Furniture
Corporation, a North Carolina corporation ("Seller"), and Shelby Williams
Industries, Inc., a Delaware corporation, the sole shareholder of Seller
("Shareholder") and Ferguson Copeland, LLC, a North Carolina limited
liability company ("Purchaser").
R E C I T A L S
A. Shareholder owns all of the issued and outstanding shares of stock
of Seller.
B. Seller is in the business of manufacturing and selling furniture
(the "Business").
C. Seller and Shareholder desire to sell to Purchaser substantially
all of Seller's assets, properties and rights, other than the Excluded
Assets, as herein defined (the "Purchased Assets"), and Purchaser desires
to purchase the Purchased Assets, all on the terms and subject to the
conditions contained in this Agreement.
A G R E E M E N T S
Therefore, for good and valuable considerations, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 AGREEMENT TO PURCHASE AND SELL. On the terms and subject to the
conditions contained in this Agreement, Purchaser agrees to purchase from
Seller, and Seller agrees to sell to Purchaser, all of the Purchased Assets.
1.2 ENUMERATION OF PURCHASED ASSETS. The Purchased Assets shall
include the following assets owned by Seller:
(a) all inventory, including, without limitation, raw materials, work
in process, finished goods, service parts and supplies (collectively, the
"Inventory");
(b) all furniture, fixtures, equipment, machinery, parts, computer
hardware, tools, dies, jigs, patterns, molds, automobiles and trucks and
all other tangible personal property (other than the Inventory)
(collectively, the "Equipment");
1
<PAGE>
(c) all leasehold interests in personal property leased to Seller set
forth in Schedule 1.2(c) hereto (the "Leased Personalty");
(d) Seller's entire leasehold interest as lessee of the premises
commonly known as 300 Fraley Road, High Point, North Carolina 27261, the
Showroom at Southern Furniture Exposition Center in High Point, North
Carolina and the premises commonly known as 1937 West Greed, High Point,
North Carolina (collectively the "Leased Premises") set forth in
Schedule 1.2(d) hereto;
(e) all sales orders and sales contracts, purchase orders and
purchase contracts, quotations and bids set forth in Schedule 1.2(e);
(f) all Intellectual Property (as herein defined), including, without
limitation the names Preview Furniture and Madison Furniture and Seller's
corporate name, and all goodwill;
(g) all license agreements, design agreements, distribution
agreements, sales representative agreements, service agreements, supply
agreements, franchise agreements, computer software agreements and
technical service agreements set forth in Schedule 1.2(g) to the extent
they are legally transferable by Seller;
(h) all customer lists, customer records and information;
(i) all rights in connection with deposits and prepaid expenses with
respect to the assets being sold hereunder, including customer deposits and
medical insurance deposits;
(j) all letters of credit issued to Seller for which goods had not
been shipped as of August 25, 1996;
(k) all computer software, including all documentation and source
codes with respect to such software and licenses and leases of software to
the extent they are legally transferable by Seller;
(l) all sales and promotional materials, catalogues and advertising
literature; and
(m) all telephone numbers of Seller;
(n) all accounts receivable of Seller for goods shipped during the
period from August 25, 1996 to closing (the "Interim Period"), including
proceeds thereof received prior to or after closing ("Assigned
Receivables");
1.3 EXCLUDED ASSETS. The Excluded Assets shall consist of the
following items:
(a) all cash on hand (except proceeds of Assigned Receivables) and
deposits with respect to assets in Section 1.2 and in banks, cash
equivalents (exclusive of deposits and letters of credit from customers of
Seller), and investments;
2
<PAGE>
(b) all trade accounts receivable except Assigned Receivables, notes
receivable, negotiable instruments and chattel paper (collectively the
"Seller's Accounts Receivable").
(c) Seller's bank accounts (including the lock box for the collection
of Seller's accounts receivable) checkbooks and cancelled checks;
(d) those contracts with Seller's Affiliates (as herein defined) set
forth on Schedule 1.3(d) hereto;
(e) claims (and benefits to the extent they arise therefrom) that
relate to liabilities other than the Assumed Liabilities (as herein
defined) and assets other than the Purchased Assets;
(f) insurance policies of Seller and rights in connection therewith,
unless prior to the Closing, Purchaser elects, by written notice delivered
to Seller prior to the Closing Date, to accept assignments of any of such
insurance policies;
(g) rights arising from prepaid deposits and expenses, if any, with
respect to assets not being sold hereunder;
(h) rights arising from any refunds due with respect to insurance
premium payments and tax refunds due from federal, state and local taxing
authorities;
(i) all rights of indemnification and claims which relate to the
conduct of the Business prior to the August 25, 1996;
(j) Seller's rights under this Agreement;
(k) Seller's corporate charter, minute and stock record books, and
corporate seal and tax returns;
(l) the agreements, if any, set forth on Schedule 1.3(1); and
(m) the assets, if any, described on Schedule 1.3(m).
ARTICLE II
ASSUMPTION OF LIABILITIES; RETAINED LIABILITIES,
REIMBURSEMENT OF INTERIM EXPENSES
2.1 AGREEMENT TO ASSUME. At the Closing (as herein defined),
Purchaser shall assume and agree to discharge and perform when due, the
following liabilities and obligations of Seller (the "Assumed Liabilities").
(a) Those liabilities of Seller disclosed to Purchases prior to
closing and resulting from the operations of Seller in the usual and
regular course of it's business during the Interim Period, except those
which have been discharged prior to closing, and
3
<PAGE>
except those as to which there is a breach of Seller's representations,
warranties or covenants in this Agreement.
(b) All liabilities of Seller incurred during the Interim Period
which are disclosed to Purchaser and which Purchaser expressly agrees to
assume, prior to closing.
(c) Seller's liabilities under the Leases and Contracts set out in
Schedule 1.2, hereto;
2.2 RETAINED LIABILITIES. Notwithstanding the foregoing or any other
provision of this Agreement, except to the extent that the Purchaser
expressly assumes obligations under the Disclosure Schedule or under Section
2.4 of this Agreement, the Purchaser shall be or become responsible for the
following ("Retained Liabilities:): any debts, obligations or liabilities
of the Seller, whether known or unknown, fixed or contingent, including
without limitation any product liability claims; notes payable, any
liabilities or obligations of Sellers under any agreements, leases or other
instruments to which they are parties or by which they may be bound (except
the Leases and Contracts assigned as is part of Purchased Assets), any
Employee Obligations (as defined in Section ARTICLE VIII); any Claims and
Litigation (as defined in Section 4.2(m); any liabilities of obligations
relating to breaches by Seller or Shareholder of any of their
representations, warranties or covenants in this Agreement; and any
liabilities of obligations of Seller or Shareholder pursuant to this
Agreement or the agreements and documents delivered pursuant hereto.
2.3 NO EXPANSION OF THIRD PARTY RIGHTS. The assumption by Purchaser of
the Assumed Liabilities shall not expand the rights or remedies of any third
party against the Purchaser or the Seller as compared to the rights and
remedies which such third party would have had against the Seller had the
Purchaser not assumed the Assumed Liabilities.
2.4 REIMBURSEMENT OF INTERIM EXPENSES. Those direct expenses disclosed
to Purchase prior to closing and resulting from the operations of Seller in
the usual and regular course of it's business during the Interim Period shall
be reimbursed by Purchaser to Seller within the later of closing or five days
from disclosure.
ARTICLE III
PURCHASE PRICE, MANNER OF PAYMENT AND CLOSING
3.1 PURCHASE PRICE. The "Purchased Price" of the Purchased Assets
shall be $2,715,940. Of this amount $2,000,000 shall be paid in cash (the
"Cash Portion") and the balance of 715,940 shall be paid by the execution
and delivery of a Promissory Note of Buyer (the Note"),000 shall be paid in
cash (the "Cash Portion") all in the form of the Note hereto, as Exhibits A.
3.2 TIME AND PLACE OF CLOSING. The transaction contemplated by this
Agreement shall be consummated (the "Closing") at 10:00 a.m. at the
offices of the Seller at 118 N. Sterling Street, Morganton, North Carolina
28655 on September 17, 1996 or on such other date, or at such other time or
place, as be mutually agreed upon by Seller and Purchaser; provided, however,
that the date of the Closing shall be automatically extended from time to
time for so long as any of the
4
<PAGE>
conditions set forth in Article VI shall not be satisfied or waived, subject,
however, to the provisions of Section 10.1. The date on which the Closing
occurs in accordance with the preceding sentence is referred to in this
Agreement as the "Closing Date". The Closing shall be deemed to be
effective as of 12:01 a.m. on the Closing Date at Chicago, Illinois.
3.3 MANNER OF PAYMENT OF THE PURCHASE PRICE. At the Closing, Purchaser
shall (i) assume the Assumed Liabilities, pay $2,000,000 being the Cash
Portion to Seller, by wire transfer to such account as Seller shall designate
by written notice delivered to Purchaser on or prior to the Closing Date and
(ii) deliver the Note to Seller.
3.4 CLOSING DELIVERIES. At the Closing, the parties shall execute and
deliver such bills of sale, assignments, documents of title, assumption
agreements, closing certificates, searches, and other documents as are
reasonably required in order to effectuate the consummation of the
transaction contemplated hereby. All documents to be delivered by a party
shall be in form and substance reasonably satisfactory to the other party.
3.5 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be
allocated among the Purchased Assets in the manner required by Section 1060
of the Internal Revenue Code of 1986, as amended (the "Code") and in
accordance with Schedule 3.5 hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 PURCHASER'S REPRESENTATIONS AND WARRANTIES. Purchaser represents
and warrants to Seller that:
(a) Purchaser is a limited liability company duly organized, existing
and in good standing, under the laws of the State of North Carolina;
(b) Purchaser has full corporate power and authority to enter into
and perform (x) this Agreement and (y) all documents and instruments to be
executed by Purchaser pursuant to this Agreement (collectively,
"Purchaser's Ancillary Documents"). This Agreement has been, and
Purchaser's Ancillary Documents will be, duly executed and delivered by
duly authorized officers of Purchaser.
(c) No consent, authorization, order or approval of, or filing or
registration with, any governmental authority or other person is required
for the execution and delivery by Purchaser of this Agreement and
Purchaser's Ancillary Agreements, and the consummation by Purchaser of
the transaction contemplated by this Agreement and Purchaser's Ancillary
Documents.
(d) Neither the execution and delivery of this Agreement and
Purchaser's Ancillary Documents by Purchaser, nor the consummation by
Purchaser of the transaction contemplated hereby, will conflict with or
result in a breach of any of the terms, conditions
5
<PAGE>
or provisions of Purchaser's Certificate of Incorporation or By-laws, or
of any statute or administrative regulation, or of any order, writ,
injunction, judgment or decree of any court or governmental authority or
of any arbitration award.
(e) Purchaser is not a party to any unexpired, undischarged or
unsatisfied written or oral contract, agreement, indenture, mortgage,
debenture, note or other instrument under the terms of which performance by
Purchaser according to the terms of this Agreement will be a default, or
whereby timely performance by Purchaser according to the terms of this
Agreement may be prohibited, prevented or delayed.
(f) Neither Purchaser, nor any of its Affiliates has dealt with any
person or entity who is or maybe entitled to a broker's commission,
finder's fee, investment banker's fee or similar payment for arranging
the transaction contemplated hereby or introducing the parties to each
other. As used herein, as "Affiliate" is any person or entity which
controls a party to this Agreement, which that party controls, or which is
under common control with that party. In the case of Seller, an Affiliate
shall include Shelby Williams Industries, Inc. and its subsidiaries.
"Control" means the power, direct or indirect, to direct or cause the
direction of the management and policies of a person or entity through
voting securities, contract or otherwise.
(g) Purchaser agrees that the value of the Seller's inventories were
accurately reflected by Seller's Inventory Audit taken on August 25, 1996
("Inventory Audit").
4.2 SELLER'S AND SHAREHOLDER'S REPRESENTATIONS AND WARRANTIES. Seller
and Shareholder represent and warrant to Purchaser that, except as set forth
in the schedule delivered by Seller to Purchaser concurrently herewith and
identified as the "Disclosure Schedule":
(a) Seller is a corporation duly organized, existing and in good
standing, under the laws of the State of North Carolina. Seller has all
necessary corporate power and authority to conduct the Business as the
Business is now being conducted.
(b) Seller has qualified as a foreign corporation, and is in good
standing, under the laws of all jurisdictions where the nature of the
Business or the nature or location of its assets requires such
qualification and where the failure to so qualify would have a "Material
Adverse Effect" (as herein defined). For the purposes of this Agreement,
"Material Adverse Effect" means a material adverse effect on the assets,
liabilities, financial condition or results of operations of the Business,
taken as a whole.
(c) Seller has full corporate power and authority to enter into and
perform (x) this Agreement and (y) all documents and instruments to be
executed by Seller pursuant to this Agreement (collectively, "Seller's
Ancillary Documents"). This Agreement has been, and Seller's Ancillary
Documents will be, duly executed and delivered by duly authorized officers
of Seller.
6
<PAGE>
(d) No consent, authorization, order or approval of, or filing or
registration with, any governmental authority or other person is required
for the execution and delivery of this Agreement and Seller's Ancillary
Documents and the consummation by Seller of the transaction contemplated by
this Agreement and Seller's Ancillary Documents.
(e) Neither the execution and delivery of this Agreement and
Seller's Ancillary Documents by Seller, nor the consummation by Seller of
the transaction contemplated hereby, will conflict with or result in a
breach of any of the terms, conditions or provisions of Seller's
Certificate of Incorporation or By-laws, or of any statute or
administrative regulation, or of any order, writ, injunction, judgment
or decree of any court or any governmental authority or of any arbitration
award.
(f) Seller has furnished Purchaser with copies of the unaudited
balance sheets, statements of income and retained earnings, and statements
of cash flows as of and for each of the four years ending December 31,
1992, 1993, 1994 and 1995, as well as the interim balance sheets as of June
30, 1996, (the "Financial Statements"). Said financial statements present
fairly, in all material respects, the financial position of Seller as of
the dates thereof, and the results of operations and cash flow of Seller
for the periods covered by said statements, in accordance with generally
accepted accounting principles ("GAAP"), consistently applied, except for
the omission of footnote disclosures required by GAAP.
(g) Seller has good title to, and the corporate power to sell, the
Purchased Assets, free and clear of any liens, claims, encumbrances and
security interests. The foregoing representation and warranty shall not
apply to the Leased Premises.
(h) Since December 31, 1995 Seller has not:
(i) sold or transferred any material portion of its assets or
property, except for (A) sales of Inventory and (B) cash applied in
payment of Seller's liabilities, in the usual and ordinary course of
business;
(ii) suffered any material loss or any material interruption in
use, of any material assets or property (whether or not covered by
insurance), on account of fire, flood, riot, strike or other hazard or
Act of God;
(iii) made or, suffered any change in the conduct or nature of
the Business which would have a Material Adverse Effect;
(iv) waived any material rights other than in the ordinary
course of business;
(v) incurred any liability or obligation of any kind, other than
in the ordinary course of business; or
(vi) without limitation by the enumeration of any of the
foregoing, entered into any material transaction other than in the
usual and ordinary course of business.
7
<PAGE>
(i) The Disclosure Schedule lists and describes all material
contracts, leases, and agreements to which Seller is a party and which
relate to the conduct of the Business, including, without limitation:
employment and employment related agreements; covenants not to compete;
loan agreements; notes; security agreements; sales representative,
design, distribution, franchise, advertising and similar agreements;
leases and subleases of Leased Personalty or the Leased Premises;
license agreements; purchase orders and purchase contracts and sales
orders and sales contracts. All contracts, leases, subleases and other
instruments referred to in this paragraph 4.3(i) are binding upon the
parties thereto. No default by Seller has occurred thereunder and, to
Seller's knowledge, no default by the other contracting parties has
occurred thereunder, which default would have a Material Adverse Effect.
(j) Seller is not a party to, or bound by, any unexpired,
undischarged or unsatisfied written contract, agreement, indenture,
mortgage, debenture, note or other instrument under the terms of which
performance by Seller according to the terms of this Agreement will be a
default or an event of acceleration, which default or acceleration would
have a Material Adverse Effect, or whereby timely performance by Seller
according to the terms of this Agreement may be prohibited, prevented or
delayed.
(k) Seller possesses all licenses, permits, registration and
governmental approvals (the "Permits") (other than Environmental
Permits) which are required in order for the Seller to conduct the
Business as presently conducted where the failure to possess such
Permits would have a Material Adverse Effect.
(l) With respect to employees of Seller:
(i) Seller maintains, administers or contributes to only
those employee welfare benefit plans (as defined in Section 3(l)
of ERISA, whether or not excluded from coverage under specific
Titles or Subtitles of ERISA) for the benefit of employees of the
Seller which are described in the Disclosure Schedule (the
"Welfare Plans");
(ii) neither Seller nor any ERISA Affiliate has incurred any
liability to the Pension Benefit Guaranty Corporation ("PBGC") as
a result of the voluntary or involuntary termination of any
Pension Plan subject to Title IV of ERISA; there is currently no
active filing by Seller or any ERISA Affiliate with the PBGC (and
no proceeding has been commenced by the PBGC) to terminate any
Pension Plan subject to Title IV of ERISA maintained or funded, in
whole or in part, by Seller or any ERISA Affiliate; and neither
Seller nor any ERISA. Affiliate has made a complete or partial
withdrawal from a multi-employer plan, as such term is defined in
Section 3(37) of ERISA, resulting in "withdrawal liability", as
such term is defined in Section 4201 of ERISA (without regard to
subsequent reduction or waiver of such liability under either
Section 4207 or 4208 of ERISA).
(m) There is no litigation or proceeding, in law or in equity, and
there are no proceedings or governmental investigations before any
commission or other administrative authority, pending, or, to Seller's and
Shareholder's knowledge, overtly threatened, against Seller or its
Affiliates, or with respect to the consummation of the transaction
contemplated
8
<PAGE>
hereby, or the use of the Purchased Assets (whether used by Purchaser
after the Closing or by Seller prior thereto) which if decided adversely
to Seller would have a Material Adverse Effect (Claims and Litigation").
(n) Except for laws, rules and regulations relating to the
environment (which are exclusively provided for in Section 4.3 (o)
hereof), Seller is not in violation of, or delinquent in respect to, any
decree, order or arbitration award or law, statute, or regulation of or
agreement with, or Permit from, any Federal, state or local governmental
authority (or to which its properties, assets, personnel, business
activities or the Real Estate or Leased Premises are subject or to which
it, itself, is subject), including, without limitation, laws, statutes
and regulations relating to equal employment opportunities, fair
employment practices, and discrimination, which violation or delinquency
would have a Material Adverse Effect.
(o) Seller (including, without limitations the Purchased Assets and
the Business) is not in violation of any Environmental Laws (as herein
defined), which violation would have a Material Adverse Effect. Seller
possesses and is in compliance with all Environmental Permits (as herein
defined) which are required for the operation of the Business, where the
failure to possess or comply with such Environmental Permits would have a
Material Adverse Effect. A copy of any notice, citation, inquiry or
complaint which Seller has received in the past three years of any
alleged violation of any Environmental Law or Environmental Permit is
contained in the Disclosure Schedule. For the purposes of this Agreement:
(i) "Environmental Laws" means all federal, state and local statutes,
regulations, ordinances, rules, regulations and policies, all court
orders and decrees and arbitration awards, and the common law, which
pertain to environmental matters or contamination of any type whatsoever;
and (ii) "Environmental Permits" means licenses, permits, registrations,
governmental approvals, agreements and consents which are required under
or are issued pursuant to Environmental Laws.
(p) The Leased Premises are leased to Seller pursuant to written
leases, copies of which are attached to the Disclosure Schedule. Seller
is not in default under any material term of any agreement relating to
the Leased Premises nor, to Seller's knowledge, is any other party
thereto in material default thereunder.
(q) Each material (i) trademark, service mark, slogan, trade name,
trade dress and the like (collectively with the associated goodwill of
each, "Trademarks"), including information regarding each registration
and pending application to register any such Trademarks; (ii) common law
Trademark; (iii) patent on and pending application to patent any
technology or design; (iv) registration of and application to register
any copyright; and (v) license of rights in computer software,
Trademarks, patents, copyrights, unpatented formulations, and know-how,
whether to or by Seller, is listed in the Disclosure Schedule. The
scheduled rights are referred to herein collectively as the "Intellectual
Property".
(r) Seller and Shareholder have no knowledge: (i) that any other
person or entity claims the right to use in connection with similar or
closely related goods and in the same geographic area, any mark which is
identical or confusingly similar to any of the Trademarks; (ii) of any
claim that any third party asserts ownership rights in any of the
9
<PAGE>
Intellectual Property; (iii) of any claim that Seller's use of any
Intellectual Property infringes any right of any third party; and (iv)
that any third party is infringing any of Seller's rights in any of the
Intellectual Property.
(s) Neither Seller, nor any of its Affiliates, has dealt with any
person or entity who is or may be entitled to a broker's commission,
finder's fee, investment banker's fee or similar payment from Purchaser
for arranging the transaction contemplated hereby or introducing the
parties to each other.
(t) The Inventory Audit taken accurately reflects the Seller's
inventories as of August 25, 1996, except no warranty of such inventories
values is made. The inventories of Seller as reflected in the Inventory
Audit, or acquired since the date thereof, shall exist at closing in the
same condition as of the date of the Inventory Audit, except as disposed
of in the ordinary course of business.
4.3 LIMITATION ON WARRANTIES. Except as expressly set forth in Section
4.2, Seller makes no express or implied warranty of any kind whatsoever,
including, without limitation, any representation as to physical condition or
value of any of the Purchased Assets or the future profitability or future
earnings performance of the Business. ALL IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED.
4.4 DEFINITION OF KNOWLEDGE. For the purposes of this Agreement, the
knowledge of Seller or Shareholder shall be deemed to be limited to the actual
knowledge as of the Closing Date of any of their Officers, Directors or
Employers, without giving effect to imputed knowledge.
ARTICLE V
CONDUCT PRIOR TO THE CLOSING
5.1 GENERAL. Between the date hereof and the Closing Date:
(a) Seller shall give to Purchaser's officers, employees,
attorneys, consultants, accountants and lenders reasonable access during
normal business hours to all of the properties, books, contracts,
documents, records and personnel of Seller and shall furnish to Purchaser
such information as Purchaser may at any time and from time to time
reasonably request.
(b) Seller shall use reasonable efforts and make every good faith
attempt (and Purchaser shall cooperate with Seller) to obtain the
consents to the assignment of, or alternate arrangements satisfactory to
Purchaser with respect to, those contracts, leases, or other instruments,
which are enumerated in Exhibit B attached hereto (the "Consents").
(c) Seller shall carry on the Business in the usual and ordinary
course of business, consistent with past practices.
10
<PAGE>
(d) Purchaser shall not disclose to any third party or use for any
purpose other than evaluating and carrying out the transaction
contemplated hereby, any Confidential Information (as defined herein)
regarding seller and the Business. Intending that the terms shall be
broadly construed to include anything protectable under applicable law,
"Confidential Information" means all information, and all documents and
other tangible items which record information, which at the time or times
concerned is protectable as a trade secret under applicable law. The
preceding portions of this paragraph (e) shall not apply to information
(i) which was in the public domain, (ii) which was previously known by
Purchaser, or (iii) to the extent that disclosure is required by law.
(e) Without implication that such laws apply to the transaction
contemplated hereby, Seller and Purchaser shall not comply with the laws
of any states relating to bulk sales.
(f) No party shall intentionally perform any act which, if
performed, or omit to perform any act which, if omitted to be performed,
would prevent or excuse the performance of this Agreement by any party
hereto or which would result in any representation or warranty herein
contained of said party being untrue in any material respect as if
originally made on and as of the Closing Date.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 CONDITIONS TO SELLER'S OBLIGATIONS. The obligation of Seller to
consummate the transaction contemplated hereby is subject to the fulfillment
of all of the following conditions on or prior to the Closing Date, upon the
non-fulfillment of any of which his Agreement may, at Seller's option, be
terminated pursuant to and with the effect set forth in
Article X:
(a) Each and every representation and warranty made by Purchaser
shall have been true and correct in all material respects when made and
shall be true and correct in all material respects as if originally made
on and as of the Closing Date.
(b) All obligations of Purchaser to be performed hereunder through,
and including on, the Closing Date (including, without limitation, all
obligations which Purchaser would be required to perform at the closing
if the transaction contemplated hereby was consummated) shall have been
performed.
(c) No suit or proceeding shall have been commenced by any
governmental authority on any grounds to restrain, enjoin or hinder the
consummation of the transaction contemplated hereby.
(d) The Seller has been released from any obligations under the
leases for the Leased Premises arising after the Closing Date.
11
<PAGE>
6.2 CONDITIONS TO PURCHASER'S OBLIGATIONS. The obligation of Purchaser
to consummate the transaction contemplated hereby is subject to the
fulfillment of all of the following conditions on or prior to the Closing
Date, upon the non-fulfillment of any of which this Agreement may, at
Purchaser's option, be terminated pursuant to and with the effect set forth
in Article X:
(a) Each and every representation and warranty made by Seller shall
have been true and correct in all material respects when made and shall
be true and correct in all material respects as if originally made on and
as of the Closing Date.
(b) All obligations of Seller to be performed hereunder through,
and including on, the Closing Date (including, without limitation, all
obligations which Seller would be required to perform at the Closing if
the transaction contemplated hereby was consummated) shall have been
performed.
(c) All of the Consents shall have been obtained.
(d) No suit or proceeding shall have been commenced by any
governmental authority to restrain, enjoin or hinder the consummation of
the transaction contemplated hereby.
(e) Eli J. Erlich executing a new employment agreement as set out
in Article VIII.
(f) Satisfactory environmental inspections by Purchaser of the
Leased Premises which disclose no violations.
ARTICLE VII
POST-CLOSING AGREEMENTS
7.1 POST-CLOSING AGREEMENTS. From and after the Closing, the parties
shall have the respective rights and obligations which are set forth in the
remainder of this Article VII.
7.2 INSPECTION OF RECORDS. Seller and Purchaser shall each make their
respective books and records (including work papers in the possession of
their respective accountants) available for inspection by the other party, or
by its duly accredited representatives, for reasonable business purposes at
all reasonable times during normal business hours, for a seven (7) year
period after the Closing Date, with respect to all transactions occurring
prior to and those relating to the Closing, the historical financial
condition, results of operations and cash flows of Seller, or the Assumed
Liabilities. As used in this Section 7.2, the right of inspection includes
the right to make extracts or copies. The representatives of a party
inspecting the records of the other party shall be reasonably satisfactory to
the other party.
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<PAGE>
7.3 USE OF TRADEMARKS; REFERENCES TO SELLER. Seller shall cease to use
and shall not license or permit any third party to use the name "Preview
Furniture", or "Madison" or any name, slogan, logo or trademark which is
similar or deceptively similar to any of the Trademarks. Purchaser may refer
to its business as formerly being Seller's.
7.4 PAYMENTS OF ACCOUNTS RECEIVABLE. In the event Seller or Purchaser
shall receive any instrument of payment of any of the Accounts Receivable
owned by the other party, they shall forth with deliver it to other Party,
endorsed where necessary, without recourse. Any sums collected from customers
who are indebted to both Seller and Purchaser, shall be applied to the
accounts owed to Seller and Purchaser in the order in which said accounts
shall have become due.
7.5 CONTINUED ADMINISTRATION. Seller and Shareholder shall continue to
maintain Accounts Payable, Accounts Receivable and Payroll Functions for the
Business purchased hereunder for a period of up to 30 days after Closing Date
at no cost or expense to Purchaser except reimbursement by Purchaser of any
direct expenditures within which shall be made five days of delivery to
Purchaser of documentation of such expenditures.
7.6 NON-ASSIGNMENT. Notwithstanding any provision to the contrary
contained herein, Seller shall not be obligated to assign to Purchaser any
contract, purchase order, sales order, lease or other instrument which
provides that it may not be assigned without the consent of the other party
thereto and for which such consent is not obtained, but in any such event,
Seller shall cooperate with Purchaser in any reasonable arrangement designed
to provide the benefits thereof to Purchaser.
7.7 FURTHER ASSURANCES. The parties shall execute such further
documents, and perform such further acts, as may be necessary to transfer and
convey the Purchased Assets to Purchaser, on the terms herein contained, and
to otherwise comply with the terms of this Agreement and consummate the
transaction contemplated hereby.
ARTICLE VIII
EMPLOYEES AND EMPLOYEE BENEFIT PLANS
8.1 EMPLOYMENT OF SELLER'S EMPLOYEES. On or before the Closing Date,
Purchaser shall offer, to employ or to continue to employ as of the Closing
Date each of Seller's employees in positions, at compensation, and subject as
herein provided, which are each separately no less favorable to the employee
than the position, and compensation in effect on the date hereof. Each such
person who is employed by Purchaser is set out in 8.1 of the Disclosure
Schedule and is hereinafter referred to individually as an "Employee" and
collectively as the "Employees". Purchaser shall cover all Employees with
group medical benefits no less favorable than the group medical benefits
Seller currently provides its Employees, for which all waiting periods and
pre-existing conditions exceptions are waived. Except for voluntary
resignations and deaths, Purchaser shall continue to employ each Employee
until at least the last day of the second full calendar month commencing
after the Closing Date, but may at any time terminate any Employee for cause
or in connection with normal seasonal layoffs. It is understood that Purchaser
13
<PAGE>
shall employ Eli J. Erlich, President of Seller, from the closing date until
December 31, 1996, at a compensation to be agreed upon by Purchaser and
Erlich. The present Employment Agreement with Erlich, as disclosed in Section
4.2(i) hereof, be terminated at closing.
8.2 PENSION AND WELFARE BENEFITS. Purchases shall be responsible for
claims of Employees for illness or injury occurring after the Closing Date
which are covered by Worker's Compensation, group medical insurance and any
other benefits plan offered by Purchaser to Employees. Additionally,
Purchaser shall assume the responsibility of any accrued vacation benefits of
the Employees.
Except as provided in Article VIII (the "Employee Obligations"),
Purchaser shall have no liability under the Welfare Plans. Seller shall be
responsible for providing the benefits, if any, required after the Closing
Date, under ERISA, including the contribution of benefits resulting from
illness or injury occurring prior to the Closing Date.
ARTICLE IX
INDEMNIFICATION
9.1 GENERAL. From and after the Closing, the parties shall indemnify
each other as provided in this Article IX. As used in this Agreement, the
term "Damages" shall mean all liabilities, demands, claims, actions or causes
of action, regulatory, legislative or judicial proceedings or investigations
assessments, levies, losses, fines, penalties, damages, costs and expenses,
including, without limitation, reasonable attorneys', accountants',
investigators', and experts' fees and expenses, sustained or incurred in
connection with the defense or investigation thereof.
9.2 INDEMNIFICATION OBLIGATIONS OF SELLER AND SHAREHOLDER. Subject to
the provisions of Section 9.3, Seller and shareholder shall jointly and
severally indemnify, save and keep harmless Purchaser and its successors and
permitted assigns ("Purchaser Indemnitee") against and from all Damages
sustained or incurred by any of them resulting from or arising out of or by
virtue of:
(a) any material inaccuracy in or breach of any representation and
warranty made by Seller in this Agreement or in any closing document
delivered to Purchaser in connection with this Agreement;
(b) any material breach by Seller of, or failure by Seller to
comply with, any of its covenants or obligations under this Agreement
(including, without limitation, its obligations under this Article IX);
and
(c) the failure to discharge any liability or obligation of Seller
other than the Assumed Liabilities.
9.3 LIMITATION ON SELLER'S AND SHAREHOLDER'S INDEMNIFICATION
OBLIGATIONS. Seller's and Shareholder obligations pursuant to the provisions
of Section 9.2 are subject to the following limitations:
14
<PAGE>
(a) the Purchaser Indemnitee shall not be entitled to recover under
Section 9.2 (a): (i) until the total amount which Purchaser would recover
under Section 9.2 (a), but for this Section 9.3 (a), exceeds $1,000, and
then only for the excess over $1,000; and (ii) unless a claim for Damages
has been asserted by written notice, specifying the details of the alleged
misrepresentation or breach of warranty, delivered to Seller on or prior
to December 31, 1997, except as to any matters arising out of Section
4.2(o), which shall be delivered on or prior to December 31, 2000.
(b) the Purchaser Indemnitee shall not be entitled to recover under
Section 9.2 (b) or (c) hereof if indemnification is also available under
Section 9.2 (a) hereof;
(c) the Purchaser Indemnities shall not be entitled to recover
under Section 9.2:
(i) with respect to title to the Leased Premises;
(ii) WITH RESPECT TO CONSEQUENTIAL DAMAGES, INCLUDING
CONSEQUENTIAL DAMAGES CONSISTING OF BUSINESS INTERRUPTION OR LOST
PROFITS, OR WITH RESPECT TO PUNITIVE DAMAGES;
(iii) to the extent the Damages are covered by insurance held
by Purchaser;
(iv) with respect to the nonassignable or nontransferable of
any of the Purchased Assets or Assumed Liabilities or the failure to
obtain any consent, or conditions imposed incident to the giving of
any consent, required in connection with, or as a consequence of, the
transfer of any of the Purchased Assets to, or the assertion of the
Assumed Liabilities by, Purchaser;
(d) the amount of any recovery pursuant to Section 9.2 shall be
net of any income tax benefits inuring to the Purchaser Indemnitee as a
result of the state of facts which entitled the Purchaser Indemnitee to
recover from Seller pursuant to Section 9.2.
9.4 PURCHASER'S INDEMNIFICATION COVENANTS. Purchaser shall indemnify,
save and keep harmless Seller and its successors and permitted assigns
against and from all Damages sustained or Incurred by any of them resulting
from or arising out of or by virtue of:
(a) any material inaccuracy in or breach of any representation and
warranty made by Purchaser in this Agreement or in any closing document
delivered to Seller in connection with this Agreement;
(b) any material breach by Purchaser of, or failure by Purchaser to
comply with, any of its covenants or obligations under this Agreement
(including, without limitation, its obligations under this Article IX); or
(c) Purchaser's failure to pay, discharge and perform any of the
Assumed Liabilities.
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<PAGE>
9.5 PROMISSORY NOTE; RIGHT OF OFFSET. If Seller or Shareholder become
liable pursuant to this agreement to indemnify Purchaser, then Purchaser
shall have the right to be indemnified from the Promissory Note and to offset
any amounts the Purchaser is obligated to pay Seller pursuant to this
agreement, the amount of any losses or damages for which Seller or
Shareholder is determined to be liable pursuant to this Article IX.
9.6 INDEMNIFICATION EXCLUSIVE REMEDY. Indemnification pursuant to the
provisions of this Article IX shall be the exclusive remedy of the parties
for any misrepresentation or breach of any warranty or covenant contained
herein or in any closing document executed and delivered pursuant to the
provisions hereof with respect to any matter which is the subject of this
Article IX. Without limiting the generality of the preceding sentence, no
legal action sounding in tort or strict liability may be maintained by any
party.
ARTICLE X
EFFECT OF TERMINATION/PROCEEDING
10.1 RIGHT TO TERMINATE. This Agreement and the transaction
contemplated hereby may be terminated at any time prior to the Closing by
prompt notice given in accordance with Section 11.4:
(a) by the mutual written consent of Purchaser and Seller; or
(b) by either of such parties if the closing shall not have
occurred at or before 11:59 p.m. on September 30, 1996; provided,
however, that the right to terminate this Agreement under this
Section 10.1 (b) shall not be available to any party whose failure to
fulfill any of its obligations under this Agreement has been the cause
of or resulted in the failure of the Closing to occur on or prior to the
aforesaid date.
10.2 REMEDIES. In the event of a breach of this Agreement, the
nonbreaching party shall not be limited to the remedy of termination of this
Agreement, but shall be entitled to pursue all available legal and equitable
rights and remedies, and shall be entitled to recover all of its reasonable
costs and expenses incurred in pursuing them (including, without limitation,
reasonable attorneys fees.
ARTICLE XI
MISCELLANEOUS
11.1 SALES AND TRANSFER TAXES. Purchaser shall pay all sales, use,
transfer and conveyance taxes arising in connection with the sale and
transfer of the Purchased Assets to Purchaser pursuant to this Agreement.
11.2 PUBLICITY. Except as otherwise required by law, press releases
concerning this transaction shall be made only with the prior agreement of
the Seller and Purchaser.
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<PAGE>
11.3 NOTICES. All notices required or permitted to be given hereunder
shall be in writing and may be delivered by hand, by facsimile, by nationally
recognized private courier, or by United States mail. Notices delivered by
mail shall be deemed given three (3) business days after being deposited in
the United States mail, postage prepaid, registered or certified mail.
Notices delivered by hand, by facsimile, or by nationally recognized private
carrier shall be deemed given on the first business day following receipt;
provided, however, that a notice delivered by facsimile shall only be effective
if such notice is also delivered by hand, or deposited in the United States
mail, postage prepaid, registered or certified mail, on or before two (2)
business days after its delivery by facsimile. All notices shall be addressed
as follows:
If to Seller and Shareholder
Addressed to
Preview Furniture Corporation
c/o Shelby Williams Industries Inc.
150 Shelby Williams Drive
Morristown, TN 37813
Attention: Robert Coulter
Facsimile: 423-581-7605
with a copy to
D'Ancona & Pflaum
30 North LaSalle
Suite 2900
Chicago, Illinois 60602
Attention: Walter Roth
Facsimile: 312-580-0923
If to Purchaser
Addressed to
Ferguson Copeland, LLC
PO Drawer 10
Morganton, NC 28680
Attention: Frederick L. Copeland
Facsimile: 704-439-9994
with a copy to
Patton, Starnes, Thompson, Aycock, Teele, Ballew, PA
118 N. Sterling Street
Morganton, NC 28655
Attention: H. Dockery Teele
Facsimile: 704-438-4929
and/or to such other respective addresses and/or addresses as may be
designated by notice given in accordance with the provisions of this Section
11.4.
11.4 EXPENSES. Each party hereto shall bear all fees and expenses
incurred by such party in connection with, relating to or arising out of the
execution, delivery and performance of this Agreement and the consummation of
the transaction contemplated hereby,
17
<PAGE>
including, without limitation, attorneys', accountants and other professional
fees and expenses.
11.5 ENTIRE AGREEMENT. This Agreement and the instruments to be
delivered by the parties pursuant hereto constitute the entire agreement
between the parties. Each exhibit and the Disclosure Schedule shall be
considered incorporated into this Agreement. Any matter which is disclosed in
any portion of the Disclosure Schedule is deemed to have been disclosed for
the purposes of all relevant provisions of this Agreement. The inclusion of
any item in the Disclosure Schedule is not evidence of the materiality of
such item for the purposes of this Agreement and seller's Ancillary
Documents. The parties make no representations or warranties to each other,
except as contained in this Agreement. Purchaser acknowledges that it has
conducted an independent investigation of the financial condition, assets,
liabilities, properties and projected operations of the Business in making
its determination as to the propriety of the transaction contemplated by this
Agreement, and in entering into this Agreement has relied solely on the
results of said investigation and on the representations and warranties of
Seller expressly contained in this Agreement.
11.6 NON-WAIVER. The failure in any one or more instances of a party
to insist upon performance of any of the terms, covenants or conditions of
this Agreement, to exercise any right or privilege in this Agreement
conferred, or the waiver by said party of any breach of any of the terms,
covenants or conditions of this Agreement, shall not be construed as a
subsequent waiver of any such terms, covenants, conditions, rights or
privileges, but the same shall continue and remain in full force and effect
as if no such forbearance or waiver had occurred. No waiver shall be
effective unless it is in writing and signed by an authorized representative
of the waiving party.
11.7 APPLICABLE LAW. This Agreement shall be governed and controlled
as to validity, enforcement, interpretation, construction, effect and in all
other respects by the internal laws of the State of North Carolina applicable
to contracts made in that State.
11.8 BINDING EFFECT; BENEFIT. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, and their successors and
permitted assigns. Nothing in this Agreement, express or implied, is intended
to confer on any person other than the parties hereto, and their respective
successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, including, without
limitation, third party beneficiary rights.
11.9 ASSIGNABILITY. This Agreement shall not be assignable by either
party without the prior written consent of the other party.
11.10 AMENDMENTS. This Agreement shall not be modified or amended
except pursuant to an instrument in writing executed and delivered on behalf
of each of the parties hereto.
11.11 HEADINGS. The headings contained in this Agreement are for
convenience of reference only and shall not affect the meaning or
interpretation of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
SELLER: PREVIEW FURNITURE CORPORATION
By: /s/ Robert P. Coulter
-------------------------------
Its: President
SHAREHOLDER: SHELBY WILLIAMS, INDUSTRIES, INC
By: /s/ Robert P. Coulter
-------------------------------
Its: President
PURCHASER: FERGUSON COPELAND, LLC
By: /s/ F.L. Copeland
-------------------------------
Its: President
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EXHIBIT 10.3
1997
SENIOR MANAGEMENT INCENTIVE PLAN
For Fiscal 1997, incentive will be determined by Corporate Earnings per
Share as follows:
<TABLE>
<CAPTION>
BONUS AWARD AS A PERCENT OF BASE
EARNINGS PER SHARE SALARY
- ------------------------- --------------------------------
<S> <C>
$1.00-1.04 15
1.05-1.10 25
1.11-1.20 35
1.21+ 50
</TABLE>
If unusual major factors significantly change Fiscal 1997 Earnings,
decisions regarding any adjustments will be made by the Compensation Committee
of the Board of Directors.
The Company's 1997 Senior Management Incentive Plan shall be governed by the
following rules:
A. The incentive compensation for the 1997 fiscal year computed as provided for
in the Plan, shall be divided into two (2) equal installments, one payable
on the first day of February 1998, and the other on the first day of
February 1999 (the "Payment Dates").
B. A participant shall become entitled to the installment payable on each
Payment Date, on that date, if and only if, he then continues to be in the
employ of the company, or if not, that the termination of his employment by
the Company was caused by death, complete disability, retirement after age
sixty (60) or discharged by the Company without cause.
C. Should any installment be payable to a Participant who is not entitled
thereto on any Payment Date as provided for above, such installment shall
not revert to the Company but shall be reallocated and paid to the other
Participants proportionate to the amounts to which they are otherwise
entitled to receive under the plan.
D. All determinations arising under the Plan shall be determined by the
Compensation Committee of the Board of Directors of the Company, whose
decision thereon shall be final, conclusive and binding.
E. Employees participating in a commission override program will participate at
the rate of one half of the amount of scheduled amount called for.
F. Any senior management employees participating in any other division/local
incentive plans, shall not participate in the foregoing plan.
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
DECEMBER 31 AND YEAR THEN ENDED
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
($000'S OMITTED EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales............................................ $ 172,431 $ 166,776 $ 159,072 $ 153,527 $ 140,262
Cost of sales........................................ 133,231 130,189 126,401 121,872 109,330
Restructuring charge................................. -- -- 5,575 -- --
Selling and administrative expenses.................. 25,765 25,974 25,402 24,770 24,342
Interest expense..................................... 969 1,257 1,207 1,060 1,622
Interest income...................................... (18) (9) -- (8) (130)
Miscellaneous expense (income)....................... (44) (65) 106 (26) (44)
Income before income taxes........................... 12,528 9,430 381 5,859 5,142
Income taxes......................................... 4,111 2,650 16 1,709 1,548
Net income........................................... 8,417 6,780 365 4,150 3,594
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
PER SHARE DATA
Net sales per common share........................... $ 19.58 $ 18.62 $ 17.58 $ 16.88 $ 15.41
Net income per common share.......................... 0.96 0.76 0.04 0.46 0.39
Cash dividends declared per common share............. 0.30 0.28 0.28 0.28 0.24
Equity per common share.............................. 6.38 5.81 5.41 5.64 5.62
Weighted average number of common shares
outstanding........................................ 8,805 8,955 9,049 9,097 9,105
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
CHANGES IN FINANCIAL POSITION
Cash provided by operating activities................ $ 8,069 $ 9,201 $ 4,998 $ 1,778 $ 7,394
Capital expenditures................................. 1,189 2,252 2,228 1,720 1,831
Depreciation and amortization........................ 2,656 2,833 2,707 2,673 2,706
Cash dividends....................................... 2,643 2,511 2,533 2,547 2,186
FINANCIAL POSITION
Stockholders' equity................................. $ 55,970 $ 51,724 $ 48,658 $ 51,316 $ 51,156
Long-term debt (including current portion)........... 8,000 8,895 8,944 8,987 9,025
Total assets......................................... 84,678 89,907 88,520 90,804 86,775
Working capital...................................... 37,606 32,016 28,092 28,809 28,680
Current assets....................................... 57,177 59,256 57,079 57,151 52,237
Net investment in plant and equipment................ 25,961 29,231 29,874 31,630 32,558
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
FINANCIAL RATIOS
Return on average common shareholders' equity........ 16% 14% 1% 8% 7%
Return on average total assets....................... 9.6% 7.6% .4% 4.7% 4.1%
Pre-tax return on net sales.......................... 7.2% 5.7% .2% 3.8% 3.7%
Effective income tax rate............................ 32.8% 28.1% 4.2% 29.2% 30.1%
After-tax return on net sales........................ 4.9% 4.1% .2% 2.7% 2.6%
Current ratio........................................ 2.9 2.2 2.0 2.0 2.2
Debt as percent of total invested capital............ 13% 15% 16% 15% 15%
Current assets as percent of total assets............ 68% 66% 64% 63% 60%
Dividend payout ratio................................ 31% 37% -- 61% 61%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
PRODUCTIVITY STATISTICS
Average inventory turnover........................... 4.8X 4.6X 4.6X 4.3X 4.0X
Average receivable turnover.......................... 6.8X 6.8X 6.5X 7.1X 7.4X
</TABLE>
3
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
NET SALES....................................................... $ 172,431,000 $ 166,776,000 $ 159,072,000
Cost of goods sold.............................................. 133,231,000 130,189,000 126,401,000
Restructuring charge............................................ -- -- 5,575,000
Selling, general and administrative expenses.................... 25,765,000 25,974,000 25,402,000
13,435,000 10,613,000 1,694,000
OTHER DEDUCTIONS (INCOME):
Interest expense................................................ 969,000 1,257,000 1,207,000
Interest income................................................. (18,000) (9,000) --
Miscellaneous expense (income).................................. (44,000) (65,000) 106,000
907,000 1,183,000 1,313,000
INCOME BEFORE INCOME TAXES...................................... 12,528,000 9,430,000 381,000
INCOME TAXES:
Current......................................................... 3,638,000 2,452,000 429,000
Deferred........................................................ 473,000 198,000 (413,000)
4,111,000 2,650,000 16,000
NET INCOME...................................................... $ 8,417,000 $ 6,780,000 $ 365,000
NET INCOME PER SHARE............................................ $ 0.96 $ 0.76 $ 0.04
Weighted average number of common shares outstanding............ 8,805,000 8,955,000 9,049,000
</TABLE>
See accompanying notes.
13
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................ $ 1,039,000 $ 2,376,000
Accounts receivable, less allowance for doubtful accounts of $402,000 in 1996 and
$423,000 in 1995............................................................... 25,224,000 25,198,000
Inventories:
Raw materials.................................................................. 11,615,000 12,349,000
Work in process................................................................ 4,414,000 4,598,000
Finished goods................................................................. 11,194,000 11,488,000
27,223,000 28,435,000
Prepaid expenses................................................................. 3,691,000 3,247,000
Total current assets............................................................... 57,177,000 59,256,000
Excess of cost over net assets of acquired companies............................... 169,000 178,000
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and land improvements 2,930,000 2,876,000
Buildings and leasehold improvements............................................. 22,969,000 25,408,000
Machinery and equipment.......................................................... 24,207,000 25,029,000
50,106,000 53,313,000
Less accumulated depreciation and amortization................................... 24,145,000 24,082,000
25,961,000 29,231,000
OTHER ASSETS....................................................................... 1,371,000 1,242,000
$ 84,678,000 $ 89,907,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings............................................................ $ -- $ 5,900,000
Accounts payable................................................................. 9,002,000 10,425,000
Customer deposits on orders in process........................................... 3,690,000 3,245,000
Accrued liabilities.............................................................. 4,172,000 6,787,000
Income taxes..................................................................... 1,707,000 828,000
Current portion of long-term debt................................................ 1,000,000 55,000
Total current liabilities.......................................................... 19,571,000 27,240,000
Long-term debt..................................................................... 7,000,000 8,840,000
Deferred income taxes.............................................................. 2,137,000 2,103,000
Commitments (see notes)
STOCKHOLDERS' EQUITY:
Common stock, $.05 par value; authorized 30,000,000 shares; issued 11,814,000
shares (1995--11,779,000)...................................................... 591,000 589,000
Capital in excess of par value................................................... 8,143,000 7,855,000
Retained earnings................................................................ 69,172,000 63,398,000
Pension liability adjustment..................................................... (789,000) (908,000)
77,117,000 70,934,000
Less common stock held in treasury; 3,047,000 shares at cost (1995--
2,879,000)..................................................................... 21,147,000 19,210,000
Total stockholders' equity......................................................... 55,970,000 51,724,000
$ 84,678,000 $ 89,907,000
</TABLE>
See accompanying notes.
14
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................ $ 8,417,000 $ 6,780,000 $ 365,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................... 2,656,000 2,833,000 2,707,000
Assets abandoned and impaired in restructuring.................. -- -- 1,799,000
Provision for losses on accounts receivable..................... 139,000 323,000 308,000
Equity change in affiliate...................................... -- 50,000 (303,000)
Changes in assets and liabilities net of effects from sale of
facility:
Accounts receivable........................................... (165,000) (1,397,000) 234,000
Inventories................................................... (389,000) 27,000 (10,000)
Prepaid expenses.............................................. (580,000) (387,000) 155,000
Accounts payable and accrued liabilities...................... (3,493,000) 356,000 660,000
Income taxes payable.......................................... 879,000 441,000 (1,471,000)
Increase in deferred taxes...................................... 34,000 123,000 81,000
Pension liability adjustment.................................... 119,000 (37,000) 540,000
Other........................................................... 452,000 89,000 (67,000)
NET CASH PROVIDED BY OPERATING ACTIVITIES........................... 8,069,000 9,201,000 4,998,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of facility...................................... 2,000,000 -- --
Proceeds from disposal of property, plant and equipment............. 5,000 70,000 1,000
Capital expenditures................................................ (1,189,000) (2,252,000) (2,228,000)
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES.................... 816,000 (2,182,000) (2,227,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayment) of short-term borrowings................. (5,900,000) (2,550,000) 1,450,000
Principal payments of long-term debt................................ (32,000) (49,000) (43,000)
Sale of common stock under stock option plan........................ 290,000 169,000 19,000
Purchase of common stock for the treasury........................... (1,937,000) (1,335,000) (1,049,000)
Dividends declared and paid......................................... (2,643,000) (2,511,000) (2,533,000)
NET CASH USED BY FINANCING ACTIVITIES............................... (10,222,000) (6,276,000) (2,156,000)
Net increase (decrease) in cash and cash equivalents................ (1,337,000) 743,000 615,000
Cash and cash equivalents at beginning of year...................... 2,376,000 1,633,000 1,018,000
CASH AND CASH EQUIVALENTS AT END OF YEAR............................ $ 1,039,000 $ 2,376,000 $ 1,633,000
Supplemental cash flow information:
Cash paid during the year for:
Interest........................................................ $ 969,000 $ 1,263,000 $ 1,207,000
Income taxes.................................................... 3,277,000 2,061,000 1,766,000
$ 4,246,000 $ 3,324,000 $ 2,973,000
</TABLE>
See accompanying notes.
15
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
--------------------------------------------------------------------------------
COMMON STOCK CAPITAL
-------------------- IN EXCESS PENSION TREASURY
SHARES OF PAR RETAINED LIABILITY STOCK, AT
ISSUED AMOUNT VALUE EARNINGS ADJUSTMENT COST TOTAL
--------- --------- --------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1993 11,756,000 $ 588,000 $7,668,000 $61,297,000 $(1,411,000) $(16,826,000) $51,316,000
Net income................. -- -- -- 365,000 -- -- 365,000
Pension liability
adjustment............... -- -- -- -- 540,000 -- 540,000
Sale of common stock under
stock option plan........ 2,000 -- 19,000 -- -- -- 19,000
Common stock purchased for
treasury (105,000
shares).................. -- -- -- -- -- (1,049,000) (1,049,000)
Cash dividends--$.28 per
share.................... -- -- -- (2,533,000) -- -- (2,533,000)
BALANCE AT DECEMBER 31,
1994..................... 11,758,000 588,000 7,687,000 59,129,000 (871,000) (17,875,000) 48,658,000
Net income................. -- -- -- 6,780,000 -- -- 6,780,000
Pension liability
adjustment............... -- -- -- -- (37,000) -- (37,000)
Sale of common stock under
stock option plan........ 21,000 1,000 168,000 -- -- -- 169,000
Common stock purchased for
treasury (120,000
shares).................. -- -- -- -- -- (1,335,000) (1,335,000)
Cash dividends--$.28 per
share.................... -- -- -- (2,511,000) -- -- (2,511,000)
BALANCE AT DECEMBER 31,
1995..................... 11,779,000 589,000 7,855,000 63,398,000 (908,000) (19,210,000) 51,724,000
Net income................. -- -- -- 8,417,000 -- -- 8,417,000
Pension liability
adjustment............... -- -- -- -- 119,000 -- 119,000
Sale of common stock under
stock option plan........ 35,000 2,000 288,000 -- -- -- 290,000
Common stock purchased for
treasury (168,000
shares).................. -- -- -- -- -- (1,937,000) (1,937,000)
Cash dividends--$.30 per
share.................... -- -- -- (2,643,000) -- -- (2,643,000)
BALANCE AT DECEMBER 31,
1996..................... 11,814,000 $ 591,000 $8,143,000 $69,172,000 $ (789,000) $(21,147,000) $55,970,000
</TABLE>
See accompanying notes.
16
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Shelby Williams designs, manufactures and distributes products for the
contract furniture market. The Company has a significant position in the
hospitality and food service markets through its "Shelby Williams" seating line,
"King Arthur" line of function room furniture and "Sterno" accessories. It
serves the health care, university, office furniture and other institutional
markets through its "Thonet" division with health care and dormitory furniture,
including chairs and tables, and ergonomically designed office seating products,
desks and credenzas. The Company also distributes vinyl wallcoverings for
residential, hotel and office use under the name "Sellers &Josephson," and
markets other textile products to the architectural and design community through
"SW Textiles." The Company distributes floor coverings and other textile
products, as well as Shelby Williams products, in Hawaii and the entire Pacific
Basin, through "PHF."
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
items and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Sales are recognized when the products are shipped and include export sales
of $ 14,719,000 for 1996, $15,538,000 for 1995, and $16,279,000 for 1994.
INCOME TAXES
Income tax expense includes Federal and state income taxes currently payable
and deferred taxes arising from temporary differences between the tax bases of
assets or liabilities and their reported amounts in the financial statements.
CASH AND CASH EQUIVALENTS
Cash equivalents include highly liquid investments, with original maturities
of three months or less, that are readily convertible to known amounts of cash.
INVENTORIES
Inventories are carried at the lower of cost or market, determined by the
last-in, first-out (LIFO) method. The current replacement cost of inventories
exceeded carrying value by approximately $10,123,000 at December 31, 1996 and $
10,019,000 at December 31, 1995.
As a result of the difference between the method of allocating the cost of
acquisitions in 1976, 1987 and 1988 for financial reporting purposes, and the
method used for income tax purposes, the Company's tax basis in the inventories
is approximately $24,266,000 at December 31, 1996 and $25,478,000 at December
31, 1995.
17
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Depreciation and amortization of property, plant and equipment is provided
using the straight-line method over the estimated useful lives of the respective
assets.
POSTEMPLOYMENT BENEFITS
The Company provides certain postemployment benefits. Payments of these
benefits in the past have been infrequent and are not estimable, thus the
Company records these benefits on an event basis.
OTHER SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. As a result of significant deductibles in its insurance
coverage for liability and worker's compensation claims, the Company provides
amounts which management believes are sufficient to cover the associated
liabilities.
SHORT-TERM BORROWINGS
The Company has unsecured lines of credit amounting to $20,000,000 at
interest rates of prime or less. At December 31, 1996, all of these lines were
unused. The weighted average interest rate on short-term borrowings outstanding
on December 31, 1995 was 6.7%.
COMMITMENTS
LEASES
The Company leases certain manufacturing facilities under operating leases
which expire over the next nine years. The Company also leases showroom space
under operating leases expiring over the next five years.
Future minimum rental payments required under operating leases that have
initial or remaining non-cancelable lease terms in excess of one year as of
December 31, 1996 are:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1997............................................................................ $1,662,000
1998............................................................................ 1,640,000
1999............................................................................ 1,251,000
2000............................................................................ 1,162,000
2001............................................................................ 729,000
Subsequent to 2001.............................................................. 1,201,000
------------
Total minimum lease payments.................................................... $7,645,000
------------
------------
</TABLE>
Total rental expense for all operating leases aggregated $1,912,000 in 1996,
$ 2,008,000 in 1995, and $1,998,000 in 1994.
18
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
COMMON STOCK INFORMATION (UNAUDITED)
The following table sets forth the high and low sales prices of the
Company's common stock as reported by the New York Stock Exchange.
<TABLE>
<CAPTION>
SALES
PRICES HIGH LOW
--------- --------- ---------
<S> <C> <C> <C>
1995
1st Quarter.................................................... 10 1/4 7 1/2
2nd Quarter.................................................... 11 3/4 9
3rd Quarter.................................................... 13 3/4 11 3/4
4th Quarter.................................................... 13 1/2 11 3/8
1996
1st Quarter.................................................... 12 7/8 10 5/8
2nd Quarter.................................................... 12 1/2 10 1/8
3rd Quarter.................................................... 13 1/2 10 5/8
4th Quarter.................................................... 14 3/4 12 1/4
</TABLE>
At December 31, 1996, there were approximately 3,000 holders of record of
the Company's common stock, including individual participants in security
position listings.
The Company declared and paid cash dividends on its common stock during the
last two fiscal years as follows:
<TABLE>
<CAPTION>
CASH DIVIDEND PER
COMMON SHARE
PERIOD 1996 1995
- ---------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
1st Quarter................................................................................... $ .07 $ .07
2nd Quarter................................................................................... .07 .07
3rd Quarter................................................................................... .08 .07
4th Quarter................................................................................... .08 .07
--- ---
$ .30 $ .28
--- ---
--- ---
</TABLE>
19
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
QUARTERLY RESULTS (UNAUDITED)
Summarized quarterly results for the years ended December 31, 1996, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
NET INCOME
1996 NET SALES GROSS PROFIT NET INCOME PER SHARE
- ------------------------------------------------------ -------------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
First................................................. $ 40,734,000 $ 9,091,000 $ 1,745,000 $ .20
Second................................................ 43,548,000 9,894,000 2,032,000 .23
Third................................................. 43,250,000 9,905,000 2,200,000 .25
Fourth................................................ 44,899,000 10,310,000 2,440,000 .28
-------------- ------------- -------------- -----
Total................................................. $ 172,431,000 $ 39,200,000 $ 8,417,000 $ .96
-------------- ------------- -------------- -----
-------------- ------------- -------------- -----
<CAPTION>
NET INCOME
1995 NET SALES GROSS PROFIT NET INCOME PER SHARE
- ------------------------------------------------------ -------------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
First................................................. $ 39,301,000 $ 8,400,000 $ 1,325,000 $ .15
Second................................................ 42,352,000 9,277,000 1,702,000 .19
Third................................................. 42,518,000 9,379,000 1,874,000 .21
Fourth................................................ 42,605,000 9,531,000 1,879,000 .21
-------------- ------------- -------------- -----
Total................................................. $ 166,776,000 $ 36,587,000 $ 6,780,000 $ .76
-------------- ------------- -------------- -----
-------------- ------------- -------------- -----
<CAPTION>
NET INCOME
NET INCOME (LOSS) PER
1994 NET SALES GROSS PROFIT (LOSS) SHARE
- ------------------------------------------------------ -------------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
First................................................. $ 38,122,000 $ 7,723,000 $ 785,000 $ .09
Second................................................ 40,208,000 8,340,000 1,104,000 .12
Third................................................. 38,859,000 7,858,000 876,000 .10
Fourth................................................ 41,883,000 3,175,000 (2,400,000)* (.27)*
-------------- ------------- -------------- -----
Total................................................. $ 159,072,000 $ 27,096,000 $ 365,000* $ .04*
-------------- ------------- -------------- -----
-------------- ------------- -------------- -----
</TABLE>
- ------------------------
* See "Restructuring Charge" below for a description of the charge recorded in
the fourth quarter of 1994 and its effect on operations.
STOCK OPTION PLANS
Under the Company's incentive stock option plan and directors' stock option
plan, options are granted to key employees and directors to purchase the
Company's common stock at not less than fair market value at date of grant. At
December 31, 1996 and 1995, there were 350,000 and 385,000 shares, respectively,
reserved for issuance under the plans. Of options granted, 16,000 in both 1996
and 1995 have five year terms and vest and become fully exercisable at the end
of six months service. The remaining options granted in 1996 and 1995 have five
year terms and vest and become exercisable in 1/3 increments after 15 months, 30
months, and 45 months, respectively, of continued employment.
The intrinsic value method is used in accounting for stock-based awards
under the Company's stock option plans. Because the exercise price of the
Company's stock options at least equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
20
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
STOCK OPTION PLANS (CONTINUED)
A summary of the Company's stock option activity, and related information
for years ended December 31 follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------------------------ ------------------------------ ------------------------------
OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE
(000) EXERCISE PRICE (000) EXERCISE PRICE (000) EXERCISE PRICE
----------- ----------------- ----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of
year......................... 107 $ 8.69 95 $ 8.46 119 $ 8.30
Granted....................... -- -- 48 8.01 63 12.25
Exercised..................... (2) 8.38 (20) 8.38 (35) 8.38
Forfeited..................... (10) 10.86 (4) 8.38 -- --
Outstanding end of year....... 95 8.46 119 8.30 147 $ 9.97
Exercisable at end of year.... 62 8.47 87 8.39 79 $ 9.14
Weighted average fair value of
options granted during the
year......................... $ 2.44 $ 3.68
</TABLE>
Exercise prices for options outstanding as of December 31, 1996 ranged from
$ 7.94 to $12.25. The weighted-average remaining contractual life of those
options is 2.7 years.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1995 and 1996, respectively: risk-free interest rates of 6.5%;
dividend yields of 2.7%; volatility factors of the expected market price of the
Company's common stock of .33 and .32; and a weighted-average expected life of
the option of five years.
The effect of applying the fair value method to the Company's stock-based
awards results in net income and earnings per share that are not materially
different from amounts reported.
LONG-TERM DEBT
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Long-term debt at December 31, 1996, and 1995 consisted of the following:
7.8% senior notes due in quarterly installments of $1,000,000 in October 1997
through July 1999................................................................. $ 8,000,000 $ 8,000,000
13% capitalized lease obligation, due in monthly installments of $14,000 (including
interest); final $863,000 discharged by assignment with sale of related facility
in August 1996.................................................................... 0 895,000
------------ ------------
8,000,000 8,895,000
------------ ------------
Less amounts due within one year...................................................... 1,000,000 55,000
------------ ------------
$ 7,000,000 $ 8,840,000
------------ ------------
------------ ------------
</TABLE>
The terms of the senior note agreement restrict the payment of dividends and
the acquisition of stock for the treasury until the indebtedness is paid in
full. At December 31, 1996 there was $6,939,000 available for payment of
dividends and the acquisition of stock for the treasury. In addition, the
Company is
21
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
LONG-TERM DEBT (CONTINUED)
restricted as to the incurrence of additional indebtedness and the amount of
leases which may be entered into. The Company is in compliance with all such
restrictions.
RESTRUCTURING CHARGE
Due to increases in lumber prices and increased competition primarily from
imported products, the Company made changes in its product and manufacturing
strategies during December 1994, designed to make the Company more competitive
in the industry. The plan was to exit certain portions of the Company's
enterprise by selling an upholstery business with a related manufacturing
facility and discontinuing a part of the product lines in the health care,
university and office markets, resulting in closure of another plant. The
Company anticipated completing the restructuring by December 31, 1995; however,
the sale of the upholstery business was not completed until August 1996. The
planned discontinuance of a part of the product lines in the health care,
university and office markets was completed in 1995 resulting in the reduction
of operations of that plant by approximately 75 percent. The Company planned to
move the remaining production to other facilities and close the plant by
September 30, 1996, but changing economic conditions, particularly labor
shortages at those other facilities, necessitated changing the plan to continue
the reduced level of production, which is mainly in a portion of the plant owned
by the Company. This minor change does not affect the original restructuring
provision.
At December 31, 1995, accrued liabilities include $439,000 related to the
above, primarily to return the leased portion of the plant being closed to
original condition. These costs were paid and charged against the liability in
1996, completing the plan.
<TABLE>
<S> <C>
Components of the 1994 charge were as follows:
Write downs resulting from discontinuance of product lines:
Inventory, to net realizable value............................................ $2,565,000
Catalogs and other sales materials............................................ 416,000
Cost related to plants:
Abandonment of leasehold improvements and other fixed assets.................. 1,301,000
Cost to return leased plant to original condition............................. 471,000
Other cost, principally severance............................................. 324,000
Other assets impaired:
Write-off of goodwill of upholstery business which will not be recovered upon
its sale....................................................................... 498,000
---------
$5,575,000
---------
---------
</TABLE>
The revenues and net operating income for the upholstery business that was
sold are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues................................................................ $ 5,858,000 $ 8,963,000 $ 7,925,000
Net operating income.................................................... 182,000 325,000 188,000
</TABLE>
The charge was recorded in the fourth quarter of 1994 and reduced the net
income of the year by $3,850,000 or $.43 per share. Excluding the restructuring
charge, 1994 net income was $4,215,000, or $.47 per share.
22
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
RETIREMENT PLANS
The Company has several defined benefit pension plans covering essentially
all of its employees in the United States. The benefits are based on years of
service, and for salaried employees, average annual compensation. The Company's
practice is to fund amounts which are required by statute and applicable
regulations and which are tax deductible.
Assumptions used in the accounting were:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1996 1995
----- -----
<S> <C> <C>
Discounts rates................................................................................. 8.5% 8.0%
Rates of increase in compensation levels........................................................ 3.5% 3.5%
Expected long-term rate of return on assets..................................................... 8.5% 8.5%
</TABLE>
Net defined benefit pension cost for 1996, 1995, and 1994 included the
following components:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------- ------------
<S> <C> <C> <C>
Service cost-benefits earned during period............................. $ 966,000 $ 1,062,000 $ 1,114,000
Interest cost on projected benefit obligations......................... 1,151,000 1,088,000 892,000
Net amortization and deferral.......................................... 62,000 1,504,000 (524,000)
Actual return on plan assets........................................... (1,128,000) (2,128,000) 16,000
Total pension plan expense............................................. $ 1,051,000 $ 1,526,000 $ 1,498,000
</TABLE>
The following table sets forth the funded status of the Company's defined
benefit pension plans and amounts recognized in the accompanying consolidated
balance sheets as of December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Actuarial present value of vested benefit obligations.............................. $ 14,696,000 $ 13,281,000
Actuarial present value of accumulated benefit obligations......................... $ 15,235,000 $ 13,842,000
Actuarial present value of projected benefit obligations for service rendered to
date.............................................................................. $ 15,983,000 $ 15,495,000
Plan assets at fair value, primarily cash equivalents and publicly traded stocks
and bonds, including 46,000 shares of Shelby Williams Industries, Inc. common
stock (1995--22,000 shares)....................................................... 15,142,000 12,084,000
Projected benefit obligations in excess of plan assets............................. 841,000 3,411,000
Unrecognized net assets being recognized over remaining service period............. 188,000 213,000
Unrecognized net loss.............................................................. (2,669,000) (3,379,000)
Unrecognized prior service credit (cost)........................................... 231,000 (589,000)
Adjustment required to recognize minimum liability................................. 1,502,000 2,102,000
Pension related liability included in accrued liabilities.......................... $ 93,000 $ 1,758,000
</TABLE>
The Company has an employee stock ownership plan covering essentially all
salaried employees. Contributions are determined annually at the discretion of
the Company but not to exceed the amount allowable as a deduction for federal
income tax purposes. The contributions were $63,000 for 1996, $70,000 for 1995,
and $72,000 for 1994. The plan held 40,000 shares of the Company's common stock
at December 31, 1996 and 35,000 shares at December 31, 1995.
23
<PAGE>
SHELBY WILLIAMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
RETIREMENT PLANS (CONTINUED)
Retirement plan expense was $1,114,000, $1,596,000, and $1,570,000 for 1996,
1995, and 1994 respectively.
INCOME TAXES
Deferred income tax liabilities (assets) for differences in tax bases and
amounts in the financial statements were as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Current:
Allocated costs of acquisition inventories..................................... $ 1,005,000 $ 1,005,000
Pension liability.............................................................. (13,000) (411,000)
Restructuring related liabilities.............................................. -- (149,000)
Other--net..................................................................... (364,000) (335,000)
Total included in current income taxes........................................... 628,000 110,000
Noncurrent:
Property, plant and equipment.................................................. 2,062,000 1,868,000
Other.......................................................................... 75,000 235,000
Total noncurrent deferred income taxes........................................... 2,137,000 2,103,000
Net deferred tax liabilities..................................................... $ 2,765,000 $ 2,213,000
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal............................................................... $ 3,026,000 $ 2,350,000 $ 415,000
State................................................................. 612,000 102,000 14,000
3,638,000 2,452,000 429,000
Deferred:
Federal............................................................... 473,000 198,000 (413,000)
$ 4,111,000 $ 2,650,000 $ 16,000
</TABLE>
Income tax expense differs from amounts computed by applying the Federal
statutory tax rate to income before income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Statutory rate......................................................... $ 4,260,000 $ 3,206,000 $ 129,000
State income taxes, net of Federal tax benefit........................ 404,000 67,000 9,000
Other................................................................. (553,000) (623,000) (122,000)
$ 4,111,000 $ 2,650,000 $ 16,000
Effective rate........................................................ 32.8% 28.1% 4.2%
</TABLE>
24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Shelby Williams Industries, Inc.
We have audited the accompanying consolidated balance sheets of Shelby
Williams Industries, Inc., as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Shelby Williams
Industries, Inc., as of December 31, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ERNST & YOUNG LLP
January 30, 1997
Atlanta, Georgia
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds have been, and are expected to
continue to be, cash flows from operations and borrowings under credit lines
provided by banks. At December 31, 1996, the Company had cash and cash
equivalents of $1.0 million compared with $2.4 million at December 31, 1995.
The Company has additional sources of liquidity available in the form of
committed lines of credit maintained with banks. Unused short-term bank credit
lines totaled $20.0 million at December 31, 1996. Long-term debt at year-end,
including current portions of $1.0 million, amounted to $8.0 million. Total debt
as a percentage of total capitalization was 12.5% at December 31, 1996.
The Company's outstanding indebtedness consists of a note payable to an
institutional investor which bears interest at an annual rate of 7.8%.
Amortization of $1.0 million per quarter begins in October 1997 and continues
through July 1999. Pursuant to the terms of the note, a prepayment option is
available only at a substantial penalty.
Net cash provided by operating activities was $8.1 million in 1996.
Net cash provided by investing activities was $816,000 in 1996, which
principally reflects $2.0 million from the sale of the Preview facility
described below, partially offset by capital expenditures of $1.2 million.
Capital expenditures in 1996 were primarily used to upgrade manufacturing
equipment. In 1997, the Company expects capital expenditures of approximately
$6.0 million which will consist of $3.0 million for a new regional
manufacturing facility, $2.0 million for a powder coating system and $1.0
million for automated machinery.
Cash used by financing activities in 1996 was $10.2 million which
principally reflects the repayment of $5.9 million of total indebtedness, the
payment of $2.6 million in dividends and the repurchase of $1.9 million of
treasury stock.
The Company's stockholders' equity at December 31, 1996, was $56.0 million.
The Company purchased 168,000 shares of its common stock in 1996 for $1.9
million at an average repurchase price of $11.52 per share. These repurchases
were made to provide shares upon the exercise of options granted and to be
granted under the Company's stock option plans. In January 1997, the Company's
Board of Directors authorized the repurchase of an additional 467,000 shares of
Common Stock. The Company may purchase these shares from time to time, depending
on market conditions, in the open market or privately negotiated transactions.
The Company operates a frame and component manufacturing plant in Mexico.
The year-end carrying value of property, plant and equipment at this facility
was $3.5 million for 1996, $3.8 million for 1995, and $4.1 million for 1994. All
items produced at the plant are shipped to facilities of the Company in the
United States for further processing. The value of these transfers amounted to
$2.1 million in 1996, $1.9 million in 1995, and $1.8 million in 1994.
The Company believes that cash on hand, internally generated cash flows,
the net proceeds of a planned offering of Company stock, and available credit
lines will be adequate to support currently planned business operations both
on a near-term and long-term basis.
26
<PAGE>
1996 COMPARED TO 1995
Net sales increased 3.4% to $172.4 million in 1996 from $166.8 million in
1995. This increase was due almost entirely to volume increases. Volume growth
was primarily attributable to the continued robust levels of refurbishment
activity in the hospitality and food service markets. The Company's sales growth
also reflects higher levels of new construction, particularly in the budget
sector of the hospitality market and in the food service and gaming markets.
Excluding Preview, net sales increased by 5.6% to $166.6 million in 1996 from
$157.8 million in 1995. At December 31, 1996, the backlog of orders, which
achieved record levels, was approximately $32.0 million, compared to $28.0
million, excluding Preview, at December 31, 1995.
Gross profit increased 7.1% to $39.2 million in 1996 from $36.6 million in
1995. The gross profit margin increased to 22.7% in 1996 compared to 21.9% in
1995, reflecting higher factory utilization rates and favorable product mix.
Excluding Preview, gross profit margins in 1996 and 1995 were 22.6% and 21.6%,
respectively.
Selling, general and administrative expenses decreased 0.8% to $25.8 million
in 1996 from $26.0 million in 1995. As a percentage of net sales, selling,
general and administrative expenses decreased to 14.9% in 1996 from 15.6% in
1995. This decrease reflects the success of management's cost containment
programs. Excluding Preview, selling, general and administrative expenses
increased 2.3% to $24.3 million in 1996 from $23.8 million in 1995, and as a
percentage of sales were 14.6% and 15.1% in 1996 and 1995, respectively.
As a result of the factors described above, operating profit increased 26.4%
to $13.4 million in 1996 from $10.6 million in 1995. The operating margin
improved to 7.8% in 1996 compared to 6.4% in 1995. Excluding Preview, operating
profits in 1996 and 1995 were $13.3 million and $10.3 million, respectively, and
as a percentage of sales, were 8.0% and 6.5%, respectively. Excluding Preview,
operating profit grew 28.8% in 1996, reflecting the high selling, general and
administrative expenses of Preview.
Net interest expense fell 23.8% to $951,000 in 1996 from $1.2 million in
1995. The decrease reflects the reduction in outstanding indebtedness to $8.0
million at December 31, 1996 from $14.8 million at December 31, 1995.
The effective tax rate increased to 32.8% in 1996 from 28.1% in 1995 due to
the absence of tax credits which were no longer available and the effect of
reduced export sales.
As a result of the foregoing, net income increased 24.1% to $8.4 million in
1996, or $0.96 per share, compared to $6.8 million, or $0.76 per share in 1995.
Excluding Preview, net income per share in 1996 and 1995 was $0.95 and $0.74,
respectively, representing an annual increase of 28.4%
27
<PAGE>
1995 COMPARED TO 1994
Net sales increased 4.8% to $166.8 million in 1995 from $159.1 million in
1994. Of such increase, approximately 2% was due to volume increases with the
remainder being due to a combination of increased pricing and favorable product
mix. The volume growth was primarily attributable to pent-up demand in the
refurbishment sector. Excluding Preview, total net sales increased by 4.4% to
$157.8 million in 1995 from $151.1 million in 1994. Excluding Preview, the
backlog of orders at December 31, 1995 was $28.0 million, compared to $26.5
million at December 31, 1994.
In December 1994, the Company made changes to its product and
manufacturing strategies designed to increase the Company's competitiveness.
These changes included (i) a plan to divest its contemporary upholstered
seating product line, Preview, and a related manufacturing facility and (ii)
discontinuance of a part of its product lines in the healthcare, university
and office markets and the closure of a related manufacturing facility. The
Company took a $5.6 million restructuring charge in the fourth quarter of
1994 as a result of the aforementioned restructuring. See Note to
Consolidated Financial Statements captioned "Restructuring Charge."
Gross profit excluding the restructuring charge increased 12.0% to $36.6
million in 1995 from $32.7 million in 1994. The gross profit margin excluding
the restructuring charge increased to 21.9% in 1995 compared to 20.5% in 1994,
resulting mainly from greater operating efficiencies and lower expense levels
achieved by the restructuring. Excluding Preview, gross profit margins in 1995
and 1994 were 21.6% and 20.1%, respectively.
Selling, general and administrative expenses increased 2.3% to $26.0 million
in 1995 from $25.4 million in 1994. As a percentage of net sales, selling,
general and administrative expenses decreased to 15.6% in 1995 from 16.0% in
1994. This decrease as a percentage of net sales was a function of volume.
Weakness in the Mexican economy led to the liquidation in 1995 of Shelby
Williams de Mexico, S.A. de C.V., in which the Company owned 25% of the issued
and outstanding shares. The write-off of the investment in and receivables from
this affiliate amounted to $200,000. The Company's frame and component
manufacturing plant in Mexico was unaffected. Excluding Preview, selling,
general and administrative expenses increased 2.2% to $23.8 million in 1995 from
$23.3 million in 1994, and as a percentage of sales were 15.1% and 15.4% in 1995
and 1994, respectively.
As a result of the factors described above, operating profit, excluding the
restructuring charge, increased 46.0% to $10.6 million in 1995 from $7.3 million
in 1994 and the operating margin improved to 6.4% in 1995 compared to 4.6% in
1994. Excluding Preview and the restructuring charge, operating profits in 1995
and 1994 were $10.3 million and $7.1 million, respectively, and as a percentage
of sales, were 6.5% and 4.7%, respectively.
Net interest expense was relatively unchanged from 1994 to 1995.
The effective tax rate increased to 28.1% in 1995 from 4.2% in 1994.
As a result of the foregoing, net income excluding the restructuring charge
increased 60.9% to $6.8 million in 1995, or $0.76 per share, compared to $4.2
million, or $0.47 per share in 1994. Excluding Preview and the restructuring
charge, net income per share in 1995 and 1994 would have been $0.74 and $0.45,
respectively, representing an annual increase of 63.2%.
28
<PAGE>
EXHIBIT 21.1
SHELBY WILLIAMS INDUSTRIES INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF
NAME OF SUBSIDIARY INCORPORATION
- -------------------------------------------------------------------- ------------------------
<S> <C>
Sellers & Josephson, Inc. New Jersey
Industrial Mueblera Shelby Williams, S.A. DE C.V. Republic of Mexico
</TABLE>
Each subsidiary does business under its own name.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Shelby Williams Industries, Inc. of our report dated January 30, 1997,
included in the 1996 Annual Report to Stockholders of Shelby Williams
Industries, Inc.
ERNST & YOUNG LLP
Atlanta, Georgia
January 30, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8, No. 33-48370) pertaining to the Shelby Williams Industries, Inc. 1992 Key
Employees' Incentive Stock Option Plan and the related Prospectus and
Registration Statement (Form S-8, No. 33-59705) pertaining to the Shelby
Williams Industries, Inc. 1995 Directors' Stock Option Plan and the related
Prospectus of our report dated January 30, 1997, with respect to the
consolidated financial statements of Shelby Williams Industries, Inc.
incorporated by reference in the Annual Report (Form 10-K) for the year ended
December 31, 1996.
ERNST & YOUNG LLP
Atlanta, Georgia
March 3, 1997
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and
officers of SHELBY WILLIAMS INDUSTRIES, INC., a Delaware corporation (the
"Company"), does hereby constitute and appoint Paul N. Steinfeld, Manfred
Steinfeld, Robert P. Coulter and Walter Roth, and each of them severally, the
true and lawful attorneys and agents of the undersigned, each with full power to
act without any other and with full power of substitution and resubstitution, to
do any and all acts and things and to execute any and all instruments which said
attorneys and agents may deem necessary or desirable to enable the Company to
comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any
rules, regulations and requirements of the Securities and Exchange Commission
thereunder in connection with the filing under the Act of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 and all related
matters, including specifically, but without limiting the generality of the
foregoing, power and authority to sign the names of the undersigned directors
and officers in the capacities indicated below to said Form 10-K to be filed
with the Securities and Exchange Commission, to any and all amendments to said
Form 10-K, and to any and all instruments or documents filed as part of or in
connection with any of the foregoing and any and all amendments thereto; and
each of the undersigned hereby ratifies and confirms all that said attorneys and
agents, or any of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed these presents
this 3rd day of March, 1997.
<TABLE>
<CAPTION>
CAPACITIES SIGNATURES
- -------------------------------- ------------------------------------------------------
<S> <C> <C>
Chairman of the Board and /s/ PAUL N. STEINFELD
Director (Principal Executive -------------------------------------------
Officer) Paul N. Steinfeld
/s/ MANFRED STEINFELD
Chairman of the Executive -------------------------------------------
Committee and Director Manfred Steinfeld
/s/ ROBERT P. COULTER
President and Director -------------------------------------------
Robert P. Coulter
Vice-President Finance,
Treasurer and Assistant /s/ SAM FERRELL
Secretary (Principal Financial -------------------------------------------
and Accounting Officer) Sam Ferrell
/s/ ROBERT L. HAAG
Director -------------------------------------------
Robert L. Haag
/s/ WILLIAM B. KAPLAN
Director -------------------------------------------
William B. Kaplan
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPACITIES SIGNATURES
- -------------------------------- ------------------------------------------------------
<S> <C> <C>
/s/ DOUGLAS A. PARKER
Director -------------------------------------------
Douglas A. Parker
/s/ HERBERT L. ROTH
Director -------------------------------------------
Herbert L. Roth
/s/ TRISHA WILSON
Director -------------------------------------------
Trisha Wilson
</TABLE>
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000730564
<NAME> SHELBY WILLIAMS INDUSTRIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,039
<SECURITIES> 0
<RECEIVABLES> 25,626
<ALLOWANCES> 402
<INVENTORY> 27,223
<CURRENT-ASSETS> 57,177
<PP&E> 50,106
<DEPRECIATION> 24,145
<TOTAL-ASSETS> 84,678
<CURRENT-LIABILITIES> 19,571
<BONDS> 0
0
0
<COMMON> 591
<OTHER-SE> 55,379
<TOTAL-LIABILITY-AND-EQUITY> 84,678
<SALES> 172,431
<TOTAL-REVENUES> 172,431
<CGS> 133,231
<TOTAL-COSTS> 133,231
<OTHER-EXPENSES> 25,765
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 969
<INCOME-PRETAX> 12,528
<INCOME-TAX> 4,111
<INCOME-CONTINUING> 8,417
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,417
<EPS-PRIMARY> .96
<EPS-DILUTED> .96
</TABLE>
