<PAGE>
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, 1997
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-9457
[LOGO]
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
- ------------------------------------------ ------------------------------------
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 17, 1998, there were 9,351,763 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 $111,010,700.
Documents incorporated by reference:
PART OF FORM 10-K INTO WHICH
DOCUMENT DOCUMENT IS INCORPORATED
- -------------------------------------------------- ----------------------------
Registrant's annual report to stockholders for
1997............................................. Part II, Items 5,6,7 and 8
Registrant's definitive proxy statement to be
filed for 1998 annual meeting.................... Part III, Items 10-13
<PAGE>
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 1997 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. Continued strong profits in the lodging industry resulting from
high occupancy levels, coupled with increasing average daily rates, have made
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. Near-capacity situations in hotel occupancy in some
major cities, and increased demand for extended stay hotels and time share
facilities, have led to new construction activity. This current new construction
expansion is a direct result of the need for higher capacity rather than a
decision based on tax advantages, a pitfall which punished the industry hard in
the early 1990s.
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 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.
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Shelby Williams estimates that, of its 1997 net sales of $179.6 million,
approximately 80% were to the hospitality and food service industries and
approximately 14% 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 18% of 1997 net sales, and no single customer
accounted for more than 5% of 1997 net sales.
The Company's sales and marketing staff consists of approximately 106
full-time employees, of which 66 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 66
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.
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
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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 106 full-time employees, approximately 66 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.
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.
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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 has
recently expanded its presence in Latin America and the Middle East. In 1998,
the Company plans to add a representative in South America to better serve the
market in that region. 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
Davidson Hotels
Doubletree Hotel Corp.
Extended Stay America
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
Chili's
Club Corporation of America
Copper Cellar Corp.
Darden Restaurants Inc.
(The Olive Garden and
Red Lobster Restaurants)
The Hard Rock Cafe
LaMadeleine
Luby's Cafeteria Inc.
Morton's of Chicago Restaurant
Nick's Fishmarkets
Palomino
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
Muckleshoot Tribal Gaming
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
Orange Lake Resort & Club
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:
HEALTHCARE AND
UNIVERSITIES
Albert Einstein Medical Center
Assisted Living Concepts
Carson Newman College
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
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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
Profitt's Department Stores
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 1997, the Company also sold products to over 350 country clubs in 32
states.
The Company's ten largest customers accounted for approximately 18% of net
sales in 1997, and no single customer accounted for more than 4% of 1997 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, 1997, was $33.1 million, a
record level, as compared to $32.0 million at December 31, 1996. The Company
expects to ship substantially all of its backlog by the end of 1998.
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.
MANUFACTURING AND ASSEMBLY
The following table summarizes the products manufactured and assembled at
each of the Company's manufacturing facilities (as of January 1, 1998):
<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.
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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 electrostatic wood-finishing systems which provide superior
finishing qualities and are advantageous from an environmental standpoint. The
Company has recently invested in powder-coating lines which provide similar
advantages for the metal products. 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, 1997, the Company had 1,703 full-time employees. Of
these, 1,483 were engaged in manufacturing, 114 in administrative and clerical
positions, and 106 in sales and marketing. Those engaged in manufacturing
included 245 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
2000 (covering approximately 200 employees), respectively. The Company believes
that its relations with its employees are good.
ITEM 2. PROPERTIES.
At January 1, 1998, the Company maintained facilities with an aggregate of
approximately 1,800,000 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 87% of
capacity,
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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, 2005(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>
- ------------------------
(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.
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 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 has put its insurers
on notice of the complaint.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
<TABLE>
<CAPTION>
AGE AT PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
NAME 2-1-98 AND POSITION AND OFFICE WITH REGISTRANT
- ----------------------------------------------- --------- ----------------------------------------------
<S> <C> <C>
Paul N. Steinfeld.............................. 43 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.............................. 55 President and Chief Operating Officer since
May, 1990; prior thereto President and
Treasurer. Director during past five years.
Manfred Steinfeld.............................. 73 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................................ 55 Executive Vice President since May, 1990.
Sam Ferrell.................................... 56 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.
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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 23 of the Company's 1997 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 18 of the Company's 1997 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 pages 27-28 of the Company's
1997 Annual Report to Stockholders is hereby incorporated by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information contained on pages 19 (Consolidated Statements of Income),
20 (Consolidated Balance Sheets), 21 (Consolidated Statements of Cash Flows), 22
(Consolidated Statements of Stockholders' Equity), 23-26 (Notes to Consolidated
Financial Statements) and 26 (Report of Independent Auditors) of the Company's
1997 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, 1997.
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,
1997, 1996, and 1995
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995
10
<PAGE>
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 24, 1998
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 24, 1998
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>
12
<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, filed as Exhibit 2.1 to Registrant's annual report on Form 10-K for 1996 and
hereby incorporated by reference.
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 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.
*10.2 1997 Senior Management Incentive Plan, filed as Exhibit 10.3 to Registrant's annual report on Form 10-K
for 1996 and hereby incorporated by reference.
*10.3 1998 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.
10.6 Underwriting agreement dated March 26, 1997, filed as Exhibit 1 to Amendment No. 4 to Schedule 13D of
Manfred Steinfeld filed April 8, 1997 and hereby incorporated by reference.
13.1 Portions of Registrant's annual report to stockholders for 1997.
21.1 Subsidiaries of the Registrant, filed as Exhibit 21.1 to Registrant's annual report on Form 10-K for 1996
and hereby incorporated by reference.
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).
27.2 Financial Data Schedule--Restated (EDGAR only).
</TABLE>
- ------------------------
* Compensation plan.
13
<PAGE>
EXHIBIT 10.3
1998
SENIOR MANAGEMENT INCENTIVE PLAN
For Fiscal 1998, incentive will be determined by Corporate Earnings per Share
as follows:
<TABLE>
<CAPTION>
BONUS AWARD AS A PERCENT
EARNING PER SHARE OF BASE SALARY
----------------- ------------------------
<S> <C>
$ 1.20-1.24 30
1.25-1.31 40
1.32+ 50
</TABLE>
If unusual major factors significantly change Fiscal 1998 Earnings, decisions
regarding any adjustments will be made by the Compensation Committee of the
Board of Directors.
The Company's 1998 Senior Management Incentive Plan shall be governed by the
following rules:
A. The incentive compensation for the 1998 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 1999, and the
other on the first day of February 2000 (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>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA Shelby Williams Industries, Inc.
<TABLE>
<CAPTION>
December 31 and year then ended
- -------------------------------------------------------------------------------------------------------------------------
($000's omitted except for per share data) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
- -------------------------------------------------------------------------------------------------------------------------
Net sales $ 179,628 $ 172,431 $ 166,776 $ 159,072 $ 153,527
- -------------------------------------------------------------------------------------------------------------------------
Cost of sales 137,709 133,231 130,189 126,401 121,872
- -------------------------------------------------------------------------------------------------------------------------
Restructuring charge ----- ----- ----- 5,575 -----
- -------------------------------------------------------------------------------------------------------------------------
Selling and administrative expenses 25,783 25,765 25,974 25,402 24,770
- -------------------------------------------------------------------------------------------------------------------------
Interest expense 622 969 1,257 1,207 1,060
- -------------------------------------------------------------------------------------------------------------------------
Interest income (614) (18) (9) ----- (8)
- -------------------------------------------------------------------------------------------------------------------------
Miscellaneous expense (income) (89) (44) (65) 106 (26)
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes 16,217 12,528 9,430 381 5,859
- -------------------------------------------------------------------------------------------------------------------------
Income taxes 5,625 4,111 2,650 16 1,709
- -------------------------------------------------------------------------------------------------------------------------
Net income 10,592 8,417 6,780 365 4,150
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
- -------------------------------------------------------------------------------------------------------------------------
Net sales per share $ 19.53 $ 19.58 $ 18.62 $ 17.58 $ 16.88
- -------------------------------------------------------------------------------------------------------------------------
Net income per share 1.15 0.96 0.76 0.04 0.46
- -------------------------------------------------------------------------------------------------------------------------
Net income per share-
assuming dilution 1.15 0.95 0.75 0.04 0.45
- -------------------------------------------------------------------------------------------------------------------------
Cash dividends per share 0.32 0.30 0.28 0.28 0.28
- -------------------------------------------------------------------------------------------------------------------------
Equity per share 7.68 6.38 5.81 5.41 5.64
- -------------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding 9,198 8,805 8,955 9,049 9,097
- -------------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding-
assuming dilution 9,250 8,838 8,981 9,070 9,134
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
CHANGES IN FINANCIAL POSITION
- -------------------------------------------------------------------------------------------------------------------------
Cash provided
by operating activities $ 10,124 $ 8,069 $ 9,201 $ 4,998 $ 1,778
- -------------------------------------------------------------------------------------------------------------------------
Comprehensive income 11,381 8,536 6,743 905 2,739
- -------------------------------------------------------------------------------------------------------------------------
Capital expenditures 3,600 1,189 2,252 2,228 1,720
- -------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 2,484 2,656 2,833 2,707 2,673
- -------------------------------------------------------------------------------------------------------------------------
Cash dividends 2,944 2,643 2,511 2,533 2,547
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
- -------------------------------------------------------------------------------------------------------------------------
Stockholders' equity $ 71,772 $ 55,970 $ 51,724 $ 48,658 $ 51,316
- -------------------------------------------------------------------------------------------------------------------------
Long-term debt (including current portion) 7,000 8,000 8,895 8,944 8,987
- -------------------------------------------------------------------------------------------------------------------------
Total assets 98,328 84,678 89,907 88,520 90,804
- -------------------------------------------------------------------------------------------------------------------------
Working capital 48,494 37,606 32,016 28,092 28,809
- -------------------------------------------------------------------------------------------------------------------------
Current assets 70,019 57,177 59,256 57,079 57,151
- -------------------------------------------------------------------------------------------------------------------------
Net investment in plant and equipment 26,946 25,961 29,231 29,874 31,630
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
- -------------------------------------------------------------------------------------------------------------------------
Return on average
common shareholders' equity 17% 16% 14% 1% 8%
- -------------------------------------------------------------------------------------------------------------------------
Return on average total assets 11.6% 9.6% 7.6% .4% 4.7%
- -------------------------------------------------------------------------------------------------------------------------
Pre-tax return on net sales 9.0% 7.2% 5.7% .2% 3.8%
- -------------------------------------------------------------------------------------------------------------------------
Effective income tax rate 34.7% 32.8% 28.1% 4.2% 29.2%
- -------------------------------------------------------------------------------------------------------------------------
After-tax return on net sales 5.9% 4.9% 4.1% .2% 2.7%
- -------------------------------------------------------------------------------------------------------------------------
Current ratio 3.3 2.9 2.2 2.0 2.0
- -------------------------------------------------------------------------------------------------------------------------
Debt as percent of total invested capital 9% 13% 15% 16% 15%
- -------------------------------------------------------------------------------------------------------------------------
Current assets as percent of total assets 71% 68% 66% 64% 63%
- -------------------------------------------------------------------------------------------------------------------------
Dividend payout ratio 28% 31% 37% ----- 61%
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
PRODUCTIVITY STATISTICS
- -------------------------------------------------------------------------------------------------------------------------
Average inventory turnover 5.3X 4.8X 4.6X 4.6X 4.3X
- -------------------------------------------------------------------------------------------------------------------------
Average receivable turnover 6.7X 6.8X 6.8X 6.5X 7.1X
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31, 1997, 1996 and 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 179,628,000 $ 172,431,000 $ 166,776,000
- ----------------------------------------------------------------------------------------------------------
Cost of goods sold 137,709,000 133,231,000 130,189,000
- ----------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 25,783,000 25,765,000 25,974,000
- ----------------------------------------------------------------------------------------------------------
16,136,000 13,435,000 10,613,000
- ----------------------------------------------------------------------------------------------------------
OTHER DEDUCTIONS (INCOME):
- ----------------------------------------------------------------------------------------------------------
Interest expense 622,000 969,000 1,257,000
- ----------------------------------------------------------------------------------------------------------
Interest income (614,000) (18,000) (9,000)
- ----------------------------------------------------------------------------------------------------------
Miscellaneous income (89,000) (44,000) (65,000)
- ----------------------------------------------------------------------------------------------------------
(81,000) 907,000 1,183,000
- ----------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 16,217,000 12,528,000 9,430,000
- ----------------------------------------------------------------------------------------------------------
INCOME TAXES:
- ----------------------------------------------------------------------------------------------------------
Current 5,485,000 3,638,000 2,452,000
- ----------------------------------------------------------------------------------------------------------
Deferred 140,000 473,000 198,000
- ----------------------------------------------------------------------------------------------------------
5,625,000 4,111,000 2,650,000
- ----------------------------------------------------------------------------------------------------------
NET INCOME $ 10,592,000 $ 8,417,000 $ 6,780,000
- ----------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $ 1.15 $ 0.96 $ 0.76
- ----------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE-ASSUMING DILUTION $ 1.15 $ 0.95 $ 0.75
- ----------------------------------------------------------------------------------------------------------
Weighted average number of
common shares outstanding 9,198,000 8,805,000 8,955,000
- ----------------------------------------------------------------------------------------------------------
Weighted average number of
common shares outstanding-assuming dilution 9,250,000 8,838,000 8,981,000
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
19
<PAGE>
Consolidated Balance Sheets Shelby Williams Industries, Inc.
<TABLE>
<CAPTION>
December 31, 1997 and 1996 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ------------------------------------------------------------------------------------------------
CURRENT ASSETS:
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 11,124,000 $ 1,039,000
- ------------------------------------------------------------------------------------------------
Accounts receivable, less allowance for doubtful
accounts of $405,000 in 1997 and $402,000 in 1996 28,307,000 25,224,000
- ------------------------------------------------------------------------------------------------
Inventories:
- ------------------------------------------------------------------------------------------------
Raw materials 9,127,000 11,615,000
- ------------------------------------------------------------------------------------------------
Work in process 4,978,000 4,414,000
- ------------------------------------------------------------------------------------------------
Finished goods 11,131,000 11,194,000
- ------------------------------------------------------------------------------------------------
25,236,000 27,223,000
- ------------------------------------------------------------------------------------------------
Prepaid expenses 5,352,000 3,691,000
- ------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 70,019,000 57,177,000
- ------------------------------------------------------------------------------------------------
EXCESS OF COST OVER NET ASSETS OF ACQUIRED COMPANIES 160,000 169,000
- ------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
- ------------------------------------------------------------------------------------------------
Land and land improvements 2,961,000 2,930,000
- ------------------------------------------------------------------------------------------------
Buildings and leasehold improvements 23,273,000 22,969,000
- ------------------------------------------------------------------------------------------------
Machinery and equipment 23,178,000 24,207,000
- ------------------------------------------------------------------------------------------------
Construction in progress 1,690,000 -----
- ------------------------------------------------------------------------------------------------
51,102,000 50,106,000
- ------------------------------------------------------------------------------------------------
Less accumulated depreciation and amortization 24,156,000 24,145,000
- ------------------------------------------------------------------------------------------------
26,946,000 25,961,000
- ------------------------------------------------------------------------------------------------
OTHER ASSETS 1,203,000 1,371,000
- ------------------------------------------------------------------------------------------------
$ 98,328,000 $ 84,678,000
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
- ------------------------------------------------------------------------------------------------
Accounts payable $ 5,496,000 $ 9,002,000
- ------------------------------------------------------------------------------------------------
Customer deposits on orders in process 4,225,000 3,690,000
- ------------------------------------------------------------------------------------------------
Accrued liabilities 5,944,000 4,172,000
- ------------------------------------------------------------------------------------------------
Income taxes 1,860,000 1,707,000
- ------------------------------------------------------------------------------------------------
Current portion of long-term debt 4,000,000 1,000,000
- ------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 21,525,000 19,571,000
- ------------------------------------------------------------------------------------------------
LONG-TERM DEBT 3,000,000 7,000,000
- ------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 2,031,000 2,137,000
- ------------------------------------------------------------------------------------------------
COMMITMENTS (SEE NOTES)
- ------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
- ------------------------------------------------------------------------------------------------
Common stock, $.05 par value; authorized
30,000,000 shares; issued 11,848,000
shares (1996 - 11,814,000) 592,000 591,000
- ------------------------------------------------------------------------------------------------
Capital in excess of par value 9,837,000 8,143,000
- ------------------------------------------------------------------------------------------------
Retained earnings 76,820,000 69,172,000
- ------------------------------------------------------------------------------------------------
Accumulated other comprehensive income ----- (789,000)
- ------------------------------------------------------------------------------------------------
87,249,000 77,117,000
- ------------------------------------------------------------------------------------------------
Less common stock held in treasury;
2,500,000 shares at cost (1996 - 3,047,000) 15,477,000 21,147,000
- ------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 71,772,000 55,970,000
- ------------------------------------------------------------------------------------------------
$ 98,328,000 $ 84,678,000
- ------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
20
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS Shelby Williams Industries, Inc.
<TABLE>
<CAPTION>
Years Ended December 31, 1997, 1996 and 1995 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 10,592,000 $ 8,417,000 $ 6,780,000
- -------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income
to net cash provided by operating activities:
- -------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 2,484,000 2,656,000 2,833,000
- -------------------------------------------------------------------------------------------------------------------------
Provision for losses on accounts receivable 112,000 139,000 323,000
- -------------------------------------------------------------------------------------------------------------------------
Equity change in affiliate ----- ----- 50,000
- -------------------------------------------------------------------------------------------------------------------------
Changes in assets and liabilities net of
effects from sale of facility:
- -------------------------------------------------------------------------------------------------------------------------
Accounts receivable (3,195,000) (165,000) (1,397,000)
- -------------------------------------------------------------------------------------------------------------------------
Inventories 1,987,000 (389,000) 27,000
- -------------------------------------------------------------------------------------------------------------------------
Prepaid expenses (1,661,000) (580,000) (387,000)
- -------------------------------------------------------------------------------------------------------------------------
Accounts payable and accrued liabilities (1,199,000) (3,493,000) 356,000
- -------------------------------------------------------------------------------------------------------------------------
Income taxes payable 153,000 879,000 441,000
- -------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in deferred taxes (106,000) 34,000 123,000
- -------------------------------------------------------------------------------------------------------------------------
Pension liability adjustment 789,000 119,000 (37,000)
- -------------------------------------------------------------------------------------------------------------------------
Other 168,000 452,000 89,000
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,124,000 8,069,000 9,201,000
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------------------------------------------------------------------------------------------
Proceeds from sale of facility ----- 2,000,000 -----
- -------------------------------------------------------------------------------------------------------------------------
Proceeds from disposal of property,
plant and equipment 140,000 5,000 70,000
- -------------------------------------------------------------------------------------------------------------------------
Capital expenditures (3,600,000) (1,189,000) (2,252,000)
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (3,460,000) 816,000 (2,182,000)
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------------------------------------------------------------------------------------------
Sale of treasury stock at public offering 7,953,000 ----- -----
- -------------------------------------------------------------------------------------------------------------------------
Repayment of short-term borrowings ----- (5,900,000) (2,550,000)
- -------------------------------------------------------------------------------------------------------------------------
Principal payments of long-term debt (1,000,000) (32,000) (49,000)
- -------------------------------------------------------------------------------------------------------------------------
Sale of common stock under stock option plan 296,000 290,000 169,000
- -------------------------------------------------------------------------------------------------------------------------
Purchase of common stock for the treasury (884,000) (1,937,000) (1,335,000)
- -------------------------------------------------------------------------------------------------------------------------
Dividends declared and paid (2,944,000) (2,643,000) (2,511,000)
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 3,421,000 (10,222,000) (6,276,000)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash
- -------------------------------------------------------------------------------------------------------------------------
and cash equivalents 10,085,000 (1,337,000) 743,000
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 1,039,000 2,376,000 1,633,000
- -------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 11,124,000 $ 1,039,000 $ 2,376,000
- -------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
- -------------------------------------------------------------------------------------------------------------------------
Cash paid during the year for:
- -------------------------------------------------------------------------------------------------------------------------
Interest $ 632,000 $ 969,000 $ 1,263,000
- -------------------------------------------------------------------------------------------------------------------------
Income taxes 6,104,000 3,277,000 2,061,000
- -------------------------------------------------------------------------------------------------------------------------
$ 6,736,000 $ 4,246,000 $ 3,324,000
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
21
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Shelby Williams Industries, Inc.
<TABLE>
<CAPTION>
Years Ended December 31, 1997, 1996 and 1995
- ------------------------------------------------------------------------------------------------
Common Stock Capital in
Shares excess of Retained
issued Amount par value earnings
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 11,758,000 $ 588,000 $ 7,687,000 $ 59,129,000
- ------------------------------------------------------------------------------------------------
Net income 6,780,000
- ------------------------------------------------------------------------------------------------
Other comprehensive income:
- ------------------------------------------------------------------------------------------------
Pension liability adjustment
- ------------------------------------------------------------------------------------------------
Tax benefit
- ------------------------------------------------------------------------------------------------
Comprehensive income 6,780,000
- ------------------------------------------------------------------------------------------------
Sale of common stock under
stock option plan 21,000 1,000 168,000
- ------------------------------------------------------------------------------------------------
Common stock purchased for
treasury (120,000 shares)
- ------------------------------------------------------------------------------------------------
Cash dividends-$.28 per share (2,511,000)
- ------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 11,779,000 589,000 7,855,000 63,398,000
- ------------------------------------------------------------------------------------------------
Net income 8,417,000
- ------------------------------------------------------------------------------------------------
Other comprehensive income:
- ------------------------------------------------------------------------------------------------
Pension liability adjustment
- ------------------------------------------------------------------------------------------------
Tax expense
- ------------------------------------------------------------------------------------------------
Comprehensive income 8,417,000
- ------------------------------------------------------------------------------------------------
Sale of common stock under
stock option plan 35,000 2,000 288,000
- ------------------------------------------------------------------------------------------------
Common stock purchased for
treasury (168,000 shares)
- ------------------------------------------------------------------------------------------------
Cash dividends-$.30 per share (2,643,000)
- ------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 11,814,000 591,000 8,143,000 69,172,000
- ------------------------------------------------------------------------------------------------
Net income 10,592,000
- ------------------------------------------------------------------------------------------------
Other comprehensive income:
- ------------------------------------------------------------------------------------------------
Pension liability adjustment
- ------------------------------------------------------------------------------------------------
Tax expense
- ------------------------------------------------------------------------------------------------
Comprehensive income 10,592,000
- ------------------------------------------------------------------------------------------------
Sale of treasury stock at public
offering (619,000 shares) 1,399,000
- ------------------------------------------------------------------------------------------------
Sale of common stock under
stock option plan 34,000 1,000 295,000
- ------------------------------------------------------------------------------------------------
Common stock purchased for
treasury (72 ,000 shares)
- ------------------------------------------------------------------------------------------------
Cash dividends-$.32 per share (2,944,000)
- ------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 11,848,000 $ 592,000 $ 9,837,000 $ 76,820,000
- ------------------------------------------------------------------------------------------------
<CAPTION>
Accumulated
other Treasury
comprehensive stock,
income at cost Total
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 $ (871,000) $ (17,875,000) $ 48,658,000
- ---------------------------------------------------------------------------------
Net income 6,780,000
- ---------------------------------------------------------------------------------
Other comprehensive income:
- ---------------------------------------------------------------------------------
Pension liability adjustment (62,000) (62,000)
- ---------------------------------------------------------------------------------
Tax benefit 25,000 25,000
- ---------------------------------------------------------------------------------
Comprehensive income (37,000) 6,743,000
- ---------------------------------------------------------------------------------
Sale of common stock under
stock option plan 169,000
- ---------------------------------------------------------------------------------
Common stock purchased for
treasury (120,000 shares) (1,335,000) (1,335,000)
- ---------------------------------------------------------------------------------
Cash dividends-$.28 per share (2,511,000)
- ---------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 (908,000) (19,210,000) 51,724,000
- ---------------------------------------------------------------------------------
Net income 8,417,000
- ---------------------------------------------------------------------------------
Other comprehensive income:
- ---------------------------------------------------------------------------------
Pension liability adjustment 198,000 198,000
- ---------------------------------------------------------------------------------
Tax expense (79,000) (79,000)
- ---------------------------------------------------------------------------------
Comprehensive income 119,000 8,536,000
- ---------------------------------------------------------------------------------
Sale of common stock under
stock option plan 290,000
- ---------------------------------------------------------------------------------
Common stock purchased for
treasury (168,000 shares) (1,937,000) (1,937,000)
- ---------------------------------------------------------------------------------
Cash dividends-$.30 per share (2,643,000)
- ---------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 (789,000) (21,147,000) 55,970,000
- ---------------------------------------------------------------------------------
Net income 10,592,000
- ---------------------------------------------------------------------------------
Other comprehensive income:
Pension liability adjustment 1,315,000 1,315,000
- ---------------------------------------------------------------------------------
Tax expense (526,000) (526,000)
- ---------------------------------------------------------------------------------
Comprehensive income 789,000 11,381,000
- ---------------------------------------------------------------------------------
Sale of treasury stock at public
offering (619,000 shares) 6,554,000 7,953,000
- ---------------------------------------------------------------------------------
Sale of common stock under
stock option plan 296,000
- ---------------------------------------------------------------------------------
Common stock purchased for
treasury (72 ,000 shares) (884,000) (884,000)
- ---------------------------------------------------------------------------------
Cash dividends-$.32 per share (2,944,000)
- ---------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 $ 0 $ (15,477,000) $ 71,772,000
- ---------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
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 healthcare 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
$ 17,585,000 for 1997, $ 14,719,000 for 1996, and $ 15,538,000 for 1995.
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 $ 9,997,000 at December 31, 1997 and
$ 10,123,000 at December 31, 1996.
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 $ 22,278,000 at December 31, 1997 and $ 24,266,000 at December
31, 1996.
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.
ACCOUNTING CHANGES
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," and No. 130, "Reporting
Comprehensive Income." The Company adopted the new methods on December 31,
1997, and all financial statements presented reflect the adoption. Income
before income taxes, net income and net income per share were not affected.
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, 1997, all of these lines were unused.
COMMITMENTS
- -------------------------------------------------------------------------------
LEASES
The Company leases certain manufacturing facilities under operating leases which
expire over the next eight 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,
1997 are:
<TABLE>
<CAPTION>
Year ending December 31,
- -----------------------------------------------------------------------------
<S> <C>
1998 $ 1,535,000
1999 1,144,000
2000 1,052,000
2001 648,000
2002 604,000
Subsequent to 2002 606,000
- -----------------------------------------------------------------------------
Total minimum lease payments $ 5,589,000
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Total rental expense for all operating leases aggregated $ 1,955,000 in 1997,
$ 1,912,000 in 1996, and $ 2,008,000 in 1995.
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
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>
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
1997
1ST QUARTER 17 11 7/8
2ND QUARTER 14 3/8 11 3/8
3RD QUARTER 19 7/8 13 3/4
4TH QUARTER 20 5/8 14 3/4
- --------------------------------------------------------
- --------------------------------------------------------
</TABLE>
At December 31, 1997, 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>
- --------------------------------------------------------
Period Cash Dividend per Common Share
- --------------------------------------------------------
1997 1996
- --------------------------------------------------------
<S> <C> <C>
1ST QUARTER $ 0.08 $ 0.07
2ND QUARTER 0.08 0.07
3RD QUARTER 0.08 0.08
4TH QUARTER 0.08 0.08
- --------------------------------------------------------
$ 0.32 $ 0.30
- --------------------------------------------------------
- --------------------------------------------------------
</TABLE>
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
QUARTERLY RESULTS (UNAUDITED)
- -------------------------------------------------------------------------------
Summarized quarterly results for three years ended December 31, 1997, 1996, and
1995 are as follows:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1997 NET SALES GROSS PROFIT NET INCOME NET INCOME PER SHARE NET INCOME PER SHARE-ASSUMING DILUTION
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST $ 41,819,000 $ 9,469,000 $ 2,166,000 $ .25 $ .25
SECOND 45,439,000 10,492,000 2,707,000 .29 .29
THIRD 45,528,000 10,612,000 2,734,000 .29 .29
FOURTH 46,842,000 11,346,000 2,985,000 .32 .32
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL $ 179,628,000 $ 41,919,000 $ 10,592,000 $ 1.15 $ 1.15
- ---------------------------------------------------------------------------------------------------------------------------------
1996 Net Sales Gross Profit Net Income Net Income Per Share Net Income Per Share-Assuming Dilution
- ---------------------------------------------------------------------------------------------------------------------------------
First $ 40,734,000 $ 9,091,000$ 1,745,000 $ .20 $ .20
Second 43,548,000 9,894,000 2,032,000 .23 .23
Third 43,250,000 9,905,000 2,200,000 .25 .25
Fourth 44,899,000 10,310,000 2,440,000 .28 .27
- ---------------------------------------------------------------------------------------------------------------------------------
Total $ 172,431,000 $ 39,200,000 $ 8,417,000 $ .96 $ .95
- ---------------------------------------------------------------------------------------------------------------------------------
1995 Net Sales Gross Profit Net Income Net Income Per Share Net Income Per Share-Assuming Dilution
- ---------------------------------------------------------------------------------------------------------------------------------
First $ 39,301,000 $ 8,400,000 $ 1,325,000 $ .15 $ .15
Second 42,352,000 9,277,000 1,702,000 .19 .19
Third 42,518,000 9,379,000 1,874,000 .21 .20
Fourth 42,605,000 9,531,000 1,879,000 .21 .21
- ---------------------------------------------------------------------------------------------------------------------------------
Total $ 166,776,000 $ 36,587,000 $ 6,780,000 $ .76 $ .75
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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, 1997 and 1996, there were 308,000 and 350,000 shares, respectively,
reserved for issuance under the plans. Of options granted, 20,000 in 1997 and
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
1997, 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.
A summary of the Company's stock option activity, and related information for
years ended December 31 follows:
<TABLE>
<CAPTION>
1995 1996 1997
- ------------------------------------------------------------------------------------------------------------------------
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 95 $ 8.46 119 $ 8.30 147 $ 9.97
Granted 48 8.01 63 12.25 107 13.96
Exercised (20) 8.38 (35) 8.38 (34) 8.61
Forfeited (4) 8.38 ---- ---- (3) 8.38
- ------------------------------------------------------------------------------------------------------------------------
Outstanding-end of year 119 $ 8.30 147 $ 9.97 217 $ 12.17
- ------------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 87 $ 8.39 79 $ 9.14 88 $ 10.89
Weighted-average fair
value of options granted
during the year $ 2.44 $ 3.68 $ 4.05
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Exercise prices for options outstanding as of December 31, 1997 ranged from
$7.94 to $8.73 for 47,000 options and $12.12 to $ 15.25 for 170,000 options,
with weighted-average exercise prices of $8.01 and $13.32, respectively. The
weighted-average remaining contractual life of those options is 2.0 years and
3.6 years, respectively, or 3.3 years as a whole. Exercise prices for options
exercisable at December 31, 1997 ranged from $ 7.94 to $ 8.73 for 36,000 shares
and $12.12 to $13.34 for 52,000 shares, with weighted-average exercise prices of
$8.00 and $12.92, respectively.
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, 1996 and 1997, respectively: risk-free interest rates of
6.5%, 6.5% and 6.2%; dividend yields of 2.7%, 2.7% and 2.6%; volatility factors
of the expected market price of the Company's common stock of .33, .32 and .31;
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. The assumed dilutive effect of stock options, which were
the only dilutive securities outstanding in 1997, 1996 and 1995, was 52,000,
33,000 and 26,000 shares, respectively.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Shelby Williams Industries, Inc.
LONG-TERM DEBT
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Long-term debt at December 31, 1997, and 1996 consisted of
the following: 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
7.8% senior notes due in quarterly installments
of $1,000,000 in October 1997 through July 1999 $ 7,000,000 $ 8,000,000
Less amounts due within one year 4,000,000 1,000,000
- -------------------------------------------------------------------------------
$ 3,000,000 $ 7,000,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The terms of the senior note agreement limit the payment of dividends and the
acquisition of stock for the treasury until the indebtedness is paid in full.
At December 31, 1997 the Company was within this limitation by $19,896,000. In
addition, the Company is 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. The final $863,000 of a capitalized
lease obligation was discharged by assignment with sale of the related facility
in August 1996.
ACCUMULATED OTHER COMPREHENSIVE INCOME
- -------------------------------------------------------------------------------
Accumulated other comprehensive income at December 31, 1996 was composed of
accumulated balances of pension liability adjustments, net of tax.
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 did not affect the original restructuring
provision.
At December 31, 1995, accrued liabilities included $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.
The revenues and net operating income for the upholstery business that was sold
were as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Revenues $ 5,858,000 $ 8,963,000
Net operating income 182,000 325,000
</TABLE>
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, 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Discounts rates 8.3% 8.5%
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 1997, 1996, and 1995
included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during period $ 964,000 $ 966,000 $ 1,062,000
Interest cost on
projected benefit obligations 1,354,000 1,151,000 1,088,000
Net amortization and deferral 1,832,000 62,000 1,504,000
Actual return on plan assets (3,169,000) (1,128,000) (2,128,000)
- ----------------------------------------------------------------------------
Total pension plan expense $ 981,000 $ 1,051,000 $ 1,526,000
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</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, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of vested benefit obligations $ 16,730,000 $ 14,696,000
Actuarial present value of accumulated benefit obligations $ 17,382,000 $ 15,235,000
- --------------------------------------------------------------------------------------------------------------------
Plan assets at fair value, primarily cash equivalents and publicly traded
stocks and bonds, including 66,000 shares of Shelby Williams Industries,
Inc. common stock (1996-46,000 shares) $ 19,485,000 $ 15,142,000
Actuarial present value of projected benefit obligations for service
rendered to date 18,484,000 15,983,000
- --------------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than) projected benefit obligations 1,001,000 (841,000)
Unrecognized net assets being recognized over remaining service period (163,000) (188,000)
Unrecognized net loss 989,000 2,669,000
Unrecognized prior service cost (credit) 61,000 (231,000)
Adjustment required to recognize minimum liability ---- (1,502,000)
- --------------------------------------------------------------------------------------------------------------------
Prepaid pension (pension liability) included in prepaid expenses
(accrued liabilities) $ 1,888,000 $ (93,000)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</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 $ 69,000 for 1997, $ 63,000 for
1996, and $ 70,000 for 1995. The plan held 44,000 shares of the Company's
common stock at December 31, 1997 and 40,000 shares at December 31, 1996.
Retirement plan expense was $ 1,050,000, $ 1,114,000, and $ 1,596,000 for 1997,
1996, and 1995 respectively.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Shelby Williams Industries, Inc.
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, 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Current:
Allocated costs of acquisition inventories $ 1,005,000 $ 1,005,000
Prepaid (accrued) pension 763,000 (13,000)
Other-net (368,000) (364,000)
- -------------------------------------------------------------------------------
Total included in current income taxes 1,400,000 628,000
- -------------------------------------------------------------------------------
Noncurrent:
Property, plant and equipment 2,031,000 2,062,000
Other ----- 75,000
- -------------------------------------------------------------------------------
Total noncurrent deferred income taxes 2,031,000 2,137,000
- -------------------------------------------------------------------------------
Net deferred tax liabilities $ 3,431,000 $ 2,765,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The components of income tax expense are as follows:
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 4,887,000 $ 3,026,000 $ 2,350,000
State 598,000 612,000 102,000
- -------------------------------------------------------------------------------
5,485,000 3,638,000 2,452,000
Deferred:
Federal 140,000 473,000 198,000
- -------------------------------------------------------------------------------
$ 5,625,000 $ 4,111,000 $ 2,650,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</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, 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate $ 5,514,000 $ 4,260,000 $ 3,206,000
State income taxes, net
of Federal tax benefit 395,000 404,000 67,000
Other (284,000) (553,000) (623,000)
- -------------------------------------------------------------------------------
$ 5,625,000 $ 4,111,000 $ 2,650,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Effective rate 34.7% 32.8% 28.1%
- -------------------------------------------------------------------------------
</TABLE>
REPORT OF INDEPENDENT AUDITORS
- -------------------------------------------------------------------------------
ERNST & YOUNG LLP
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, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997. 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, 1997 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
Ernst & Young LLP
January 29, 1998
Atlanta, Georgia
26
<PAGE>
MANAGEMENT'S DISCUSSION
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, 1997, the Company had cash and cash equivalents of
$ 11.1 million compared with $ 1.0 million at December 31, 1996.
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, 1997. Long-term debt at
year-end, including current portions of $ 4.0 million, amounted to $ 7.0
million. Total debt as a percentage of total capitalization was 9% at
December 31, 1997.
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 began 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 $ 10.1 million in 1997.
Net cash used by investing activities was $ 3.5 million in 1997, which
principally reflects capital expenditures of $ 3.6 million, of which $ 1.7
million was for installation of a state-of-art powder coating system, planned
to be completed in the first quarter of 1998 at a total cost of $ 2.0
million, approximately $ 0.6 million for facilities expansion and
improvements, and the balance principally for automated machinery. The
Company plans to expend approximately $ 3 million in 1998 for additional
automated machinery and facilities expansion.
Cash provided by financing activities in 1997 was $ 3.4 million which
principally reflects the sale at public offering in April, 1997, of 619,000
shares of the Company's common stock for $8.0 million, the repayment of $ 1.0
million of total indebtedness, the payment of $ 2.9 million in dividends and
the repurchase of $ 0.9 million of treasury stock.
The Company's stockholders' equity at December 31, 1997, was $ 71.8 million.
The Company purchased 72,000 shares of its common stock in 1997 for $ 0.9
million at an average repurchase price of $ 12.22 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 and for other proper
corporate purposes. The Company's Board of Directors has authorized the
repurchase of an additional 451,000 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
$ 3.2 million for 1997, $ 3.5 million for 1996, and $ 3.8 million for 1995. 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
$ 2.3 million in 1997, $ 2.1 million in 1996, and $ 1.9 million in 1995.
The Company believes that cash on hand, internally generated cash flows, and
available credit lines will be adequate to support currently planned business
operations both on a near-term and long-term basis.
IMPACT OF YEAR 2000
The Company does not have a significant amount of date-dependent software
programs in its centralized information systems. Other systems, such as
computer controlled machinery and even telephones may have Year 2000 problems
with their computer chips. The Company's manufacturing operations are not
significantly dependent on computer controlled machinery. The Company is in the
process of inventorying all computer controlled equipment and assessing the
exposure of each system to ensure all computer controlled equipment is Year 2000
compliant and will replace critical equipment that is not.
The Company has completed an assessment of its centralized information system
and will have to modify or replace portions of its software so that its
computer systems will function properly with respect to dates in the year
2000 and thereafter. The Year 2000 project cost is estimated at
approximately $ 150,000 of which approximately $ 100,000 will be capitalized
and the remainder will be expensed as incurred. To date, the Company has not
incurred significant expense.
The project is estimated to be completed not later than December 31, 1998, which
is prior to any anticipated impact on its operating systems. The Company
believes that with modifications to existing software and conversions to new
software, the Year 2000 Issue will not pose significant operational problems for
its computer systems. However, if such modification and conversions are not
made, or are not completed timely, the Year 2000 Issue could have a material
impact on the operations of the Company.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ from those anticipated. Specific factors that might cause
such differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, and similar uncertainties.
1997 COMPARED TO 1996
In 1997, the Company achieved record sales, net income, and earning per share.
Net sales increased 4.2% to $ 179.6 million in 1997 from $ 172.4 million in
1996. Excluding the divested Preview division, described below, net sales
increased 7.8% to $ 179.6 million in 1997 from $ 166.6 million in 1996.
Approximately 2% of this increase was due to increased pricing and favorable
product mix with the remainder attributable to volume increases. The demand for
hotel rooms across the U.S. remains strong. As a result, lodging companies
continued to build new hotels and refurbish older ones in order to remain
competitive. New construction and refurbishing of hotels provide a market for
the Company's products, allowing it to benefit from this major industry
expansion. In addition, efforts to strengthen foreign marketing capability
resulted in increased export sales for 1997 to $ 17.6 million, compared to
$ 14.7 million in 1996. At December 31, 1997, the backlog of orders, which
achieved record levels, was approximately $ 33.1 million, compared to $ 32.0
million at December 31, 1996.
Gross profit increased 6.9% to $ 41.9 million in 1997 from $ 39.2 million in
1996. The gross profit margin increased to 23.3% in 1997 compared to 22.7% in
1996, reflecting higher capacity utilization and favorable product mix.
Excluding Preview, gross profit margins in 1997 and 1996 were 23.3% and 22.6%
respectively.
27
<PAGE>
Shelby Williams Industries, Inc.
Selling, general and administrative expenses were $ 25.8 million in both 1997
and 1996. As a percentage of net sales, selling, general and administrative
expenses decreased to 14.4% in 1997 from 14.9% in 1996. This decrease as a
percentage of net sales was a function of volume and reflects the high selling,
general and administrative expenses of Preview. Excluding Preview, selling,
general and administrative expenses as a percentage of sales were 14.4% and
14.6% in 1997 and 1996, respectively.
As a result of the factors described above, operating profit increased 20.1% to
$ 16.1 million in 1997 from $ 13.4 million in 1996. The operating margin
improved to 9.0% in 1997 compared to 7.8% in 1996. Excluding Preview, operating
profits in 1997 and 1996 were $ 16.1 million and $ 13.3 million, respectively,
and as a percentage of sales, were 9.0% and 8.0%, respectively.
Net interest expense in 1996 of $ 951,000 was reduced to almost nil in 1997
reflecting the reduced debt and increased cash equivalents indicated above.
The effective tax rate increased to 34.7% in 1997 from 32.8% in 1996 due to the
absence of tax credits which were no longer available.
As a result of the foregoing, net income for 1997 totaled $ 10.6 million, a
25.8% increase over $ 8.4 million for 1996. Net income per share increased
19.8% to $ 1.15 from $ .96 on 4.5% more average shares outstanding. Assuming
dilution, the increase was 21.1% to $ 1.15 from $ .95 on 4.7% more average
shares outstanding. Excluding Preview and assuming dilution, net income per
share increased 22.3% to $ 1.15 from $ .94 on 4.7% more average shares
outstanding.
1996 COMPARED TO 1995
Net sales increased 3.4 % to $ 172.4 million in 1996 from $ 166.8 million for
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.
In December 1994, the Company made changes in its product and manufacturing
strategies designed to increase the Company's competitiveness. These changes
included a plan to divest its contemporary upholstered seating product line,
Preview, and a related manufacturing facility which was completed in August
1996. See Note to Consolidated Financial Statements captioned "Restructuring
Charge."
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, compared to $ 6.8 million in 1995. Net income per share increased 26.3% to
$ .96 from $ .76. Assuming dilution, the increase was 26.7% to $ .95 from
$ .75. Excluding Preview and assuming dilution, net income per share in 1996
and 1995 was $ .94 and $ .74, respectively, representing an annual increase of
27.0%.
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 29, 1998,
included in the 1997 Annual Report to Shareholders of Shelby Williams
Industries, Inc.
Ernst & Young LLP
Atlanta, Georgia
January 29, 1998
<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. Directors' Stock Option Plan and the related
Prospectus of our report dated January 29, 1998, 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, 1997.
Ernst & Young LLP
Atlanta, Georgia
March 24, 1998
<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, 1997 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 24th day of March, 1998.
Capacities Signatures
---------- ----------
Chairman of the Board
and Director (Principal
Executive Officer) s/ Paul N. Steinfeld
--------------------------
Paul N. Steinfeld
Chairman of the Executive
Committee and Director s/ Manfred Steinfeld
--------------------------
Manfred Steinfeld
President and Director s/ Robert P. Coulter
--------------------------
Robert P. Coulter
<PAGE>
Vice-President Finance,
Treasurer and Assistant
Secretary (Principal
Financial and Accounting
Officer) s/ Sam Ferrell
--------------------------
Sam Ferrell
Director s/ Robert L. Haag
--------------------------
Robert L. Haag
Director s/ William B. Kaplan
--------------------------
William B. Kaplan
Director s/ Douglas A. Parker
--------------------------
Douglas A. Parker
Director s/ Herbert L. Roth
--------------------------
Herbert L. Roth
Director s/ Trisha Wilson
--------------------------
Trisha Wilson
2
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<PAGE>
<ARTICLE> 5
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<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
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